Surprise! Your Income Isn’t What You Think It Is.

You think you’re making good money at your job. Or that the compensation offer at a new company is pretty sweet. But is it really?

Here’s an unpleasant surprise: The income you earn on paper isn’t an accurate reflection of your true income. And in some cases, a job that seems to pay an enviable hourly rate is actually costing you!

In their acclaimed book, Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence, Vicki Robin & Joe Dominguez discuss how the expenditures of your money and life energy impact your salary. So we’re sharing a simple, effective method for computing your true income.

What is your job costing you financially?

Sure, your job brings in money. But did you ever stop to think about what having that job costs you?

Grab a piece of paper and crunch your own numbers. Use your financial records, if possible. Or jot down the best estimate you can for each of these costs over an average month:

  • Job-related expenses: Membership fees for professional organizations, subscriptions to trade magazines, unreimbursed expenses for work-related travel, etc.
  • Commuting: Fuel, parking, tolls, public transportation, wear and tear on your vehicle, etc.
  • “Costuming”: Workplace clothing, accessories, hairstyling, make-up, etc.
  • Work-related food costs: Lunches out, coffee runs, drinks with coworkers and clients, convenience snacks from the vending machine or cafeteria, “food rewards” (that glass of wine or fast food run after an unpleasant day on the job), etc.
  • Hired help: The people you pay to handle the tasks you’re too busy to tackle while you’re working — childcare, afterschool programs and camps, housekeeping, lawn maintenance, etc.
  • “Escape entertainment”: The paid activities you use to distract yourself from work stress or a less-than-fulfilling job — retail therapy, nights on the town, cable packages or movie rentals, gaming memberships, lavish vacations, summer homes, country club memberships, recreational vehicles, etc.
  • Job-related medical costs: Treatments to deal with the stress, repetitive motions or body positioning at your job — doctor’s visits, headache or anxiety medications, massages, physical therapy, counseling, unpaid medical leave

What is your job costing you in time?

Say you work a regular 9-to-5 gig. So that means your employment costs you exactly 40 hours a week. But your job is likely riddled with hidden time costs.

Keep track of your time for a week, if possible. Or use your judgment to estimate how many hours you average each month on these tasks:

  • Travel: Commuting, time spent dropping your kids off for childcare, the hours you spend going to and from work events and conferences, etc.
  • Unpaid work events: Required company events outside regular business hours (like “working lunches” and client dinners), “optional” work activities that feel required (like holiday parties, company picnics and retirement celebrations), unpaid overtime, etc.
  • Decompression: The recovery time you need in order to destress after work and transform yourself into a social or productive person

Compute your true income

Are you looking at your notes feeling horrified by the sheer number of dollars and hours your job costs you? Let’s calculate the damage:

  1. Write down your net-take home pay — the average amount of cash you take home from your job each month.
  2. Subtract out each of the monthly costs you’ve computed from the exercise above. The resulting number represents your actual monthly income.
  3. Now compute your monthly paid working hours. For example, if you work 40 hours a week throughout the year and receive four weeks of paid vacation and holidays, your average monthly hours worked is 160 hours. (That’s 40 hours a week for 48 working weeks, divided by 12 months.)
  4. Subtract out each of the time costs you’ve computed from the exercise above. The resulting number represents your actual working time.
  5. Finally, determine your true hourly rate by dividing your actual monthly income (from Step 2) by your actual working time (from Step 4). By way of example, suppose your actual monthly income is $2400, and your actual working time is 160 hours. Your true hourly rate works out to $2400 divided by 160 hours, or $15/hour.

Now that you know your number, you’re actually in a position of power! You’re ready to evaluate whether your job is really worth it and compare job offers knowledgeably. And you can  determine if you should outsource some personal responsibilities.

Best of all, you have rare insight into your finances that will allow you to make smart, informed life decisions.

image credit: Bigstock/olly2

Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.

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