How to halve your tax rate

I do 3 days of paid work per week. I find it to be a good balance between earning some income and having free time to do the things I enjoy.

Today I discovered another advantage. An average 5-day worker pays around 18% tax. An average 3-day worker pays just 9%. Here's why.

The more you earn the more tax you pay. Here in Australia we pay no tax on the first $18,200. But after that each chunk of money is taxed at higher rates.

Tax-free Mondays

Think of it this way. The average wage is $231 a day. Working just one day per week, that would be tax-free. Work a second day and you lose $20 in tax. By the time you get to a 4th or 5th day the tax (on those days) is about a third of what you earn.

I think this is partly why some new parents work fewer days. After paying all that tax and then childcare fees, it's just not worth their time to do a fourth or fifth day - because their true wage is hardly anything on those 4th and 5th days.

The same goes for people who just have other priorities in life. Even though a fourth or fifth day is extra money - it's also extra time lost. The fifth day is just as long as all the others - but for far less pay. Is it still worth it?

It can get to a point where the smaller amount of money is not as valuable as the chunk of life it is taking away from me. After all, who gets to the end of their life and says "I wish I'd spent more time at the office"?

Disclaimer: This is not financial advice. The graph and numbers are a simplified illustration for someone on $60k with no other income. IT is also based on Australian tax rates at the time of writing.

Comments

How to retire on a boat at 40

Irish Leonard explains how his family of four lives on a sailboat. No inheritance. No lottery. Just not wasting money - or his time. How does he afford it? He explains by showing the average Irish household expenses, converted into hours worked. Here's the result shown as a working week: We work a lot to pay for our cars. As he puts it: Almost 20% of our working lives is spent so that we can afford to get to our working lives. So Leonard eliminates or massively reduces most expenses. On the family boat, he sails "in a climate that requires no heating or air conditioning, doesn't own a car and generates what energy he needs using solar panels". Remove the unnecessary costs and you remove most of the need to work. He calculates that we can feed and clothe our family on 5 days work per month, or the equivalent. By contrast the average Irish couple devotes 19 hours a day to work, including commuting. Why all this focus on time? In Leonard's words "I...

You know what to do. Ignore this ad!

Yes, jewellery stores pump out the ads around valentine's day - that's no surprise. After all it's a made-up day designed to sell more stuff at higher prices. But this year they seem extra desperate to sell stuff we don't want, with the "You know what to do" campaign. I reckon the sales team are scared by the number of couples that have realised that love is not in physical merchandise but in quality time. So they've made an ad exactly about these people. The message seems to be aimed straight at guys to say "even if you and your partner agree not to waste money on jewellery, you should buy her some anyway". Apparently in a relationship it's important to ignore what your wife or partner says and do what profit-motivated corporations tell you to do. I tend to disagree. If you're interested have a look - it's interesting to see how transparent it is.

Don't dump on charities

Netflix causes mass dumping. Here's an alternative. January is usually a big month for physical donations to charity. In 2019 it's been over-the-top (literally) as charity donation bins have been overflowing with items. The Netflix series "Tidying Up" by famous declutterer Marie Kondo (see her book ) has inspired many to declutter their homes. But in the process they've cluttered the streets. What's so bad about donating? When the bins overflow the extra items are thrown away. Having been in the weather, the rain and on the ground, they are classified as contaminated and cannot be sold. To make it worse, much of what fills the bins is not good enough to sell, and is also dumped. Bad donations hurt charities 13 million dollars. That's how much it costs charities to deal with all the junk we dump on them - 60,000 tonnes a year. Lifeline says half its stores have stopped accepting donations. We might think we're helping, but that's a lot ...

But wait... there's less!

Search This Blog