What’s Your REAL Hourly Wage?

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The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do. You can also follow her on Twitter and Facebook.

Do you know how much you bring home for each hour of work you put in?

If you’re an hourly employee, the number will be in the front of your mind. If you’re salaried, it might take a little calculating (salary ÷ 12 months ÷ 4 weeks ÷ 40 hours (or however many you put in) = hourly wage).

In reality, though, whatever number you just came up with is wrong. What you actually bring home is much (sometimes much, much) less.

I bet you didn’t realize that. I also bet you won’t look at spending the same way again once you do.

Here’s why it’s true:

You Have to Spend to Work to Earn the Money You Spend

If that sounds confusing (and more than a little unfair), it’s not surprising. This isn’t a concept many of us consider when we’re making our financial decisions. But, it was brought into stark reality for me when I read the book, Your Money or Your Life, by Vicki Robin and Joe Dominguez. In addition to challenging many aspects of my relationship with money, what really hit home for me was the exercise in this book called “Your Real Hourly Wage.”

Whatever your stated hourly wage is, that’s not the amount you’re really adding to your budget. Because in order to have that job that earns you that wage, you incur all sorts of work-related expenses that essentially deduct from your final take-home pay (not to mention taxes).

Work-related expenses can include:

  • Commuting costs – Gas spent to get to and from work, public transit costs, extra wear and tear (which means more repair) on your car, car insurance.

  • Childcare costs – Ask any working parent how much it costs to pay someone to keep an eye on their kids while they’re at work. Unless you’re fortunate enough to have very generous in-laws in close proximity to you, this can be a huge budget-suck.

  • Food costs – The coffee you grab on the way into work, the lunches you pay to eat out because you didn’t have time to brown-bag it, the snacks you grab from the vending machine to combat your crash.

  • Wardrobe costs – Whatever you spend over the course of the year on work clothes, shoes, and accessories (not to mention dry cleaning), divided as we did above in the calculation to turn your salary into an hourly wage.

  • “Decompressing” costs – I’m not saying you wouldn’t go to Happy Hour or indulge in weekend shenanigans if you didn’t have a job. But, when the majority of your waking hours are filled with a job that can be taxing and stressful, you tend to be more in need of (and likely to justify) pricey entertainment and relaxation on your time off. I’ve certainly called more than a few Girls Nights Out on an emergency basis to damage control what had been an awful day at work.

These aren’t the only work-related expenses you might have, but they’re some of the biggies. Anything you pay for in order to do your job, to cope with your job, or to keep your job, is something you probably wouldn’t be paying for if you spent your days relaxing at home, living off your lotto winnings (or whatever other dream scenario you like to imagine would let you to not have to work).

Here’s Where It Gets Scary

Warning: This exercise is not for the faint of heart.

If you’re really curious to know what your real hourly wage is, list out a rough estimate of all the costs you incur because of your job, and break down how much you spend per day on each cost. Then, divide that by the number of hours you work each day, and voila! You have your very own, much smaller (and probably quite intimidating) Real Hourly Wage.

When I read Your Money or Your Life in the spring of 2011 (I’ve been too scared to recalculate my wage now that I’m a part-time freelancer), my Real Hourly Wage was $6/hour. (Actually, it was more like $5.67, but I rounded it up to make myself feel better.)

Now take that number and flip it around: For every $6 I spent, I needed to devote one hour of my life to my job. It took me a good 6 months to stop thinking about this every single time I bought anything. Was that Starbucks macchiato really worth 45 minutes stuck at work? Coloring my hair at home from a box seemed a lot more sensible once I considered the fact that a professional coloring meant 10 hours pretending I cared about collating copies and formatting page breaks.

As I said, it’s not a realization for the faint of heart. But, if you need some motivation to get your spending in check, woo boy, is it ever an effective one!

How about you all? If you’re brave enough, what’s your Real Hourly Wage? How would figuring this out make you rethink your spending habits?

Share your experiences by commenting below!

    ***Photo courtesy of http://www.flickr.com/photos/socialeurope/4304126242/


    1. John S @ Frugal Rules says:

      There really are a lot of things that can come into play when it comes to figuring out your real number. At my last job it just made me sick. Now that we run our own business a lot of it has been cut because we can do a large majority of our work from home.
      My recent post December Blog Goals Update

      • CordeliaCallsIt says:

        Health costs (both physical health and sanity costs from a stressful environment) are definitely an aspect to consider. I work from home part-time on my own business, and in an office part-time for a company. And although I'm not making as much salary-wise from my business, those days at home are so worth it for me because I feel less stressed, more rejuvenated, and better able to take care of my household. I feel more “balanced.”

    2. Pauline @ Reach Financial Independence says:

      I do the same thing considering all the time whether I want to work for an hour or buy this or that. Makes you think twice!
      My recent post $1000 giveaway! What are structured settlements?

    3. It's important to do this type of exercise. I think often times people chase a certain salary or a higher salary without taking into account everything that goes into it. Frankly, every extra hour beyond normal working hours gets more valuable to me!
      My recent post The Best Money Moves for New or Recent College Graduates

    4. I was offered a job making $10 an hour. I did what I could to figure out how much I'd be taking home, and it appeared as though it could be below $1 an hour to (at best) $3 an hour. So I decided to turn it down. For now, I'm staying at home with my daughter. And I'm still looking for a way to bring in a little extra money that wouldn't have me out of the house 50 hours a week and could work around my duties as a mother.

      • CordeliaCallsIt says:

        Good for you! No job with that small a return is worth so much time, especially if it takes you away from doing the mom duties you love.

        There are SO many ways to make extra income without having to work a traditional job these days–from blogging, to being a virtual assistant, to putting a talent you have to use like sewing, crafting, or photography. I'm so glad you realized what that job would really be worth. Hold out for a job that's REALLY worth it!

    5. Canadianbudgetbinder says:

      It's true and so many people fail to see all the little things that add up and the reason why we say it's important to budget. An hourly wage can easily get eaten up with transportation,clothes, uniforms, shoes, food, coffee, parties, hair cuts, nails, suits, dry cleaning… if it involves work.. it's coming out your wage. Makes working from home in pajama's sound appealing. Lots to consider here. Mr.CBB
      My recent post Get Out of Debt First, Then Focus on Saving

      • CordeliaCallsIt says:

        That's the way I view my freelance-from-home days. I may not be making quite as much as I do at my office job, but I'm saving on commuting costs, hair and makeup costs (no need to doll up when I'm not leaving the house!), giving my work wardrobe a rest so it lasts longer (and I feel less need to buy new outfits to keep things fresh), and–if I'm being truly honest–it makes me so much happier that I spend less per week on eating out, drinks, and impulse purchases to try to de-stress.

    6. I never really saw my wages like that. People think i'm frugal as it is, but this just proves why we have to be. I don't have many of the bills most adults have, but i'm high school student with blogging as my source of income. Each month i get whacked with 85 bucks for my car insurance, not to mention my car only gets about 12 mpg. My true hourly wage must be about 25 cents/ hour.
      My recent post How to Buy Contacts Online

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