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Financial Optimization – Pro Budget Skills

One of my big inspirations for starting a blog-site was Mr. Money Mustache, as he is a total badass who understands how to blend economics, humor, environmentalism, health, and personal optimization techniques. I tend to agree with his reasoning, since MMM is a former software engineer and we software engineers are an odd bunch. Something like sixty percent of software engineers think they’re the top ten percent in their field. Talk about a rampant superiority complex! The other forty percent of us marvel at the three-man team at Treasure that made Ikaruga and managed to compress all the data down to a mere ~15 megabytes on a single GD-ROM. Uncompressed, the data grows to well over ten times the size so the disc would burn more game data to the outside regions of the disc and allow the drive to read the disc faster. I probably lost some of you there, but this is the software equivalent of witchcraft.

I like to think I’m a decent software engineer. But I’m not Treasure-levels of programming ninja. I do what I can as thoroughly as possible. Part of that involves optimizing my personal life so stress won’t interfere with work. Going back to MMM, the biggest part of personal optimization is finances. Period. Most people will disagree with my frugal ways, which is how I know I’m right. I’ve also got a few unavoidable expenses to deal with, so in addition to not being the greatest programmer, I am not the greatest financial model either.

But that’s OK. Through enough hard work and effort I will simply become more efficient over time. The best way to improve my software engineering and personal finance skills is to continue with a meaningful career. This brings me to my next topic, which includes the perilous job search.

Sometimes, even when you have a decent job, it doesn’t hurt to look for a new one. Maybe management is doing the best they can, but they keep creating a few more hoops for you to jump through as you attempt to solve a problem in a live environment where any number of policies worth thousands could be on the line. Maybe the code base you’re maintaining has too much spaghetti and no real sauce. If anything, you might just want to find a more meaningful career.

One day you’re cracking at that code and someone calls you. A recruiter! You get to talking, she finds out about your interests and skill set, then an awkward topic comes up.

What’s your current salary?

It seems like everything I’ve ever read says to never, ever answer this question. I can see why; if an employer demands this information as part of the hire process, they can use it as a bargaining chip against you. You could be qualified for a job that pays $75K, but if you’re making $25K currently then they might as well use that information to undercut you a bit. But it’s not really the recruiter’s fault for asking. If a company really wants this information, maybe I should give it them. But I should give them the in-depth software engineer optimization answer.

So, let’s take a look at my yearly salary and expenses.

Gross Income ($56,120):

  • Salary: $54,000
  • 401(k) Match: $1620
  • Employer Health Savings Account Contribution: $500


Gross Expenses ($23,820):

  • Rent/Water/Heat: $4,280
  • Federal Income Tax: $3,850
  • FICA Tax: $3,600
  • Student Loan Interest: $3,000
  • Car Budget: $2,800
  • Local Tax: $2,010
  • State Tax: $1,025
  • Food: $900
  • Health Insurance: $650
  • Dining Like a King in Cleveland: $300
  • Political Contributions: $300
  • Dental Plan: $250
  • Internet: $210
  • Phone: $210
  • Personal Care Items: $200
  • Electricity: $135
  • Pharmacy: $100


Net Worth Growth (Positive Net Worth but Negative Cash Flow) ($20,570):

  • Student Loan Principal: $10,200
  • Health Savings Account Contribution: $2,850
  • 401(k) Contribution: $5,400
  • 401(k) Match: $1,620
  • Employer Health Savings Account Contribution: $500


Remainder (Cash Flow/Loose Decoupling of the Medium Rare Robot Economy):

  • $11,730!



  • Total commute time for a day is about an hour and a half, half of which is walking.
  • Fringe benefits of current job include wearing jeans and a plain T-Shirt every single day and having business analysts that trust me so much they skip my manager and go straight to me.
  • My coworkers are all nuts. Not as nuts as I am, but rather close! They bring a grotesque sense of joy to my day and you’d be hard-pressed to pull me away from them.


All righty, I bet I have some explaining to do!

First off is income; I make $54,000 per year, get a maximum 401(k) match of 3%, and $500 towards my Health Savings Account. Straightforward enough.

Expenses are a bit tricky, but I’ve done my best. My share of rent for a month is always $356.50 and this includes heating and water. Electricity is consistently just under eleven dollars. My phone is through Republic Wireless and I am conservative when it comes to data usage. Food is low for me since I follow the Warrior Diet, skipping breakfast and lunch in favor of a hearty, well-prepared dinner; seventy-five bucks has been a perfect cost for the last four months without having to scrounge for food a single time. Dining out is still a hobby of ours, so I’ve accounted for it in the budget. The rest is pretty much miscellaneous expenses or stuff I’ve been tracking over time. Taxes are estimates since numbers can get a little lost in the shuffle until I actually file, but the estimates are as close as possible. Most importantly, I never let my money go anywhere near the 25% tax bracket. I’m all about those deferrals and Roth IRA ladders.

Car expenses are tough to budget, but the IRS has a mileage rate calculator. Since I run my life as a business, let’s look at those numbers. Every mile costs about $0.575, factoring in gas, maintenance, depreciation, and insurance. I drive about 4100 miles a year going back and forth to work, plus some driving around Cleveland or to visit my parents. After taking care of some big car expenses this year, I’d like to make a significant case for factoring driving as really costing fifty-seven and a half cents a mile. I like to look at averages over time and it does seem to add up. If I spend less, great! If I spend more, it’s probably because my expenses were lower than expected in the past. If I lived within three miles of work, my transportation expenses would cut in half, since I’d sell my car, buy a bike and investments, then share car expenses 50/50 with my girlfriend. Same for if we worked at the same job, regardless of mileage from work.

So, how do you like that for a description of compensation? But wait, there’s more!

Let’s look at my net worth gain versus time invested in computer code shenanigans. My total net worth gain for the year comes in at a nice $32K, assuming no extra expenses rear their ugly heads. For the sake of conservative argument we’ll say $29K. Divide that by 52 to get weekly pay, then by 45 to get hourly pay (this factors in my daily lunch break and commute times for a net work day of 9 hours), and you get $12.39/hour take home pay as pure profit.

But wait, there’s more! Again!

What’s my personal savings rate? Not factoring taxes and sticking with that $29K figure, I am putting a nice 51.7% of my earned income towards wealth building. If you use the more traditional method of calculating savings rate, which factors out taxes (since savings rate is effectively based on take-home pay), I am putting 63.5% of my money towards wealth building. If not for student loan interest, that number would be 70.1%!

So, what are readers, including potential recruiters and employers supposed to take away from this?

When you ask me what my current salary is, it’s not just a number. It’s a complex system based on a great number of variables, all of which I am monitoring at all times, especially net gain per hour, expenses from working and commuting, and personal savings rate. Let me know when you’re ready to utilize my method of thinking. Just remember, no one is going to jump ship for just a few extra peanuts 🙂


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