The ability to manage and master your finances is simply based on two factors: what you bring in and what goes out. Income versus expenses. Earnings versus spending. Though this may seem like an oversimplification, this is essentially what personal finance boils down to. If you spend more than you earn, this puts you in debt and leads to a precarious financial situation. This is the unfortunate truth for many in America today, as the allure of credit cards and excessive car and home loans keep many in debt. On the other hand, earning more than you spend puts you in a position to save, and saving enough will help you weather almost any financial storm or life-changing event that comes your way. This article will simply focus on the earning aspect and on how to figure out how much you really earn. By truly analyzing how much you earn you will not only be able to answer how much you make, but you will also be able to answer how much your job is costing you, and ultimately figure out what we can do to better our lives with this information.
There are many associated – and often-time hidden – costs for any job. They will of course vary depending on the person’s situation, but some associated costs jump right out at us. Knowing what these costs are will help you determine your real hourly wage – that is what you make per hour after all of the associated work expenses. Because the fact is, if you were not working at that particular job, you would not have to spend money on all of the associated expenses. The biggest factor people usually associate with jobs is the commute. Whether it is driving or taking public transportation, there is going to be some cost of commuting to your job, unless you work from home of course. Most of us would just calculate how much we spend for gas and be done with it. But there are other hidden costs to commuting such as wear and tear on the car which can lead to increased trips to the shop, money spent on tolls, and increased frequency of oil changes due to driving every day. The money spent on all these factors needs to be taken into account. Another big factor for some is money spent on food. This is not just money spent on lunches, which can be pretty high in some cases, but this also includes the daily coffee we get from the shop on the way to work, “rewarding” ourselves with a treat after a stressful day, and money spent on take-out when we do not have time or are too tired to prepare dinner at home. All of these are associated costs relating to food. There are many other costs which would take up too much space here such as the need to take vacations from a stressful job, hiring outside help such as yard workers, maids, and tutors, money spent on entertainment to de-stress from work and the list can go on. Let us go through a simplified example to see how much having a certain job can actually cost you.
Let us say you have a friend who makes 20 dollars per hour. He tells you he seem to be struggling to make ends meet but he is not sure why. You ask him how much he makes per week. He simply multiplies 20 dollars an hour by 40 hours per week to get 800 dollars per week. But knowing what we know about job associated costs, we go deeper and find out what he is actually making. We calculate that with money paid for gas, tolls, and wear and tear on his car, he is spending an average of 100 dollars per week on commute-related expenses. We then move to food and find out that with his daily latte, occasional lunches and eating out with co-workers, he is spending an average of 50 dollars a week on food directly related to his job. We also find out that he has a habit of seeing a movie with a co-worker after a long day of work and rents movies weekly to de-stress after work. This comes out to 30 dollars per week. His job also has a dress code of a shirt and tie, and sometimes he has to wear a suit to meetings. He is normally a T-shirt and jeans kind of guy so he is spending an average of 75 dollars per week on work-related clothes. He also takes a yearly vacation just to get away from it all which averages out to 40 dollars a week over the year. Last but not least, he also hires a cleaning service because he has no time to properly clean his apartment. This comes to about 25 dollars a week. There are other associated costs but these are the ones that stick out so let us work with these. Your friend said that he makes 800 dollars per week. After applying just these associated costs we went over, we find out that he is making 480 dollars per week. This means after associated costs, he is actually making 12 dollars an hour at his job. And this is all before taxes take a bite out of his earnings.
Though this example had simplified numbers and categories, it shows that job-related expenses can really take a bite out of your bottom line. Now most importantly, what can we do with this information? Right off the bat, it is easy to see how we can use this when comparing multiple job offers or contemplating getting a new job. If we see our real hourly wage, we can more easily find which job will be best for us. We can also use this information to examine our bad money habits and try our best to change them. In our example, if our friend just made coffee at home and stopped going to the theaters to watch movies after work, that could easily save 30 dollars or so a week. Making little positive changes here and there can really add up and help to improve our situation. Physically seeing what steps we can take to improve our financial situation is very empowering, and this exercise can provide that.
Finally, this exercise can show us how important it is to spend our money on the things that matter most. If we know that our real hourly wage is 12 dollars an hour instead of 20, maybe we will think twice before we drop down 20 bucks for a movie ticket and popcorn for 2 hours of fun or 40 bucks for a video game we will only play once in a while. Instead of spending our money on frivolous things, maybe we can save it and spend some time exercising for our health, listen to a lecture to increase our knowledge, or spend time with our family. Knowing your real hourly wage can also help in deciding if it is indeed time for a career change to something you have always been passionate about. Try this exercise for yourself and see what positive changes it can bring.