January 14, 2008

How Much Do You Really Earn?

There is nothing more demoralizing than a small but adequate income.
--- Edmund Wilson


How much do you make?

Chances are, you think of your annual earnings. That's not the ideal comparison.

Suppose that Callie earns $100,000 a year and Sandy earns $50,000. We'd conclude that Callie earns twice as much because we ignore an important factor: the hours worked. Suppose Callie works 80 hours a week while Sandy works 40. Then both earn the same hourly rate. Now who's ahead? Probably Sandy who has more time to enjoy life.

The idea of looking at earnings on an hourly basis came from The Four Hour Work-Week by Timothy Ferriss. The book is one of my favourites. It got me thinking about wisdom acquired years ago: the cost of anything is how much of your life you pay (e.g., money, time, health). Too often we think only of the cost in dollars.

Tax
Since our tax system is "progressive", the more we earn, the higher our tax rates. In our example, Sandy likely comes out ahead when we look at after-tax earnings per hour.

If you're paid a salary or commission, you probably don't know what you earn per hour. You may be shocked once you do a quick calculation.
I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes. --- Edward Gibbon

Nothing hurts more than having to pay an income tax, unless it is not having to pay an income tax. --- Thomas Robert Dewar

3 comments:

Monty Loree said...

good points... I'm still working on the four hour work week because I'm starting to enjoy the quality of life aspect.

There's more work to it than I anticipated, however, that's fine.. I'll do it until I've got it.

Thanks Promod

Jaleigh said...

Excellent points! Came across this post while evaluating actuary salaries - I guess it's your tag line that led me here. But it's funny, because I'm actually right in the midst of reading Four-Hour Work-Week right now! One of the things about becoming an actuary that really stands out to me is how much time you spend on exams in order to get to the desirable pay range.. it seems like that could easily be more like 80 hours a week than 40 ;-) Any further insights?

Promod said...

@jaleigh In real life, you'll find the 10,000 hour rule is a better guide to success :(

The challenge is getting well paid for something you'd do for free. Then there aren't enough hours a day, months in a year or hours in a lifetime.