How to Calculate Your Real Hourly Wage

Wages

Have you ever figured out what your time is worth?

We make decisions every week on whether something is worth our time.  Almost all of us choose to work.  We go to the office, the shop, or the site in exchange for money.  We’ve already come to an agreement with our employer on what our time is worth.

But have you ever calculated your real hourly wage?  You might be surprised!  Once you find it out, you can use that information to make some adjustments in your personal and financial life that will result in real change.

The Real Hourly Wage Calculation

1. Give Uncle Sam his share.

Anyone who gets a paycheck knows that the government gets their money first:

  • Social Security
  • Medicare
  • Federal and state tax withholding estimates
  • Other states have small city or disability taxes withholding

Check out last year’s tax return to figure out the average percentage of your total income that went towards income taxes.

Example: Jon makes $20 an hour and pays an average of 11.5% in total taxes. Jon’s post-tax hourly wage is $17.70 for his time on the job.

2. Calculate the hours before and after the job.

A 40-hour a week job does not take up just 40 hours a week.  We need to add up the time that Jon puts into these extra activities:

  • Getting ready in the morning  - 2.5 hours a week
  • Commuting to/from work – 5 hours a week
  • Unpaid lunchtime and breaks – 5 hours a week
  • Decompressing at home after work – 2.5 hours a week
  • Evenings and weekends checking/answering cell phones and emails – 2 hours a week

Each week, Jon devotes an additional 17 hours to maintain his job.  This brings the total hours each week to 57.

3. Calculate the net wage for job-devoted hours.

Jon gets paid $17.70 post-tax per hour for his job – so his weekly paycheck is $708 (for the 40 hours).  However, we’ve just figured out that there are 17 more hours each week Jon needs to put into maintaining this job.

Divide the $708 paycheck by the total of 57 hours to get a real wage of $12.42 per hour – before expenses.

4. Add up the expenses of having a job.

We all have expenses related to going to work. For Jon, these include:

  • Car and gas expenses – 15 miles to work at the IRS rate of 55.5-cent/mile – $83.25/week (10 trips)
  • Required professional clothing, uniform, and grooming items – $20/week average
  • Dry cleaning & professional laundry services – $10/week

Total job-related expenses: $113.25

Each week, Jon devotes 57 hours to his job and doesn’t always have the time or energy for household chores.  Because of this, Jon pays for:

  • Housekeeping services – $20/week
  • Yard maintenance for grass, leaves, snow, fertilizing, etc. – $30/week
  • Car wash – $10/week average
  • Pet care for grooming – $5/week average
  • Lunches out twice a week because he doesn’t always take time to make it – $15/week
  • Take-out, convenience foods, and/or dining out – $50/week

Total expenses of services & conveniences: $130

We need to reduce Jon’s paycheck of $708 by $243.25 ($113.25+$130) of expenses to get his personal “profit” from working to $464.75.

Divide that by the 57 hours – and Jon’s new real wage ends up being $8.15 per hour.

5. Add in the cost to the working parent.

Many parents make the decision every year on whether to go back to work, work part-time, or stay at home with children.  It’s a tough decision based on many factors like the need for additional household income, desire to go back to a career, or a wish to be at home with the kids.

Let’s add in Jon’s childcare factors:

  • 2.5 more hours a week to drop off and pick up at childcare location
  • 5 more miles per day for commuting to childcare – additional car expenses of $27.75
  • $250 a week on childcare

Jon now spends over 59.5 hours a week in job-related activities – not including the extra driving time to and from childcare.

Let’s do the math of take-home pay of $708 minus work-related expenses of $141 ($113.25 plus additional $27.75 for gas), convenience expenses of $130 and childcare expenses of $250  - which brings us to a personal ‘profit’ from working to $187.00 for the week.

Divide $187.00 by the 59.5 hours and the average wage for hours devoted to maintaining a job has dropped to $3.14 – and keep in mind we didn’t count the commute time to childcare, figuring that he would be driving anyway for other activities if he didn’t have a job.

Are you surprised? Jon gives up almost 60 hours per week, has a job fairly close to home, only one child – and averages $3.14 per hour for the time he devotes to having a job.

6. Keep in mind the hard-to-calculate costs of working.

Working a 40-a-week job has many other costs that can be hard to quantify in terms of money:

  • Health costs due to lack of energy to exercise, prepare healthy meals, go to the doctor or dentist
  • Mental costs of stress in the working environment or worrying at home
  • Relationship costs from lack of time for spouse or family time
  • Personal costs due to lack of time for community interests, faith organizations, hobbies
  • Financial costs from not having time for money-saving research, mistakes for overdrafts or late bills, lack of energy for retirement planning

Do Your Own Calculations!

Your life is probably different than our example worker of Jon.  This is a good example to start filling in the time and expenses of your current situation to find your real wage.

Once you calculate your real wage, what will you do with that information?

  • Realize that a lower-paying job closer to home might result in the same real wage
  • Consider a career you’d enjoy more even though the pay is lower because you’ll have energy for family & household things
  • Decide whether to go back to work after having a baby
  • Understand that a part-time job can sometimes net bigger real wages
  • Be a stay-at-home parent and find ways to make money at home
  • Evaluate the relationship between pay, commute, and housing prices.

What is your time worth? If you aren’t spending your time doing something that furthers your passions, your family relationships, and your financial goals, then figure out where to make some adjustments that result in a real change.

Have you ever added up all the expenses of your job?  Did this type of calculation help you with decisions related to children?  Share your experience in the comments!











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13 Comments
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  1. Mark Henderson

    I enjoyed the article and plan on doing this soon. But I didn’t see anything about factoring in the type of health insurance you have at a given job. That can almost count for another paycheck depending on the services you get and the cost.

  2. About 10 years ago I sat down and had breakfast with a first year grammar school teacher and another on social security disability. Without going into the cost of having a job of a grammar school teacher,( 4 years of college, 4 years of not making a wage, student loan of $25,000, driving, clothing etc.), we just compared checks. The two were making about the same amount of money.

    The one on disability had a big laugh.

    What is wrong with that picture?

    True, the one on disability will be on a fixed income the rest of his life. But, he also has his cash job as a booking agent.

    The grammar school teacher will make more money as the years go on, but his taxes will go up along with the in service hours he will have to put in to maintain his certification. Therefore, he will have little time or energy for a second job.

    Read the news about how teachers are evil and milking the system. Government does not call the pension deferred compensation that was promised, protected by the constitution and under funded for 50 years.

    This is in IL and applies to a number of other states.

    I would seem that there is an effort to put just about everyone on some kind of entitlement program. Work does not seem to pay or pay very much.

    I’ve over simplified, but I believe you got my point.

    • There will always be people who take advantage of the system.

      Teachers in most states have solid health insurance options included in their compensation. As healthcare costs have risen rapidly, so has teacher compensation. Since the cost of this benefit is hidden from paychecks it is often unappreciated.

      • I would agree with your statement for most cases.

        My friend on SS disability also has some kind of medical insurance (age 45) from the state as well. He has cancer and receives services fort that as well for his other injury.

        When you see teacher salaries posted in the newspaper, the 9.6% paid to the pension fund is NOT deducted. On the other hand, when you see compensation for administrators, that is their gross salary. The board pays their pension, loan for a house and gives them a car in many but not all instances.

        The picture is complicated and the facts are not easy to find. For example, we always carried a blue cross/blue shield card. For 20 years or so we thought that was our insurance. BC/BS was really the third party carrier that paid the bills like and accountant. The school district was really self insured. They probably did that so we would complain to bc/bs and not to administrators or the school board.

        The higher level administrators are located off campus so they are not easy to find on a work day. I once insisted on speaking to the superintendent and he was in between buildings for 3 days.

        Administrators often pool their money and get an airplane. They can use that plane so they can goof off far from the district any day of the week and no one will know them.

        One of our superintendents went to court for stealing money from the school. Two cashiers stole over $100,000 each. A superintendent in another district had his house raided where police found $750,000 of school money in his clothes hamper. One district hired a convicted felon according to the newspaper.

        These are the same people that are supposed to have the integrity to evaluate teachers.

        Schools go through a lot of money. The more things schools buy or use like putting up another building, busing, etc., the more money falls into the wrong pockets.

        Every time a new new school board is elected, a large number of faces change among the secretaries and maintenance.

        I’m not going to say unions are all good, but I believe they serve a purpose because those higher up have a hidden agenda.

        No one will admit it, because it does not serve their hidden agenda, but the IL teacher pension problem is solved. New hires will have to work 45 years to receive 75% of what teachers received 10 years ago. Better than that, the burn out rate is now 3-5 years. A huge majority will never collect any public pension money. So, if everybody sits tight, problem solved.

        IL has been under funding pension for 50 years so the state could provide more entitlements for votes. Now they tello teachers they have to make up the difference.

        To become a teacher means you don’t work for 4 or more years because you are in college. Then start a job at $39,000 where 9.6 goes to a pension you will never get. No one ever sees the students as a problem, the teacher just needs a better lesson plan so it is his/her fault.

        Our poor, among other entitlements, receive a FREE cell phone with 250 minutes a month. I’ve done a little math and it would seem to me that being poor and receiving entitlements is like having a job and paying for it yourself that pays $40,000 a year.

        Yes, the poor have nasty places to live, but that is mostly because of their priorities.

        We will never really know what is what today because of confidentiality. My information is by talking to people of all walks of life.

        I worked in a school that had all the fees waived, free breakfast, free lunch, daycare, pre-natal care, etc. I could not find a poor kid there because most wore Nike shoes, leather jackets, slick hair cuts and talked on cell phones. There was not one student there where I felt it necessary to buy him a lunch. For my first 20 years, I felt they lived better than me.

        The very high pensions you see are often for administrators. Often they have a sweet heart deal with the school to throw them an extra $100,000 “Because he is worth it” to pump the pension.

        Police have been doing that for decades. They have sargeant for a day to peak the pension pay out.

        As you can see, I could write a book.

  3. These are outstanding points. Sometimes there are more costs associated with higher wage jobs than one realizes and quantifying these factors into monetary costs really puts things in perspective.

    Upper level managers in corporations try to maximize productivity of employees at all costs, regardless of how it effects each employee personally, especially during the recession when corporations where lean and mean. Employees were expected to produce more to compensate for lower payrolls. Sometimes you need to take a hard look at these costs to see if it is worth it in your own quality of life.

  4. I do agree it is difficult to measure costs of working. There is another factor. Stay-at-home aka SAH spouses have costs, too. I know many SAH spouses go out to eat. I even knew one who put her children in pre-school. True her husband had a good income, but it is still an expense.

    One SAH woman said she loved clothes and would spend money on them whether she worked or not.w

  5. Good post. I quit my corporate job of 24 years due to stress and headaches. There were across the board pay cuts and asked to do more work with less people plus, insurance went up. That was 18 months ago. My husband and I decided my health was more important than me coming home with constant bad headaches and stress. Once I quit, my headaches went away! Thank goodness. I was an accounts payable supervisor at a large company. The controller just laughed when I asked about a raise. Gave my 2 week notice and two days before my last day the CFO had me in his office twice that day trying to get me to stay. By then I was so excited to leave, I didn’t want to stay! I loved the work but one person can only do so much and watch others get paid more and do nothing. What did I do for income? I started my own blog, sold items on eBay, refinished furniture and now work part-time at a Napa store doing accounts payable. No stress! No one to supervise either. Much lower wages and really low when I factor in some of the above but no driving 40 miles a day round trip and no headaches and I’m much happier. Hubby is glad too. Check out my money saving blog for my personal money tips and stories.

  6. Those who give up a job to stay at home to raise children will take solace from this information. And the value of having a godly influence at home-priceless.

  7. I run a few blogs and if I figured what I make an hour I would definitely quit. I am hoping all my work will eventually pay off.

  8. This article hit the nail on the head. An entrepreneur verbalize this formula to me when I was about 16 years old. It has stuck with me ever since!!! After breaking down what I actually made at a local restaurant, I could not believe what I was being paid. At that point owning and building businesses has been my only option.

    It amazes me how many people never really look at what they are REALLY being paid. They only go with the flow of life never analyzing what others perceive as their “value”!!! God has much more for us. We must strike out and life out the dreams, passions, and purpose that He has given us.

  9. This is a very interesting piece and a very in-depth calculation that takes so many intangible factors into account. Many individuals only take a look at the overall salary and/or hourly rate when considering a job. If a salary is more desirable, it seems that more people are willing to risk the extra stress and headaches especially in this recession period.

    However, your calculation of the real hourly wage allows working parents to figure out the costs and expenses that may be weighing the real hourly wage down, whether it be childcare, taxes, etc. In addition, this calculation is a good way to weigh the opportunity cost of keeping your job at all and/ or for weighing a potential job offer. Great piece!

  10. I realize this is nitpicking a bit, but I think the “exta hours” thing is inflated. I can see commuting time, but people still have to get up and do things to get ready for the day (like take a shower, get dressed, and eat). People still eat lunch and my experience is that lunch can be quite a relaxing time. Decompressing at home? How is that different from working at home as a stay at home mom and needing some down time at the end of the day? I agree with the basic point that we need to take into account the extra requirements of a job, but this makes it seem worse than it really is.

  11. I give this lecture about How Much Time is Worth to audiences all the time, to get them to think about how much they make vs how much they need to make to realise their wildest dreams. In this post, you’ve gone about simply calculating a per hourly wage of an employee without asking the most important question.
    How much money would you need (up until the day you die) in order to live the exact lifestyle you’ve always dreamed of, that includes all your possessions, all your dream wishes, houses, trips, cars, clothes, art work, bikes, boats, jewellery, everything…
    Then take that figure and start counting back. Yes this is a detailed process but the more accurate you are with your lifestyle needs/wants, the more accurate you will be with your hourly rate.
    My figure was $286,000,000 when I was 37. Currently the average person lives until the age of 86. You now take the number of years you’ll be alive (assuming nothing goes pear shaped). Then you can calculate how much money you will need to make each year, each month, each day, and each hour.
    Now THAT is how much your hour is worth. The next question is, are you making enough each hour to live the lifestyle you’ve always wanted? If not, what are you going to do about it?

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