I’m currently reading “Your Money or Your Life, ” a true personal finance classic. As great as it is, however, I wonâ€™t be reviewing it here. Instead, I wanted to share their take on calculating your real hourly wage.
While calculating your hourly wage might seem straightforward, itâ€™s a lot more complex that simply saying, â€œI make $400 a week and work 40 hours, therefore I make $10/hour.â€
When you factor in all the additional expenses associated with your job (some of which may not be obvious), you begin to see the value in this calculation. In my case, my old corporate gig paid a reasonable wage, but when I added up all the additional time spent and expenses required, it really didnâ€™t pay that well.
Adding up the hours
In my case, I used to drive 18 miles to work each day, requiring an extra 60-90 minutes of drive time. The process of getting ready for work each morning required another half-an-hour.
My lunch time, while a break, was still time that I was not entirely â€œfreeâ€ to do what I wanted. Since I was not paid for this time, it needs to be accounted for.
The book mentions some other hours that you might also want to consider…
- Decompression time: How long does it take you to get back into the swing of your â€œnon-workâ€ life each evening?
- Job-related illness: Factor in time lost due to illnesses resulting from the stresses of work, etc.
Adding up the costs
Expenses are the other part of the equation, as they reduce your effective take-home pay. While it can be hard to identify all of your work-related expenses, you can bet that it’s a lot more than gas money and parking. For example, wear-and-tear on your car is a very real expense that many people donâ€™t factor into the equation.
Like many other people working in corporate America, I also had work clothes that I had to buy and keep looking nice every day. Even if I brought my lunch from home, I was limited to certain items based on the time and tools I had available to eat my lunch each day.
Now that I am blogging full-time, I’ve realized that I’m avoiding a lot of the expenses that I used to incur on a regular basis.
You can be as conservative or as liberal as you want with this equation, but the book has many more ideas…
- After a hard day, do you ever go out to dinner/dancing/the mall as a reward?
- Do you own a more expensive car/house/clothes/etc. than you otherwise would, in order to help sales or your career?
- Are there expenses that you are paying others to do that, if you had more time, you could do yourself? (e.g., gardening, repairs, cooking, cleaning, etc.)
- Are there foods that you buy because you’re too tired to cook dinner? Weight loss programs you enroll in because you’ve been too busy at work to lead a healthier life?
- Do you have escape entertainment or vacations you take part in that you wouldnâ€™t if you didnâ€™t have a stressful job?
- Are there childcare expenses that could be avoided without your job?
- Are there career-related books, seminars, videos, etc. you use and pay for out of your own pocket?
I think there should be a balance when adding up these costs. Don’t get carried away blaming everything on your job. Regardless, it’s always a good idea to re-evaluate each expense.
Why should you care?
Calculating your real hourly wage is an extremely valuable exercise for people nearing retirement. It can be very eye-opening to see how many expenses could be avoided by simply NOT having a job. My hunch is that a lot of people would realize that they can survive on a much lower income if they looked closely.
Many parents want to stay home with their kids, and this exercise might make that decision easier. Is an effective wage of $3/hour worth having a job you donâ€™t like and sending kids to daycare rather than being at home with them?
I used to work with a woman who drove something like 60 miles to work each day. She didnâ€™t really like her job, and ultimately realized that she could take a $6/ouhr paycut doing something she enjoyed and still come out ahead.
A lot of jobs, especially if you stay in the same industry, have similar expenses. After calculating your real hourly wage, however, you might just be willing to take a chance on that dream job you’ve always wanted.
What’s your real wage?
Have you ever run the numbers? If so, were you surprised by the outcome? Disappointed? Have you made any lifestyle changes as a result of what you learned?