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The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do. You can also follow her on Twitter and Facebook.
Do you know how much you bring home for each hour of work you put in?
If you’re an hourly employee, the number will be in the front of your mind. If you’re salaried, it might take a little calculating (salary ÷ 12 months ÷ 4 weeks ÷ 40 hours (or however many you put in) = hourly wage).
In reality, though, whatever number you just came up with is wrong. What you actually bring home is much (sometimes much, much) less.
I bet you didn’t realize that. I also bet you won’t look at spending the same way again once you do.
You Have to Spend to Work to Earn the Money You Spend
If that sounds confusing (and more than a little unfair), it’s not surprising. This isn’t a concept many of us consider when we’re making our financial decisions. But, it was brought into stark reality for me when I read the book, Your Money or Your Life, by Vicki Robin and Joe Dominguez. In addition to challenging many aspects of my relationship with money, what really hit home for me was the exercise in this book called “Your Real Hourly Wage.”
Whatever your stated hourly wage is, that’s not the amount you’re really adding to your budget. Because in order to have that job that earns you that wage, you incur all sorts of work-related expenses that essentially deduct from your final take-home pay (not to mention taxes).
Work-related expenses can include:
- Commuting costs – Gas spent to get to and from work, public transit costs, extra wear and tear (which means more repair) on your car, car insurance.
- Childcare costs – Ask any working parent how much it costs to pay someone to keep an eye on their kids while they’re at work. Unless you’re fortunate enough to have very generous in-laws in close proximity to you, this can be a huge budget-suck.
- Food costs – The coffee you grab on the way into work, the lunches you pay to eat out because you didn’t have time to brown-bag it, the snacks you grab from the vending machine to combat your crash.
- Wardrobe costs – Whatever you spend over the course of the year on work clothes, shoes, and accessories (not to mention dry cleaning), divided as we did above in the calculation to turn your salary into an hourly wage.
- “Decompressing” costs – I’m not saying you wouldn’t go to Happy Hour or indulge in weekend shenanigans if you didn’t have a job. But, when the majority of your waking hours are filled with a job that can be taxing and stressful, you tend to be more in need of (and likely to justify) pricey entertainment and relaxation on your time off. I’ve certainly called more than a few Girls Nights Out on an emergency basis to damage control what had been an awful day at work.
These aren’t the only work-related expenses you might have, but they’re some of the biggies. Anything you pay for in order to do your job, to cope with your job, or to keep your job, is something you probably wouldn’t be paying for if you spent your days relaxing at home, living off your lotto winnings (or whatever other dream scenario you like to imagine would let you to not have to work).
Here’s Where It Gets Scary
Warning: This exercise is not for the faint of heart.
If you’re really curious to know what your real hourly wage is, list out a rough estimate of all the costs you incur because of your job, and break down how much you spend per day on each cost. Then, divide that by the number of hours you work each day, and voila! You have your very own, much smaller (and probably quite intimidating) Real Hourly Wage.
When I read Your Money or Your Life in the spring of 2011 (I’ve been too scared to recalculate my wage now that I’m a part-time freelancer), my Real Hourly Wage was $6/hour. (Actually, it was more like $5.67, but I rounded it up to make myself feel better.)
Now take that number and flip it around: For every $6 I spent, I needed to devote one hour of my life to my job. It took me a good 6 months to stop thinking about this every single time I bought anything. Was that Starbucks macchiato really worth 45 minutes stuck at work? Coloring my hair at home from a box seemed a lot more sensible once I considered the fact that a professional coloring meant 10 hours pretending I cared about collating copies and formatting page breaks.
As I said, it’s not a realization for the faint of heart. But, if you need some motivation to get your spending in check, woo boy, is it ever an effective one!
How about you all? If you’re brave enough, what’s your Real Hourly Wage? How would figuring this out make you rethink your spending habits?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/socialeurope/4304126242/
