When I first started The Simple Dollar, I was employed full time in a research environment. My job mostly involved handling and sharing significant quantities of data – I did a bit of data mining and a lot of software development, among other things.
One of the first big realizations I made during the process of figuring out my finances was that my “true” hourly wage was actually pretty awful.
The “true” hourly wage is an interesting idea where you take what you earn in a year and subtract all of the work-related expenses and taxes, then you take how many hours you work in a year and add in all of the extra time you invest in your job.
How to Calculate Your Hourly Rate
For example, let’s say you are paid for 40 hours a week and earn a salary of $30,000 per year, giving a rate of $15 per hour. However, you pay $4,000 a year in taxes, burn $1,000 a year in fuel and car maintenance for the commute, spend $500 a year on work lunches, and spend $500 a year on work clothes, knocking your total down to $24,000 per year.
You also spend more hours than you think – you spend 30 minutes each way on your commute and also spend an extra three hours per week dealing with work calls when you’re at home, for starters, bringing your weekly hours up to 48 per week. (We’ll dig into this idea more in a bit.)
Given those facts, your actual hourly wage is $10. If you live next door to a Home Depot, you might actually be better off working there, as most of the expenses and most of those extra hours vanish.
A big part of this realization is how many hours per week (or per year) you invest in your job. When many people think about their job, they think about their time spent in the office, but that’s just part of the equation.
Do you commute? That’s time spent on your job.
Do you deal with work issues outside of work, such as answering emails or taking phone calls or going in when there is an emergency? That’s time spent on your job.
Do you come home so emotionally and/or physically and/or mentally spent that you just sit there vegetating for a while, watching television or checking out the internet? That’s time spent on your job.
Do you attend social events related to your job, such as office parties or client dinners? That’s time spent on your job.
That time adds up. It takes away from your family and your friends. It takes away from your other interests. It takes away from your chances to build other income streams. You don’t earn anything directly from that time, either.
In my case, I work from home. I have no commute time. If I want to work, I walk into my office, close the door, and begin working. If I start feeling frustrated, I go do something else, so I rarely need time to unwind. I don’t need to shop for work clothes or work supplies and I basically never have social events outside of my usual work time.
My wage might not be as high as it could be with other options, but my “true” hourly wage is quite nice because I don’t have those extra hours. Those extra hours are worth a lot to me.
In the end, the “true” hourly rate is what matters. A job that pays you a little more per hour but sucks away many hours of your time outside of work is worth less than a job that pays you a little less per hour but requires little time outside of work.