Your Money or Your Life: Step 2 – Being In The Present And Tackling Your Life Energy

YMOYLThis is the seventh part of The Simple Dollar Book Club reading of Your Money or Your Life. Want to know more?

I found the exercise in this chapter of Your Money or Your Life to be one of the most amazing things I’ve ever done in terms of really reflecting on what my job was worth – and it made me rethink what I do to earn my money. In fact, I took the basic meat of the exercise, worked with it a bit, and used it as part of my 31 Days series.

The exercise that blew me away is framed as how much are you trading your life energy for? In other words, how much money are you making for the amount of time you work? Interestingly, the initial answer is usually flat-out wrong and radically overvalues how much we sell our life for.

Many people will think “I make $500 a week and work 40 hours, so I make $12.50 an hour,” but that’s just the start of it. Consider:
How much time do you spend commuting, and how much does it cost?
How much money do you spend on your work clothes, and how much time do you spend buying, dressing in, and maintaining it?
How much time do you spend at lunch, and how much extra cash do you spend on it?
How much time and money do you spend on decompressing after work? On escape entertainment? On expensive toys and vacations as a “balm”?
How much time and money do you spend on job-related illnesses – extra colds triggered by stress and so forth?
What about dinner parties and drinks with coworkers and clients?

The list here goes on and on, but those costs (both in terms of time and money) are real. Let’s say you manage to commute in fifteen minutes each way each day and spend $40 a week on your car. That alone changes the equation to $460 a week and 42.5 hours a week. Let’s say you also spend an hour at lunch and, on an average day, spend $4 on lunch. The equation becomes $440 a week and 47.5 hours a week. Let’s say that you spend two hours at night unwinding in front of the television – even assuming you spend no money on this, it changes the equation to $440 a week and 57.5 hours a week. If you go out for drinks with coworkers and clients once a week and burn two hours and $20, you’re down to $420 a week and 59.5 hours a week. These are all very realistic things for an average office worker today – maybe a cost or two doesn’t apply to you, but others are even more expensive than you’re counting.

What does that turn your hourly wage into? It goes from $12.50 an hour over a 40 hour workweek to $7.06 an hour over a workweek just under 60 hours. You go from a solid job to something a McDonald’s employee would scoff at.

The scary part is that the expenses for many employees for their real job is actually far more than what’s noted above. I have a mandatory half hour lunch at work, plus my personal commute each way is about thirty five minutes. That’s an extra hour and a half tossed onto my weekday, which reduces my true hourly wage by 19% just with those two factors alone.

The other exercise in this section is also an eye opener, but it didn’t quite shock me as much as the first one. This challenge is much more straightforward: keep track of every dime you spend and every dime you bring in for one month. The numbers I got at the end weren’t surprising to me, but the process was a real eye-opener. I began to see how much cash was just floating out of my life. More importantly, I began to feel some serious twinges of guilt when I spent money on stuff I didn’t need.

These two exercises are intrinsically connected. After you figure out how much an hour of your life is really worth, it begins to feel very uncomfortable when you spend money frivolously. If you suddenly discover that in fact your time is worth only $9 an hour, then you go to purchase a Wii, you find yourself wondering if buying a Wii, a few accessories, and a couple of games for $450 is really the right move – after all, is more stuff really what you want as the output of fifty hours of your life’s energy?

These exercises really raise some profound questions.

Tomorrow, we’ll jump into the third chapter, “Where Is It All Going?” focusing on the first half of the chapter up to the start of the section entitled “Totaling It All Up.” That portion is on pages 76 through 87 in my paperback version of the book.

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  1. rhbee says:

    As I read through this section, and then worked out the hourly wage question, I realized that I actually have at least two kinds of hourly wages in my life. If the task is important to me then any compensation I earn on top of that is gravy. If the job is just a job I am doing for a wage, then no amount of money will make me work overtime to get it done.

    Trent’s commentary made me remember back to when I first started teaching and the two pants, one jacket suit I bought as a practice teacher so I would look like a “teacher”. I even bought a pair of wingtips. By the second semester of my first year I was in jeans and tennies, and by the start of the second year, I didn’t have a tie to my name. Necessity had forced me to realize that on a salary of $6000 a year I could not have two sets of clothes. I chose the ones that fit my life not someone else’s view of what a teacher should wear. The cost of this choice followed me through my career. An added stress that was worth the wear.

  2. guinness416 says:

    This chapter (I read the book a while back) was where I realized I’m on the right track to some extent with the place work has in my life. For my commute I use a transit pass I’d use in off-hours anyway – and actually gain some novel reading time. I pack lunch every day. I dress business casual. I expense every last thing I spend for work and event I attend. I don’t buy toys, and I vacation for experience, not because of “stress”. The decompressing one is tougher to analyze.

  3. Empress Juju says:

    My number is a good one, and I’m grateful!

    Some choices are easy: I don’t have a washing machine, and I am happy to pay about $15/week to have my laundry done, rather than spend 3 hours/week at the laundromat!

    Some are harder: I spend 10-12 hours a week commuting to & among jobs. I’d like a nicer, newer car, and the one I want would “cost” me over 700 hours of work, or about 17 weeks.

    Decisions, decisions…

  4. lorax says:

    This isn’t easy.

    I assume the authors want us to subtract taxes. I don’t see it explicitly stated, but it makes sense.

    But don’t forget to add in your jobs benefits. Everyone gets social security matching. Do you get 401k matching? Are you participating in a health insurance plan where the employer pays? That’s pre-tax, so adjust the cost of insurance. And maybe you wouldn’t be able to get health insurance at all if you weren’t employed? How do you reconcile that? Maybe you get free coffee? You probably get a vacation time. Etc…

  5. Marsha says:

    This is an important concept, although we can argue about the technicalities. For example, I believe that even a person who loves-loves-loves their job might still need or use some relaxation time after work – which, in theory, could compare to “decompression” time for a person who hates their job.

    Also, nearly all people have to buy some kind of clothes to wear to work; very few have uniforms provided. So in theory, there should be some baseline clothes budget that is neutral.

    But these are mere details. The concept is valid and important. I am fortunate to be able to dress business casual and to have a micro commute (10 minutes), but I pay dearly in increased rent to live close to work.

    As with most of these concepts, the application to each person’s life will be individual. The book nonetheless provides important questions and principles.

  6. !wanda says:

    In my family, it’s the opposite: I think I’d pay to get my parents working and out of the house. My mother works five part-time jobs and claims that she is tired and busy all the time. Well, she is, but she’d be dissatisfied and bored if she weren’t so busy, and when she’s bored she starts to micromanage family members and ends up yelling at everyone a lot. My father derives all his non-family social interaction from work. He never visits or even calls people who aren’t family, and even that he only does a few times a year. When he was laid off, he was so isolated and depressed that he took to talking to the cockatiel all day long. When he wasn’t with the bird, he was picking on my brother and my mother and getting into fights with them. Everything was so thrilled when he found work again, even though it was at less than half his former salary. In short, I’m pretty sure both my parents use work to decompress from home and to give meaning to their lives; the worth of that needs to be added to their salaries.

  7. Arthaey says:

    When I read the section on hidden job expenses, I dreaded tallying up the numbers and seeing what it works out to. But when I actually sat down to do it, I found that I don’t have all that many work-related expenses. This is more luck than explicit planning, though, so reading this book has helped me to realize that I need to take these things into consideration when I look for new jobs.

    That eating lunch out with my coworkers can really add up was no surprise. But my commute is only 10 minutes, I wear exactly the same T-shirt and jeans to work as I do on the weekends (programmers don’t do ties), my vacations are not stress-induced, and I’m spending my free time more or less how I would if I didn’t have a job. (Maybe I’d travel or do more outdoorsy things without a job, but only because a weekend isn’t a large enough chunk of time to go very far from home.)

    So overall, I was pretty happy with $1 only “costing” one and a half minutes of my time. I can justify working for 3 or 4 minutes to afford a mocha every now and then. :)

  8. Steve W says:

    Also — When assessing your “total compensation” you should also include the “replacement value” of your benefits. If you are full-time salaried with standard benefits — that value is roughly 30% of your annual salary. If you make 30K per year, it will likely cost you 9K annually on the open market to replace those benefits. That number, BTW, comes from my previous employer, which was a global HR consulting firm that specialized in HR/Payroll data collection and analysis.

  9. Sean says:

    Steve W, is that 30% figure how much it costs your employer or how much it would cost you? Your company gets a better deal on these things than an individual would. I’m a bit disappointed in the book for neglecting to mention just how valuable your benefits can be. I know I’d spend a ton of money on medical and dental insurance, as well as a gym pass and a non-negligible amount of coffee if I didn’t have my job.

    More nitpicking: I eat lunch everyday anyway, so we should only be counting the amount of additional money I spend for work lunch that I wouldn’t spend without a job (which is zero for me). And sure, I have to buy different clothes for work, but since I’m working 40 hours a week, I don’t need as many other clothes. I thus shop less for non-work clothes, and spend less time maintaining non-work clothes. I think my work clothes budget should be reduced accordingly for this calculation to be accurate.

  10. Steve W says:

    How much it would cost you on the open market. You are correct that employers pay a different (i.e. volume) price.

    Also a fact — most EEs do not utilize all benefits. Example — I don’t use the credit union, the free (crappy) coffee, health club discount (I have a home elliptical and a push mower), “Life Counseling” services, etc.

  11. Debbie M says:

    My first calculation showed that I make a lot more money per hour than it looks like because I get a lot of benefits and have virtually no expenses associated with working. However, my work time is still limited.

    I do better equating my money to something other than a quantity of time worked. I think it was in Cadillac Desert that the characters measured time in sixpacks of beer. Similarly you can measure money in packets of Ramen noodles. Or cars or outfits or meals out or movies or whatever makes sense for you.

    The second exercise comes in handy not only when I’m trying to be extra careful, but anytime I can’t figure out where my extra money is leaking. The first time I wrote down every penny I spent, I learned that I was buying lots of little things that I was later forgetting about. The last time I did it I learned that the problem was not collecting money due me (from roommates or borrowing reletives). Even though they should know I want them to pay, and I don’t like having to ask, just a little reminder to them works wonders.

  12. Doug says:

    Sean, your “nitpicking” doesn’t fit with the authors anti-work perspective so they left it out. Also, like Wanda said, some people use work to decompress from home. The value from this book is from the method (with a few personal adjustments) and not from the authors opinions on evil work is. You don’t have to agree with everything to get some value out of the book.

  13. Ha'apai says:

    I performed a similar calculation when I was deeply in debt except that I divided monthly discretionary income by hours worked.

    The result was in cents and it completely rearranged my thinking. I never turned down overtime again and a whole lot of things that hadn’t been “worth the effort” suddenly became worth the effort.

  14. m says:

    Thanks for sharing this technique!

    I tried it to see how many hours I needed to be able to pay for each of our past two vacations, as well as for my monthly housing costs. What was cool was the numbers made sense and all seemed reasonable and worth it, so maybe we are doing *something* right at least!

  15. Craig says:

    Thinking in terms of time and money, my pay would be $6.85/hr. That’s my take home, after tax. Not great, but considering I work 40hrs, about 1hr prep/wind down and travel time each day, I say that’s pretty good. I bike to work (rain/shine/snow 2 miles), I wear existing clothes (so nothing spent), the job stays when I leave, and TV/internet is free here if I so desire.
    And as a night audit at a hotel, I spend the quiet hours doing this: reading blogs, websites, gaining information. That makes my time at home worth even more, as I don’t waste it on the internet when I could be doing something else, with friends and family. Coffee, bagels, breakfast: keeps me from snacking at home. I only buy food I can eat as dinner now, cutting my food bill in half. $100/month and I live without hunger.
    I’d say I’m in a fairly good position for slowly paying down my cc debt.

  16. Jennifer says:

    I have calculated my “real” hourly wage. Seems like very useful information to have. (Also great in comparing for a job change, etc. as others have mentioned.)

    Now, tracking all money to the penny will be VERY challenging for me. I tried to keep track off all the money I spent daily, on my blog, and it was SO difficult. And it never came out right. But, I am considering giving it another try. (I could use more discipline and integrity in my life!)

  17. St├ęphanie Lantran says:

    My difficulty with this part of the program is to estimate the time I spend working. As a WAHM (freelance writer), it is quite difficult to know exactly my number of hours per week. I sometimes get an idea for a new article when chatting at the park with neighbours, watching the kids playing outside : is it work ? I sometimes surf the internet to search for an article, and find a nice bargain online, and I choose to buy it : is it home or work-related ?

    If you consider housework, the fact that I’m working at home makes that I don’t spend money to pay someone else for doing my housework… is this a “benefit” from my king of work ?

    Now, let’s go further : since I work at home, in order to raise my kids at home, I don’t spend money in daycare, for example, but I earn very less money than my husband. So, I use part of his money to pay for food and everything else. Is this money to be considered like my wages for being at home with the kids, or like a benefit… Housework is work, for example, and I’m not paid for it. But some people are paid for it…

    Well, for a WAHM or a SAHM, I think this exercise is very difficult. If someone has tried and succeed in this situation, I’d like some help…

    Thanks.

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