You may think you know how much money you’re bringing home for every hour of work you put in, but it’s time to think again. Whatever your stated hourly wage is (or, if you’re salaried, whatever it comes down to after dividing your weekly pay by your weekly hours), your real hourly wage is likely less — much less.
What You’re Really Making
The book Your Money or Your Life by Vicki Robin and Joe Dominguez has an eye-opening (and, to be honest, a bit terrifying) exercise for calculating your “real” hourly wage. This is the amount you actually bring home after taking into account all the things you have to pay for in order to have a job in the first place.
These things can include:
- Child care costs.
- Commuting costs (everything from fuel to car insurance to car loan payments).
- Food costs (lunches out, coffee on the way in, etc.).
- Clothing costs (including dry cleaning).
- Costs for activities you might not do if you didn’t have to deal with the stress of your job. (Am I saying you wouldn’t enjoy dining out and going to the cinema a lot with friends over the weekend if you were less stressed? Not necessarily. But you’re more likely to spend extra on “de-stressing” and “rewarding” yourself at the end of a long, particularly bad workweek.)
So whatever amount you’re earning hourly needs to be calculated after you take out these work-related expenses.
Make a list of all of these expenses on a weekly basis (or biweekly, depending on your pay schedule), then subtract that amount from your regular paycheck. Now divide that number by the number of hours you work each week, and ta-da! — you now have your real hourly wage.
If that number scares (or depresses) you, you’re not alone. Most of us would be a bit shocked to find out how much of our hard-earned money we spend just maintaining the job that gives us that money.
What This Means
Realising how much you’re really making for each hour spent on the job can be a sobering thing. But it doesn’t have to be a negative experience.
Rather than marching into your boss’s office and demanding a raise (I don’t think he’ll care how many mochas you need to get through your workday), try to use this exercise as motivation to spur you to more responsible spending.
Let’s say you’ve discovered your real hourly wage is around £15. This means that for every £15 you spend, you will need to spend one hour in the office working on whatever it is that you work on. When you frame it this way, suddenly dropping £100 on a cute pair of shoes takes on a whole different meaning. (They may be fantastic, but are they really worth spending more than 6.5 hours at work when they don’t really match with any of the outfits in your wardrobe?)
It may be a scary exercise, but calculating your real hourly wage can help you really make the connection between the money you spend and the time you spend earning it. Once you’ve made that connection, it can inspire you to be much smarter with your money — and to make your hard work really pay off.