How Much is Your Actual Take Home Salary?

This is quite a depressing and scary article but at the same time it can be really inspiring, particularly for anyone who is thinking about quitting their job.

The depressing side is that the amount of our salary we take home from working in a normal job is a lot less than most people realise. Normally when we think about our salaries we either focus on the headline earnings – deceptive as you never see some of this money – or our post-tax earnings, which is also deceptive because hardly anyone accounts for are all the little costs that are involved in working. These expenses may be budgeted for, but often aren’t seen as costs associated with working: costs such as commuting, the daily Starbucks and all those clothes you only ever wear for work impact to name but a few.

Below I have created a calculator and chucked a load of ‘averages’ in there: an average salary, average coffee consumption, average lunch budget, average commuting costs. What comes out is really quite scary. On a salary of £25,000 the amount you actually take home is only about £14,400! Taking this into account and with commuting time included, it changes the hourly salary from an attractive £11 an hour into £5.56 an hour. The person in this example is getting paid half what they think they are. Once you add in the heightened cost of living in London it is starting to look very bleak.

An average Londoner on £25,000 a year only gets to keep £14,400 of it after taxes and work related expenses!

But on the flip side of that, it means to replicate a £25,000 salary as a stay at home, self-employed entrepreneur is actually a lot easier than we might think. For starters we can immediately chuck away all of the costs associated with work. No more commuting, no more £5 Pret-a-Manger lunches, no more uncomfortable shirts and ties. Added to that if you own your own business and pay yourself through it, you get taxed a lot less than you would be as an employee. It is so much better in fact, you only need to earn £15,503 to replicate the take home salary of a £25,000 city employee. Have a play around with the calculator to work out how much you would need to earn to replicate your current salary.

If those savings aren’t enough, think about how cheap living costs are and how nice the weather is in Thailand. If you’re self employed and working from ‘home’ you can live anywhere in the world…

Take Home Salary Calculator

 

How do you earn money from home? Well there are many ways and exploring them is what this blog is all about. Anything from an online-store owner to a freelancer on odesk, from a professional gambler to a blogger. Stay tuned as I delve into each option.

  • Get Cash Fast

    Whilst an interesting article that does highlight a lot of the ‘costs of working’ that people forget to account for, I do find it a bit sensationalist.

    Food/Snacks
    The cost of eating during the working day does not have to cost more for an employee vs self employed. Many people in offices take in their lunch every day, and many people who work from home still pop to the local cafe for lunch to get out the house. The fact that most employees choose to eat out for lunch is a different point. Many employers offer subsidised staff canteens, and is it only employees who work in an office that need snacks to get through the day?

    Tea/Coffee
    Yes there are some people who ritually visit their local Starbucks on the walk to work but there are employees at the other end of the scale. Most offices have kitchenettes, enabling employees to make their own tea/coffee as if they are at home. One place I used to work had free coffee machines for staff and at Deloitte Digital they even have a full-time barrista to serve employees drinks throughout the day for free.

    Clothing
    If I was not working in an office, I would still need to wear clothes; the money spent on office-wear would simply be spent on other clothing. The requirement for professional clothing is reducing as more employees work from home and offices transition to more casual working environments. Many labour forces that must wear a uniform are provided with them by their employer free of charge (admittedly not all).

    Travel
    There are many low-cost travel options in London: walking, cycling, buses, but not everyone chooses to use them. Yes, at face value it appears there are many people paying expensive season tickets to commute into London, but an annual Zones 1-2 Travelcard works out at £24.14 per week, half of the amount quoted in the article above. You also receive an annual Gold National Rail card for the year, providing further savings on National Rail transport (eg: for the weekends), it covers all your social travel throughout the week, and most employers will provide an annual railcard loan. Renew your travel/railcard on 30th December each year and save the 1st January price increase. If travelling by car, some employees will cover your fuel costs, so the headline figure in the article of £47 sounds high.

    If I only enter my £24 travelcard, and exclude the other ‘costs’ then I would only need to earn 83-84% of my employed salary to break even. Whilst a nice saving, it mostly comes from tax breaks.

    I don’t disagree with the article in principal, but I think the figures quoted are worst case secario vs a best case scenario. Can most people make more money, work less or have a more enjoyable lifestyle if self employed? Yes, but aside from cost savings there are other factors such as risk and responsibility that self employed people take on, and not everyone is comfortable with that. Some people like to turn up to a job, get paid, go home and spend it, going to sleep safe that their job will be there tomorrow to pay them the same wage.

    • http://www.arbing.co.uk Sam Priestley

      Hi there,

      Thanks for you feedback. I think you make some very good points.

      An angle I didn’t really approach, but that I think you summed up nicely is that there are ways round most of these costs. Even if you currently spend a lot there are good ways to cut down (my favourite being cycling as you get the double of whammy with the health benefits).

      Knowledge is power. If you’re the sort of person who type in your costs and comes out with a pretty good take home figure then happy days. But if you’re the sort of person who types in your costs and are horrified by the answer, then change something.

      You are also probably right that most of the ‘average’ figures are a bit high for the ‘average’ person.
      1 – The figures could be skewed by a minority of really high spenders. The average expenditure is not the most common expenditure.
      2 – Due to the lack of other research in this area I had to dig around in some pretty ropey parts of the internet for some of the figures. But I have tried to be at least to not be completely biased – for instance this Daily Mail article claims on average women spend £341 a month on clothes.
      3 – Being able to use your travelcard for leisure purposes is valid, and at least a portion of you luncheon and clothing budget would probably be spent anyway – especially if you don’t have to wear a suit.

      ps. a full-time barista to serve employees drinks sounds awesome.

    • http://www.arbing.co.uk/ Sam Priestley

      Hi there,

      Thanks for you feedback. I think you make some very good points.

      An angle I didn’t really approach, but that I think you summed up nicely is that there are ways round most of these costs. Even if you currently spend a lot there are good ways to cut down (my favourite being cycling as you get the double of whammy with the health benefits).

      Knowledge is power. If you’re the sort of person who type in your costs and comes out with a pretty good take home figure then happy days. But if you’re the sort of person who types in your costs and are horrified by the answer, then change something.

      You are also probably right that most of the ‘average’ figures are a bit high for the ‘average’ person.
      1 – The figures could be skewed by a minority of really high spenders. The average expenditure is not the most common expenditure.
      2 – Due to the lack of other research in this area I had to dig around in some pretty ropey parts of the internet for some of the figures. But I have tried to be at least to not be completely biased – for instance thisDaily Mail article claims on average women spend £341 a month on clothes.
      3 – Being able to use your travelcard for leisure purposes is valid, and at least a portion of you luncheon and clothing budget would probably be spent anyway – especially if you don’t have to wear a suit.

      ps. a full-time barista to serve employees drinks sounds awesome.