Income

9 Sneaky Expenses That Eat Away at Your Income

This article is by staff writer Adam Baker. Baker is a founding member of Untemplater.com, a new multi-author blog focusing on personal finance, entrepreneurship, and life design for people in their 20’s and 30’s.

Few concepts have had as great an impact on my family’s financial decision-making as learning how to calculate our real hourly wage. The concept was introduced by (or at least popularized by) the amazing book, Your Money or Your Life. This book has had a dramatic influence over our financial turn-around (just as it did for J.D.).

The authors focus early in the book on ensuring that readers are aware of the true costs associated with their jobs and incomes — including accounting for the time we spend on activities that are often forgotten.

When Courtney and I first sat down to figure out just how many different expenses were associated with our income opportunities, it was an eye-opening experience. It unveiled a new layer of consciousness towards both our work and our spending. In one case we shifted from, “I make $42,000 per year” to “That really only results in $22,000 net after all expenses are considered.”

The hardest part of figuring your real hourly wage is accounting for those sneaky costs (in both time and money) that eat away at your income streams. Your Money or Your Life does a great job of listing sample expenses, from which we adapted a customized list that I still keep updated to compare opportunities.

Here are the adjusted categories we use to figure our own real hourly wages:

• Time - Alright, so this seems like a generic way to kick things off, but stay with me. For each of the other categories on this list we immediately asked ourselves, “What’s the extra time associated with this?” While this isn’t a monetary cost itself, putting Time at the top of our list was a reminder to remember to always take this into consideration.
• Taxes – Taxes come next on our list because they’re easy to remember. It’s common for people to think of “take-home pay” or “how much after tax” when thinking about income. If you’re an employee in the U.S., this usually means federal, state, and local (in some places) income taxes, as well as social security and medicare. These numbers are easy to find on paystubs.
• Foundation expenses – This was what Courtney and I called anything that wasn’t complete tangible (as in the later categories), but that was required for our work. Courtney had her teaching license fees, union dues, and education conferences. I had my share of real-estate certifications, union dues, broker fees, and sales training. We also included childcare expenses, and more recent visa fees in this category.
• Commuting/Transportation – This was the next most tangible category for us to consider. The key is to estimate what percentage of vehicle use is for commuting purposes. You can then apply this to gas, oil, maintenance, insurance, parking, and tolls. Your Money or Your Life also suggests counting traffic tickets, vehicle depreciation, and lease/interest payments. Even if you don’t drive, you’ll likely have some public or alternative transportation costs in here.
• Tangible work materials – These were usually physical items that we had to buy and maintain. Out of college, I worked in a factory where I had to purchase ear-plugs and safety glasses (although I was given hardhat). Some people have to provide their own tools, office supplies,  or teaching materials. This also includes our fancy cell phones that we justify as “for work,” briefcases, laptops, and other gear/gadgets.
• Clothing – We broke this into two sub-categories.  First, there are jobs that require uniforms, special shoes, and/or a certain type of specific non-uniform dress (like the Italian restaurant I where I waited tables). On the other hand are the jobs where we buy professional clothes out of a desire to meet a social standard. Think suits and ties, fancy blouses, and trips to the dry cleaners. If you wouldn’t regularly wear it on your days off, it should be included.
• Grooming - We used this to include products like make-up, fancy cologne, special haircuts, and jewelry/accessories. Again, it’s important to only include that which you don’t use or wear regularly outside work.
• Food/Drink – This is self-explanatory, but contains eating out, snacks throughout the day, and even food purchased after work hours if it’s because you “had too hard of a day at work” to cook dinner. I noticed a lot of my increase in food costs was from eating out for “business” meetings and every Friday when the whole office would go out together. Work-related coffee habits can wrack up some damage fast, too (trust me I know).
• Stress – As we began the list, we end it with a general category. The authors of Your Money or Your Life spend a lot of time covering the idea that any time/money that is invested as part of a release, escape, or an unwinding from work should be counted against your income. Some people release through video games or television, while others end up splurging on larger items like spontaneous vacations or larger toys to get away from work. The book even suggests counting increased sick time as a result of stress-related illness!

Look, I know this is a lot to think about. But this exercise isn’t meant to discourage. Just the opposite! Remember, there are usually other benefits to your income, as well. This post only features one side of the coin.

However, figuring your real hourly wage is an awesome tool when trying to compare two income opportunities that aren’t similar to begin with. It may help encourage you to start a part-time business or may simply remind you of just how beneficial your current employment really is.

If you haven’t ran your own numbers, I’d strongly recommend it.  It worked wonders for us!

What sneaky expenses have you caught eating away at your income?

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Related Articles at Get Rich Slowly:

• Daily Links: Personal Bailout Edition
• Budgeting with an Irregular Income
• An Introduction to the Crossover Point
• Budgeting for Non-Budgeters: The 60% Solution
• Financial Calculators

Source: Get Rich Slowly

Income

Invest in Your Most Important Income-Producing Asset

This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

Your net worth is based not only on how much moolah you have in the bank, but also on your human capital — that is, your ability to earn income. “We can think of human capital as assets specific to each person, such as intelligence, education, specialized skills, work ethic, and social skills in the workplace,” wrote Motley Fool contributor Doug Short (who has turned his own human capital into an investing website that’s popped up as far away as an Australian business TV show — it’s amazing what smart, retired people can do in their spare time).

These days, jobs are few and far between — and unemployment is poised to rise and stay high for a very long time. At a town hall meeting last year, Federal Reserve Chairman Ben Bernanke said gross domestic product growth would have to exceed 2.5% for the unemployment rate to fall. Unfortunately, consulting firm McKinsey says that newly-thrifty baby boomers, who are now saving at rates not seen in decades, will reduce GDP growth to just 2.4% annually for the next 30 years.

So to survive in a world of long-term high unemployment, we can’t take our jobs — or our human capital — for granted. Ask yourself these ten questions to make sure you’re investing in your most important money-making asset: You!

What’s going on in your industry and location?
Employment and wage trends aren’t the same across the country. The unemployment rate is in the mid-single digits for business and financial managers, but almost 20% for those in the construction industry. North Dakotans have the lowest unemployment rate, while Michiganders have the highest. Stay up on the news to know who’s being hired, fired, promoted, and downsized in your area. It could help you land a job — or know when it’s time to leave one.

How does your company make most of its money?
Most companies have more than one source of income, but not all of those revenue streams are of equal importance. Determine your company’s essential sources of income, and become an integral player in those parts of the business.

What can you do to protect your job and salary?
Pretend you’re your boss and you have to decide who gets a raise and who gets a pink slip. What qualities would you look for? What makes someone indispensable at your company?

If you own a business, how can you make yourself essential to your customers?
Even if you’re self-employed, you have bosses. They’re your customers, and they can fire you as easily as Donald Trump can. What can you do to make that hard for them?

Which skills could you acquire that would make you more valuable or diversify your human capital?
Your value in the workplace depends on your abilities. How many things can you do, and how well do you do them? Consider working toward a degree or starting a late-night self-study regimen that expands your human capital. Keep it focused on efforts that will really pay off. Simply getting an extra degree in the sociology of Star Trek could be a waste of money.

What would you do if you were fired today?
You’d probably: (1) apply at a few other places, or (2) change careers. If you’d apply elsewhere, ask yourself, “What can I add to my résumé to make them want to hire me?” If you want to begin a new career, ask yourself, “What should I be doing in my spare time to prepare?”

What can you do that you’re currently paying someone else for?
Expanding your human capital includes learning how to do things so you don’t have to pay someone else to do them. This pays off even for retirees. Think about doing your own home repairs, taxes, or (ahem) financial planning (though not until you know what you’re doing).

Can you pick up side jobs to earn extra income?
In our Rule Your Retirement service, we pay a team of retired financial professionals to answer subscribers’ questions. The previously mentioned Doug Short makes a tidy little income from advertisements on his website. Dabbling in extracurricular part-time work can pad your cash flow, expand your skill set, and could lead to a whole new career.

Can you sharpen your people skills?
I believe it was columnist Ben Stein who said your career depends on your affability as well as your ability. (Unfortunately for Stein, that didn’t spare him from being dropped by The New York Times after showing up in commercials for a credit-score company, violating a corporate policy.) Your career depends at least partially on how pleasant, cooperative, collegial, and fun you are. So play nice!

What do you want to do with the rest of your life?
You’ll probably do your best work if you’re doing what you enjoy most. This economy might not provide the greatest opportunities for you to pursue your dream job, but you can start preparing now so you’re ready when the market is.

Live long and prosper!

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Related Articles at Get Rich Slowly:

• Daily Links: Great Lessons Edition
• Investing 101: An Introduction to Asset Allocation
• What Makes a Resumé Scream “Don’t Hire Me!”
• What Squirrels Can Teach Us About Investing
• Ten Tough Retirement Questions

Source: Get Rich Slowly