Who Are You Working For Right Now?

Preface

I recently read “The Richest Man in Babylon” by George S. Clason and “Rich Dad Poor Dad” by Robert Kiyosaki. Both books have excellent fundamentals for personal finance and I highly recommend them. What I found interesting is that both books touched on the concept of cash flow and how wealth is built over time. Clason has a chapter on “Pay Yourself First”, which teaches that one should prioritize saving and investing before any other expenses. Otherwise you will end up paying everyone else (the government in taxes, the landlord in rent, the bank in car payments, etc.) first and there will be none left for yourself. Kiyosaki talks about how you are constantly working for someone else unless you are buying an asset. In fact he puts it an interesting way, which is that if you end up paying about 50% in taxes, then you will be working everyday from January 1st till July 2nd just to pay taxes before you even begin to pay yourself.

This was a shift in paradigm for me, since I used to think that when I went into the office I was working for myself 100% of the time. But it hit hard when I would look at my income statements and see how much was actually left for myself. Even with the amount “left for me to spend” I had to cover basic living expenses and after all of that I was only left with a fraction to buy investments. It seemed that I was constantly working for someone else. The goal of this post is to research what the average American makes and where that money goes. With that information I want to draw a time table for you that shows who you are actually working for every minute from 9AM to 5PM.

Where Does It Go?

I got lucky and found a site that did all the hard work of going through the Consumer Expenditure Survey for me. According to Value Penguin the average household income was $63,784 in 2013 and had the following budget breakdown:

The first thing I want to point out about this budget is that it actually totals up to 100% of the person’s income. Every dollar is accounted for and that is easier said than done. All too often when people try to write out where their paycheck went it only sums up to about 80 to 90% of their income. The remaining 10 to 20% is unaccounted for and is essentially a tax for being loose with your spending. This is similar to your electricity bill being high even when you think you aren’t using that much power. This is because you have devices that are draining electricity in the background that you don’t even know of. The same could be happening with expenses that you didn’t even know exist.

Another thing I want to note is that this budget breakdown the Social Security category was only 9%, which means it’s not properly being accounted for. Currently Social Security is taxed to an employee at 6.2%, but that’s just a nice accounting trick to make you think it’s lower than it really is. Even though you are only putting in 6.2% your employer has to match that meaning there is an additional 6.2% that your employer can’t give to you and is accounted for when determining your salary. Obviously the math isn’t perfect, since your employer wouldn’t just hand you the money if they didn’t end up paying for it in taxes. But in general the max an employer is willing to pay you is how much money you bring the company minus what it costs to keep you. The tax is just increasing what it costs to keep you. In the extreme case you could be self employed and you would pay the 12.4% for social security and the same 1.45% for medicare would be doubled bringing the non income taxes up to 15.3%. Note this is regardless of income bracket. So even the average household ended up paying about a 1/3rd in taxes. From January 1st to May 1st the average american will work just to pay taxes.

The final thing I want to note before I move on to the time breakdown is that “almost no one is average”. These numbers are generated on the “average household”. A household could be just two income earning adults with no kids all the way to two adults, but only a single income earner, with many kids. Housing expenses will vary from location to location, single family home vs 1 bedroom apartment, whether the house is rented, mortgaged, or fully owned. Transportation varies on whether one plans on just taking public transport, lease vs owns a car, used vs new, luxury vs economy. Food varies on whether one eat out a lot or cook every meal. The list goes on with these variations, but the takeaway is that you statically aren’t average (ironic, since most statisticians like working with averages). You should at some point create one of these budgets based on your own situation. Just by tracking (loosely) where your money goes it will greatly accelerate your financial goals.

How It Correlates to Time

With the average budget breakdown from the previous chapter we can map out what times of your 9 to 5 workday is spent working for who:

I think when a person’s expenses are translated to time like this it’s easy to see the ridiculousness of how capitalism keeps us like a rat stuck in a race. It’s easy to see who the average american works for and for how long. For example, the average american spends every workday from 9:00:00 AM to 10:15:51 AM working for their landlord. 1 hour 15 minutes and 51 seconds every workday of the average american’s life is spent working for their landlord. The most exciting part of the day is 2:44:01 PM to 3:23:32 PM where the average american is truly working for themselves. For those 39 minutes and 31 seconds of the day the average is truly contributing to their financial goals. Unfortunately this means that for the remaining 7 hours 20 minutes and 29 seconds of the workday the average american is not working for themselves. When time is broken down into these segments it’s clear why the average american’s age of retirement is 66 years old. When the average american spends 92 percent of their day working for someone else it’s clear why they will spend the majority of their prime years running in the rat race.

My challenge for you is to generate a timetable like this for yourself based on monthly spending. I want you to print that timetable out and stick it somewhere in your workplace. Now whenever you catch yourself just staring at the clock I want you to take note of the time and ask yourself “Who am I working for right now?” and “Am I okay with that?”.

Discussion

Contact Me

Email: bschong2@illinois.edu