WW2: Earn less, get more

Many people who take a hard look at their income/expense picture conclude that the solution is simple--just earn more. But as Amy D. explains early on in the Complete Tightwad Gazette, it's like trying to lose weight by exercise alone, without restricting calories. It takes twice as much work, not to mention time. People who try to earn more in their careers often have to spend more money and time to do so, whether it's achieving an advanced degree, or just working overtime. Some people try to squeeze in a home-based business on the side, but I know from experience that this can be a time-waster and a money-loser, if you're not extremely careful. Often the simplest solution for couples is to add more paychecks--hence the phenomenon of the wife wasting her time on low-paying service jobs.

Am I being pessimistic? There are, after all, lots of women with "good jobs," jobs that required a lot of investment on the front end, and seem to pay off in the short term. And, since I've heard "I need to work" so often, we need to examine the case of the more highly-paid Mrs. Let's say the wife has a moderate-paying job, like schoolteacher or nurse. I firmly believe (tho I have no charts to back this up) that in order for a woman to earn a high enough income to make it worth her while to be in the workforce, she must spend more hours in the workplace. Either it's because her skills confine her to office or service work (which may suck hours in exchage for a fixed salary or offer shift work for a low fixed hourly wage), or she finds herself funneled into public sector jobs, for which there is a fixed wage but more hours of actual work (such as schoolteacher). The one exception seems to be nursing--where a woman can go out, acquire her credentials, and then work a fixed number of hours for a fixed wage that is high enough and doesn't entail more work.

But there is a further cost to the woman's increased income productivity in the workplace. She now spends so many hours outside of the home, that she must "replace herself" and the things that she may have done in the home, with purchased goods and services. This goes above and beyond the cost of daycare and convenience food; the woman says to herself that she is working--therefore she can afford to buy things. And since wholesome family life is lacking, she'll hit the stores to try and replicate it. Ever been in beautifully decorated and furnished homes that stand empty all day? Or perhaps she splurges on twice-monthly maid service. On top of that, there are the children to truck here and there, and programs to put them in so that they don't go home to the empty house, and fees and supplies for those activities. Not to mention the enormous emotional strain that a "productive" wife puts on a marriage. Not only do husband and wife hardly see each other, nor are permitted to serve one another in tangible ways involving their home life, but they spend hundreds of hours a year in the company of co-workers of the opposite sex who may or may not seem more attractive or sympathetic as time goes by. Add the inevitable financial strain of increased expenses that the wife's career was originally supposed to prevent, and you have fertile ground for divorce--the biggest expense of all.

But it isn't my intent to debate the wife who works. Work if you will, only do so with eyes open to the consequences. The fact is, most of us can only increase our productivity up to a point. After you've reached a certain "balance point" (if you will) the IRS will come and take away the surplus. It's sad but true--our modern economy actually punishes increased productivity with increased taxes. The way our progressive income tax works, you get taxed at a lower rate for the first $15,000 of earned income. But each $5- $10,000 (depending on the tax code in a given year) you make beyond that is taxed at successively higher rates. A married couple filing jointly pools their income and gets a standard deduction that is not equal to twice the amount of standard deduction a single person is allowed to take (hence the term "marriage penalty"). Add the wife's income on top of the husband's income, subtract the deduction, and you can see why it generally doesn't pay to make the wife work. They are now in a higher tax bracket. Every bit of extra income the wife brings in is taxed at much higher rates than the husband's. Even if they have a number of itemized deductions (such as their mortgage, daycare, or child tax credits), these "shelters" still represent income that had to be paid out during the year for various expenses...expenses which tend to be higher when both spouses work (since they figure they can "afford" it). An income tax return is not the windfall it seems to be, either. Keep in mind that Medicare and Social Security/FICA taxes are equal to or greater than the federal income tax and you can't claim anything against those. Earn more income, and you'll pay more on them...without ever seeing a penny of it back. The higher tax cost of working wives (even if they are more highly paid), along with increased expenses, can thus erase the perceived gains.

Consider ALL the costs of being employed. Not only are there higher taxes to be paid, but the higher the income, the higher the cost of being employed tends to be. What do I mean? Just one example: let's say you have a long commute in order to get to your workplace. Do you have any idea of what the cost per mile of driving your car is? It's more than just the cost of gas. It's the total cost of every penny you've put into that car--including expected future repairs--divided by the total number of miles you expect to get out of it. You would have to add up your mileage during the year and multiply it by that figure to get the cost of your transportation. How much time do you spend commuting and how much would that time be worth if spent in a more productive way (like if you worked closer and could get there earlier)? Does your commute incur extra costs (lattes, occasional trips to McDonald's for breakfast, SIRIUS satellite radio, etc.)? If you're a woman, you're probably extremely sensitive to what the other women in the office are having, doing, and wearing. The higher your income, the more likely you are to spend more money on clothes, haircuts, handbags, and lunches. Most men are virtually required to carry cell phones anymore, to be perceived as viable job candidates. Increasingly, women and kids are packing cell phones as well. The bills are enormous. What about Internet use? The purchase of other personal electronics (pagers, PDA's, laptops) that seem to "go with" the image or requirements of being an upwardly mobile worker? My husband travels for work and goes through about $100 worth of luggage a year. Add it up.

All of this DOES NOT INCLUDE the cost of the degree track or vocational skills you had to acquire in order to go to work in the first place. Student debt must be factored in to the income a certain career track has to offer...and it only goes up in proportion to the expectation of higher income. Consider the mania over college education. Every child is now encouraged to make a college degree their ultimate goal, regardless of the child's individual potential and preference. But is this a good investment of time and money? How many of us pissed away our college years only to find ourselves hip-deep in student loans with no sense of purpose in life? The lucky ones who did manage to get good jobs and earn more find themselves in higher tax brackets and more expensive lifestyles. Did they really get ahead?

Hey, I'm not trying to rain on anybody's parade here. If you paid your dues and are now pulling down a substantial income and have absolutely no financial worries, kudoes to you. In good times, it makes sense to increase your productivity as much as opportunity and common sense afford. In bad times, people must often consider alternatives they never would have touched before. And times are bad. Median real wages for men and women have gone down for the last five years--and this was during a supposed "recovery." Now our stocks and bonds and houses are "deflating"--losing value--while food, gas, and health care costs continue to rise, as well as the cost of a college education. And all the cheap gewgaws from China are not enough to make up for it. My point is, if the college education doesn't pay, why pay a premium for it?

What you really need to consider is, how can you maximize the income you have to spend on actual LIFE, while minimizing the amount you spend on "cost" (taxes, housing, debt service, cost of employment). Instead of asking yourself how many square feet you can get in a house, or how new a vehicle you can purchase, look at the bottom line and ask, what do I want for my family? Do we want a high quality of life without financial pressures? Would we rather have mom at home, or working at the projects she finds most satisfying? If we think smaller in terms of material things, we can think larger in terms of having a fulfilling family life. Taking summer vacations (the inexpensive kind)...starting a garden...putting an addition on the house by doing it ouselves. Or just watching the leaves fall while the cookies are in the oven. Sometimes the things we enjoy the most are the ones that take more time than money. If you seek to maximize the use of time allocated to producing income, according to the skills and the wage that bring you the most gain with the least tax/debt liability, you can free up the maximum amount of time to spend on family, hobbies, church or civic work.

An inspiring example comes from the pages of the Economic Survival Manual. A working couple, upon toting up all the costs of being employed, promptly quit their jobs, and worked out a plan. Along with their two teenage sons, they each found a part-time job paying $5,000 a year. Since each of them was paying only the minimum in taxes, their disposable income was about the same as when mom and dad spent long hours at work and on stressful commutes. Plus each of them worked only a few months a year to earn his or her share of the family income. The rest was free time! This example comes from 1982, when getting health care coverage was less of an issue, but it's worth it to think outside of the box.

The bugaboo that keeps people from pursuing this plan, however, tends to be the high fixed cost of a mortgage. "Even if the costs are higher," they'll say. "We have to increase income to pay for the house."

We'll tackle that next.

NOTE: In wordy and detailed posts, I'm going to experiment a little with format. Here, I bolded the main idea in each (enormous) paragraph to help readers wade through. Let me know if you prefer it plain, or chopped up into smaller paragraphs, or what have you.