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how much do i need to earn? reverse engineering my ideal salary
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The other day, Catherine Shaffer @ Wisebread asked if six figures was really that much. This inspired me to work out what income it would take to sustain my semi-ideal young professional lifestyle.
For the purposes of this, we’ll imagine that I am living in my existing house, and that the only things that I want to alter are my discretionary spending, and my savings and investment rates. My existing spending on housing and bills is around £730 a month.
eating and drinking
Ideally, I’d buy reasonable quality groceries, and have the delivered, not buying extravagantly, but not worrying about the cost. I estimate that would be about £50 a week.
In addition, since I hate making my own, I’d want to buy lunch everyday at work estimated at a generous £5 a day. I also really like to eat out, ideally I’d have a Sunday pub lunch out, have a snack lunch in a cafe on Saturdays (estimated at a combined £15 a week), and once a month go to a proper restaurant (estimated at £30 a month). As an aside, when I had a serious boyfriend this was pretty much how often I’d eat out.
I’d also like to go out for drinks once a week spending on average £30 a time - this would be very variable, most of the time I’d spend quite a bit less, with occasional splurges.
hair, beauty and clothes
It costs me £35 to get my hair cut, and ideally I’d have that done once a month. I’d also like to buy expensive-ish beauty products (Clinique, YSL, Lancome etc) and occasionally get my nails done, for a combined £25 a month.
Last year I went on a spa day with my sister, and I’d like to repeat that annually, but make it a residential thing - approximate cost £400, including accommodation and treatments.
Finally, I’d love to have some better quality clothes, but I’m a minimalist, I think £200 a month would keep me happy.
travel
It would be quite nice to have a car, as many other young professionals do, I think would cost me about £300 a month. I’d be driving to the supermarket, and making occasional trips home, and to Ikea of course.
I love to explore new destinations and I’d like to take a two week holiday each year, plus 4 or so weekend breaks. For the two week trip, I’ll estimate £600 in flights, £500 in spending money, and £400 in accommodation. For each weekend break, I think that £150 in flights, £150 in accommodation and £100 in spending money would on average cover it.
house related things
I’ve confessed before about my love of house magazines, so I’ll enable that with 4 or so magazine purchases a month, plus £200 a month buying all the great things that I see in there.
savings and investments
I am of course a sensible personal finance person, so I’d want to save and invest my entire ISA allowance of £7,000 and put away 15% of my salary towards my retirement, as well as donating a tithe - or 10% - to worthwhile charities (almost certainly not churches).
and the income required is…
After doing a bit of fiddling around (since retirement investments and tithing are dependent on gross income) and using a take home salary calculator, I would need an income net of tax and national insurance of just over £3,700 per month, which in turn requires a gross income of £85,000. I would conservatively describe this figure as more than three times my current gross salary.
What’s funny to me, is that I don’t think I’m being particularly unusual in my spending suggestions. I’ve based them on both my own habits, and those of other people that I know who are also single, professional, and in their 20s. And none of the people that I’m basing this on are likely to be earning as much as half of the £85k it would take to do all of it.
Life really is about choices, and I’m unlikely to ever have the money to spend doing all the things that I’d like to at the same time. I need instead to focus on finding the things that actually make me happy and spend only on those.
Image by BaronBrian
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18 comments for “how much do i need to earn? reverse engineering my ideal salary”
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ouch! put like that it does sound scary! You won’t always have a mortgage to pay, which’ll cut down costs, and something I feel strongly about is tithing both resource and money. I work normal office hours which doesn’t give as much time for volunteering as I’d like, but my work doing festival stewarding for Oxfam (http://www.oxfam.org.uk/get_involved/stewarding/index.html) is brilliant- it helps meet my (non-religious) tithe, gives more personal satisfaction than handing over just money, and being part of festival crews has taught me so many things about my relationship with money & stuff!
This is a really interesting calculation! I wonder how many of your peers are spending like they earn the “ideal” salary despite earning much less! I think some of mine are…
This is bizarre, because I make more than £90,000/year (converted from my local currency as I’m not in the UK), and yet I feel like there’s no way I’d be able to afford the monthly expenses you list here. Setting aside the “hair, beauty and clothes” category as it doesn’t apply to me (I have little hair left and am infamous among my friends for wearing the same clothes forever; a high percentage of the stuff in my wardrobe is at least 10 years old), and the fact that I bought my car with cash so don’t have monthly payments, I still feel like I couldn’t spend that much. I guess the differences boil down to the higher taxes that I pay (I barely keep half of my gross salary) and high mortgage payments due to a short 15-year mortgage plus the fact that I’m socking away about $5K/month toward paying off my mortgage early. Sometimes I feel like I should allow myself to live a bit more “large” than I do, but my girlfriend insists on sharing most of our expenses more or less equally, and her income is a tiny fraction of mine so we end up living way below my means and slightly above hers.
@Victory:
I’m wondering that too. I guess I can see how you could run up enormous consumer debts - the lifestyle advertised isn’t appropriate for the budgets of the people being sold to.
@brad:
If I was earning as much money as it needs to take to sustain this lifestyle, I’d probably want to live in a lot better (read expensive) area than I live now, which would bump up my housing costs. So, I wouldn’t be able to afford it either. So I’d want a higher income, which would bring it’s own set of expectations. And only about half the gross pay is take home pay, the rest is tax and retirement savings.
The fact is that there is almost no possibility that I’ll ever earn in the region of £80k to £90k (inflation adjusted) in my lifetime - I just don’t work in the sort of industry where regular people earn that sort of money, and I don’t have what it takes to become a senior director (most notably inclination).
Well you mightn’t earn 90k yourself, but you may couple up with someone who does. Or win the lottery. So keep the wishlist! Also, with all the eating out you’ll probably want a personal trainer and a decent bike, so factor that in.
The wisebread thread, like others on the subject, is kind of ugly. I can’t fathom the superiority and bad-temperedness in the “I earn $10,000 and live well on it, you’re all undisciplined spendthrifts” comments that always crop up.
This is fascinating, I think I’ll have to run my numbers to see how much I’d need to earn to pay for my ‘ideal’ life.
Mind you, if I was debt free I dare say I could afford my dream life…
@guinness416:
I don’t get it either - just because someone can do something doesn’t mean everyone either can, or wants to.
@debtdieter:
My ideal lifestyle certainly wouldn’t involve making debt repayments - that’s not anyone’s idea of fun
Yep fascinating post Plonkee, it’s really got me thinking about my writing down what I’d need to earn to live the lifestyle I want. I have a theory though that the more I earn, the more I spend, and I bet I’m not alone in that.
Great post, but the truth remains at all income levels. You will spend at apx the same percentages as your income rises. Never thought I would make what I do now, but never though it could be spent as well. Plus you left out my biggest expense…Kids
I get to do nothing on your list because I am paying for ballet (which is French for expensive) and the like!
Have a good plan now and no matter what you earn you’ll be OK!
Great article, Plonkee. I think your final statement sums it up:
“I need instead to focus on finding the things that actually make me happy and spend only on those.”
As long as you focus on this now and you are happy, then earning more would be nice but isn’t necessary.
I haven’t reverse engineered my ideal salary, but I imagine it would be about what it is right now (with both my wife and I working, and not having kids). Ask me in a year or two though!
One thing you might want to consider - if your employer offers a pension scheme and contributes to it. If they match contributions then you cut that figure down to 7.5% if you wish.
@Toneboy:
That’s true - it wouldn’t make much difference to my ideal salary though - I still need to earn far too much.