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
- 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!