Know your numbers part one

I’m not talking about your height, weight or bra size.

There are certain numbers in personal finance that you should know off the top of your head.


1/. Your after tax hourly work income

In essence, we are all selling our time to make money. We are paid a value equal to what our employer thinks that our time is worth. If you compare a $60,000 income against a $70,000 income, you will probably say the $70,000 income is better. But what if the $70,000 employee has to work much longer hours and wear much nicer clothes? Then it is not so clear.

The best way to compare the use of your time is by calculating your after tax (in the pocket) hourly income. Just take your after tax annual pay and divide it by 52 weeks. Then divide that number by the average number of hours worked per week. If you want to calculate an even truer figure, then you can subtract all your costs to work from your annual income first. These may include clothes, food, and transport.

For example, Tom earns $50,000 per annum in his pocket. But he also pays $10,000 a year for the privilege of working in transportation, parking, clothing, and socialising costs. This makes his real work-related income $40,000. He works 45 hours a week. But we are going to take the hours worked a step further too. He also spends 10 hours a week getting ready for work and travelling to and from work. Therefore, he dedicates a total of 55 hours a week to work, even though he is only working 45 of those. In other words, Tom is earning $40,000 in his pocket for work related time of 55 hours. His after-tax hourly work income is then calculated as:

($40,000/52)/55 = $14 per hour.

Despite a pre – tax income of $63,000, at $14 per hour Tom is earning less than the New Zealand adult minimum wage.

The importance of breaking down our income into hourly figures is it helps to control our spending by equating our income with our time. When we look at the larger numbers it is easy to splurge. “I make $63,000 a year. I can afford that.” But looking at our in the pocket hourly wage we are less likely to splurge. Maybe we will think twice before buying a $20 lunch or a $500 suit or a $1000 I phone. The lunch would cost 1 and a half hour of our time. The suit would cost almost 36 hours of our time. The I phone 71 hours of our time.


2/. Tax

If I asked you how much tax do you pay would you know the answer? Most of us don’t, but it is important to know. I use this number to tell me how much I spend on tax per year. Then I try and get benefits to get some of that money back. For example, if I pay $15,000 a year in tax, then I try and look for $15,000 a year worth of value. This includes spending time at parks and trail walks. Going to the library. Enjoying free events and festivals. With our young child we now benefit from a small contribution. We will also benefit from the New Zealand education and healthcare systems. My back surgery was paid for by ACC and hopefully we will receive some superannuation when we are older.

Knowing how much tax you pay can be very useful to determine how you can find ways to make the most from your contribution


3/. Your budget

It’s important to know how much we spend in each budget category. Then we can readily know when we go over budget.

One example I recently experienced is when I received my latest internet bill. I know that every month my internet bill is $69. Last month I received a bill for $79. Because I knew my numbers I automatically detected this and contacted the provider. They immediately made the $10 correction.

If I didn’t intimately know my budget numbers then I may not have picked up on this $10 a month increase, potentially costing me $120 over the year.


4/. Savings rate

We have all heard the stories on how New Zealander’s have an abysmal savings rate. Our average savings rate is barely 0%, yet China sits on 37%. Savings rate is the single most important calculation that will determine how well off we will be in retirement. The higher our savings rate, the more progress we can make.

Savings rate is the gap we can create between our income and expenses and can be calculated as a percentage:

(Income/Expenses) x 100.

Some people use their pre-tax income, and others use their post-tax income. I prefer to use post-tax as that is the money in our pocket and is a more realistic calculation of our savings rate.

Below is a table showing how many years it will take to be financially independent at different savings rates based on the 4% rule.



We will continue with the most important personal finance numbers you will need in the next article. Stay tuned….



The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here

Comment below