Working Costs Money

Since I wrote an article yesterday focusing on our economic downturns and a potential change we can focus on within our own control, I mentioned a statement about how it can cost people money to work. Doesn’t make much sense, but I’m going to give an example here describing the premise of how going to work, actually makes you deeper in debt.

For this article, we are going to assume the subjects are a married couple with two kids. That’s not a logical reach is it? Well, married may be in today’s world, but hey, let’s go with some old fashioned sense here for past time’s sake. Let’s assume they are working in an average job, one that brings in about $12 an hour each. The two kids still require a babysitter. For simplicity, the parents will be working a normal 8am to 5pm job, 40 hour per week, no weekend duty. Sounds like a typical American family doesn’t it? The annual revenue the couple pulls in is right at $48k per year. Rough tax calculation of about $6,500 leaves them with $41,500 for the year in spending money. This equals about $3,460 per month or about $800 per week. Simple math is all it is. That doesn’t sound too bad. They are in a better position than a lot of people out there, even at $12 per hour jobs.

So how do they cost themselves money by working? Let’s assume that they are paying a mortgage on their first house. Let’s just say their monthly house payment is about $800 (based on a US low estimate of an average mortgage loan). A couple with two kids is likely to spend at minimum of $125 per week for groceries and baby supplies (this is probably cutting it close). That’s another $500, so we are up to $1300 spent. Now we of course have to have electricity, phone, water/sewer, and possibly heating costs. Let’s just say all of that adds up to $75 per week (could be way off depending on your locale). $1600 is now gone. Usually, the two adults will be working at separate places so there must be two vehicles. Let’s assume they are driving one economy car and a van (for safety’s sake they are newer vehicles and they can’t afford mechanical difficulties so they have vehicles under warranty). Car payments will be $275 for the economy car ($20,000 car at 0% interest for 72 months) and the van will be $350 ($25,000 van at 0% interest for 72 months). That comes out to another $625 and we are now up to $2,225 spent.

The seemingly large sum has now dwindled down to about $1,250 available. Wait, how far do they have to drive to work? Let’s assume they average out to a total of 60 miles a day total to and from work and their cars average 20 miles per gallon. Per week, just for work, they are $52.50 for gas at $3.50 a gallon. That’s another $210 gone. We are now down to about $1,000. If the family goes anywhere else, it costs more money, so let’s throw in another full tank of gas at 30 gallons for a cost of say $100. We are down to $900. What else do we need to live? Clothes, household items, cell phone costs (minor plan for emergency needs while on commutes), health care costs for kids and adults, and a myriad of other minor necessities. Let’s just bundle this up to say $200 a month. Whew, getting to the nuts and bolts here, down to $700. Of course, every American family has some debt in the form of credit cards. Let’s throw in a modest credit card payment of $200 a month. We are getting close to the bottom of the barrel, now to $500. Well, you might be thinking, everything is covered, life is good. We have a house, have two new vehicles, have ample food, have all of our services paid for and we are good to go.

Not so fast. We are missing one major cost here. Daycare for the kids because they can’t take care of themselves and everyone isn’t blessed with grandparents able to take care of them for free. Daycare is a black hole for your pocket book. You are at the mercy of the service providers. You basically have little to no say about costs. According to the website cited below the remaining $500, and likely much more, will be spent on the children’s daycare. This family has now just started losing money by going to work. How can that be? The picture we have painted isn’t one of excess by any means. I didn’t include ANY entertainment costs. I didn’t include any toys for the children, movies, television subscriptions, high end cell phone packages, or even end of the year taxes. Insurance, yeah, that’s not in there either. Full coverage is required on a non-paid for vehicle. I didn’t include ANY student loan payment either. Keeps getting worse doesn’t it.

You might be thinking, well, they don’t need to own a house. They don’t need to own two new vehicles. They don’t need to spend $125 on groceries per week. They don’t need (throw in whatever you want here). Need. This entire article is based upon need. There is no want in this picture. House or rent, it’s still very costly. Do they need two new cars? I’m being generous here and giving 0% interest, the payments are low and if they bought used vehicles, they would likely experience major mechanical issues which they would then have to pay for out of pocket due to no warranty. Yeah, some people are lucky with used cars, but everyone isn’t. You get the idea, I’m not being overly generous here, and this family is living on the threads of need and falling deeper in debt. How can that be when they are the epitome of the American dream?

It’s very sad and I think we are seeing more and more of this situation in our country. People fail to realize what is happening because they keep charging their cards up and making it by the skin of their teeth each month while their debt continues to build behind the scenes. It’s a cycle that cannot be caught. Rising gas costs, rising food costs, and rising credit rates are eating away even more at their monthly income. What does the family do? Can this family be better off if only 1 adult worked? Let’s work that out in an article tomorrow. I haven’t done the math, so we’ll do it together tomorrow.

Citation: http://www.babycenter.com/