Meet Susie Q, a hypothetical newly-minted software-engineering grad taking her first full-time professional job for $58,000 pa, or ~$4,830 pcm. 30% of her gross pay goes to taxes and benefits, leaving her with ~$3,380 pcm to allocate.
She’s been living with roommates for four years and wants her own place, but she knows that any space of her own will already be better than what she has, so she looks for a studio that is biking distance to her new job. She ends up in a small 500sqft space, with utilities included, for $900 pcm.
Since it’s just her, she goes out with friends on the weekends; but she knows she needs to start saving, so she’s careful and keeps her spending to $100 pcm out. The rest of the time, she cooks at home and spends $300 pcm on groceries and craft beer.
Her cell phone with Google Voice costs her $25 pcm, and renter’s insurance takes away another $10 pcm. Total monthly spending comes in at $1,335, leaving $2,045 for saving. Susie’s doing pretty well for herself already! She’s saving 60% of her take-home pay, putting her on track to retire in 12.5 years, or when she’s 35, assuming no lifestyle inflation but also no raises*.
Susie Q is a real go-getter, and she proves herself immediately to her company by working 80 hours a week to help complete a project that is behind. It takes a month of 80-hour weeks, but she does it, and she cements her position in the company (and in her bosses’ good graces). However, where she was originally set to make $28/hr, she actually worked that entire month for $14/hr. The first month, she still saves $2,045; each month brings another $2,045 of savings.
Now let’s back this example up and assume that Susie Q got a job through a contracting agency instead of going full-time at a specific employer. She starts with the same $28/hr, and she ends up on the same project at the same company. She works the same 80-hour weeks for her first month, but now, since she’s hourly, she actually gets paid for those bonus hours. Instead of bringing home $3,380 that first month, she doubles her pay and brings home $6,760**. So now she’s able to save double and sock away $4,090, right?
Actually, it’s even better than that. She saves $5,425 that first month – $1,335 more than just double! This is because all of her expenses – the whole $1,335 she spends to keep herself housed, fed, and entertained – are already covered for the month, so that extra sum goes straight into savings.
In a salaried position, Susie would have to work 2.65 months to get the same level of savings as working two-months-in-one-month as a contractor. This is because each month requires her to pay living expenses before she can start saving.
Now, I’m certainly not a fan of 80-hour weeks (and have never worked one myself), but working extra hours in an hourly position (or working a second job or having some other side hustle) seems like a good way to get ahead***. That’s why I think I’ll look into switching to a contract position sometime later this year, once we’re settled. Working extra hours now takes more than just those hours off the time until I can retire, and keeping me at work will make sure I don’t have too much time to spend money on restaurants and entertainment.
* Basically, assuming that her costs and her salary keep pace with inflation.
** Actually, she brings home a bit less, because graduated taxes.
*** As long as you don’t get burnt out. I don’t recommend targeting 80-hour weeks as your standard week unless you know you can handle it and it’s only for a short period of time.