How much do you really make an hour?
Do you remember the movie About a Boy? Hugh Grant plays Will, a trust-fund baby who, since he doesn’t work, divides his day into half-hour units in order to pass the time.
“Full hours can be a little bit intimidating and most activities take about half an hour. Taking a bath: one unit, watching countdown: one unit, web-based research: two units, exercising: three units, having my hair carefully disheveled: four units. It’s amazing how the day fills up, and I often wonder, to be absolutely honest, if I’d ever have time for a job; how do people cram them in?”– Hugh Grant as Will, About a Boy the movie.
Will’s unit of measurement is a bit sad to most of us, since it doesn’t seem to truly value time. It’s merely way of passing or disposing of time, not making the most of it. Time is valuable. And by the end of the movie, Will discovers far more meaningful things to do with his time. He rediscovers that his time is valuable.
So is your’s. All of it. And it’s your time… even the time you spend at work is your time. It’s best to make the most of it.
Many of us are compensated for some of our time–whether through an hourly wage or a salary. For us, quite literally, time is money. So it behooves us to know just how much our time is actually worth–how much money we actually make through the time we invest in making money. And, surprisingly, the actual amount we make–our real hourly wage–may be quite different than we assume. Therefore, it’s a great idea to calculate your real hourly wage–even if you’re a salaried employee.
Why is it important to know your real hourly wage? Because it puts a new value on the stuff we buy. For example, that Java Chip Mocha may actually represent a full hour of your life! (As Will would say, “2 units.”)
How to figure out real hourly wage
If you haven’t read Your Money or Your Life, put it on your list. (Or download it for listening while you workout… OR, best idea: get it through your local library–for free!) The book is one of those gut punches that redirects the mindset and the path of the feet.
Within YMOYL is a formula for calculating your real hourly wage. I recommend checking out the whole thing. But here’s a snapshot:
Start with a pay stub. Divide your after-tax take-home pay by the number of hours worked. So now you have a little more accurate idea of your actual earnings per hour.
But there’s more…
How much time and money did you spend commuting? How much have you spent on food related to work? How much on clothing? Do you need to undergo certain treatments or take vacations because of your job? All of this is part of your real hourly wage, as well.
Soooo, the real calculation is (actual earnings – total actual costs) divided by Hours spent working (including your commute time).
Need an example? Tracy brings home a monthly salary, post-tax, of $4400. She worked 188 hours to get that. So her real hour rate is $23.40. BUT, she also spends an hour and half commuting each day. Which means she’s actually investing 221 hours into her $4400. So a more accurate wage is $19.91. Tracy also needs to wear specific clothes for her job. She invested $57 in those clothes last month. She needs to go out for lunch with co-workers an a regular basis, costing her another $81. Take those amounts out of the take home pay and divide all that by the adjusted hours invested, and you get a real hourly wage of $19.29.
There are actually more adjustments that can be made. Thankfully, Khe Hy developed this rad spreadsheet for calculating. You should use it.
Now that Tracy knows how much she’s really making, she knows how much of her time is invested in each purchase she makes. So buying a new watch for $60 represents nearly 3 hours of work (3 units). A java chip mocha? one-quarter unit. You get the idea…
So, the equation isn’t about how much money you spend, but about how much time you invest in the things you buy. Which can be really convicting! It begs the question of how much time you’re willing to invest in order to make a purchase happen.
And then comes the gut-punch: is the purchase worth it?
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