Updated on 11.23.15

Calculate How Much You Really Make (4/365)

Trent Hamm

One of the most painful realizations I had when I started getting my financial life in order was that my job didn’t really earn me as much money as it seemed.

My salary at the time of this realization was about $40,000 a year, so let’s use that as a baseline.

Now, on the surface, that’s really good money. If I worked 40 hours a week for 50 weeks a year, I would be earning $20 an hour, right?

Well, that’s not entirely true.

First of all, we have taxes. Federal income taxes, state income taxes, and FICA taxes. Federal taxes would eat about 11% of my paycheck, state taxes would eat about 4% or so, and FICA would eat about 2%.

Second, I had to pay for my commute. This was about ten miles each way, and it was the primary reason I owned a vehicle. So, let’s tack on top of that a monthly car payment of about $200, about $40 a month in gas, about $30 a month (prorated) in maintenance expenses, and about $40 a month in insurance, just to keep that car on the road.

I also had to wear a nicer wardrobe. I spent $200 a year to make sure I dressed appropriately for meetings, conferences, and the like – and that’s a low-end estimation.

There were at least two meals eaten out a week, costing $10 each. There was travel about three times a year where many of the expenses would be challenged, meaning each of those trips set me back about $100 out of pocket.

Not only that, there were a lot of times where I would put in extra unbilled hours to meet a deadline. I easily averaged 50 hours a week there.

Plus, there’s the time spent traveling – another 50 hours spent places where I didn’t want to be per trip. There’s the time spent commuting – about 40 minutes per day. There were also work-related meals and other activities to attend, eating down another four hours per month.

Calculate How Much You Really Make (4/365)

When you start running the math on this, the equation starts to change.

After receiving my $40,000 salary, I’d pay out $6,400 in taxes each year. I’d pay out $3,720 in commuting costs each year. I’d pay out $200 in wardrobe costs each year. I’d pay out $1,000 in extra meals each year. I’d pay out $300 in extra travel expenses each year.

Suddenly, my $40,000 salary became $28,380, just like that.

Now, I’d work 40 hours a week, totaling 2,000 hours per year, right? On top of that, I’d add ten hours of unbilled work a week (over 50 weeks), three hours of commute a week (over 50 weeks), 150 extra travel hours a year, and 48 extra hours of activities a year. This would bring my total up to 2,848 hours, or an average of 57 hours a week spent devoted to my job.

My job is suddenly paying me less than $10 an hour.

Of course, there were other job benefits that had some significant value, but frankly, I wasn’t actually using them. My wife and I sat down and compared the health insurance offerings at our two jobs and her insurance was far better than my own, so we used her insurance. I had no use for their life insurance option, either, and their retirement plan wasn’t particularly strong. These things do have value when you’re comparing jobs in this way, but only if you’re using them.

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Amazingly, I was actually earning more money that I could keep with my part-time job as an undergraduate. I earned $12 an hour. There was no travel costs, no wardrobe costs, no extra activities, no unpaid work (I kept a diligent timesheet), no commute (I worked really close to where I lived). I would be left with more than $10 per hour working at this job.

On a per-hour basis, my part-time job in college was more lucrative than my first “good” job after college. It was also certainly less stressful and far less intrusive on my time.

One of my closest friends at the time made $7.50 an hour working at the night shift at a local gas station right after college. The gas station was just down the block from his apartment, and he’d spend most of his time there reading or practicing his sketching, as he’d have a customer maybe once every fifteen minutes. He didn’t have a car and on the rare occasions where he needed to go somewhere, he would just take the bus for a quarter or two.

It often seemed that he had more money to spare than I did. At the time, I thought it was just an illusion, but when you start running the numbers this way, it’s not entirely surprising, particularly if he was paying lower rent and lower utilities than I was.

It was realizations like this one that convinced me to make a scary career leap and start working on my writing full time. Doing that meant that I no longer had a commute (saving on car maintenance and fuel and time), nor any wardrobe costs, nor any eating out costs. My time spent on work was actually spent on work. There was no more travel – I’ve only been tempted to travel related to it once, and that one time was cancelled due to a family illness.

On the surface, my salary dropped through the floor when I made this move, but when I started running the numbers like this, I began to realize that my hourly income really wasn’t going down that much.

Whenever you’re thinking about your next job or your next career move, you need to think through these kinds of things. Often, a job that looks like it earns you great pay or is a great opportunity really isn’t either, and a job that seems like you won’t be earning much actually leaves you with a lot of money in your pocket. When you take into account things like stress and schedule flexibility, sometimes the “low-end” job is just the job for you, particularly if you’re simply working to earn a paycheck and are focusing your energies on making a side business or another opportunity get off the ground.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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  1. Other Jonathan says:

    I find this kind of analysis very interesting, but not particularly useful a lot of times. It can be useful for comparing one job to another, but when you convert the job to an hourly rate including non-paid time you lose a bit of perspective in my opinion. Sure, your job was earning you around $10 an hour when considering every factor – but that was for significantly more than 2,000 hours a year. Your friend making $7.50 an hour was working fewer hours, and thus making significantly fewer actual dollars.

  2. Johanna says:

    One of the biggest factors killing your hourly wage was your commute. But that’s not something inherent to your job – it’s also a function of where you live. You could have given yourself a raise by choosing a home closer to your workplace (or an equivalent job at a workplace closer to your home).

    You contrast it with two “low-end” jobs involving almost no commute – but why should a low-paying job necessarily involve a shorter commute than a high-paying job? If you’re qualified for a high-paying job, it should be just as easy to find a high-paying job with a short commute as a low-paying job with a short commute.

  3. moom says:

    $40k isn’t really good money. It’s a lot less than the average college grad makes. Maybe that was the problem – you thinking – I graduated college and got a job I must be able to afford all this stuff but you weren’t earning what average college grads earn. New grads might earn this of course and then earn more over time.

  4. valleycat1 says:

    IMO this type of calculation just serves to annoy most people when they run it. It reminds me of the similar calculations of how much free time a person has in a week where the number ends up a negative once one subtracts out all the demands on one’s time.

    If you’re going to count business travel and evening meetings against your time & expenses, you should add back in the value of the meals provided or that the company reimbursed you for. And mileage reimbursement rates for personal car use cover the gasoline & relative portion of car maintenance that such use entails.

    And adding on the time of your commute isn’t really an expense deduction, just an impact on your lifestyle which is, as Johanna points out, a choice you made & could change.

  5. Liz says:

    @3: Please don’t depress me any more today. I’ve been out of college 15 years, have a master’s degree, and still don’t earn $40,000 at my job. Of course, my job is only 35 hours a week, and a few other decent perqs, but still….
    Heck, my first job out of school paid $15,000 plus monthly bonuses based on billable hours. And I lived like a king, paying off my car in a just a few months and socking money away for retirement like a mad woman.
    Now, my side work earns more than $40,000 per year, but it still doesn’t provide health insurance.

  6. Tracy says:

    @#5 Liz

    Don’t be depressed. This is one of those situations where the ‘average’ starting salary is thrown off by outliers in high-earning professions and/or CoL areas.

    It’s more relevant to look at the median starting salary, which is actually 27,000 for 2009 and 2010. (Down from 30,000 a few years earlier)

  7. Des says:

    I can see where this could be a motivating exercise for some people, but it has never been for me. When I run this and it turns out that I can buy dinner out or a new pair of shoes for the cost of one hour of my time, it just encourages me to spend. It might be useful if I was planning on a career change, though.

  8. jim says:

    “and FICA would eat about 2%.”

    Federal Insurance Contributions Act tax (FICA) is the payroll tax to fund social security and medicare.

    The employee taxes are 6.2% for social security and 1.45% for medicare. Thats 7.65% total.

    (less the temporary 2% reduction)

  9. Johanna says:

    @Des: A calculation that might be useful for you is your disposable income per hour – monthly income minus all required monthly expenses (housing, food, etc.) divided by number of hours worked. That way, you can see that you’re earning $X per hour, but you can’t spend the whole amount on dinners out and new shoes.

    (This calculation assumes that you’re a salaried worker, and you can’t just choose to work extra hours and earn more money at the same hourly rate.)

  10. Vanessa says:

    @moom: Are you comparing $40K to today or over a decade ago when Trent graduated? It doesn’t sound that low of a salary to me for back then, but I’ve never made $40K in my life so maybe my perspective is a little skewed. That’s a decent income where I live, and probably where Trent lives, too.

    A few months ago I read a contributor article on Yahoo where a woman claimed after subtracting her expenses, her high-paying job actually paid minimum wage. Some of her expenses seemed legit, but she also added things like spas, massages, and vacations which she felt were necessary because her job was so stressful. It was insulting to people who actually were making minimum wage and legitimately struggling. While I don’t think that was the intent of this post, I kind of feel the same thing happening here. You don’t have to have a car payment, eat out, or pay a lot for clothes. You can use to commute time to listen to your favorite music, or a podcast.

    I do agree that there are expenses associated to working outside the home that absolutely should be factored when considering a job. But I also feel that we have more control over those expenses than we realize.

  11. Evita says:

    Interesting analysis but a bit incomplete.
    When you have a job and contribute to a pension plan with a company match, this match is worth gold. Free money!
    Also, in some countries (such as Canada), governmental work pension payouts are calculated over your lifetime gross earnings. The more you make, the closer you get to the maximum payout. RRSPs (tax-deferred private pension programmes) ceilings are also tied to gross earnings.
    Finally, I find hard to believe that a car is included in the cost! Had you no other use for your car ? ever ?
    As an aside, $200 a year for “meeting appropriate clothes” seems miserly. But what do I know ? I am not a man…….

  12. Steve says:

    Wasn’t the $12 an hour taxable?

  13. Brent says:

    I found that once you included all the benefits I was making a much better hourly rate than I thought. Work didn’t force me to eat out for lunches, purchase expensive clothes, drive a nice car or live far away from the office. So I didn’t. I ate out about once a month and tried to be frugal when I did, wore the same ol clothes the 2 years I was there, I drove about 8 miles daily for work, but it often got me closer to my evening activities in my old small car. The company paid for a good amount of the health and dental insurance life insurance and contributed a couple thousand in profit sharing. Totally worth it.

  14. Jackowick says:

    I have many friends who would “kill” for a 40K a year job, and many who are doing a $25K a year job for the experience, such as working at a nonprofit or apprenticeship. It’s all relative to your goals AND needs.

    $40K is a great amount for a single person with low expenses, especially if you are out of school and still living at home; many of my friends RUSHED into an apartment without thinking about the long view because they “had” to move out. Most often the excuse was “to party”, not some actual domestic issue.

    People who trash articles like this aren’t seeing the content of the argument. It’s the breakdown of what you make and what it costs. I work 20 miles from my job, highway miles, and it’s a lot of wear. I have to maintain a professional wardrobe, so I have to seek out dress pants and shirts on clearance, and I decline the lunches out of the office (but still have to go out once in a while to maintain the office politics/opportunities as well as some good fun times).

    I look at my expenses and live well within my income; every raise from the past 5-6 years has gone into automatic savings plans & 401K, so I have actually decreased my in pocket pay to keep my lifestyle adequeate, plus I can take a pay hit if I do have an employment issue.

    At the end of the day, employment has to keep your bills paid, food on the plate, and a roof over your head. If you can find a way to break it down and take a job you’ll enjoy more, you need to do it if you can still satisfy your obligations. Breaking down your salary is something everyone should do sometime, but just because your answer differs from the example above doesn’t mean Trent is “wrong”.

  15. Gretchen says:

    “Not only that, there were a lot of times where I would put in extra unbilled hours to meet a deadline. I easily averaged 50 hours a week there.”

    I hope that’s a typo, because that’s more then your *billable* time.
    But the answer to that is to just be more efficent or do fewer projects.

  16. Gretchen says:

    I assume the $40k is a very old figure, based on (other things and) the bus for a “quarter or two.”

  17. Vanessa says:


    The phrasing is confusing, but I think it’s 50=40+10, so ten unbilled hours/week? Or 2 extra hours/day, which is what I usually worked when deadlines were tight at my job. Not all that unusual.

    If not, then that means Trent was working 18-hours days which is insane unless you’re in healthcare.

  18. Lorena says:

    I think cost analysis like this is very helpful, especially if you’re considering a job change. While, on paper, I may not make a lot, I’ve taken advantage of all the other benefits available to me — tuition reimbursement for my master’s degree, health insurance and my pension — through my employer. Thankfully, my organization (a state-run institution) makes it easy to calculate your “real” paycheck by providing a calculator that includes your non-paid benefits.

    Despite this, I’m looking at changing jobs in the near future. I’ve found it really beneficial to take a look at all the cost outlays that I’d have to address if I took another job, even at another state agency where benefits are comparable (and they have a similar benefits calculator).

    For example, if I got a new job, I’d have to get another car (we’re currently a one-car family) and increase my commute time. The longer workday might also affect childcare costs and make it harder to stay frugal at mealtimes (longer commute means less time to cook, making drive-through or another cheaper, faster option more attractive). Also, if there’s a different corporate culture, there’s also wardrobe considerations and possibly pressure to eat out at lunch with colleagues regularly (which I don’t experience now since I usually go home for lunch, something I might not be able to do at a new job).

    On the flip side of this hypothetical situation, there are a lot of intrinsic things I’d be trading for — the opportunity to move up, funding for professional association membership, new challenges in terms of responsibilities — that aren’t available to me at my current job. Notice, these are all things that don’t have a nice, neat dollar amount attached to them, but could prove invaluable to my future career growth.

    So, regardless of whether or not you think the above calculations are accurate, it’s the doing them that’s most important here.

  19. Misha says:

    $40k can’t be that old a figure. Trent’s in his early- to mid-30s, so he’d’ve finished college in the late ’90s, and in this very article he states that he realized his “job didn’t really earn as much money as it seemed” when he “started getting [his] financial life in order”, and that it was at THAT time that his salary was “about $40,000 a year.” And with all the information Trent’s given us about his financial journey, the start of him getting his financial life in order was when his oldest child was an infant.

    This info leads us to conclude that Trent made $40k in 2005 or so.

    Regarding the dispute over the unbilled time, he later states that including travel time, there was “an average of 57 hours a week spent devoted to my job.” So he definitely didn’t mean that he was doing 50 unbilled hours a week.

    Also, seconding Jim on Trent’s hilariously low FICA tax estimate.

  20. cathleen says:

    As a person living in a very high CoL area (Bay Area/Silicon Valley) I LOVE seeing real numbers and figures for people across this enormous and varied country.

    Frequently this argument Trent is highlighting is used by new parents/moms to decide whether to stay home or work. But I find it really misses the big elephant in the room, future opportunity costs.

    I have lots of acquaintances/neighbors who decided to stay home and COULD afford it at the time but then the economy tanked and some partners lost jobs and boom! they are now looking for high paying jobs but can’t get them, even if they were qualified just a few years ago.

  21. valleycat1 says:

    My calculation comes out really well just eyeballing the items Trent includes. I specifically sought a job at my current company because I knew the benefits were outstanding & I’m unable to get health insurance as an individual that is anywhere near affordable (we tried) and I knew what lifestyle I wanted to maintain in addition to work. The benefits, including comprehensive medical insurance & a retirement plan add almost a third more to my annual income. And, as #13 reports, I have a really short commute (less than a mile), almost always take my lunch & can wear clothes I’d probably buy anyway. I’m very rarely required to work beyond the 40 hours a week & basically no travel involved.

  22. Sara says:

    The problem with converting everything into an hourly rate is that you lose the big picture of the total. Based on this comparison, the part-time student job looks better because the overall hourly pay is higher, but the problem is that you couldn’t work 2,848 hours at $12/hour (and no expenses) at that job. The same goes for many of the frugality calculations where you might calculate, for example, that you can save $35.88/hour turning off lights, but you can’t make a full-time job of turning off lights for $35.88/hour.

  23. lurker carl says:

    Manipulating numbers does not convert your net salary into something less or more valuable. If mopping floors and washing beakers in a science lab was actually more lucrative than commiting four years to an education and establishing a successful career in a vibrant professional field, a lot more people would commit their lives to mopping and washing. I don’t see that happening.

  24. Robin S says:

    People really think that 40k is too low for a new college grad? I graduated college in 2008 and was THRILLED with my 42k a year job. Heck, I was thrilled to have any job, its a bad time. I would think that 40k is about average.

  25. Riki says:

    But Trent, you didn’t subtract taxes from the $12/hr job. Nor transportation costs – why would a lower-paying job automatically come with no travel costs? That’s not a valid assumption if you’re subtracting the cost of your commute from the other salary. Also, there are lots of work-related expenses that can be minimized or eliminated through thoughtful spending.

    But, money aside, there are a lot of real and important benefits to having a higher-paying job. People who make more money have a much better chance of making adequate retirement contributions, having a job with real benefits, enjoying a safety net (both in terms of finances and having an education), and the opportunity for future growth in position and income. All of these are much more difficult, if not impossible, to achieve with a minimum wage job.

    This comparison is entirely inaccurate and misleading.

  26. Annie says:

    This might be out of context but Trent, do you miss making 40K a year, do you make that much blogging? are you making more now per hour than before? This is none of my business but it seems like 40K right out of college is a good start, even if you have 28000 after taxes to live with, that is still better than the person making 28K a year before taxes.

  27. Kathy F says:

    One of the other considerations for looking at job salary is that some of my retirement benefits increase as my salary gets higher. For example, as a federal employee, the govt will conribute (Match) up to 5% of my salary to the Thrft Savings Plan (similar to 401k plan). The bigger the salary, the more I can contribute and the more thay can match. Also my federal pension benefit will depend on my average of my highest 3 years of salary. Avg “High-3” times yrs of service x 1% = yearly pension. Also doesn’t Social Security benefit calculation use salary numbers too?

  28. Jamie says:

    I appreciate this article, but the problem I’m having is that if your job requires you to have a car and nice clothes and meals out, you still get A CAR AND NICE CLOTHES AND MEALS OUT– the car and clothes don’t disappear when you get off work, and the food isn’t tasteless simply because it’s work-related.

    After calculating in the extra commute by bus to work, I’m making $13/hour… But I can’t afford a car, nice clothes, or meals out. So who was financially better off, really?

  29. jim says:

    Average 1st salary offer for new college grads was about $48k in 2009. The average is skewed high by the high earners.

    Median starting pay for new grads in 2009-2010 however was just $27k. However in there are some people who do not work in fields at all related to their major. If you just look at people who work in fields related to their major then median starting pay is $34k.

    Trent graduated from college probably 10-15 years ago and $40k was certainly a very good wage then, especially in Iowa.

  30. getagrip says:

    a. Trent was able to shuffle many of the costs of living to his wife, unlike his friend at the gas station (e.g. health insurance (do you think the gas station was really paying for that at that wage?) and retirement savings). So in many ways this can be a faulty comparison because his friend is accepting much more risk.

    b. The problem is also in upward mobility. That $40K job ten plus years ago could have been a first stepping stone to $100K job now. That he chose not to pursue that was his decision and is fine. But I can say that though I didn’t make anything near $40K when I graduated I’m making three times my first salary out of college after taking inflation into account and did it via promotions and opportunities from that first job (not everyone wants or needs to be an entrepreneur).

    c. This is just the kind of justification for some people to stop trying, to complain, to make excuses (e.g. “Why make more money, I’d just have to pay more taxes.”). Sometimes this type of analysis is constructive as long as you’re looking big picture and not just short term. But too many folks walk their lives always staring at their next step and never look up to see they’re walking towards a cliff.

  31. cv says:

    Given the conversation about Trent’s $40k income after college, I just checked a couple of the different Iowa Craigslist sites for apartment rentals. I don’t know what part of the state he was living in, but a decent apartment looks like it would have cost under $500/month, and anyone willing to live with a couple of roommates could pay substantially less. To someone coming from a big city that seems insanely cheap, and $40k would be plenty to live on comfortably.

  32. Tamara says:

    I’m nearly 30 and I’ve never made more than $30k/yr in my life. I would be /over the moon/ if I made $40k!

    I live in NE Florida which isn’t known for its great wages, /and/ I never finished college due to a lot of personal problems. I’m going back this year, though, thanks to tuition reimbursement. I’m 16 credit hours from an AA then I’m moving on to AS and then BS. So yeah, my minimal earnings are my fault and I’m not blaming anyone for my geographic and educational status…

    But that aside it really bothers me when people sniff at $40k or so…’that’s not THAT much’…hey, if I made that much I wouldn’t have to live in the stabbity-stabbity side of town and I could afford to replace my 15 year old car…

  33. I have to also object to some of this math. So when you dropped the $40K per year job, did you drop a car? If not, then I doubt you can include all the car expenses. That seems like you are trying to make the figure seem low. Also, what kind of job makes you eat out twice a week? I have worked business jobs and other than business lunches and maybe a once a month out with coworkers lunch, I don’t see more than that being required. Yes, I do think sometimes you have to eat out with your coworkers, but not weekly. Nah, I don’t think much of this particular calculation.

  34. TC says:

    To those asking about taxes on Trent’s student job – when I worked a student job I did not pay SS or Medicare, those jobs are exempt from those taxes (and of course those wages don’t count towards your ‘credits’ in SS). There should still be state and federal income taxes though. So taxes would be greatly reduced but not eliminated.

  35. lurker carl says:

    All my employers deducted the standard percentages into SS and Medicare; local, state and federal income taxes were deducted as well. The same occured when I was self-employed, I had to deduct the taxes myself. When my wages were low, income taxes were (if not fully, then partially) refunded but SS and Medicare always remained paid in full.

    The only time when all payroll taxes are avoided is when you’re paid “under the table” and the wages aren’t reported to the IRS by either employer or employee. Such tax avoidance seems beneficial at the time but it comes back to bite you upon retirement, you never receive benefits from those “missing” wage quarters.

  36. Louise says:

    I read something similar to this in Amy Dacyczyn’s Tightwad Gazette years ago. I thought about it long and hard before deciding to be a stay-at-home Mom.

    Once I deducted all the expenses involved in me going to work (including child care – a substantial sum), I was able to figure out how much I was actually making. I figured that I could save nearly that much by doing things that I just didn’t have time to when I worked outside of the home. I look at it as my job to find ways to save or make money while at home and I’ve actually done pretty well. We lead a rather simple life and our expenses are very low, even though we live on the outskirts of a major city. And I get to stay home with my child! I’m actually very happy with this decision, but I realize it’s not for everyone.

  37. Genny says:

    I have never criticized a post here, but there has to be a first time for everything :)

    Trent is always writing about focusing on the future, but here he is advocating looking at the salary at the job you have RIGHT NOW. He is not taking into account the future raise and promotion prospects of the job. I wonder what his friend that worked at the gas station 10 years ago is doing now? Hopefully he did not have Trent’s mindset and found a job that offered some possibility for advancement!

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