In general, we work to make money. But there are costs that come with our jobs, too.
These expenses (that we may or may not ever think about) affect our true hourly wage. A few of the ways we spend money on our jobs include:
- transportation costs related to our commute
- childcare costs
- professional clothing or uniforms
- meals and drinks bought during the workweek
- random supplies and gifts we might purchase in relation to our work
With so many people working from home now, many might be realizing for the first time how much their work-related expenses were adding up. When calculating the amount we earn, we really should be subtracting the costs we incur for the privilege of working. And when figuring out our hourly wage, we should also be counting all of the hours we spend on work (including commuting and those late-night work sessions) because it’s probably more than 40 hours a week.
When all of these costs and added time get taken into account, someone who thought they were making around $20 an hour may realize that their actual hourly wage is closer to $14.
Determining a “real hourly wage” in this way is a concept that found popularity in the classic personal finance book Your Money or Your Life. Taking the time to calculate your own earnings in this way can help you understand the value of, and relationship between, your time and money.
To help get you started, you can use this handy online calculator to figure out your real hourly wage based on your numbers.
For example, my take-home pay after taxes and health insurance is around $18 an hour. However, when I calculate my real hourly wage using the above method, my hourly pay drops down to about $15 per hour (even though I have pretty low costs associated with my job). I don’t need to buy a lot of clothes for work, I have a nice short commute, and pack my lunch most of the time – but the extra time and money I spend on my job still reduces my pay by about $3 an hour compared to what I would have thought.
For folks with long commutes or childcare costs, the difference between their expected and real hourly wage can be significant.
Knowing your real hourly wage can be extremely helpful in calculating how much other purchases are costing you in time – or hours of your life. Now that I know I actually earn about $15 an hour, that means I have to work an hour for every $15 purchase. A meal out that costs me $30 costs me two hours of my time.
Your real hourly wage gives you a very concrete link between your money and the time and energy you spent earning it.
Let’s do another example.
The new iPhone 12 Pro costs $999. Since I take home about $15 an hour, I would have to work for about 67 hours just to pay for the new phone. That’s a little over one and a half weeks of work. Now that I know that, I can decide if that’s worth it for me. (For me, it’s not.)
Knowing your real hourly wage can also encourage you to advocate for yourself or make some changes. This might look like asking for a raise or moving closer to your work to limit the time you spend commuting.
Take a few minutes to calculate your real hourly wage. Does the result surprise you?