How to do a Cost Benefit Analysis and Discover What You Really Make

This is part one in a two part series exploring the true value of yourself. You will learn how to measure the true nature of your 40-hour work week salary and then find out just how much you're actually worth.

As citizens of a capitalist nation, we Americans live and breathe by putting a dollar value on everything we see. We can look at a McDonald’s cheeseburger and have confidence knowing paying $20 would be absurd while paying $0.50 would be a steal!

Unfortunately, this is about as far as our cost-benefit analysis usually takes us. We look at “things” at face value and don’t dig deeper into the hidden costs (or benefits) of making such a purchase.

In fact, these costs aren’t really all that hidden. We just choose to ignore them most of the time.

The sugar and dopamine rush make you a happy camper if only for a brief moment. And, it is this brief moment that makes you likelier to choose the burger over a healthier option.

Picking on McDonald’s is an easy example to open things with, but stick with me because we’ll be getting much more relevant to your daily life in a second. Although, with “Americans alone consum[ing] one billion pounds of beef at McDonald's in a year,” odds are this McDonald’s example will be more relevant than you think.

What are the hidden costs in a McDonald's Big Mac?

So, let’s say you go to a McDonald’s and go for the classic Big Mac and a modest order of fries. You’re feeling a bit health conscious today, so you forgo the soda and opt for a free water cup.

According to The Economist’s Big Mac Index, the going rate for a Big Mac these days is a little over five bucks here in the United States. Add on the small fry at $1.39 and you have a nice round total of around $6.50. In Washington DC, the restaurant tax is 10%, so that would bring the grand total to $7.15.

But, that’s only the beginning.

How much gas did you waste sitting in idle behind the caravan of cars going through the drive-through? How much gas did you waste by taking a slight detour from your usual route home?

What is the environmental cost of beef consumption?

What will be the negative health impact by eating this dopamine activator?

Source: McDonald's Nutrition Calculator

I’m not going to do the number crunching here, but wanted to set the stage for how we should be taking more care to evaluate all of the costs involved in our decisions.

On the flipside, there are certainly some benefits to making this fast-food purchase, right?

Absolutely!

Eating a Big Mac and fries is no doubt an enjoyable experience (at least before you ask yourself those questions above). The sugar and dopamine rush make you a happy camper if only for a brief moment. And, it is this brief moment that makes you likelier to choose the burger over a healthier option.

As imperfect human beings, we are great at seeking short-term benefits regardless of the long-term costs.

If we could magically talk to our future selves ten years down the road and see the ill-effects our decisions eventually have on our lives, we’d be quick to shape up and change our behavior. Alas, we can’t talk to our future selves, but we can bring them closer to us by understanding the true cost of our decisions.

You just saw how a Big Mac and fries can be seen at face value (i.e. $7.15), then you found what that purchase looks like as a “true” value (i.e. wasted gas, negative health impact, etc.).

Now, let’s turn the page and look at a more difficult, but highly important concept: valuing yourself.

How much money do you really make at your job?

One of the most exciting times as a young adult is to land a salaried job with a consistent paycheck that pays you more than you have ever seen at this point in your life. Plus, if you’re graduating in the 21st-century, you have a pile of debt looming over you, so any income will help.

This leads to a startling lack of negotiations when given that offer letter:

“62 percent of recent graduates didn’t negotiate their salary at all even though 84 percent of employers said they had room to bump up their original offer—and even though “most of them” expected to do so."

Not only did you undervalue your worth, you’ve told your employer they overvalued your worth and now you've put a below market rate price tag on your head. What's even worse is this is how you value yourself. But, this is just the beginning.

Doing the math again, your $24 per hour salary is now $19.53. And that doesn’t even take taxes into account, which would put you in the ballpark of $14 per hour!

Let’s say you make $50,000 per year at your current job. On paper, your “contract” states you work 40 hours per week, which puts you at just over $24 per hour (before tax). Now, it’s time to take another ride on this cost-benefit merry-go-round.

Unless you work from home, you spend time commuting to and from work. Let’s say it’s a ten mile, 30-minute drive and your car gets 20 miles per gallon. That’s five gallons of gas per week driving to and from work.

Let’s say gas is sitting at $2.50 per gallon, so multiply that by five and you spend $12.50 per week on gas, which comes out to $650 per year. Oh, and remember how your drive takes an hour round trip? That’s five hours added to your “40-hour work week.”

So, now you can take your $50,000 salary, subtract $650 (gas) and divide it by a 45-hour work week rather than the 40-hour work week you thought you signed up for. Whoa, now you’re only making a little over $21 per hour.

Oh but wait, the fun doesn’t stop there. You’re driving 100 miles per week, which brings your car closer and closer to future maintenance issues, puts you at greater risk of getting in a car accident, and is yet another five hours added to your week where you’re sitting on your butt.

What about those new clothes you had to buy to look the part at your job? How many extra nights (in comparison to if you worked at home) do you order out instead of cooking at home due to exhaustion? How often do you feel pressured to get a drink with coworkers when that cash would be put to better use in an infinite amount of ways? What about that extra coffee or vending machine snack to make work feel less grueling?

You see, all of these little costs add up to huge annual expenses. Let’s say all of these questions add up to an extra $70 per week or $3,640 per year! Doing the math again, your $24 per hour salary is now $19.53. And that doesn’t even take taxes into account, which would put you in the ballpark of $14 per hour!

Is this what you value yourself at? $14 per hour? Does your work provide you with so much joy and happiness that $14 per hour is a comfortable paycheck that allows you to reach your life goals and live your dreams (travel, saving for your kid's future, retiring early, etc.)?

I don’t even know you and I know you’re worth more than $14 per hour, so in part two of this series, we’re going to get a little more abstract and talk about how to value yourself AND your time to set sound financial goals and give you confidence to ask for that raise or look for better work altogether!

In the meantime, what other hidden costs can you think of that weren’t included in the example above? Did this information make you evaluate your job from a brand new perspective? Let me know in the comments!


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