9 Sneaky Expenses That Eat Away at Your Income

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 run 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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Steven
Steven
10 years ago

Awesome post. These are things I’ve been thinking about as I begin to test the waters, and it’s nice having something fleshed out for me. Like you, I really don’t agree with a car as a cost of getting a job, unless you live in a Metropolitan area with good public transportation. The US has been built with cars as the main mode of transportation, so it’s a necessity most of the time. I live in South Florida, where you spend half a day getting somewhere without a car, let alone trying to get to work on time. Unless you’re… Read more »

Nancy L.
Nancy L.
10 years ago

Also “Corporate Culture”. At my last job, if somebody was going through something major (i.e. new baby, marriage, death of family member), there was a general fund that was used for sending flowers or other appropriate token gestures. Secret Santa *was* opt-out, but no one raised a stink if you didn’t participate. At my current job, there is no Secret Santa, but envelopes circulate every other week or so for flowers, etc. Luckily the way our department handles it is with a list and an envelope. You cross your name off the list when you get the envelope, but no… Read more »

John Paul Aguiar
John Paul Aguiar
10 years ago

Mine is dunkin donuts coffee. I was buying 2-3 a day, then I finally got a coffee maker for the office and bout dunks grinds.

Save about 40$ a week,,lol

Nancy L.
Nancy L.
10 years ago

@Steven – Baker’s not saying to count the whole car into the consideration, but to calculate the effect specific commutes will have. If there are two jobs that both pay $45K a year, but one requires an extra 15 minutes of commuting time, that job effectively pays less than the other job because of the added gas costs for that particular commute. Likewise, when I used to live in Westchester and work in NYC, if I could find a job within walking distance of Grand Central station, it meant I didn’t have to purchase subway fare, so it could end… Read more »

Andrea
Andrea
10 years ago

similar to Nancy L above, a cost of working that is easy to discount is the collections that go around for people having a milestone birthday, retirement, going on maternity leave, etc. It doesn’t add up to a huge amount over the course of a year (I usually count it as “misc” expense), but it’s still money I wouldn’t be spending if I wasn’t working. Also, snacks during the workday are a huge sneaky cost for me- I don’t tend to snack a lot if I’m at home all day (probably because I have a fully stocked kitchen nearby if… Read more »

Ben
Ben
10 years ago

While these are good reasons why you create a life where you don’t work a 9-5 it is a good list of ways that you can cut from even while you are working. In ‘tangible work materials’ Baked used a key word; justify. For those of us who work traditional jobs, how many of us justify these expenses? I pack lunches and snacks, buzz my hair, purchase work clothes and dry clean sparingly, etc. Doing these things maximizes your income.

beforewisdom
beforewisdom
10 years ago

I’ve heard that a revised edition of “Your Money Or Your Life” has been published. Has anyone read it and is it worth reading if you read the old edition?

George
George
10 years ago

Great point. It’s so easy for us to overlook the extra expenses associated with a given income source. That’s why it is so much more effective to work from home where most of these costs do not apply.

Thanks for the great info!

beforewisdom
beforewisdom
10 years ago

The concept of an real hourly wage has its primary application in considering downshifting from high powered, high paying job into a labor of love job that may not pay as much.

The best example would be a mother paying for daycare with a job she feels luke warm about.

IMHO the concept of a real hourly wage and YMOYL is most valuable as a tool is shifting your perspective on work and money.

maria
maria
10 years ago

i would like to read a post about the number of bank accounts and the number of funds for one person. How many bank accounts should you have and what is the best way to use them?

Jackie
Jackie
10 years ago

For me I think the biggest factor from the list is time, which is also the most valuable to me. I haven’t calculated my real hourly wage in a while but I know that when I did it it was very low. In fact that’s a huge part of the reason why I closed my wedding photography business.

TosaJen
TosaJen
10 years ago

The idea of a real hourly wage was one of my favorite concepts from YMOYL. My real hourly wage increased a lot when I could change my position to a work-at-home (+2000 miles from the office) situation. No dressing up, no commuting, eating at home, coffee/tea at home, work out near home, etc. More time with my family, and for my passions. Aside from social isolation, it’s been very good. I believe I’m going to lose this job soon, and stay-at-home dad DH and I are going to make many of our earning decisions based on our real hourly wages.… Read more »

Penniless Parenting
Penniless Parenting
10 years ago

I once was working 2 jobs to make ends meet. However, I realized that after my commute (a total of two hours each way) and then the evening job from home, i had absolutely no energy left for anything. So I spent money on prepared foods. Now that I have two kids, I’d need to pay for daycare for them both. Now I work part time from home, with both my kids with me. I have energy to make things from scratch and save money and I think I might even be better off financially than when I was working… Read more »

Steven
Steven
10 years ago

@4 Nancy YMoYL suggests including car payments, along with a few other things I’ve skimmed in the past. I don’t agree with that usually, because a car is a necessity in your everyday life, so gas, maintenance, and depreciation, due to the commute would count. I’ve heard arguments where a teenager would need a car just to get to their job, and it’s at that point that it should be included in the real hourly wage calculation. There was a waiter position at a restaurant I applied for, then when I went to the restaurant for the interview, I realized… Read more »

Squirrel
Squirrel
10 years ago

As someone who recently left their ‘high-power’/high paying career to pursue something meaningful (to me) this is interesting food for thought. I have not considered how my real wage has adjusted along with the numbers on my paycheck. Good exercise!

Megan
Megan
10 years ago

one thing that’s really impacted me is location of the job. the high-paying job that i just got laid off from required that i live in new york. that means at least an extra 12K a year (after taxes) just for housing, compared to comparable living space in my hometown of pittsburgh. not saying it hasn’t been worth it to be here — i love NYC — but man, 12K after taxes in new york is like $20K gross. now that i’ve been laid off, i’m going back to the burgh to make my severance last longer. waaay longer. it’s… Read more »

Nicole
Nicole
10 years ago

beforewisdom– the new version has a nice section discussing long-term investments such as index funds and their pros and cons vis-a-vis the TIPS recommended in the earlier version… I think that’s the main difference, though numbers are updated and some anecdotes are added. I had already known that information about index funds from an early fool.com article, and there are articles discussing the same information on GRS, but if you were sold on TIPS before, I think the new edition provides a very good layout of the reasoning about why TIPS were preferred before and when you would prefer them… Read more »

Kyle
Kyle
10 years ago

I do try to talk with friends about sitting down and actually adding up their daily work expenses. It seems like everyone walks into the break room and deposits a couple more dollars directly into the soda/snack ATM. Sadly, however, this money cannot be withdrawn.

Lindsay
Lindsay
10 years ago

This is a great post and a subject my husband and I have given a great deal of thought to recently. One thing that is important to remember is the value of benefits. Fully paid health insurance and a generous retirement package can more than make up for the income loss of work-related expenses. When I ran my numbers, I actually realized my total compensation was more than I originally thought, even when I subtracted the expenses noted in this post. For some people, of course, their benefits are slim to nonexistent so their expenses wouldn’t be offset this way.

Caitlin
Caitlin
10 years ago

I didn’t enjoy YMoYL due to the writing style, but I did like some of the concepts in it, and a real hourly wage was one of them.

I’m already planning my next part-time business, since I recently closed my last one (of 6 years!). I’m love to get back into business ownership, but I need to work out a few other things first. ^_^

namesarehardtopick
namesarehardtopick
10 years ago

This post is part of the reason why I remain in Texas. When I calculate the costs of time and money, Texas is one of the cheaper states, and can mutate a middle-class salary into an upper-class salary quickly.

It’s not about how much you make, but how much you can put away after everything is done.

Tyler Karaszewski
Tyler Karaszewski
10 years ago

I couldn’t more than guess at any of these things. In fact, I can only guess at the number of hours I work and the amount of money I make. It seems a really pointless exercise for me to do. Even if I came up with a really accurate number. So I make exactly $27.13/hour (this would actually be impossible to determine) based on this system. Now what? Am I supposed to say “I had to work 3.6 hours to pay for this item” when I go to buy something? Is that supposed to discourage me from buying it? It’s… Read more »

Russ
Russ
10 years ago

Maybe my job is atypical, but I never got much value from this exercise. I have a long commute, so time and transportation figure into it – but then, I use the commute (by train) to read, which is probably what I’d be doing at home anyway (assuming I wasn’t being even *less* productive and was sleeping or watching TV). So, the time thing is no big deal. The transportation cost is about £200 a month. I have no ‘foundation expenses’, no tangible work materials that I have to pay for myself, I wear the same in the office as… Read more »

E
E
10 years ago

I did this calculation when I read Your Money or Your Life but I came up with the opposite result. 1. My employer pays for my transit pass: no commuting cost for work, reduced transportation cost outside of work. 2. My office is business casual; the clothes I buy and wear for work are basically the same as I would buy and wear for any type of job, school, or volunteer opportunity I would do if I didn’t have this job. Also, no dry cleaning. 🙂 3. I actually eat less when I’m working, keeping my meals and snacks to… Read more »

Andrea
Andrea
10 years ago

Russ @22- the company pension match is something I hadn’t thought about as a benefit of working vs the cost…I think you’re absolutely right that to take that into account!

Don@moneyreasons.com
10 years ago

I was able to cut my breakfast and lunch expenses by over 85%, this is saving me a decent amount of change. It’s easier if you do it as an experiment with a set time when the experiment will expire. I’m hoping that by the time my experiment does expire, I’ll be so use to eating cheaply, that I’ll continue the trend… to a degree. My cost for lunch and breakfast use to be $12 a day, not it cost me only $.80 a day. As for drinking, I cut out pop entirely. I get those lipton tea (ane Wyler)… Read more »

chacha1
chacha1
10 years ago

Hi E #23, I also am lucky (and counting blessings daily). I used to have a job I could walk to where I made a high wage and had a basic benefits package. The downside was, the job was so stressful and I was so miserable that I ended up spending basically everything I made. I finally left, and after bouncing for a couple of years have landed in a new position where my wage is 17% less than at Hell Job. BUT the benefits package is considerably better. I now have a driving commute, but with a transportation allowance… Read more »

Faculties
Faculties
10 years ago

This is a very useful thing to think about, and I’m grateful for this article.

I should just point out that the last paragraph should read, “If you haven’t RUN your own numbers…” The past participle of “run” is also “run”: I run, I ran, I have run.

The Broken Penny
The Broken Penny
10 years ago

This is motivation to start your own business. Even a rough estimate on these categories is shocking. After all expenses have been applied, you are walking away with very little. Not that starting a business is easy, but often you can write off a lot of these expenses, work from home, and get taxed AFTER you deduct business expenses from your revenue.

Debbie M
Debbie M
10 years ago

Like Lindsay and E, calculating my actual hourly wage leads to quite different results for me. Mine hourly wage turns out to be rather huge. All professional development is covered by my employer. In fact, they even cover some meals that I would normally have to provide myself. A free bus pass is one of my benefits. If I didn’t work, I’d probably spend more on transportation. The kinds of clothes I buy at thrift stores for work cost the same as the kinds of clothes I would buy at thrift stores if I didn’t have to work. My employer… Read more »

Little House
Little House
10 years ago

#2 Nancy has a good point. In my case, I’d have to include the additional baby shower gifts, thank you gifts, etc. I’m a substitute teacher, and these little things make the teachers, at one particular school I teach at, keep calling me back to work! So my total hourly probably decreases due to these little gifts, but overall I make more than most in my line of work because I get hired the majority of the time.

I’ll have to check into this book a little more, it sounds fascinating!

Suzanne
Suzanne
10 years ago

I would need to include all those fundraising requests like Girl Scout Cookies, wrapping paper and chocolate truffles. It wouldn’t look good to be the only one in the office NOT supporting the bosses’ kids in their Scouts/Band/Summer Camp activities.

Suzanne
Suzanne
10 years ago

PS – Baker I guess *this* blog (ie GRS) doesn’t count as cheating on your new mantra:

“I won’t be posting another post, article, or video on this site until the rough draft of my first guide is 100% complete.” – Baker

; )

Tax Guy
Tax Guy
10 years ago

Baker,

Time can have an actual cost! In finance and economics, we call it opportunity cost. The personal finance sphere we call it the cost of waiting.

If you have a dollar available to invest and do not invest it, then you have lost the opportunity to earn investment income today. Similarly, if you are going to make a purchase and have a coupon or know there is a sale, you will lose the discount by waiting too long.

Kevin M
Kevin M
10 years ago

I’m in the same boat as “E” – my pay is actually greater when I look at all the benefits I get over and above my hourly rate. Health insurance, 401(k) match, continuing education, membership to state and national professional organizations, travel expenses are all things my employer pays for that increase my pay but aren’t shown in my “hourly wage”. Sure, I have to deduct additional gasoline expenses for driving to work, but even if I wasn’t working I would have a car. OTOH, we’ve decided my wife will stay home when we have baby #2 this summer. The… Read more »

Des
Des
10 years ago

While I’m not part of the lucky group whose real hourly wage is higher than their take home pay, I still find this exercise counter-productive. It would probably be more helpful for those live closer to their means, but DH and I make a decent living and still try to live like poor college students (as best as we can). When I calculate that it only takes me an hour of work to pay for a meal out at a restaurant, it’s like telling an alcoholic about Dollar Beer Night! I find it more effective to hide my income from… Read more »

RetirementInvestingToday
RetirementInvestingToday
10 years ago

Expenses while travelling on company business. It’s so easy to forget to collect every receipt. When you return and claim your expenses (not claiming the forgotten receipt) you are out of pocket and the company wins.

Avistew
Avistew
10 years ago

Wow, I never realised the US cost so much to work. I’ve only had a “real job” in France, where your work pays for your commute, your meals taken during work hours, and has to provide any uniform they require you to wear. It’s weird how much we take for granted. I never realised other countries might not do the same. I guess we’re lucky that my husband walks to work (only 15 minutes of time loss, and possibly some money on shoes) and bring his food from home (no extra cost compared to eating home). I’ll have to talk… Read more »

John DeFlumeri Jr
John DeFlumeri Jr
10 years ago

Food and drink, the biggest ones of all, they get ridiculous!

John DeFlumeri Jr

David/Yourfinances101
David/Yourfinances101
10 years ago

The number one thing that allowed me to get out of the financial mess that I had created for myself was simple–unnecessary spending.

You don’t have to track expenses, put yourself on a budget, or any of those cumbersome exercises.

Simply analyze your daily, weekly, and monthly spending and see what you can eliminate.

Even eliminating the so-called “minor” spending can add up in a hurry.

Sarah
Sarah
10 years ago

Interesting post. I have two sources of income. I’m employed full-time in a low-paying but very rewarding job. Unfortunately this job requires a car (and insurance) which I could otherwise live without completely. It also has led to more than $500 parking tickets in the past 9 months. When I think about the amount of my after-tax income that goes to my car each month, it’s enough to make me feel ill. On the other hand, I run a part-time business from home (full time in Nov-Jan). My net sales for a year are about 2/3 of my salary at… Read more »

Justin King
Justin King
10 years ago

I really liked how you broke things down Adam. The thought of determining a ‘real wage’ after all expenses was something I didn’t think about before.

I do question the use of it though, like Tyler did above.

Jan
Jan
10 years ago

Good way to bring all things together to write a budget. I did the same thing to figure out if I could retire. It isn’t only the regular job that needs a good look- it is life.
Nice article! Best one from you yet!

mythago
mythago
10 years ago

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.” This is the part of the analysis that really makes me want to pound my head on the keyboard. It takes a snapshot in time and projects it forward – it doesn’t look at expenses or income over time. Sure, I make $42,000 per year, but if I keep at it, what will I make in five years? Will my expenses really keep pace? (Of course, in some cases they may; I get the promotion, but… Read more »

Not My Mother
Not My Mother
10 years ago

Tyler @26, working out that you had to work 3.6 hours to pay for something is supposed to help you evaluate if it was worth that amount of your time. No, you can’t cut out of work if you don’t buy it, but that’s 3.6 hours you spent paying for that ‘thing’. If you didn’t spend it on that, then that’s 3.6 hours worth of money that is unused and could be banked towards when you don’t have to work at all (ie retirement). It’s particularly good when you add it all up and realise you’re having to work 3… Read more »

Becky
Becky
10 years ago

#38. Not all jobs in the US require these expenses and many are “self required”. A few people “think they have to” do these things if they are going to keep their job. Maybe they do. Maybe they are just an excuse to go out to lunch, go for drinks later.

Anyway, here in Poland most employees do NOT pay for transportation. You are on your own for that.

BB
BB
10 years ago

I agree with Becky #48. A lot of it is just keeping up with the Joneses at work. You have to wear clothes, eat, get your hair cut anyway. Don’t blame it on work. Spend what you’d spend were it not for work.

steamincuppaliz
steamincuppaliz
10 years ago

Something you didn’t list is wear and tear on your body. My husband has been a blue-collar worker for 30 years and the money has been great considering he only has a hs education. But at 50 he is starting to break down physically. He won’t make it to 65 in this business and our medical expenses go up as he visits the chiropractor and may need back and neck surgeries.

asithi
asithi
10 years ago

Don’t forget the contributions to baby showers, birthday lunches, going away lunches, get well care packages, etc. These things are all informal and voluntary, but it is not voluntary if you need to work with your group and that is what everyone else does. Just this week alone, I gave $10 for a going away collection plus another $4 for that person’s portion of the going away lunch. And I paid for a portion of her birthday lunch last week. She is having another going away lunch Thursday and good thing I am not formally invited to participate though others… Read more »

Nick
Nick
10 years ago

I spend a lot of money unnecessarily on food. Its a hard habit to break, especially if I eat simply because I a bored or to kill time. Small snacks especially add up: I could easily save about $30 each day in unnecessary excess food.

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