Whether you’re interested in owning a home, going on a vacation, or having a stable financial life your real hourly wage matters.
Your real hourly wage is what’s left of your paycheck (per hour) after you deduct taxes and work-related expenses.
Vicki Robin and Joe Dominguez shed light on the concept in their 1993 bestseller “Your Money or Your Life”. In the book, Robin explains that having a job comes with many hidden expenses.
Commuting is the biggest one especially if you drive to work, eating outcomes next, and don’t forget your pet or child care.
These expenses take a large chunk of your paycheck and reduce your real hourly wage. In addition, when you track the hours you spend on work-related tasks outside of the office, your real hourly wage becomes even less.
If your paycheck never seems enough, then you need to know your real hourly wage because you’re either spending too much or earning too little.
This article will show you how to calculate your real hourly wage and share practical tips to help you earn more with your time.
But first, let’s understand how knowing your hourly wage helps you.
● You spend less: If your salary is your primary income, you should be more frugal than the average employee. The best way to do this is by budgeting around your real wage–not your salary. Your salary isn’t the amount you take home. If you budget around your salary, you’ll overestimate what you can afford and overspend.
● You discover the value of your time: You trade your time for money when you work, so what you earn should be worth it. Many people realize after doing this exercise how little their job pays for the time and energy it consumes. If you’re working hard to build a career, this might not matter because you gain in other ways. But if your job makes you miserable, then you need to know if what you earn is worth it.
● Calculating your real hourly wage is also a great way to compare jobs. Sometimes, a higher paying job might bring in less money once you account for the time and money sucks.
How to Calculate Your Real Hourly Wage
Based on Robin and Dominguez advice, consider two things when you calculate your real hourly wage, the hours you spend on your job (both in and out of the office) and your work expenses.
How much time do you spend on your job?
This includes the time you spend getting ready for work, commuting to (and from) the office, working, and after a long day, decompressing.
Most of us spend between 35-40 hours at the office. Besides this, the average commute to work takes 26 minutes.
And even if you are a very organized person, getting ready for work can take at least a half an hour each morning.
Other things that waist time is called decompression time–that is the time you spend cooling off after work–and the time you lose to job-related illnesses.
I also think you should include the time you spend attending seminars, parties, and events as part of your work obligation.
You can track your time for a week to give you an idea of the specific hours you spend on different work-related activities.
How much money do you spend on your job?
Having a job comes with many hidden expenses. The biggest is commuting by car to work. According to the Citi ThankYou Premier Commuter Index, the average annual cost of commuting to work is $2,600.
This amount adds up with money spent on gas, vehicle maintenance, car insurance, tolls and parking.
Another big work-related expense we rarely consider is what the book referred to as the “deserve it” expense.
The “deserve it” expense is tied to the decompression time–meaning you spend money to relax after work because you deserve it.
This can range from going for drinks with colleagues after work to online shopping and vacations.
Other expenses worth mentioning are:
● Paid workers like nannies, cleaners, and gardeners you employ because work gives you too little time to run simple errands.
● Eating out. How often do you buy lunch at work? Or eat out because you’re too tired from work to cook dinner? Young adults spend an average of $151.00 on food each week. That’s $1,812 in a year.
● Do you own more expensive items than you ordinarily would because they help your sales or give you an impression at work? Good examples are costly clothes and cars.
● Work-related seminars and events you pay for out of pocket. Although some of these might be tax deductible.
What is your real hourly wage?
Now you have an estimate of how much time and money your job demands, you can calculate your real hourly wage. Here’s a simple equation:
REAL HOURLY WAGE = ANNUAL EARNINGS – ANNUAL COSTS / TIME SPENT FOR WORK
Let’s take an example:
If you make $20 per hour working 40 hours per week, then your weekly income is $800, and your annual salary is $38,400–at least according to your paycheck.
Let’s assume your annual expenses (including taxes) is $5,000, and you spent 2000 hours on work-related tasks–if you spend 40 hours at work per week, that will add up to 1920 hours at work; the remaining 80 hours accounts for minor activities.
Your real hourly wage in this example is: ($38,400 – $5,000) / 2000 hours = $16.7/hour. That means your real weekly wage is $668 (16.7 x 40), and your real annual wage is $32,064.
Your estimate might not be entirely accurate, but it gives you an idea of the difference between what your paycheck reads and the money that ends up in the bank.
For a more straightforward calculation, use a free real hourly wage calculator.
You can try this; it includes many of the time and money expenses I listed above. And it not only tells you your real hourly wage but also gives your monthly take home, work-related expenses, and net profit.
Now you know what your real hourly wage is, let’s look at a few practical ways you can make more money with your time.
Five ways to increase your real hourly wage
1. Start a side business: The best way to increase your hourly wage is to make more money. You can start a side business using a useful skill you’ve gained from your career or an idea you’ve always wanted to try. The best side businesses are those that can generate passive income in the long run, so you don’t have to work more hours to make more money.
2. Spend less: Your next step is trimming your expenses to the bone. Here are a few things to start with:
a. Don’t drive if you have a choice. Owning a car is a hefty expense, you lose $2,300 commuting by car to work every year. If you must drive, start a carpool with neighbors or use a ride-sharing service to split your travel costs. Also, don’t skimp on car maintenance. Check your tire pressure and change your oil routinely. It may cost a little now but saves a lot later.
b. Cook more: take time during the weekend to plan your meals for the week ahead. You can cook things in bulk and store them in the freezer to heat up for lunch or dinner during the week. Buying coffee is another significant food expense – the average American spends $1,100 on Starbucks each year. Save money by making your own coffee.
3. Work from home: The number of employers offering a work from home option has grown by 40% in the past five years.
But it’s still only 7% of all employers in the United States. That said, it won’t hurt to ask your boss if you can work from home one day of the week.
You can bring up commute costs and time as a logical reason. The most prominent issue managers have with allowing employees to work from home is productivity.
So you need to prove that working from home will make you more not less productive.
4. Focus only on essential work tasks: Part of what forces us to work longer hours is doing things that are unimportant.
What is your number one career goal? What is the sole job you’ve been hired to do? What metric will your employer use to measure your performance?
These are the areas to focus your time and attention. Drop unnecessary work obligations, delegate less important tasks to junior employees or ask coworkers to help you with them.
5. Ask for a promotion or raise from your current job. And if that isn’t possible, try to get a better paying job.
But think of your work benefits first…
On top of a salary, you probably get health and life insurance and a matching 401k. Some jobs even match your vacation and pay unemployment insurance. These benefits can translate to thousands of dollars over the years.
The point of this exercise isn’t to knock the benefits of a job–they provide serious financial support – but instead to stress the importance of our time, primarily as paid-by-the-hour workers.
Did you calculate your real hourly wage? Were you surprised by the difference on your paycheck?