Only a $1,000, Right?
You are looking to buy a $1000 couch, and you say, “It is only $1,000.” Right? Wrong. Let’s look at what it really costs to make that purchase.
Taxes and More Taxes…
First, let’s assume you need to pay sales tax of 7%. So now you need to come up with $1070. But you actually need to earn more money because where I come from there are taxes to pay such as federal tax, city tax, state tax, and FICA. Let’s assume you are in a 15% federal tax bracket, 6% state, 2% city, and your portion of FICA. That means you will need to earn at least $1,533.00 before taxes to make that $1000 purchase.
In other words, the $1000 couch will cost you $1533 or 153% of the sale price. So when considering a purchase, make sure you evaluate the real cost.
So another way of saying this is…
- You need to earn $1533 to buy a $1000 item
- You need to earn $15.3 to buy a $10.00 item
- You need to earn $1.53 to buy a $1.00 item
It impacts other areas…
Let’s shift from couches to vehicles. You know that vehicle sitting in the driveway that you paid $30,000 for? You had to earn $46,000, pay the taxes, in order to bring home enough money to buy it.
Can’t seem to get ahead?
Have you ever wondered why it feels that your money doesn’t go very far? Here is why. If I ask you how much you make, what will you tell me? 9 out of 10 times you will tell me the gross amount that you make because we normally think in gross. So if your gross income is $70,000, you are walking around thinking you make $70,000 a year, and you are beating yourself up because you are wondering why you can’t make it on $70,000 a year. The reality is if you are grossing $70,000, you are bringing home (net) somewhere in the $46,000 range. That is a long way from $70,000. Once you start thinking in net, you will find yourself less frustrated and more understanding as to why you don’t have the purchasing power you thought you had.
Don’t forget the value of you time
There is one more piece to this process I want you thinking about. I want you thinking about what things cost you in hours worked. When you go to work you are exchanging your life (time) for money. Here are some examples.
Let’s assume you make $25 per hour.
1. You will have to work 61.32 hours to bring home enough money to buy the $1,000 couch. That means working just shy of 8 full work days.
2. You will have to work 4.6 hours to bring home enough money to pay for a $75 night on the town.
3. You will have to work 1,840 hours to bring home enough money to buy the $30,000 vehicle. That means working 46 weeks.
Let’s assume you make $15 per hour.
1. You will have to work 102.2 hours to bring home enough money to buy the $1,000 couch. That means working just shy of 13 full work days.
2. You will have to work 7.65 hours to bring home enough money to pay for a $75 night on the town.
3. You will have to work 3,066 hours to bring home enough money to buy the $30,000 vehicle. That means working just shy of 77 weeks or about 1.5 years. (This vehicle will go down in value too but that is a topic for another day).
I’m not against buying couches, nights out, vehicles, or other items. My goal with this article is for you to understand and calculate the real cost of every item you purchase.
(Note: a. For those of you who participate in biblical tithing (10%), your factor is 170% instead of the 153% so you would need to earn around $1,700 to have enough to buy the $1,000 couch. b. Tax percentages may be different for your situation).
You have a choice, and the choice is yours.Bryan Cooper My Financial Life Coach, LLC 2280 W William St., Suite A Delaware, OH 43015 Visit us at: www.MyFinancialLifeCoach.net www.facebook.com/MyFinancialLifeCoach