Latest posts by FIRECracker (see all)
- How to Become FI with 6 Kids, Zero Privilege, and a Small Salary - January 11, 2019
- Our 2018 Finances - January 7, 2019
- Happy New Year 2019! - December 31, 2018
“Can you write about how much you’re paying to work?’”
We got this e-mail from a reader recently. Apparently, once-upon-a-time I’d mentioned in a post how we don’t realize how much we PAY to work. I said I’d be writing about this in a future post, but then forgot to, you know, write it.
In my defense, there are a lot of saunas and spas in Europe and they’re not going to visit themselves.
Anyway…without any more excuses, here’s my better-late-than-never post on how much you’re paying to work:
When we’re working, we love focusing on the fatness of our paycheck. But we never stop to consider how much of that paycheck gets eaten up by the costs of working. We also never stop to consider that without those “working costs,” our expenses in retirement would be much lower, and thus, we could be closer to FI than we think.
Let’s break down all the costs we pay to work:
As I mentioned before, investment income is taxed more favourably than earned income. So, the employee goes and busts their ass getting their salary, but immediately a big chunk of it goes to taxes. But in retirement, if you structure your portfolio properly, you may never need to pay taxes again.
Taxes mean you are paying the government to work.
Hands up if you love being stuck in traffic every day, breathing in the exhaust fumes, and wasting hours of your life.
Or if you live in a big city like I did, being squeezed into the subway and being covered in the sweat of a hundred strangers, swearing and jostling around you.
I thought so.
Well, guess what? You’re paying for this privilege. When you’re working you have no choice but to drive or take the subway everyday. You’re paying gas, maintenance, insurance, monthly transit passes, etc. all for the privilege of getting your ass to work.
Subway passes in Toronto cost us $130/month each back when we were working, so that adds up to $3120/year.
Mr. Money Mustache calculated that driving to work costs you $795 per year per mile driven.
Since the distance from our rental to work was 6 miles that means it would’ve cost us $795 x 6 x 2 = $9540/year for the round trip. Yeesh!
Ever been so tired from a long day, you say “screw it, let’s just grab a pizza or go to the nearby restaurant and grab dinner?”
I’ve been there.
Because you’re so drained from a long day at work, you have no time or energy to make dinner, so you drop 2-3x how much you would’ve spent cooking a healthy meal on eating out instead.
If we had time to cook, we could’ve lived on $600/month to $800/month on groceries, but because we were regularly eating out when we were working, we’d easily spend $1000-$1200/month on food.
This adds up to an extra $400/month or $4,800/year. That’s how much we were paying for rent in college!
It’s been more than 3 years since I’ve worn a suit. I honestly can’t even remember what material suits are made of.
When you’re working, you have to pay to look “professional.” That means buying all sorts of clothing that you’d never spend money if you weren’t working.
Luckily, I was in engineering, so I only needed suits, blouses, and dress shoes for interviews and the occasional client meeting. But if you’re in sales or finance, you’ll likely spend a whole lot more.
A professional wardrobe is estimated to set you back around $1000/year per person on average but could cost considerably more for other professions.
Remember the professional clothes I mentioned above? Well, not only do you have buy those things, you have to spend more money dry cleaning them.
I had to look up how much dry-cleaning costs to write this section because I honestly can’t remember.
Right now our our clothes fit neatly into 2 backpacks and we would never be dumb enough to bring or buy anything that needs dry cleaning. It makes no sense for travellers.
But while you’re working, you have repeated costs for dry cleaning (estimated to be around $30/week on average), which amounts to $30 x 52 = $1560/year per person.
That’s not all though. When you’re too busy working, you’re also too busy to clean, maintaining your lawn, fix stuff around the house , etc. So, what do you do? Outsource that shit of course!
Luckily, we rented a 1 bedroom flat, so we didn’t have to worry about the lawn (that was the landlord’s problem) and I didn’t have much space to clean, but my co-workers estimated they spend $400/month to hire a cleaner and $150/month to hire a professional mowing service. And if you live in a cold place (like we did), some people also outsource snow removal.
This all adds up to $1560 x 2 (dry cleaning) + $400 x 12 (cleaning) + $150 x 12 (lawn mowing)= $9,720 per year for a couple!
High Cost City
One of the biggest costs of living most people struggle with is having to live in a big city to find work. But when you no longer need a job, you are location independent. You could easily move to a low-cost area and save tons of money on rent.
If you live in a big city, you could be forced to pay double or triple the housing costs than if you were location independent and could move to medium-sized to small-sized town.
This would save you tens and thousands of dollars per year.
This is huge for people with kids. Since you’re usually stuck in a high cost of living city, the demand for child care also drives up costs. So now you’re paying $1500-$1800/month per child on child care for the first 3-4 years of their lives. If you’re retired, child care is either completely free or can be drastically reduced since you don’t need it every day.
So child care will set you back $18,000 – $21,600/year per kid—another expense you’re paying to work.
Here’s a cost most people don’t think about—costs you paid to de-stress. When we were working we blew money on vacations. They were a necessity to decompress from our jobs. But now, the travel costs are part of our day-to-day living expenses. I no longer shell out thousands of dollars a year for vacations and my life is way better. It’s a never-ending vacation!
And in addition to vacation, you also spend more money on massages, gadgets, etc. to de-stress your life. Guess what happens when you remove that stress? You no longer spend money on de-stressing.
De-stressing costs amounted to $5000-$6000/year when we were working.
The last time Wanderer got a full health exam at the doctor’s office, his doctor diagnosed him as “obnoxiously healthy.” I never heard that when I was working. I frequently struggled with wrist pain, back pain, depression, anxiety etc. All of which cost money to fix (medications, ergonomic chairs, acupuncture, wrist braces, etc.)
I’ve now lost my wrist brace, I don’t buy ergonomic chairs because I don’t have any back pain, and haven’t taken any work-stress related meds in 4 years.
We don’t realize how much stress harms our health, and how much we’re paying to fix it afterwards.
Putting It All Together
When we add it all up, let’s see how much you’re paying to work:
$3120 (commuting) + $4800 (eating out) + $1000 x 2 (professional wardrobe) + $1560 x 2 (dry cleaning) + $5000 (decompression) = $18,040/year
A family of 3 with a house/car
$9540 (commuting) + $4800 (eating out) + $1000 x 2 (professional wardrobe) + $18,000 (child care) + $1560 x 2 (dry cleaning) + $9720 (services) + $5000 (decompression) = $52,180
Wow! And I haven’teven included the extra cost of being in a big city, taxes, and stress-related costs in this scenario!
This is obviously a hypothetical example using our own experiences, co-worker’s costs, and average estimates. Your cost could be higher or lower depending on your situation.
So think about how much you’re actually paying to work. Your salary is not free. Just like running a business and only looking at revenue but ignoring costs doesn’t make sense, you need to figure out how much you’re paying to work, so you can you figure out your REAL salary.
Let’s hear it in the comments below. Calculate how much you’re spending to work and how much you’d be able to live on without those costs. Then figure out whether this changes your time to FI.
Want free money to go travelling? Check out how we get credit card and banking sign-up bonuses here!
Want to learn how to replicate our retirement portfolio? Check out our FREE Investment Workshop!
Want to travel the world like us?
- Airbnb helped us save over $18K/year! Click here to get $40USD off your first booking.
- Click here to find out why you need travel insurance (it saved us $3000 in a family emergency!) and to get a quote.
Full disclosure: the above links are affiliate links so I may get a commission if you apply.