Extra Income vs. Saving Money – Have You Considered Everything?

by Darwin on June 7, 2010

I’m sometimes confronted with various options for either making additional money or saving money by doing something myself, and I then need to reconcile that with my available time.  Add to that mix the financial benefits net of expenses and taxes and before you know it, it’s become a little more involved than just gross dollar amounts.  Here’s an example:

Let’s say you’re a tradesman that can work overtime on weekends.  You also have various home projects that you could either pay someone to do or do yourself.  You don’t have a preference for one type of work over the other – it’s your time and your wallet you’re primarily concerned with.  Given that you only want to spend Saturday doing one or the other since you have plans Sunday, which wins out?

Overtime Work:

  • 12 hours available
  • $40/hr base * 1.5 OT rate = $60/hr
  • 12*60 = $720

Home Project:

  • Same 12 hours to do (all day project)
  • $550 quote from contractor with materials included

At first glance, people often focus on making more money with their time instead of saving money.  In this case, $720 seems like more than $550 and it’s a no-brainer.

However, when factoring all the various federal, state, FICA taxes where you keep only ~60% of your paycheck, that $720 is actually $432 in after-tax dollars.

Now which option looks more attractive?  You’re better off by over $100 doing the home project instead of working.

While this is an extremely rudimentary example, in looking at the bigger picture with multiple decisions across long period of time that really add up, do you always factor in ALL the variables?

The intent here is to reinforce that you’re not always comparing apples to apples when you’re talking about money that is pre-tax vs. after-tax.  The same holds true for investments, business deals and figuring out what you believe your “hourly rate” to be when thinking through whether it’s worth your time to do something.

  • If you’re thinking about debt you have for housing vs. say, a car payment, keep in mind that for many, home mortgage interest is deductible while car payments aren’t.
  • We get several hundred dollars per year back on our cash-back credit cards by using them instead of cash or checks and paying back the interest.  If it’s $500 one year, I think of it in terms of making an additional $750 in earnings.  It’s tax-free cash with no strings attached!
  • I’ve seen people jump ship to a new company for a 5-10% increase.  Meantime, they’re now paying more for the commute, they lost the accumulation on a company pension, and other intangibles that probably render the move a net neutral or even a loser.  Sometimes that extra few hundred in the paycheck is deceiving.
  • Conversely, sometimes, we eat out with someone or they make a large electronics purchase or something along those lines and they say, “Ah, I’ll write it off, it’s a business expense [chuckle]”.  Aside from the fact that it’s not, they’re kidding themselves when they act like it’s “free”.  They’re really just getting say, a 25% discount on something that perhaps they didn’t even need to begin with.  Using the “business writeoff” mentality to justify spending probably costs many small business owners more than it actually saves.

Food for thought.  Any thoughts or relevant examples?

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1 Kate June 8, 2010 at 11:53 am

This is a very interesting post. I have lately thought about trying to find some supplimental income as I am tired of living paycheck to paycheck. I also thought about looking for a new job that would pay me more money, but as you pointed out – I would love the vested pension and most likely my commute would greatly change. You have given me some food for thought…

2 Aury (Thunderdrake) June 9, 2010 at 3:29 pm

Another fantastic of keeping money vs. making money.

One other reason why I’m so fond of my self employed line of work is the extreme lack of need for overhead. I keep a lot of my profits doing that. <3

3 Earn Cash Now June 11, 2010 at 5:21 pm

First of all saving money is much easier than working to earn an income. If you really want to be wealthy you need to save money and work more hours. The more you do today the less you will have to do come retirement.

4 Budgeting in the Fun Stuff June 14, 2010 at 4:22 pm

I much rather save money since I consider my free time priceless. I accept that at least 45 hours of my life every week will be spent at work or driving to and from work. The rest is for friends, family, pets, and fun…okay, and some chores, dagnabbit…

5 Neil June 17, 2010 at 5:03 am


I think that the point about switching jobs is a really good one. Often sticking at the same job and really trying hard pays dividends in the end.

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