Got a brand new shiny job? Watch out for these pitfalls.

Congratulations! You have a shiny new job and you’re going from making $10/hour (minimum wage in Ontario) to $40,000 a year!

WOW!

$40,000!!!!!!

That is DOUBLE what you were making before.

($10/hour x 2000 hours a year = $20,000)

But wait. Does this mean you can double your lifestyle? Not exactly.

The main problem is understanding what those numbers really mean.

$40,000 cash in hand in one fat lump sump is a lot of money, but $40,000 in a salary is not really $40,000 in the end.

You have to factor in taxes, premiums and all the other things your work or your government deducts off your pay.

In the end, $40,000 is really $30,000 at the end of the year at a 20.94% tax rate.

Okay, well $30,000 isn’t too shabby either, but now you have to consider the following:

• You haven’t earned that full $30,000 yet (year is not over)
• You have to still cover rent, utilities and food!
• You may be getting back less than $30,000 if you have other fees to pay for

$30,000 a year is really $2500 net a month, so if you get a nice apartment by yourself at $2000 a month, you’ll have to scrape by with $500 to cover everything else including food.

This means:

• No spending binges like buying a $200 pair of shoes to celebrate
• Considering you may have loans to pay back (mine were $500/month!)
• Not eating out like a rockstar

I know people who have gotten jobs like that and went out to immediately buy themselves a shiny new car…. and a new car loan.

Now they’re stuck paying their bills, clearing that car loan, their student debts and trying to scrape by.

So what should you do?

1. Earn the money first at your job and don’t spend yet
2. Don’t think of your gross salary as a “lump sum” amount
3. Calculate your monthly net take home pay
4. Set up a budget and see what people normally spend..
5. Track your expenses to see what your bills are (3 -6 months of data)
6. Don’t make rash decisions about shopping/cars/homes
7. Don’t even think about the “extra” money (pretend you aren’t making more $$)
8. Get a clear picture of what you owe at this point in time
9. Save, save, save!
10. Be frugal as possible so you don’t live paycheque to paycheque

It can be hard to hold yourself back knowing that you are bringing in MORE money, but it is also very difficult to judge how much extra money you are really bringing in over and above your current lifestyle, and what your salary means in net terms.

I know that your gross salary sounds very exciting in your head, but after all is said in done, you should really calculate your disposable income, and how much extra you really have to spend on going out.

It may end up just being an extra $100 a month.