Given the large percentage of taxes taken out of our paychecks each month, I find it interesting to look at things from a pre-tax and post-tax dollar point of view.
I’ve been looking at the whole raise thing recently and I’m looking for at least a $4.4k or so raise this year. For most people, this is a pretty big amount to ask for. What does this mean in post-tax dollars? Around $227 a month. Roughly speaking, I’ll see $2730 post-tax or so if I got that raise.
The amount we’re saving by moving into a cheaper condo closer to work is $180 a month. Considering I get half of that savings (kelli gets the other half), that’s equivalent to a $1750 k/yr raise right there. That’s a pretty big deal. You can see why post tax dollars are precious, and why pre-tax raises can translate into not that much spending power.
As a reference, my $300 a month car payment costs me only $3600 a year post-tax dollars, but $5102 salary dollars. If I got the raise, it would cost me $5302 salary dollars because of higher tax liability.
Current total taxes and health insurance stuff eats roughly 29.4% of my paycheck. If I got the raise it would go to 32.1%. Ouch.
So, every dollar I currently earn is netting me 71 cents. Now let’s add on Phoenix’s 8 percent sales tax and look at my purchasing power at the register. Now we’re down to .65 on every dollar I earn translating into spendable dollars at a store.
This is why saving post tax dollars is so important. $180 a month saved at a rate above inflation is worth $180. $180 earned is worth roughly $127 or so.
There’s a lot to be said here for reducing your tax liability and bringing up your spendable dollars, but for many people without their own business, or home, your ability to deduct is usually pretty minor, so these numbers might help out.