Having an accurate perspective on spending can not only help a person with their financial planning and budgeting but may make one angry as well. Probably most of us understand what happens when we go out for a pleasant meal and spend $50 on a couple of entrees, a dessert or appetizer and a drink apiece. We spent $50. Or, more accurately, we probably spent more on the order of about $64 on Boston when we add in sales tax and a 20% tip. Unless we live in a place like Richmond, Virginia with its 11.3% meals tax and end up spending $66.
But there is more to this story, isn’t there? Yes, to have that $66 to spend for the meal, we would actually need to start with earning about $100. This is because, after our half of the Social Security and Medicare taxes (nearly $8 on that $100) and perhaps $26 for combined federal and state income taxes if we are in a fairly low income bracket and not in a place with a local or city income tax on top, we only have about that $66 left to neatly fund the meal.
If we have a nice lower middle class job at $25 or so an hour and ignore our share of the costs for health insurance and other benefits withheld from our paycheck, we would have to work a half day just to have this dinner. That knowledge might help put things in perspective a bit where we have to use that paycheck to pay for things like housing and transportation and food at home and clothing. Not a lot of room in a budget for many half days dedicated to a single meal.
It is far too easy to focus on that bill for the dinner – or some other expense – and not only overlook the sales tax aspect for the transaction but more importantly overlook the initial earnings it takes to fund, first the taxes and then the chosen expenditure. When there are taxes to be paid, grossing up the desired expenditure AND all those different taxes is sobering. What’s more, translating it to hours worked to obtain the necessary amount is even more disturbing. We need to understand that our pre-tax spending probably goes through a lot more money than we might think to get to the end result.