Learn Your Net Profit Per Hour, or You Make Less Than You Think You Do

If you_re like us and really only make $10_hour sometimes, that iPhone costs you 100 hours, or two-and-a-half weeks in the office.-2

I’m very fortunate to have built an unconventional wedding photography business. I also work a day job at a liquor store. Having run my own business for 11 years though, I’ve learned to see my regular work life as a business too. In both, there were tons of expenses that chipped away at my bottom line. The same is true for where and how you work, regardless of what job you have. Think you make your hourly wage per hour, and that’s all there is? Think again. Here’s why you make less than you think you do.

Through mostly luck, my wedding photography is a dream job. I now charge $2,995 for a typical 8-hour wedding. When I add on the extra time I put in for prep, delivery, client meetings, driving time, accounting and so on, I’m looking at about a 20-hour investment per client. I have a great second shooter, and I pay a very efficient editor to handle 90% of the post-production. Typically, the editor takes $400, my second shooter takes $400, and there’s $200 or so that goes into other expenses, like batteries, gas, or buying drinks for clients. I walk away from each wedding with about $2,000. I’ve been operating this way for years. It took a $15,000 photography diploma and $30,000 in gear to get to this point, but that’s another story. Right now, my photography business is – in my mind – very effective at turning time into cash. My net profit per hour is $100 on the books, and a little less after accounting for taxes. Read this: “Many times it’s a ‘slap in the face’ when you calculate this number for the first time. We calculated it in a Courage to be Profitable class last week, and the highest net profit per hour was $3.60. The lowest was less than $1.” What gives?

Well, those were conventional businesses with considerable overhead, taking up space 24 hours a day. I have none of that. Those business students figured out their businesses’ profitability for the first time. You should figure out your profitability too. Here are some numbers from my day job, for easy comparison. In theory, I make $14/hour at the liquor store. In reality, I don’t.

Taxes are obvious, so let’s factor that in. Every day I go to work, I burn gas. Plugging some numbers into this gas calculator meant every day I go to work and back, I lose $2. Okay, not a big deal. What about car maintenance? What about making sure I had the right clothes and shoes for work? I spent $55 on work-appropriate shoes earlier this month. What about all the times I eat out because of work? I get $8 dinners instead of frugally eating in twice a week. Getting even crazier, what about my unbilled hours? Let’s add my commuting time too. Suddenly, my true net profit per hour was closer to $10/hour, and I’m probably forgetting something. This guy ran his numbers from his “$20 an hour” job too, and found it was now “less than $10 an hour”. Read his story.

People sometimes calculate purchases by comparing it directly with their hourly wage. “Oh, I make $20/hour, so this $1,000 iPhone is worth 50 hours of my time.” Nope! If you’re like us and really only make $10/hour sometimes, that new iPhone costs you 100 hours, or two-and-a-half weeks in the office. That $9.26 beer you just bought? Yeah, that’s about an hour. Couldn’t resist seeing “Venom” in theatres with your date and springing for popcorn too? That’s three hours. A new, low-end 4K TV? That’s a 40-hour workweek. After figuring out your net profit per hour, being frugal is the only course of action that makes sense.

Never forget to include the cost of doing business.

A final note: I have $21,000 buzzing away in investments right now with a rough return of 7%, or $1,470/year. Isn’t that kinda like adding 147 hours of day job work to my bottom line? People work, what, 2,000 hours a year? Hunh.

Will you work harder, or let your money work for you?

*****

For an extreme sport, you could copy those business students and calculate your net profit per hour based on 24 hours instead of just when you work. If you do this, please share. We’re very curious.

Advertisements

Let’s Talk About “Barista FIRE”

Coffee is love

“It’s a concept that can be coined Barista FIRE – not quite FIRE (Financial Independence, Retire Early), but perhaps just a step below it. At Barista FIRE, your lifestyle is almost funded, and all you need to do is to make a few extra thousand dollars every year in order to survive. You can do that pretty much by doing anything, even just working as a barista a few days a week. For people like me, Barista FIRE might be just as good as regular FIRE.”

Barista FIRE draws a lot of flak, and I can understand why. For one, being a barista isn’t the easiest job in the world. With some comparing it to being a line cook, the term itself sounds privileged and disconnected, especially when people sustain their whole lifestyles “working as a barista a few days a week”. Nevertheless, the term has persisted, so let’s talk about it. Barista FIRE is much more reachable than most people realize. Some might even say I’m there already, working part-time at a liquor store and shooting $2,995 weddings on the side. For some background, here’s the breakdown on my current net worth (including the debt). Can someone be Barista FIRE and still have debt? You decide. As a concept, it’s a bit muddy to begin with, so feel free to embrace the malleability of the idea and move goalposts as you please. I certainly have.

Here’s an example: Let’s say you spend $2,000/month, a reasonable amount for pretty comfortable living. Minimum wage in BC is currently $12.65. Three 8-hour shifts a week brings you to $303.60, or $1,214.40/month. The current tax rate in BC for your first $39,676 is 5.06%, so you’re down $61.45/month for $1,152.95. Your investments need to generate $847.05/month to qualify for Barista FIRE, or $10,164.60/year. Assuming you make 7% reliably off US index funds, you’d only need $145,208.58 to achieve that! This is a reasonable assumption of what a Barista FIRE number should look like, and it’s much more attainable than a FIRE number. “A quick bit of math you can do to figure out your FIRE number is to take your annual expenses and multiply by 25.” If you spend $24,000/year for example, your FIRE number is $600,000. At 4.1x less than this FIRE number, our Barista FIRE number has already earned you the freedom to do whatever job you want! I’ve mentioned before that working forever might not be so bad – I hate the idea of someday signing off on work altogether, and just sitting back to consume, consume, consume – so this was like striking gold to me. Barista FIRE was a new milestone, and it was comparatively easy to reach. Naturally, this is all napkin math, but the results are hopeful. With my 99-year leasehold rented to two roommates, I’m currently generating $1,300/month. My day job, a fun liquor store position that keeps me active, pays me $100+/day. If I brought my expenses down to $2,000/month, that might mean I only need to work seven days a month. It’s all a work in progress, but in my mind, I’m nearly at Barista FIRE. For me, I don’t think I can comfortably call myself FIRE-anything while I still have debt, but once that’s gone, all bets are off. With $22,000+ invested in index funds too, I know I’ll be working-for-health, not-money soon. A future post will talk about that too.

Retirement can be boring, so you’re probably gonna want to do something. You too can retire from the grind and work your dream job. Teach piano, run photography workshops, become a freelance proofreader, start an underground dining operation, or walk dogs. Work out your own Barista FIRE number like so: 1) Figure out your monthly expenses. 2) Work out how much you’d earn working your dream job; e.g. $800 from teaching two $100 art lessons every week for four weeks. 3) Subtract item #2 from item #1. 4) The result is how much your investments need to earn monthly for Barista FIRE. Multiply by 12 for an annual figure, if that’s easier. This is now a clear milestone of when you can retire from a job that sucks, and retire to whatever job you want.

Can you do it? Your dream job awaits.

What Getting Fired Can Teach You About FIRE

A fired you isa lot like aFIRE'd you.

I got fired in 2013. There’s not much to say about it – it was the result of a work-inappropriate tweet – but I’ve made my peace with it because I learned so much. In a way, I was granted an accelerated look at what life would be like if I were retired. If you have your doubts, click that link. Two years of barely needing to work changed my outlook on wealth and retirement, and I was only 25 at the time. Even then, I knew FIRE wasn’t all sunshine and rainbows. If your FIRE number is your only goal, financial independence won’t make you happy. Only finding common ground between your values and priorities will. (Sorry for the hokeyness, but it’s true.)

Anyway, it’s 2018 now, and I found myself out of a job again. I wasn’t fired, but being pressured to leave due to an interpersonal conflict is almost worse. I’ve already lined up my next step, but there were a few weeks where I felt listless and unmotivated. After all, putting three years of hard work into a place meant more to me than money! It’s okay though; these things happen. In the end, it even turned into a great learning opportunity!

At first, I’d honestly settled back into my old ways. I ate out to numb the boredom, drank more, and racked up a dumb amount of screen time. This didn’t last long before I started feeling like crap. Suddenly, I remembered I’d written articles about quantifying happiness in one’s pursuits and purchases. It turned out I was just completely lacking in purpose. With no professional obligations for the time being (which was like being retired), I had nothing to do!

In one way, this was horrible. It meant I’d mismanaged my priorities to the point that I didn’t have any, but it also gave me the chance to tackle these problems before achieving FI. (For my numbers and strategy, read this and this. There’s a chance some level of FI could come sooner than I think.) I suddenly saw my retirement, and I didn’t like it. I needed purpose. It turns out I actually need work, at least for now. It’s a value of mine to be productive, so I had to prioritize it. This taught me I might never need full-on FIRE though! Maybe barista FIRE was the target now! More importantly, this also taught me I needed other, better goals. These are all good things to know before becoming financially independent. I’m just a workaholic. What can I do to become more?

I’m sure we’ve all, at some point, been less employed than we would’ve liked. I’m glad I got fired once or twice because it helped me learn how I act when I’m suddenly regifted an extra eight hours every day. If you found this post through recently getting fired, here’s my challenge to you: Note down how you feel, what your new motivations are, what you now prioritize, and how fast you start itching to work in some capacity again. After the honeymoon phase of FI when you travel the world for months or buy guinea pig armour just because you can, you often find that an FI’d you is still… you. A fired you is a lot like a FIRE’d you. What do you want when you don’t have to work? Some of us are too busy to find out. Answer that question honestly, and getting fired might be the best thing to ever happen to your retirement.

Stop Stacking Luxuries

finalmoney

Having worked in the retail world a while now, I’ve been run through every sales talk about add-ons and upselling there is. I’ve seen the numbers too. I can’t divulge mine, but consider that your popcorn and drinks “represent some 40 percent of theaters’ profits”, and adding a $9.26 beer to your $15 meal just bumped it up 62%. For those reasons alone, I’m super cautious about stacking my luxuries. I’ll show you what I mean.

I never buy popcorn. I went out for a nacho night with friends recently, split the bill and didn’t order any drinks, and my bill was somehow less than $4. At home, I even try not to snack during a Netflix movie. When buying clothes, I don’t accessorize. When I cook, I garnish as cheaply as I can — (none of my friends appreciate saffron anyway). And you know what? I ended up appreciating each individual luxury more. Here’s why.

When I bought popcorn, I’d annihilate most of it during the previews and endure a 2-hour movie trying to tongue the hard bits out of my teeth. The soda would destroy my fitness goals, and make me have to pee right before the climax of “Don’t Breathe”. The fact I paid for that inconvenience was especially questionable. Why would I pay for something that made me enjoy a luxury — the movie — less? This even happens when I crack a beer during Netflix. At my worst, I wouldn’t even remember how the movie ended a day after. Would I even enjoy the beer? Not really. I was distracted by the movie. With every luxury you stack, each individual luxury is diminished.

There are exceptions, of course. Some people argue wine complements great food, and I don’t disagree. I’ve just always had trouble tasting the finer notes of a 1999 Barolo while my mouth was full with a $25 Keg steak. A great accessory can complete an outfit. It can also cost $9,750 when your Indochino suit was only $579. When you try to cap off a basic luxury with something that makes it ‘more special’, that’s a green light to a salesperson that reads, “This person is here to be stupid with their money.” Your core goods are always cheaper, and upgrading them first is the only thing that makes sense. Even then, you can usually live without an upgrade. I’d rather watch four months of Netflix than spring for popcorn-and-a-movie for two. Heck, I won’t even make popcorn at home. Can you imagine crunching your way through “A Quiet Place”?

Do you stack your luxuries? Why or why not? Tell us in the comments.

What’s Your Net Worth Anyway? (August 2018)

$163,155

I’m fortunate. With a 99-year leasehold valued at $170,000 and a small inheritance I received in 2014 that I’d thrown into index funds, my assets put me well ahead of recommended net worth milestones at 30. Naturally, it’s not as simple as that because I’m also no financial wizard – I’d only stopped accumulating consumer debt recently, and I still have moments of weakness. As it stands, here are the real (and embarrassing) numbers: I owe $13,661 on credit cards and $16,569 to family. I’m $30,230 in debt, and I’m not making fast progress on it. I’m hoping to do a series of net worth posts so you can all keep me accountable. Right now, I need help.

The assets add up nicely. The $170,000 home plus my $22,877 RSP bring me to $192,877. I have $500 exactly in chequing, and my wallet contains… let’s see here… $8, change, and a coupon for free pizza. Here are the milestones I’m working towards.

First, I want my assets to total $200,000. Then, I want my net worth to total $200,000 through debt elimination. I know I keep pushing this back, but my goal is a “debt-free 33”, and I need a good money tribe to keep me moving forward. If you’re on an FI journey too, I’d appreciate the encouragement.

My net worth is $163,155 at 30.

Where are you?

Are You Paying For Bragging Rights?

NO ONE EDIT

Looking back on my 20s, I wish I hadn’t cared about oneupmanship. I wish I hadn’t spent thousands on PlayStation media so I’d have a higher trophy count than my friends. I wish I hadn’t bought and drank so many terrible beers just to boost my numbers on Untappd. I wish I cared less about what people thought of me, and actually started working on me. For most of my life, I’d been paying for bragging rights. Maybe you have too.

Companies thrive on this sort of thing, but you didn’t need me to tell you that. Almost every luxury good is a sort of stab at oneupmanship. The newer car, the shinier gadget, the cooler features, and the status symbols of the world all conspire to take money out of our wallets. On one level, it might be keeping up with the Joneses (which we already know is bad), but if we’re being completely honest, sometimes we buy things to grasp at better social standing or to make others jealous. I’m guilty as charged. I used to buy $300 shoes, $900 dinners for my friends, and $250 bottles of wine – always in misguided attempts to seem better than I was. Now, I struggle with debt… and it’s all my fault.

Things are better now. Since starting this blog, the only status symbol I care about is my net worth. My shoes are now $20. My dinners are now meatloaf and beans. Bottles of wine only show up when I get them free from work. I just organized a bachelor party and ixnayed the limo for a cab. The PlayStations got sold off or gifted. I often take the bus. Somehow, in spite of all this voluntary deprivation, I’m happier for it! A weird thing happens when you become frugal: Where I once was only able to afford one pair of shoes, I could now afford 15. The more frugal you are, the more wealthy you feel because you suddenly have so much buying power! It’s a weird paradox, but it’s one worth believing in. Don’t ever spend money to impress people. People don’t give a shit anyways.

If you’re gonna spend money on oneupmanship, one-up yourself. Invest in your goals. Build up a bigger nest egg than you ever thought possible. Learn new skills. Better yourself, but not so you can compare yourself to others. Comparison is the thief of joy, even when you’re on top. Can you imagine how stressful that is? Always striving to maintain a false sense of superiority through spending money? FUCK. THAT.

No one’s better than anybody else. If you truly believe a $30,000 watch or a shiny car is the only thing making you a better person, we’ve gotta have a talk. Even if a glowing beacon above your head broadcast “I SPENT $30,000 ON A WATCH” 24/7, that’s not a great message to send. You don’t seem rich and impressive. You seem desperate.

Stop bragging. Start saving.

Get rich.

Your Tribe Matters

You can_t succeed if the people around you are satisfied with mediocrity.

“You’re the average of the five people you spend most of your time with.”
– Jim Rohn

If I were to narrow down the five people I spend the most time with, it’d be my roommates “D” and “K”, our artist friend “A”, and probably my coworkers from my day job. Ever since I’ve known them, they’ve indirectly propelled me towards greater success. This is why.

“D” is industrious, hardworking, and frugal as hell. If something broken can be fixed, he’ll do it, even if it looks like a wad of duct tape and glue after. If it’s functional, that’s enough for him. At 27, he has no debt, and a future career path very similar to Ben’s. He’s currently my closest friend.

“K” isn’t frugal, but he’s fit. He eats lean, has a 21.8 BMI – he’ll enjoy greater longevity – and he’d always rather be in a park. Thanks to him (and my coworkers who always push me), I’m now averaging 15,000 steps each day and burning 3,000 calories. Almost by accident, I’ve already lucked into ‘fit’ and ‘frugal’ just by the people who’ve moved in. It gets better.

“A” is massively frugal. She makes ethical eating choices and with that, she’s able to save on a completely different level than we do. Here are the numbers I’m able to divulge, but long story short, she’s set for retirement already. We pay attention to quantifiable happiness, seek out even more friends for our “money tribe”, and encourage each other on personal goals. She’s my main connection to Mustachianism, and she’s one of my most rewarding friendships. We’ve even hired her to make art pieces in our apartment.

As for my coworkers, they kick my ass. That’s all that needs to be said about that.

This is my tribe.

*****

You can pick and choose your tribe more than you know. If personal development is a key goal, one of the methods I used was the DRM. This sounds callous, but I evaluated some relationships recently, and started prioritizing only the ones that were healthy for me. (See: the “oxygen mask rule”.) Anything that ranked low on ‘pleasure’ and ‘purpose’ – how Paul Dolan quantifies happiness – got pushed aside. This, I feel, gave me room to grow.

I turned 30 recently, and I’m more protective of my emotional health than ever before. Consciously surrounding myself with positive influences has been a game changer for me because I used to booze heavily, and have low self-esteem. Now that I’ve removed people who were a bad fit, I attack my goals like I won’t get another chance!

This is why people find mentors. This is why people pay through the nose for life coaches. This is why people buy self-help books. On the other hand, if you know positive influences already, it only makes sense to make them part of your tribe. For one, it’s free! On top of that, building positive relationships is always a worthwhile effort.

Time is finite, and as a resource that can’t be reobtained, you should be obstinate about who you give it to. That having been said, you should also be a valuable tribe member for others! I hope now to build a tribe of likeminded, frugal, self-optimizers.

I think I’m off to a good start.

*****

At this current moment, frugality is what I’m trying to cultivate. I find I’m distancing myself from spendier activities, and – this is important – saying flat out ‘no’ to things I won’t enjoy. (This is strange, but in my mind, things I won’t enjoy equates to work, and do I really want to be paid nothing for my time?) Someone once told me, “If you’re not improving or enjoying yourself, you’re just wasting your fucking time.” I believe that.

Surround yourself with people with similar goals. Be friends with people better than you in the ways you want to improve. Deprioritize people holding you back. Be a beacon for others wanting to learn more from your strengths. Build your tribe.

You can’t succeed if the people around you are satisfied with mediocrity.

If this made sense to you, I’m sure you’ll find success in no time. Choose better relationships, and you’ll be better too.