How Much in Extra Working Costs Are You Spending?

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You think you know how much you earn. You make $35,000 or $50,000 or $75,000 or $95,000 a year, plus a 3 percent retirement match. You've even calculated your hourly rate. You make $18 or $25 or $36 or $52 an hour. But you're not done yet. Now, you need to figure out your expenses. To illustrate the cost of working, let's look at two hypothetical examples.

Hypothetical Example #1: Allison's Extra Cost of Working

Allison needs to wear nice clothes to work — not tailored suits, necessarily, but "business" attire like silk shirts, pencil skirts, and heels. She wouldn't normally buy these clothes if she didn't have this job.

She buys a new item for her work wardrobe once a month, at the cost of about $100. She spends $1,200 a year on work clothes. She also spends 3 hours a month, or 36 hours a year, shopping for work clothes.

Allison also shakes hands with clients, so her nails need to look professional. She gets manicures twice a month, at the cost of $25 per manicure. She wouldn't normally do this if she wasn't working. She spends $600 per year on this, and it takes her an additional 3 hours per month or another 36 hours per year.

She also drives 25 minutes to work and 25 minutes back, spending 4.16 hours a week commuting. That's 208 hours per year, assuming a two-week vacation. She also spends $25 per week, or $1,250 a year, on fuel directly related to her commuting costs.

The wear-and-tear on her car cost her an additional $400 a year. Allison buys more convenience foods because she's working. She spends an extra $20 per week on groceries, as compared to the amount she'd spend if she wasn't working and had the time to cook from scratch. That's another $1,000 per year.

She's in a hurry in the mornings. Normally she tries to brew coffee at home, but once a week she's running late and buys a $3 coffee. That's another $150 a year. Her two children are in the third and fourth grade.

They go to after-school programs from 3 pm, when school lets out, until 6 pm, when Allison comes home from work. The kids enjoy the after-school programs, and they would want to participate in the programs regardless of whether or not Allison is working, so that cost is neutral. It remains the same.

But in the summers, when school is out, Allison needs to put the two kids in a summertime day camp. This costs $1,500 per child for the summer, or $3,000 total. In total, Allison spends $7,600 a year on the cost of working. She also spends an additional 280 hours commuting and buying business clothes.

Determining Allison's Net Hourly Rate

She earns $55,000 per year plus a 3 percent retirement match, which is worth $1,500. Her company-sponsored health insurance, if she bought it on the open market, would cost her $250 a month, or $3,000 a year, so her "total compensation" is $55,000 + $1,650 + $3,000, or $59,650.​

She spends $7,600 on the cost of working, so her "net" pay is $52,050. She works 40 hours a week, 50 weeks a year, plus she spends an additional 280 hours a year commuting and buying business clothes, for a total of 2,280 hours a year. This means her "net hourly rate" is $52,050/2,280 = $22.82 per hour.

Hypothetical Example #2: Bob's Extra Cost of Working

Bob needs to wear suits, belts, and shiny shoes to work. Each suit costs him $300. He owns about four suits, and he replaces one a year as they get worn out or become ill-fitting.

He also buys about six dress shirts, two belts, several socks, one pair of shoes and two new ties each year, for an additional yearly total of $400. That means he spends $700 a year on business attire. He spends 10 hours a year buying business clothes.

He also needs to get his suits dry-cleaned. This costs an additional $40 a month, or $480 a year. He spends 30 minutes a month (6 hours a year) dropping off and picking up the dry cleaning.

He is expected to show up in a neat-looking car when he drives to meet with clients, so he gets his car washed weekly. If he wasn't working, he'd normally never do that. The weekly car wash costs $5, for a total of $250 a year. Bob sometimes grabs lunch from a local quick-eatery when he forgets to bring lunch to work. He does this twice a week, at $7 a lunch, for a total of $700 per year.

He has a 45-minute commute in each direction. Assuming a two-week vacation, he spends 375 hours a year commuting. He also spends $800 on vehicle wear-and-tear and $2,500 on gasoline per year in commuting costs.

In total, Bob's cost of working is $5,430 per year.

Determining Bob's Net Hourly Rate

He makes the same rate as Allison — $55,000 a year with a 3 percent retirement match and company health insurance that would otherwise cost $250 a month if he bought it as an individual plan. That's a total compensation package of $59,650.

His "net" pay, though, is $54,220. He also spends 391 hours a year in commuting, dropping off dry-cleaning and buying business clothes. Assuming he also works a 40-hour week, his hourly rate is $22.67. If he works a 45-hour week, his hourly rate is $20.53. And if he works 50 hours a week, his rate is $18.75 an hour.

How to Budget for Working Costs

Always calculate your cost of working. Use this as the backbone of your budget. Of course, you can always look for ways to trim your working costs. You can vow to carry lunch to work every day. You can stop buying coffee out. You can look for cheaper business clothes. But some costs, like commuting expenses and childcare, won't subside. You might choose to deduct these costs from your "income" when you create your budget.