cost of item vs hours worked for it

N1AK

bowlhead99 wrote: »

There's lots of ways to look at it...

So my consideration is always what else will the £10 or £10k get me, now or in future, or if I spend it on this thing, how much effort or sacrifice will it take me to get my *next* £10 or £10k to replace it.

That was a great post. :T

racing_blue

Especially for high earners, this should be a consideration.
If you earn £120K, (1) your job is probably quite hard and (2) your take home is slighty less than £73K. You probably need to pay for a good car, maybe a cleaner, maybe some smart work clothes, and a raft of conveniences which allow you to focus on your £120K job. Being generous, perhaps you net £60K. You probably feel you deserve a nice house and your mortgage payments may be £20K per year. So that leaves you £40K of discretionary income, income to spend how you feel.

If you work 60 hours per week - as many people with £120K jobs will - each hour of work brings you a discretionary income of £12.80

bowlhead99

racing_blue wrote: »

If you work 60 hours per week - as many people with £120K jobs will - each hour of work brings you a discretionary income of £12.80

Quite useless for decision making though. On a £120k salary you don't have the choice to work an extra hour and get paid another £12.80, or work an hour less and give up £12.80, because such jobs are not hourly paid and if they were the incremental rate per hour would be nothing like that.

You do the job well and keep it (and hopefully get promoted or bonuses) or you do the job badly and lose it. There is no 'go and work an hour and get thirteen quid for my trouble' and no point thinking in those terms, IMHO.

If you could get paid a few hours' overtime at your standard rate of pay - the run-rate of £120,000 per 260 weekdays including the days you are granted vacation or bank holiday off - it's a little over £460 a day. If you were coming up to retirement or a career break or change of jobs, it's literally £461 gross pay for every extra day you put in before stopping - and assuming you only had to 'work to rule' at that point it's over £60ph gross.You've already paid for your house and car so the incremental disposable cash is well over the £13ph.

Although, if you've ever done the sums on paying someone this sort of salary or been on the receiving end of it- the effect of income tax and NI becomes very painful so an extra day's pay here or there is not as cushy as it sounds. If you're working a full year and getting the £120k at £461 gross per weekday - the company is paying out £525 for that last weekday because of your gross salary plus its 13.8% employers NI. The employee pays 60% marginal income tax on the £461 due to the 40% tax band plus the effect of his annual personal allowance tapering away, and 2% employees NI on the £461, and is left with £175 take-home.

So, £525 paid by the company, for the employee to walk off with £175: a 66.66666% cheque to the government. A £1k bonus is only converting to £0.333k spending money so it's a pretty expensive pay grade to try to incentivise.

If you're in that pay range it does however make it easy to answer the OP's question - "do I really want that item or should I perhaps save/invest for later?". As you can give up your last £20k of salary and have £20k in a pension, as an alternative to a mere £8k of net takehome cash now after tax, it is close to being a no-brainer to make the pension contribution and avoid the monster tax bill.

N1AK

racing_blue wrote: »

Especially for high earners, this should be a consideration.
If you earn £120K, (1) your job is probably quite hard and (2) your take home is slighty less than £73K.

If you work 60 hours per week - as many people with £120K jobs will - each hour of work brings you a discretionary income of £12.80

If you count having a, very, 'nice' house as non-discretionary. Even then £40k to spend on whatever you like each year after housing, car, cleaner, clothes etc will still compare incredibly favourably to people on lower incomes discretionary income calculated the same way.

I doubt my job is any harder now than when I was fresh out of Uni and earning ~1/3rd of my current income. Obviously my tax bill has increased considerably but so what? I get to do something I find stimulating and am paid better than most for doing it.

N1AK

bowlhead99 wrote: »

So, £525 paid by the company, for the employee to walk off with £175: a 66.66666% cheque to the government. A £1k bonus is only converting to £0.333k spending money so it's a pretty expensive pay grade to try to incentivise.

To be fair, accounting for pension contributions you're probably earning £150k+ before you hit that kind of tax calculation. If there was one valid concern about high income tax that I'd like to see investigated it's whether high rates discourage people progressing when they start hitting the higher rates.

I know I started reconsidering whether it was worth pushing for higher paid roles when higher rate tax became relevant; in the end I figured that I wanted to do the higher level roles anyway, but I can imagine people less enamoured with work who'd decide £50k pa with less stress beat out £70k pa with more stress given the comparatively modest increase in spending power.

bowlhead99

N1AK wrote: »

To be fair, accounting for pension contributions you're probably earning £150k+ before you hit that kind of tax calculation

Not really; you're sitting in a 60% marginal rate income tax band (plus 2% employees NI, and 13.8% employers NI) all the way from £100,000 to £121,200 as the £10600 personal allowance tapers down to zero at 50p per pound.

Next year when the PA grows to £11k the 60% taper band will go all the way £100-122k. A few percent of pension contributions doesn't really get you from the £100k or £120k level to being on a £150k+ package, so while these are undoubtedly wealthy people relative to some, they're not the super-affluent, and might be a long way away from the standard 45% rate that TV and sports stars pay.

I think generalising there will be plenty of people "young and hungry" who wouldn't mind a high marginal rate on the way to somewhere, but definitely some others whose careers are plateauing and would much rather just work 4 days a week for £90k if that job exists, rather than 5 days for £112.5k and have to pay an extra £12k tax and NI on the £22.5k extra pay for the Fridays.

Earning £30k or £35k, a 25% pay rise for working Fridays on top of Monday to Thursday translates to about 22% extra take-home. But at £90k or £100k, getting an extra quarter on top of your pay for working another day or giving up sleep for bonuses only gives you 16 or 17% on your take home... and you might already be able to keep the wolf from the door with the lower number - so the incentive is somewhat reduced.

Certainly if you are a young "high flyer" commanding a £100k role in the London market, you might well be able to find an interesting opportunity in New York or Hong Kong or Singapore or UAE or Channel Islands etc, and find the same quality of career progression with a better tax take. If you're older and more settled, you might just take the high tax rate on the chin rather than jurisdiction-shopping; but equally you might just look to wind down and exit the rat race Asap.

So (making an over the top generalisation), half the young ones will see it as aspirational and push on, while half look to avoid it by emigrating. In absence of better stats, call it 50:50. And half the old ones will take it on the chin because they don't want to emigrate, but half will wind down or retire. 50:50 as well.

Therefore, if you introduce a tax rate that's crazy high, (maybe ignoring 'quirky' bands, but meaning a high general top rate... ) half the people whether young or old will look to minimise their bill or get the hell out. QED.

gayleygoo

I used that tactic when I started work at 15 I only got £3 an hour then so it really put things in perspective for me! Same with my little sis, who was very spendy as a teenager. She was horrified when she realised how long she'd worked a crappy job to buy an over-priced belt.

We still do it. By the time tax, NI, pension etc is taken out of OH's wage, he gets around £7-ish an hour, and we often apply it to impulse buys/wants rather than needs. There are other concepts that can be applied to how we spend money, but that works for a lot of things.