Yesterday, we calculated the actual cost of our employment over a given year - and were surprised to discover how little it actually is. Once you remove all of the work-related expenses, such as the commute, the wardrobe, the extra meals, and the child care, the actual income you get from your job is ominously low.
Today, we’re going to look at our work from a different angle: time. We need to get an accurate picture of how much time you spend in a year chasing the money you make. At first glance, this seems almost automatic, but let’s look at it a bit more closely.
As usual, take out a sheet of paper. Along the top, make a list of each of your employments and, along the far right, write how many hours you actually spend at work (include your lunch break) in a given year. Don’t include vacation time. If you work overtime some of the time, just estimate what an average day looks like, then calculate how many days you work in a year (total days minus holidays and vacation), then multiply the two numbers together.
Now, underneath your time spent at work, list every other activity you do in relation to your work. The list you made yesterday might help, but give the question some thought. List everything that you do that you wouldn’t otherwise do if it wasn’t for your job. For example, if you travel, you can list almost all of your nonworking waking hours. You can list the time it takes to travel to and from work. You can list the time you have to deal with child care. You can list the time you spend shopping for work clothes, or time you spend going out for business dinners, or time you spend doing "optional" training.
For example, here’s my list:
> Child care
> Commute
> Working outside the office
> Business travel
> Business dinners / parties
If you haven’t already, for each of these activities, list the number of hours you spend on them in a year. Put these in next to each item, but over on the right hand side of the page under the time you spend at work in a year. I find that for many of these items, it’s easier to figure out how much you invest in these things each day (like the commute or the child care connection), then multiply it out by the number of days you work in a year.
Now, total all of the numbers on the right. That’s how many hours you actually spend working in a year. Divide it by 52 to get your weekly total, or by 365 to get your daily total (realize that this daily total does include weekends; if you want to exclude them, divide it by 260 to get only weekdays, or by 250 to exclude ten holidays - you may also want to subtract your vacation days from that total, too). For me, this number was a real eye-opener, as I began to realize how much of my time really is taken up by my chase for more money.
Spend some time thinking about this exercise and what it means. You spend all of this time working your tail off and yet you still find yourself in financial trouble. I spend an average of 70 hours a week working just to keep my job. What things could I do if I didn’t have this time investment? What sort of things could I do if I did a low-wage job just down the block? I leave it up to you to draw your own conclusions, but it is a question worth thinking about.
Tomorrow, we’re going to see how much your time is worth - and what that really means.
Showing posts with label finance. Show all posts
Showing posts with label finance. Show all posts
Sunday, November 16, 2008
Saturday, November 15, 2008
31 Days to Fix Your Finances - Day 4
Yesterday, we developed some very specific plans to achieve aspirations that fit within the context of our personal values. These plans provide the basis for what we should be doing with our money; not only do they guide us towards a goal, but they also serve as a reminder that we’re off track if we do things that oppose the plan.
Now that we have these plans in place, we need to dig into our finances a bit. The first step is to see what income you actually have with which to chase your dreams. This will provide a baseline with which to figure out how we can rebuild our finances.
As before, take out a sheet of paper. Along the top, make a list of each of your employments. For me, I just listed one job (right now, The Simple Dollar is a very involved hobby, not what I would call a "job"). On the right hand side of the paper, write how much you make per year at your job (minus only income taxes - include all benefits, including any employer matching for retirement).
Now, underneath that, make a list of every single extra cost you have specifically because of your job. What does the commute cost? How much does lunch cost if you don’t bring your own lunch from home? What does your work wardrobe cost? What do you spend on going out with coworkers? On small professional gifts for others? On a nicer car or jewelry or other items for "work image"? What about child care? Each of these are expenses related to your job. Just make a list of them; don’t worry about amounts yet.
Here’s my list, if you’d like something to compare it to:
> Child care
> Driving to work - gas
> Driving to work - extra maintenance
> Wardrobe
> Meals
> Gifts
> Office supplies
Now, for each item on your list, figure out how much it costs you per year. First, figure out how many days a year you work (this is useful for the automotive calculations), then figure out how long your daily commute is. Multiply the two together and you get an estimate of the mileage you put on the car. I drive about 5,500 miles a year for work, so that amounts to roughly 400 gallons of gasoline, at $2.50 a pop (on average), which comes out to $1,000. I also figure that I’ll have to spend about half that much on other maintenance (oil changes, filter changes, and increased risk of major problems): $500. Then I look at child care: $5,800. I usually buy about $300-$350 a year worth of extra clothes for work, and I eat out probably once a week with coworkers, so tack on another $780 ($15 a meal, estimated). I also buy gifts for our gift exchanges at work and some of my office supplies, adding up to nearly $100 a year. Obviously, your calculations will be far different.
When you’ve determined annual amounts for each entry, subtract them from your salary. This will be sort of painful, particularly if you work in an office at the $12-$15 an hour range. The amount you’re left with is your true take-home salary for your job for a year. We used the post-tax number because you’re paying for this extra stuff after taxes.
I know some people who claim to be making $35,000 a year, but when they take their post-tax number and subtract out their job expenses, the number left makes them feel rather worried. It should. Some people even realize that this number takes them down to near the poverty line, and they get quite sick when looking at this number in comparison to other things.
Over the next few days, we’ll take a deeper look at this number and figure out what it really means in terms of your life values.
Now that we have these plans in place, we need to dig into our finances a bit. The first step is to see what income you actually have with which to chase your dreams. This will provide a baseline with which to figure out how we can rebuild our finances.
As before, take out a sheet of paper. Along the top, make a list of each of your employments. For me, I just listed one job (right now, The Simple Dollar is a very involved hobby, not what I would call a "job"). On the right hand side of the paper, write how much you make per year at your job (minus only income taxes - include all benefits, including any employer matching for retirement).
Now, underneath that, make a list of every single extra cost you have specifically because of your job. What does the commute cost? How much does lunch cost if you don’t bring your own lunch from home? What does your work wardrobe cost? What do you spend on going out with coworkers? On small professional gifts for others? On a nicer car or jewelry or other items for "work image"? What about child care? Each of these are expenses related to your job. Just make a list of them; don’t worry about amounts yet.
Here’s my list, if you’d like something to compare it to:
> Child care
> Driving to work - gas
> Driving to work - extra maintenance
> Wardrobe
> Meals
> Gifts
> Office supplies
Now, for each item on your list, figure out how much it costs you per year. First, figure out how many days a year you work (this is useful for the automotive calculations), then figure out how long your daily commute is. Multiply the two together and you get an estimate of the mileage you put on the car. I drive about 5,500 miles a year for work, so that amounts to roughly 400 gallons of gasoline, at $2.50 a pop (on average), which comes out to $1,000. I also figure that I’ll have to spend about half that much on other maintenance (oil changes, filter changes, and increased risk of major problems): $500. Then I look at child care: $5,800. I usually buy about $300-$350 a year worth of extra clothes for work, and I eat out probably once a week with coworkers, so tack on another $780 ($15 a meal, estimated). I also buy gifts for our gift exchanges at work and some of my office supplies, adding up to nearly $100 a year. Obviously, your calculations will be far different.
When you’ve determined annual amounts for each entry, subtract them from your salary. This will be sort of painful, particularly if you work in an office at the $12-$15 an hour range. The amount you’re left with is your true take-home salary for your job for a year. We used the post-tax number because you’re paying for this extra stuff after taxes.
I know some people who claim to be making $35,000 a year, but when they take their post-tax number and subtract out their job expenses, the number left makes them feel rather worried. It should. Some people even realize that this number takes them down to near the poverty line, and they get quite sick when looking at this number in comparison to other things.
Over the next few days, we’ll take a deeper look at this number and figure out what it really means in terms of your life values.
Wednesday, November 12, 2008
31 Days to Fix Your Finances - Day 1
Some of you might have expected that we would start out fixing your finances with a pencil and a calculator. In fact, it will be a few days before we have any need for either of these. Why? Before we can define a plan that works for you, we need to sit down and figure out what really matters in your life.
All of us work hard for a reason. We go into work and come out of work because we want money, right? Money buys us things and allows us to live in this modern world. But what do we mean by “live”? What exactly is this “living” that we are focused on?
The real truth is that we live according to a set of values. We continually perform actions based on values: our values mixed with the values of others. For example, my top value is my family. I want a good, fulfilling life for my wife and my son so that they can easily define and follow their own values.
Every person has a set of between four and six primary values that underline their life (we may have other values, but those values are secondary to the primary ones). Financial problems occur through distortions of those values: we come to believe that some things are vital to these values when they really don’t matter. Generally, this is what advertising seeks to do: it tries to express a core value that some people have and make their product seem essential to achieving that value.
So, our first step is to define exactly what our values are. We are not defining goals here! Goals are specific actions, like “retiring at age fifty five” or “paying for my son’s graduate school.” What we are looking for are values.
At first, this seems pretty difficult, so here’s a procedure that will help you get in the right mindset.First, get calm and relaxed. For me, this usually comes after a nice meal with a glass of wine or a great craft beer. I can clear my mind and think about my life. Do whatever gets you relaxed: have a massage, lay down in bed, or anything that increases your calmness.
Second, be honest. No one has to see this list, so write down what really comes from inside of you. You might write down things like “power” or “excitement” that you might not want to show other people, or you might be tempted to write down “family” because your significant other would expect it - but it’s not really important to you.
Third, close your eyes and ask yourself what is really important in your life. If nothing comes immediately, don’t worry about it. Think about the moments where you feel most whole and fulfilled and that feeling stays with you, not a temporary, passing feeling.As you discover values, write them down. Just make a list on a sheet of paper. It doesn’t have to be ranked in any way. Once you’ve discovered a value that’s important to you, just add it at the bottom of the list. You’ll know when you are done; don’t worry too much about how many you’ve written down.
If you have more than six values, ask yourself if any of them are the same value. Quite often, if we get above six values on our list, we’ll realize that two of the values are actually the same thing. If they are, just combine them, or cross off one of them.
If you have fewer than four values, think about them some more. Most people have at least four central values in their lives, so spend some more time to make sure you’re not missing anything.Once you have this list, save it. We’ll not only refer to it in later steps, but it will probably be valuable to you. See you tomorrow!
If you need some help getting started, here is a list of thirty values that you might have in your life. Note that this isn’t a list of all possible values, just a selection of some values to help you get started.
All of us work hard for a reason. We go into work and come out of work because we want money, right? Money buys us things and allows us to live in this modern world. But what do we mean by “live”? What exactly is this “living” that we are focused on?
The real truth is that we live according to a set of values. We continually perform actions based on values: our values mixed with the values of others. For example, my top value is my family. I want a good, fulfilling life for my wife and my son so that they can easily define and follow their own values.
Every person has a set of between four and six primary values that underline their life (we may have other values, but those values are secondary to the primary ones). Financial problems occur through distortions of those values: we come to believe that some things are vital to these values when they really don’t matter. Generally, this is what advertising seeks to do: it tries to express a core value that some people have and make their product seem essential to achieving that value.
So, our first step is to define exactly what our values are. We are not defining goals here! Goals are specific actions, like “retiring at age fifty five” or “paying for my son’s graduate school.” What we are looking for are values.
- Friends
- Love
- Freedom
- Truth
At first, this seems pretty difficult, so here’s a procedure that will help you get in the right mindset.First, get calm and relaxed. For me, this usually comes after a nice meal with a glass of wine or a great craft beer. I can clear my mind and think about my life. Do whatever gets you relaxed: have a massage, lay down in bed, or anything that increases your calmness.
Second, be honest. No one has to see this list, so write down what really comes from inside of you. You might write down things like “power” or “excitement” that you might not want to show other people, or you might be tempted to write down “family” because your significant other would expect it - but it’s not really important to you.
Third, close your eyes and ask yourself what is really important in your life. If nothing comes immediately, don’t worry about it. Think about the moments where you feel most whole and fulfilled and that feeling stays with you, not a temporary, passing feeling.As you discover values, write them down. Just make a list on a sheet of paper. It doesn’t have to be ranked in any way. Once you’ve discovered a value that’s important to you, just add it at the bottom of the list. You’ll know when you are done; don’t worry too much about how many you’ve written down.
If you have more than six values, ask yourself if any of them are the same value. Quite often, if we get above six values on our list, we’ll realize that two of the values are actually the same thing. If they are, just combine them, or cross off one of them.
If you have fewer than four values, think about them some more. Most people have at least four central values in their lives, so spend some more time to make sure you’re not missing anything.Once you have this list, save it. We’ll not only refer to it in later steps, but it will probably be valuable to you. See you tomorrow!
If you need some help getting started, here is a list of thirty values that you might have in your life. Note that this isn’t a list of all possible values, just a selection of some values to help you get started.
Adventure - Balance - Beauty - Cleanliness - Confidence
Control - Creativity (music, film, food, etc.) - Education - Excitement - Family
Friends - Freedom - Fulfillment - Fun - Growth
Happiness - Health - Independence - Leadership - Love
Making a difference - Marriage - Peace of mind - Power - Security
Service - Sharing - Spirituality - The environment - Truth
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