Your View on Salary is Holding You Back
“You’re ridiculous”
That’s the response I’m greeted with as soon as I finished explaining how I calculated my salary to my father… And my sister… And my soon-to-be brother-in-law… And my friends. No matter their age, height, weight, or gender, each and every single one of them gave me the same response after I led them step-by-rational-step at how I was calculating my hourly wage. With a shake of the head and a heavy sigh, they would counter:
“You just can’t do it that way” — Just about everyone
But why not? My math wasn’t wrong. My logic was on-point. If anything, as self-described savers, they should by far prefer the methodology I was using instead of their own. It didn’t make sense to me. How could so many people, especially ones who have lived so frugally all their life, not see the validity in my method? Why would they stick with the outdated model they’re using now?
That’s when it hit me. What they had an issue with wasn’t the calculations or the numbers. It was the mentality. They just simply had a different look on life than I had.
A Quick Look at the Numbers
It’s natural for most people to calculate their work into an hourly rate. Whether for self improvement or plain curiosity, it’s something that most people do. After all, until gamification truly transforms the workplace, work is still work. And we need a reason to work.
The typical calculation goes something like this:
Say I make $45,000 a year. Assuming state and federal taxes add up to 33% of my total, that leaves me with $30,000. Let’s pretend I have 15 vacation days, which combined with 10 federal holidays, lets me take 5 weeks off of the year’s 52. So I work 47 weeks a year, 5 days a week, 8 hours a day, which adds up to a yearly total of 1880 hours and when divided into $30,000 leads to an hourly rate of $15.95. Simple.
My calculation goes a little more like this:
Work doesn’t exist in a vacuum. Pretend I have to pay $200/month for company health insurance, $150/month for transportation, and $150/month for the $7.5 lunch I get everyday at work. This equals out to $6000 that I subtract from the post-tax salary to get $24000. But I also spend time getting to and from work. In this case, its 3 hours round-trip, which I’ll tack onto the 8 hour workday. Instead of working 1880 hours a year then, I actually attribute 2585 hours to work every year. Dividing that into $24000, I yield $9.28/hr. This doesn’t include rent. It doesn’t include work clothes. It doesn’t include utilities or internet. No car, no renter’s insurance, no nothing.
The ideology is simple: Profit = Revenue — Costs
“You’re just being greedy”
Maybe. But am I not supposed to be? Why should I not include those other costs into my expenses? Those are all expenditures that I have to incur in order to work, which means that I neither get to use nor benefit from that sum. Of course you require a place to stay and a lunch to eat even if you don’t have a job, but without one, you could live with your parents back home and make your own sandwich.
The real point of this method of calculation is to see what is your real benefit and growth per hour. It is to crystallize the trade-offs that you’re actively and unwittingly taking as a cost of the job. It is realizing that every hour behind a desk plugging in data is an hour away from a book, from learning a new skill, or from creating your own product. In a very real sense, it is the only true way of finding your “take home pay” by painstakingly finding out your “to work costs.”
Some people call this “Pay-Price to Action.” Economists call it “Opportunity Cost.” I myself prefer calling it “Cost-Focused Investing,” since I use it to make decisions on what gives me the best returns on personal development. Whatever term you use however, the basic premise is the same: there are consequences for your choices, and both what you do and do not do will still cost you. For entrepreneurs specifically, these must considered when postponing that launch day to “get more experience as an employee first” or saving up “just a little longer.” Even for a non-entrepreneur, these are trade-offs to balance before “taking that job in the big city” or going to college instead of working.
The unfortunate thing about consequences is that they will happen and affect you with or without your permission. The goal of Cost-Focused Investing is to emphasize and discover these consequences so that you can at a minimum choose which ones you are willing to take and make an informed decision based off of that. In addition to being able to truly see what it is that you’re gaining from your current circumstance, this mentality allows you to be more aware and conscious of what you’re worth and where your priorities lie. Humans are a sad and funny thing. Only by seeing what we stand to lose do we reevaluate and hold on tightly.
Seasoned entrepreneurs know this. They know that their most valuable resource is not money. That can be raised. It is not ideas. Those are a dime a dozen. It is time, because it is limited in quantity but unlimited in potential. But rather than being idealistic and attaching some sort of feel-good value to our time, we have to be realistic and ground it in cold reality. If a $70/hourly wage was what held you back from your goals, does that still stand if you realize after all expenses it’s actually $45? How about $13? It’s thinking like this that allows a world-traveling freelance developer to make 2/3 the average salary of those in Silicon valley and still enjoy a quality of life much higher than that of his Californian counterpart.
If someone accepts a minimum wage salary, only to do the math and finds out that it ends up as a net gain of $.50/hr, is that really worth the time and effort? They’d probably be more productive learning to code or another skill. But this only assumes that the job offers no intangible benefits. Though much harder than dealing with a raw number, Cost-Focused Investing has to take into these benefits as well in the individual’s personal growth. For example, how much is the experience from the job worth? What about a letter of recommendation or a network? Most importantly, how will it help me in the trajectory of which I have planned for my future?
What This Means for Employers
I have no ill feelings towards employers. This post is not meant to go into the entire pay debate and advocate for higher wages and salaries(though if you’re offering, I would never be so rude as to refuse!). In fact having employed some developers briefly during my stint in entrepreneurship, I can empathize with employers not sharing the same perspective. To them, they are only really getting those 8 hours. They don’t benefit directly from your time commuting or your choice of lunch, and since they can’t find out what are the exact costs each person has, they cannot compensate or even systematically address it.
Yet that’s why there’s such large misfit between employers and employees. Whether the person knows it or not, every single human being is an entrepreneur. Though they might not have an official business, they are all constantly investing and developing a product: themselves. As we inch towards the future of employment, we see that the companies that do best are the ones that realize this and put in mechanisms to invest in their employees. This is because employers should share the same view as their employees. Not only because it builds a very real sense of being on the same team, but because fostering growth in workers leads to better products and greater culture.
All this has to start organically from employees themselves. Unless employees universally adopt a Cost-Focused Growth mentality, they will consistently continue to undervalue themselves and miss out on opportunities to grow both for themselves and their employers. Employers are profit-minded, and it is up to employees to convince them that it is in their best interests to spend more in order to make more. Companies that rely on cream-of-the-crop hires to stay relevant and innovate like Google know this, which is why they offer not just aesthetic benefits like free lunch and massages, but also programs to allow each person to dedicate themselves to a personal project.
Smart employees know that time is precious. They know how to count costs and plan for growth. For a good company that wants to become great by hiring smart employees then, they need to reflect that mentality and incorporate ways for these workers to save time, encourage worker development on-the-job, and properly compensate them for their costs to work.
P.S: A Final Note about Talia Jane
With the social sphere buzz surrounding her Yelp post just starting to die down, it’s important to address how this mentality can serve as a major lesson for millennials just entering the workforce. New recruits are often stuck in the trap of nominal profit, forgetting to account for costs due to a lack of planning, options, or just plain experience.
Talia’s case is just one of many that are happening as more millennials graduate and find jobs. For Talia herself, she could have been more discerning in her choice of apartment, city, and job. If she had been more cost-focused, it would have occurred to her that after expenditures she would be left with nothing in growth. She could have realized and pursued another career path, perhaps one that would drive her closer to the childhood goals she set for herself.
Yet even though Tali definitely shares some of the blame for overlooking her costs and putting herself in such a position, companies should also be more understanding and thorough in their recruitment. Good recruitment remembers that it is not just enough to see whether or not the applicant is a good fit for the position, but whether or not the position is a good fit for the applicant. Resources can also be given to make sure that employees can acclimate to life on-the-job; Something as simple and free as a company housing page can dramatically reduce an employee’s troubles while also reducing workforce churn.
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