2 Your Real Hourly Wage
Your real hourly wage
This month I wanted to discuss a tool I’ve found very useful to evaluate jobs, opportunities, and control habitual spending that yields me little satisfaction. This tool is knowing what your hourly wage is. You may be thinking, “I know what I make an hour. What’s so special about that?” I’m not talking about that rate printed on your payroll stub, or the hourly rate you bill your clients for a commission. I’m talking about discovering what your REAL hourly wage is. Before I go into how to use this figure I should explain how you determine it.
I have to acknowledge that I discovered this concept in the book, “Your Money or Your Life,” by Joe Dominguez and Vicki Robin. They cover this much more thoroughly than I’m going to and tie it in with many other useful conceptual tools.
Basically, your real hourly wage is the amount of money you actually net for working one hour of your life. This figure takes into account all the costs you incur as a result of your job, and adds on all the hours of your life it takes beyond the “on the clock” hours.
It’s easiest to figure with a regular “day job” so I’ll explain it using that as an example. First you take a look at your actual paycheck and see what you really bring home in a week. I use the after tax figure. If you get paid every two weeks, as seems to have become commonplace, simply divide your pay by two for the weekly rate. This is our base figure.
Now you need to determine all the costs you incur in an average week which are related to this job. How much do you spend on transportation to and from work? If you drive a car, remember this figure is likely more than just the gas you put in the tank. It’s a portion of the original vehicle cost, repair costs, oil changes and other maintenance, auto insurance, and license fees. Figuring out the cost per mile is a task in itself, but try and give it a fair estimate. Here are a couple figures that might help you. The IRS tells me that the standard mileage rate for 2005 will be 40.5 cents a mile. With my last vehicle, a late model minivan that got about 20 mpg and required regular repairs, I kept careful track of every penny I spent on it from the time I purchased it until it’s end at the junkyard. My mileage rate came out to 17.8 cents a mile. That was with gas prices 3 or 4 years ago.
Other costs to consider are, do you have to pay for parking? Do you need a special wardrobe for this job? How much does that cost when averaged out for a week? When you’re at work do you tend to eat out for lunch or buy expensive, easy to prepare, prepackaged foods? Heck, do you get the same sort of food when you’re at home because you’ve no time or energy to cook? How much extra is this costing you? Are there any other direct expenses you incur as a result of working this job?
You also need to consider what I think of as indirect expenses. Are there things around the house that you would work on yourself if you only had the time, but instead you hire someone to do? Do you buy yourself “treats” or “rewards” for making it through a tough day at work? When Friday night comes around do you find yourself going out and partying hard because the week is finally over? Do you feel the need to take vacations to escape, at least for a while, from the pressures or dreariness of your job? How much is this costing you? You shouldn’t feel ashamed about any of these figures. This whole exercise is not about budgeting. It’s about acknowledging who you are and what you need to feel fulfilled. These expenses are costs you incur in an effort to live a satisfactory life with your job. There’s no shame in this.
Try to get a fair weekly estimate of all these direct and indirect expenses. Now subtract this figure from the base figure of your net take home pay. This new number is the amount of money you are actually gaining each week. Next we need to determine how much of your life you are giving up for your job.
To start with take the number of hours you are “on the clock”. Now figure out how much time you spend commuting. Do you have to show up a little early every day to make sure you aren’t late and docked in pay? Are you regularly kept a little late to clean up, chat with the boss, or whatever? How much time do you spend each day getting ready for work? Do you get to leave your job in the workplace or do you end up taking stuff home with you? Is their constantly extra training or education you need to get to keep up with the technology or remain a valued employee? Are there work parties and social events that seem obligatory to attend? How much time do you spend maintaining that vehicle for work, getting those work clothes, special treats, and all those other expenses? Do you leave work full of energy and vitality, or do you leave beat down, dead tired, and needing to veg out in the easy chair for a couple hours before you feel yourself again? These are all hours of your life this job is costing you. Try to get a fair estimate of what this might be on a weekly basis.
You should probably brace yourself for this next step! Take the amount of money you gain from your job in a week and divide that by the number of hours this job takes from your life. This is your REAL hourly wage. Shocking isn’t it?
Now this isn’t a cause for depression, or anger at the injustice of it all. It is simply an opening of your eyes to the reality of what you make for your time. For those of us who are self-employed with sporadic incomes, such as working artists, this process of determining the real hourly wage is a bit more challenging. I collect accurate data of my income and expenses over a longer period of time, like one or two years, and try and determine an average. Your specific job may have different quirks involved, but I think you get the basic idea of how to calculate this figure.
The real hourly wage can become a very powerful tool for you. Have you ever thought to yourself, “I have a good job, why does it seem I still never have enough money?” This exercise might show you a huge number of expenses you must pay to work your “good” job. I have spent plenty of my life working menial jobs to get by as I struggled to get my art career off the ground. Whenever I would be looking for a new job part of my process was to estimate a real hourly wage, based on how far I’d have to travel and what the physical or mental demands of the job seemed to be. That “good paying” job across town was not always so good. Sometimes burger flipping might be the better choice.
Naturally, you can use this process to see if teaching that workshop is really worthwhile, or doing that visiting artist gig. Of course, as artists we have to consider intangibles as well. Being a visiting artist might not pay well but could introduce us as “experts” to potential clients. I have to admit, since becoming a full-time artist my real hourly wage has dropped significantly. However, I’m not being an artist to make boatloads of cash. Rather it’s about improving my quality of life. When I was working the day jobs, they were specifically about making money so naturally I worked to net the most money for the hours of my life I was selling. This is where the real hourly wage exercise was illuminating.
Are you ready to hear what is by far the most powerful and enlightening use of this figure? Sure it’s quite helpful for getting a handle on the worth of your job, but knowing your real hourly wage can completely transform your spending habits with no pain or feeling of deprivation.
The simplicity of this use is marvelous and it’s effects powerful! For sake of example lets say your hourly wage came out to $6. What this really means is that you are selling one hour of your life for every six dollars you have. You see this spiffy new CD ROM drive that runs a full 10X faster than the one you have, and only costs $100. What you do is, before you buy; divide the cost of the item by your hourly rate. The resulting figure is HOW MANY HOURS OF YOUR LIFE THIS ITEM WILL COST YOU. For this example, 100 divided by 6 equals 16.67 hours. So now you ask yourself is that faster CD ROM drive worth 16.67 hours of my life? Am I willing to work that much for this? For some of you the answer might be “yes”, for others “heck no”. You decide what brings you fulfillment!
It’s also a good idea to evaluate a purchase after you’ve made it and actually used or not used the product. Maybe you realize you’re like me and only use that CD ROM drive once every two months. Does it still seem worth 16.67 hours? If not, don’t beat yourself up about it. This is a learning process. Simply consider the fulfillment you actually got when you see the next “great sale” on the latest computer gizmo. It won’t take too long before you naturally quit spending money on things that bring little pleasure. In the process you will learn more about yourself and what you truly value.
I live very frugally. One downside to this and my personality is that I tend to feel guilty spending money on unnecessary things. The real hourly wage helps me with this as well. For example, I like to rent movies. I used to think this expense was really hurting my financial picture and wasting my money. By viewing this in terms of hours of my life I’ve seen that I can rent all the movies I want in a month, I mean really no holding back on what gives me enjoyment in this area. Yet, it rarely costs me more than three working hours of my life over the course of a full month! So for only three hours of expense I get to end many a day of studio work with a good movie. That’s hours and hours of fulfillment for 3 hours of my life. I no longer feel guilty about this expense and this lack of guilt makes the movies even more enjoyable.
Consistently applied, the real hourly wage is an extremely empowering tool for discovering what you value and stamping out spending on what you don’t. I find this approach much more effective than budgeting because it’s painless and works with who I really am, not some idealized impression of who I should be. As you make this a consistent practice with your spending you’ll probably find yourself less susceptible to artificial needs and desires generated by advertising or even the “keeping up with the Jones’s” syndrome.
This is one tool I have used to reduce my cost of living, improve my quality of life, and help me evaluate employment opportunities to earn the most for my time. Does this relate exclusively to life as an artist? Certainly not, but it has helped me afford to make art my career. This power is in your hands. Right now, this very moment, you could figure your real hourly wage and begin using it to transform and illuminate your life!