The cost of additional work is one of the important factors to consider when working. You might think you know how much you earn; you know your salary and might have even calculated your hourly rate. But is that really what you earn? Let’s assume you are considering a new job with the same salary but half the commute distance. The net pay would simply be greater because you would spend less on gas and car maintenance. As long as everything else in the job is equal, you are likely to make the move.
Imaginary example #1: The cost of additional work for Alison
Alison needs nice clothes for work – not necessarily tailored suits, but “business casual” attire like silk shirts, pencil skirts, and high heels. These are not clothes she would buy if she didn’t have this job. She buys a new piece of work clothing once a month, at an estimated cost of about $100. She spends $1,200 a year on work clothes. It also takes her about three hours each month, or 36 hours a year, to shop for work clothes.
Alison also shakes hands with clients, so her nails need to be professional. She gets nail manicures twice a month, costing $25 per manicure. She wouldn’t typically do this if she weren’t working. She spends $600 a year on that, and it takes an extra three hours a month or 36 more hours a year.
Alison drives for 25 minutes each way to work every day, or 4.16 hours a week. This totals 208 hours a year, assuming she takes two weeks off. She also spends $25 a week, or $1,250 a year, on gas directly related to commuting costs. The wear and tear on her car costs her an additional $400 a year.
Alison buys more takeout food because she is working. She spends an additional $20 a week on groceries, compared to what she would spend if she weren’t working and had time to cook from scratch. This amounts to an additional $1,000 a year.
She is rushed in the morning. She usually tries to brew coffee at home, but she is often late once a week and buys a $3 coffee. This totals an additional $150 a year.
Her children are in third and fourth grade. They attend after-school programs from 3 PM to 6 PM, when Alison returns from work. The children enjoy the after-school programs, and they would want to participate in the programs regardless of whether Alison works or not, so this cost is not considered a factor.
In the summer, Alison needs to place her kids in summer camp. This costs $1,500 per child for the summer, or $3,000 in total. All things considered, Alison’s cost of working is $7,600 a year. She also spends an additional 280 hours commuting and buying work clothes.
Calculating Alison’s net wage
She earns $55,000 a year plus an amount equal to 3% of her salary for retirement, which equals $1,650. The health insurance cost provided by the company would cost $250 a month if she bought her own plan, so that amounts to $3,000 a year. Her total compensation equals $59,650 ($55,000 + $1,650 + $3,000).
After deducting the $7,600 work expenses, her net earnings are $52,050. She works 40 hours a week, 50 weeks a year, plus an additional 280 hours a year for commuting and purchasing work clothes, resulting in her net hourly rate being $22.82 per hour ($52,050 / 2,280).
Example
Imagine Number 2: Bob’s Extra Work Costs
Bob needs to wear suits, belts, and dress shoes for work. Each suit costs him $300. He owns about four suits and replaces one each year once it wears out or becomes unsuitable.
He also buys about six dress shirts, two belts, several pairs of socks, one pair of shoes, and two new ties each year, with an additional annual total cost of $400. He spends 10 hours and $700 annually on formal clothing.
He also needs to dry clean his suits. This costs $40 a month, or $480 a year. He spends 30 minutes each month (six hours a year) dropping off and picking up clothing from the dry cleaner.
Bob is expected to show up in a clean car when he drives to meet clients, so he washes his car weekly (in addition to regular deep cleaning several times a year). If he’s not working, he will only do deep cleaning. Washing the car weekly costs $5, totaling $250 a year, and takes 15 minutes. He also has a business trip that takes 45 minutes each way. Assuming he takes a two-week vacation, he spends about 388 hours a year commuting and cleaning his car. He also spends $800 on wear and tear on his car and $2500 on gasoline annually.
Finally, Bob sometimes buys lunch from a local deli when he forgets to bring lunch from home. He does this twice a week, at $10 per meal, totaling $1000 a year.
Overall, Bob’s work costs are $5730 a year.
Determining Bob’s Net Pay
Bob earns the same pay as Alyson – $55,000 a year with a 3% match for retirement and company health insurance costing $250 a month if he purchased his own plan. The total compensation is $59,650.
However, his net pay is $53,920. He also spends 404 hours a year commuting, delivering dry cleaning, and buying work clothes. Assuming he also works 40 hours a week, his hourly rate is $22.42. If he works 45 hours a week, his hourly rate is $20.31. And if he works 50 hours a week, his hourly rate is $18.56 an hour.
Budgeting for Work Costs
You should always calculate your work costs, especially when considering a new job offer. You need as accurate a picture as possible of your budget. Of course, you can always look for ways to reduce your work costs. You could pledge to bring lunch to work every day. Coffee could be cut out. You might find cheaper work clothes. But some costs, like commuting and childcare, won’t go away. You might even choose to deduct these costs from your income when creating your budget. In any case, knowing your work costs will help you plan financially better.
Source: https://www.thebalancemoney.com/how-much-does-working-cost-you-454020
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