Do You Know Your Real Hourly Wage?

spend-time-with-family

How much is your time worth?

It’s a hard question to answer with a definitive number, so here’s a different way of looking at it: How much money would you pay for an extra hour in your life each day? $20? $50? $100? It probably depends on the day – and how little or how much you’re enjoying your freedom.

Even if you can’t answer that question on a personal level, you can take one look at your paycheck and know how your employer values your time. Show up for an hour of work, earn $25 (that’s the average hourly earnings in the U.S.).

But your real hourly wage is much more than what you see on your paycheck. Your actual hourly wage is the relationship between how much additional time, energy, and money you spend on everything related to your job – not just the hours calculated in your paystub.

Your Money or Your Life: How to Calculate Your Real Hourly Wage

 The concept of Real Hourly Wage is outlined in a fantastic book called Your Money or Your Life, which illustrates that there’s a direct relationship between what you earn and the amount of effort you put into a job, beyond the hours you clock in at the office.

Here’s the magic formula for calculating your real hourly wage:  Real Hourly Wage = Annual Earnings – Annual Costs / Time Spent for Work

But what exactly does that mean?

Let’s say you earn an annual salary of $40,000 and you work 40-hours a week. In simple terms, your hourly wage would be $19.23 an hour, or about $20.

At the same time, you might want to go out for dinner on Friday, which will cost you about $20. This means you’re trading an hour of your time to eat dinner out.  This is a simple example of how you directly trade your time for money (or the ability to buy things).

But hold on a second – you’re not actually earning as much as you think. Your real hourly wage is a lot less than $20, and it’s impacted by two major variables: extra time spent around work and hidden work-related expenses.

How much time do you spend commuting? Do you have to buy professional clothes that you wouldn’t wear otherwise? Do eat lunch out because you don’t have time or energy to cook food at home? Even extra time you spend working on the weekend will impact your real hourly wage. Bottom line, there are a lot of hidden expenses (both time and money) that involve work.

So if you factored in all of the costs and time spent related to work into the real hourly wage formula, you would plug in your take-home pay ($40,000) minus any work-related expenses throughout the year (let’s say $5,000 for food, clothes, commuting, decompressing, etc.) divided by the total hours spent for work each year (2800, which includes commuting and extra time at work).

($40,000 – $5,000) / 2800 hours = $12.50/hour

That’s a lot less than $20/hour we’d calculated before.

Changing Your Relationship with Money and Time

Try calculating your real hourly wage. What did you think after calculating all of your associated job costs? Is your real hourly wage aligned with what you think your time is worth?

It’s a powerful exercise, and one that highlights how we’re actually paying for money and a wage with our time.

So now that you know the true value of your time, where will you choose spend it?

This book, Your Money or Your Life truly changed my relationship with money, made me more frugal and provided a path towards financial independence, I hope it can do the same for you!  So, if you get a chance I recommend that you pick up a copy on Amazon.

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6 Comments

  1. I love this concept from YMOYL. I wonder sometimes though if the calculations are a bit pessimistic. While I certainly would be commuting to work, if I didn’t have to work I still might drive my car to other activities (volunteering, hanging out with friends, daycare, whatever). I might not buy professional clothes any longer, but I’d still, you know, need to buy clothes. Some of the costs involved with working are likely just inherent to living, too. So there’s some (albeit smaller) amount that I wouldn’t fully subtract from my hourly wage.

    • Jim says:

      That’s a great way of looking at it, I think the point is she is ultimately trying to make is for us to find a way to be mindful of our spending, by doing tracking this it will create more disciplined spending habits. I Think it is really the practice of tracking that will get you to the point of financial independence.

  2. What a great post. Many people don’t think to factor in all the extras when it comes to their job. The lunches, clothes, petrol, wear and tear on vehicles etc all take a piece from the pay scale pie….

    • Jim says:

      Totally agree, its interesting to see really, how many dollars you are trading your time for. I have been tracking it and its eye-opening!

  3. All jobs will have a cost related to them, so that’s why it’s good to focus on increasing your income – you’ll always need to commute, so why not commute to a job in which you make more money.

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