Sacrificing Time to Make Money
I haven’t mentioned this yet, but I am working two jobs at the moment. I have my standard full time position and I also recently started doing some work on the side for hourly pay. Unfortunately my full time job that is supposed to be just forty hours a week has been the one consuming my free time recently, to the neglect of both my second job and the other things I would like to do with my time (such as writing here.)
This has gotten me thinking again about the “cost” of working for income. The balance between making money and the time it takes to do so is one of the classic battles in modern life. Growing up I’ve always thought that I valued free time over money. One of my goals was to be able to get a well paying job that wasn’t too demanding on me and that allowed me to have a lot of time left over for myself. I thought I only desired a certain amount of money to be happy and that my real happiness would come from spending time doing the things I liked rather than working.
I’m not sure if my viewpoint has changed or not since I have started working. By starting the second job I am certainly sacrificing more of my time for money. At the same time, my average hourly pay actually increases the more I work the second job since it pays more per hour (not counting benefits.) One caveat is that I have not spent too much time examining the tax implications of the increased income, which is something that I need to do. As my income increases, a higher overall percentage of it will be taxed, which may actually lower my average hourly pay (especially considering I have to pay self employment taxes on my new income.)
Money isn’t the only reason that I decided to pick up the second job. It is in a field that I’m very interested in at the moment and it also puts me one step closer to having a more independent income. Another consideration is job security. The management at my primary company is not very open and I really have no good way to judge how safe my full time job really is. It could be just fine and I could be here for many years, but I also wouldn’t be surprised if they decided to let me go tomorrow. Having a second income to fall back on makes me feel much better when I see news about layoffs every day.
This post is meandering off course but I am going to continue and see where it leads me. I just mentioned that job security is something I consider worth sacrificing some of my time for. “Job security” is actually very nebulous though and what it really means is having an income stream, or money that comes in every month for me to live on. The reason this is important is because without this income stream, I could only live for a limited amount of time before I would run out of money. I’ve been saving my money in an effort to extend this amount of time and right now I think I could live for at least a year without any major changes or dipping into retirement funds.
Most people’s goal is to eventually extend that period of time that they could live without a job until the day they die, a.k.a. retirement. What this means is that I am sacrificing my free time now in an effort to create more free time in the future. This may seem like common sense and nothing new, but this is something that we should probably all spend a bit of time thinking about rather than just doing as others do. Instead working more now to save for retirement, perhaps I should be balanced and enjoy more free time now.
Anyways, I will stop rambling on and attempt to summarize. It seems like what I really need to do is to come up with some solid financial goals that I want to work towards. I need to really think about why I trade my time for money and what I want to get out of it. One of my goals will probably be to better combine the time I spend working with the time I spend doing the things I enjoy. If these are one and the same then that is a huge problem solved! This post offers more questions than answers but I will make it a point to come back and try to answer these questions for myself.
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We all eventually have to work out our trade-offs for time/money exchange. Since they’re essentially the same thing, the goal is always to apply them in the most useful way. Unfortunately, “useful” is entirely based on your long-term goals, so you’re wise to try to figure out what you really want before trying to figure out how to get there. There’s no such thing as a plan without a goal and it’s good to realize that when you’re young.
Yeah, I think I have been following a bit of a pre-set plan without really knowing what my goals are. I think that was probably okay to get me started out with some good personal finance habits, but now I think I have moved beyond that.
Part of it really is just that I didn’t know what I wanted, so I was just trying to follow the conventional advice. I know a bit more about what I want now, so it is time to set my goals.
Good article! I wanted to add one thing, just for the record, though…
“As my income increases, a higher overall percentage of it will be taxed, which may actually lower my average hourly pay (especially considering I have to pay self employment taxes on my new income.)”
This is actually not true. The way income tax rates work, every dollar is not taxed the same. For example, the first $8000 you make may be taxed at 8%, with everything above that getting taxed at 10%, and so on.
See also: http://www.getrichslowly.org/blog/2009/03/11/how-marginal-tax-rates-work/
I only mention this because I’ve seen the same mistake made a lot lately! While it’s true that bringing in extra income will mean you have to pay more in taxes, it’s never going to make you owe more than before you had that second job. Of course, you’re still paying taxes on that second income, and if the difference between paying 20% and 22% of it makes it not worth spending the time on it, that’s a good thing to take into consideration as well.
Thanks for the comment! This is a thought that I needed to clarify more before posting. I do understand how the income tax rates work, but my writing doesn’t make it clear. Here is an attempt at illustrating what I was trying to say
Lets say I work 2080 hours a year for a salary of 59,500. That is $28.61 an hour.
Now lets say that I can add 285.71 hours a year at $35 an hour and increase my income to $69,500 by doing so. Combined with my salary this averages out to $29.39 an hour.
Now consider taxes. I’m using http://www.moneychimp.com/features/tax_brackets.htm for this (filing single for 2009.)
Under the first scenario, I pay $11,063 in taxes, for an after-tax salary of $48,437. Under the second scenario I pay $13,563 in taxes for an after-tax salary of $55,937.
If I divide the hours out again I get…
$48,437 / 2080 = $23.29 | Pre-Tax was $28.61
$55,937 / 2365 = $23.65 | Pre-Tax was $29.39
Difference is $ 0.36 | Difference $ 0.78
This means that on average I am getting paid more per hour in this scenario, but not as much after considering taxes. This is a really simplified calculation that doesn’t consider self employment tax and all kinds of other things, but this is the thought I was after
Thanks for inspiring me to look into it some more! I should probably do another post on it with an accurate analysis.