Thursday, September 3, 2009
If you make "only" $90,000 a year, can you afford to hire someone to stain the deck?
This is the story of the upward creep of expenses that comes with settling into a larger income. It is also the story of assessing real income.
Let's say a woman makes $90,000 a year. That's in the top quintile (fifth) of earners according to the 2007 Census Bureau ($91,705 to be exact). Her deck hasn't been stained in years as she is busy at work and she gets an estimate that comes in at $750, stain included.
She's mighty tempted to just hire out the job. But she recently read an amazing book called Your Money or Your Life by Joe Dominguez and Vicki Robin. She's learned that money equals life energy. She has only so many hours on this planet and she must trade some of those to make money.
Realizing that she's really trading her own life's hours when she earns and buys, she wants to know exactly what she's trading them for. So, she sits down with a calculator to make her final decision.
First, she wants to know exactly what she clears an hour from her job. For every hour of her life she gives to the company, what does she get? She works around 50 hours a week, not unusual for salaried professionals who are exempt from overtime.
Let's assume roughly one third goes to taxes, including federal and state. So her income is around $63,000, or $5250 a month, $1211 a week, $24 per hour. Looks pretty good so far.
But the book has her realizing there are many other expenses associated with her employment and maybe she's not getting quite that much for her life's energy.
First there's the commute. She drives 20 minutes each way to work, for a 30 mile round trip commute. That means she needs to add three hours a week to the work column, and subtract $75 a week from her earnings. The AAA figure per mile for 2007 is 52.2 cents when all costs of car ownership are figured in. To keep it easier, let's round down to 50 cents a mile and her 150 mile weekly commute costs $75.
Next there's what the book calls "costuming" or suits you need for work that you wouldn't even buy if you didn't work. Have you ever seen anyone wearing a tie on a Saturday at home? Let's assume she buys four suits a year, at an average cost of $300 per suit. That's $1200 a year ($23 a week). We'll put dry cleaning at $15 a week (which is likely low). Also, she must do a fair amount of grooming to look professional from her nails, hair, makeup, etc. And let's say that takes an extra fifteen minutes a day (that she wouldn't spend if she wasn't working). That's one and a quarter hours a week.
Meals are the next category. She's often working through lunch and just runs to Quiznos. Some mornings and afternoons when her energy is flagging, she heads to Starbucks. Quiznos is about $8 a meal, so three times a week is $24 and Starbucks is $3 a stop, so let's say $9.
Daily Decompression is a real need for many. The book asks if you come home from your job zestful and full of life or tired and drained. Let's assume our person needs to decompress at least an hour each night - just sitting in from the television. This we'll put at five hours a week.
Then there's escape entertainment. The feeling you're working so hard you deserve and need to take a break - whether it's Friday night drinks or Saturday night dinners and a movie. Let's put this at $30 a week and one hour.
The book offers additional categories, but you get the idea.
So let's revisit her numbers.
50 hours at the job
3 hours commute
1.25 hours costuming
5 hours decompressing
1 hour escape entertainment.
60.25 hours new total.
And let's look at her weekly totals.
Less $ 75 commute
$ 23 suits
$ 15 dry cleaning
$ 24 lunches
$ 9 Starbucks
$ 30 Escape Entertainment.
$1035 per week new total
So she actually "clears" $17.18 an hour - $17 for purposes of ease.
The deck estimate came in at $750. She would have to work 44 hours at her job to pay for this!
And unless she's going to take on extra hours, she's likely already allocated a certain amount of those hours to pay her mortgage, car payment, heating, electric, insurance, dentist, vetrinarian, phone, groceries, real estate taxes, shampoo......
After running the numbers, our woman picks up the phone and calls her good friend Kathy and says, "If you'll spend a Saturday helping me stain my deck, I'll spend a Saturday helping you paint your daughter's bedroom." Deal!