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Saturday, November 29, 2014

What is Middle Class?

Posted by Tim Stobbs on October 6, 2014

So while reading a book the other day, it noted that despite the common usage of the term ‘middle class’ there is no definition.  So of course I did a little Google of that fact and the author was entirely correct.  I came across many definitions of income ranges trying to lock down what exact is middle class.

Then I came across one idea that I liked.  Take the median family income in a given country and +/- 40% that is the middle class.  In Canada for 2012, the median family income was $74,540 per year.  Adding our range of +/- 40% results in a the middle class being from a family income of $44,724 to $104,356 per year.  That is a broad range that covers a huge number of families in Canada so I think it could easily work as a passing definition.

Yet what stuck me the most about those numbers was despite considering myself middle class for the majority of my life I in fact likely never been a part of it.  Growing up I always knew we weren’t poor by any stretch of the imagination, but at the same time we never had expensive cars, overly nice houses or only bought a run down tiny cabin as a vacation property when I was in university.  So I never felt very well off either.  Yet looking at those values and doing a bit of an inflation adjustment, I was forced to conclude I grew up above the middle class.  Now that I’ve grown up and I have my own family that has largely continued.  Ironically other than a few of the early years of my career, our family income was also above that upper end of the middle class range.

Of course the problem of making a definition dependent on income is it ignores the fact I don’t spend the majority of my income.  Instead we save the majority of it and we spend on average a little under $30,000 per year, which of course is under the lower end of that range.  So which is it – am I’m under the middle class or over it?

In the end, the answer doesn’t matter.  Middle class is a way of referring to the majority of the people, not the upper class or even the poor.  It’s merely the bulk of the people who are trying to get through life.  It’s somewhat of a fiction which becomes useful to the political class since they can refer to the majority and allow even those on the edges to include themselves if they want.  Sort of like I have for most of my life.

Yet as we continue to save for early retirement I also become more aware that I have less and less in common with the middle class.  I don’t kiss ass or cower to those in a higher position than me at work.  I don’t fear losing my job since I have a decade of spending cash saved up.  I don’t try to blend in with my neighbours and I certainly don’t try to keep up with the Joneses.  In short,  I do what I want because I want to…nothing more and nothing less.

So I’m not middle class, but I’m not sure what label to us anymore and I’m not sure I even really care.  Labels are at best a crude picture of a person…a stick figure that lacks any meaningful detail.  So perhaps the answer is just be myself and let others call me what they will.

Do you ever worry what class you are?  Why or why not?

10% Less Pay, But $8 Less on My Paycheque

Posted by Tim Stobbs on July 28, 2014

I got my first pay cheque after I’ve reduced my working hours by 10%, so I’m also getting paid 10% less.  Yet after looking back at my previous pay stub I’m only making $8 less in take home pay.  How the hell is that possible?

Well the answer lies in a little bit of math that most people don’t really consider.  First off I make roughly $100,000/year at full time hours.  So at 90% time my salary drops to $90,000.  So $10,000 year less or $417 per pay cheque, yet that is on a gross basis.  You have to consider that $10,000 is getting taxed at my highest marginal tax rate or roughly 40% income tax.  So in fact if you reduce that $416 by 40% you would expect a $250 reduction on my take home pay instead of $417.  Yet my reduction was only $8, so we are closer but not there yet.

The answer was in the fact I had just max out my CPP/EI payments for the year on the previous pay cheque.  The 2014 contribution rates are 4.95% for CPP while EI is 1.88%, so all total you lose 6.83% of your pay cheque to these until you max them out for a given year.

So it may seem sort of obvious by now that out of my 10% less pay, I lose 4% approximately to income tax normally and the rest to CPP/EI, thus once I maxed out those my tax home pay is nearly identical for the last half of the year.  Of course the real drop in pay kicks in next year when I start paying CPP/EI again, but in the interim it does mean the rest of the year is fairly easy to live with the salary reduction.

Yet for now, life is easy and I don’t even really notice that I’m making less money.  It’s sort of a nice way to break myself in to the change in salary.  So have you ever got a weird pay stub?  Did you figure out what the issue was?

Good Bye Full Time Work

Posted by Tim Stobbs on June 11, 2014

Well I’ve finally out of my manager job and back to working in my old engineer job.  It feels good to be back, but even better yet I’ve negotiated to be reduced down to 90% time starting in July.  Ya! Less money but way more time off!  You might consider myself a bit nuts to want this, but in fact if I have my way I would never go back to full time work again.

Why?  Well have you ever noticed that your vacation after two weeks never seems long enough.  That somehow you feel you should be more rested by the end, but you are not.  Or the fact your typical weekend after errands and a few activities are gone before you know it.   You seem to blink and you are back in the office on Monday. Why?  Because our average work week is really too long.  So we end up in an odd situation where we end up valuing convenience over the money we just earned.  We are willing to pay dearly for an perceived time savings (at least that is my theory since I can’t understand why people spend so much money on eating out).

Since I’ve spent most of this year already with taking off every second Friday afternoon I’ve managed to notice a huge benefit to my life of being able to spend more time doing what I want (spending time with my family or friends, going for a walk or just simply reading a book).  How with just half an extra day?  Well because I can get so much done on those Friday afternoons that I can actually sit back and enjoy the rest of my weekend.  And taking those afternoons was equal to only 5% of my pay.  Now imagine what I could do by taking every single Friday afternoon or a full day every other week (which is actually what I’m planning on doing).

Life just get much easy with just a bit more time off, but even getting this approved was a little like pulling teeth (ironically not because of my boss, but rather my boss’s boss).  Why?  They oddly assume that you being gone is somehow critically  reduce the organization output when in fact, I typically only take off one minor item from my work plan in a year.  I even had to put in a six month trial period to put their minds at ease about the entire issue.

The policy I used to get this apparently is almost exclusively used by new mom’s who want extra time for their kids.  So when I wanted to use it they pointed out how unusual it was for me to get it.  My point back was ok, but how many of your employees are councilors on their Engineering Association?  The answer: one (out of approximately 3000).  Just me.  Heck even the last time I used this policy I was a school board trustee, which again was very unusual.  I don’t have the normal commitments so yes, I need the extra time off.  Yet the reality is the idea you need some highly unusual second job to get more time off is really sad.

I know a number of people who are getting near retirement who would love to reduce hours and stay around a little longer, but most companies seem unwilling to attempt this.  Despite depending on how much people cut back you could literally pay the full salary of a junior staff with the savings from the reduced hours of the senior staff member.  Also I’ve noticed people tend to grossly underestimate the impact of engagement on getting stuff done.  When I’m happy at work I get more done, I’m less tempted to surf the web or otherwise waste time.  God they have study that to death and it’s disturbing how little people get done in a day in the office anyway (hint just under three hours of actual work).

Besides I’ve worked out the impact of this change to my retirement plan and it comes out to a few months in total.  I don’t know about you, but I would much rather make the next five years a lot more enjoyable by working a few month extra at the end of my plan.

So would you ever work part time?  Or is your workplace likely to never approve it?