5 things no one tells you straight but you wished someone did (#3)

3. What you’re paid is not what you can spend

By (CC) Tracy O from Flickr

Its always a thrill to get money. That’s life and a very enjoyable part of it. However some folks miss the gap between getting money and actually getting money. Let me explain.

You sign your new employment contract and are very happy with the large number, say $120,000. Careful now. That number is the total for 12 months from now but your mind is only thinking about the weekend coming up. Knowing that you make $120,000 a year doesn’t mean you should go out and sign a $10,000 down payment agreement on that 3-pointed star.

A not-so-insignificant amount of your salary goes to paying not-so-insignificant costs of living. Here’s a general list;

• Rent / mortgage (10-33%)
• Internet / Utilities (5-10%)
• Transport (5-10%)
• Taxes (10-20%)

The percentages will vary depending on where and how you live, but overall you’ve got to account for these expenses. Even with the lower numbers, you’re looking at about a 30% gap between the number on your paycheck and number that’ll show up on your bank balance at the end of the month. And all this is without insurance and any other deductions from your company!

So there really is a difference between your salary and exactly how much of it you can actually spend.

After I got my first paycheck, I bought a fancy briefcase which I initially figured to be about 3% of my pay. Now as I look back, taking in to account the list above, that briefcase cost me 10% of my money after expenses. That bag is now in a storage box!

Lesson: Be sure you know how much exactly you’re getting in your hand before splurging.

Another lesson: No briefcase is worth 10% of your pay!