The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.
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:
Driving to work – gas
Driving to work – extra maintenance
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.
Ready? Let’s continue on to the next day.