What is Your True Hourly Wage?
November 2013 By Steve Gillman
The particular job you choose is rarely just about the money
itself. You weigh the financial benefits, but also the amount
of interest you have in this or that position and the work it
will involve. Perhaps you even look at who you will be working
with, or the kind of boss you'll have. The weekly or hourly wage
isn't the only thing that matters.
On the other hand, the financial rewards are still
an important part of the decision for most of us, and when it
comes to analyzing this part, most people are not very thorough.
For example, some people just compare the annual salary or hourly
wage of various jobs. And other job-seekers will over-value certain
benefits in financial terms.
As an example of the latter, consider a single young woman
who chooses a job that pays $3 per hour less than another one
because it provides a health insurance policy for which she will
contribute $40 weekly. She may not realize she is paying $2,000
per year directly for the policy, and giving up $6,000
in income ($3 less per hour times 2,000 hours). Looked at this
way the total cost is $8,000. Maybe she could have taken the
other job and found a decent policy on her own for $5,000, thus
coming out $3,000 further ahead each year.
The more important point is that, when comparing jobs, we
sometimes don't look at what we really net. Many years ago I
worked with a man who drove 63 miles each way to get to work
and back home because the jobs within a mile or two of where
he lived paid about $2.50 less per hour. I'm not sure about the
math at that time, but I doubt he was either. At the moment,
driving the truck he had then, the extra costs for gas alone
would be about $105 weekly. That would eat up all of the extra
$100 weekly that he made.
Let me add to this idea that we probably should consider our
time to be worth something (I certainly do). This man was spending
perhaps fifteen hours extra in his vehicle each week. It seems
likely that he would have been better off taking a convenience
store job a mile from home and perhaps putting in overtime if
it was available.
So how much do you really make? In determining this, and for
purposes of comparing your options, you should look at all the
costs of any given job. You want to know how much money you'll
actually make versus sitting at home doing nothing. So if one
job requires that you buy uniforms and maintain them at your
expense, take that into account. If another lets you eat for
free while at work, take into account the savings on your grocery
When the math is done, you at least have a more realistic
picture of the financial benefits of each option. Then you can
bring the other elements into the mix, like whether you will
like this one or that one more. And don't forget to consider
which one takes you closer to your goals in others ways, such
as opening up future opportunities, providing training you'll
need for other pursuits, or allowing you to live where you want
A final note about this calculation:
I consider all of my time to be of value, and so I like to
take it all into account when looking at jobs or business opportunities.
I want enjoyable work, but I also aim for making the most I can
for each hour worked, particularly with jobs, since I do not
enjoy any of them. In the extreme this approach can present a
problem. For example, even if a job paid $150 per hour it might
not work for you if you could only get scheduled for two hours
per week. Instead, you might prefer to work 40 hours weekly at
$15 per hour.
If you really have good uses for your time other than working,
you may want to arrange your life so you can take that job with
the higher hourly rate. If you budget well and generally live
on less than you make, you are freer to look for the maximum
return for your time actually spent at work, without so much
attention to how much you make in a week or year. This gets me
to my formula:
M divided by H equals T
M = Total income. This is what you expect to make from
a job, business, or project. This can be looked at annually or
monthly, weekly, or on a project basis. Add up all measurable
financial benefits in dollar terms. If an employer hands out
season tickets for some sports team, and this is worth $100 to
you (the normal price is not relevant to what they are worth
to you), add that in. If they're worth nothing to you, add nothing.
Then subtract all costs, including taxes, uniforms, the expense
of driving to work, and everything else that you wouldn't have
to spend if you didn't have that job or business. This gives
you your real net income (before taxes).
H = Total hours required. Add all time,
including the time you must spend on the phone talking to your
boss, and every minute spent driving to work, and all the hours
at work, including unpaid lunch hours. If you are required to
go to company parties, include that time too unless you really
T = True hourly wage. Divide your total profit by your
total time and you arrive at what you really make for each hour.
This is the figure you need to fairly compare your options (assuming
you can get enough hours to survive with each potential job).
If you budget well and generally live on less than you make,
you can choose to figure things this way, without so much attention
to how much you make in a week or year. In other words, you can
choose that high-hourly-wage activity that doesn't take as many
hours. By the way, if there are different tax consequences (perhaps
you are comparing a business to a job), you'll have to do the
calculation using after-tax income to compare each option fairly.
If you make much more per hour, but less for the week due
to shorter hours, you have more time to play with the kids, go
to movies with your wife, or study archeology if that's what
you want to do. Time is the stuff of life, and the more you are
paid for that part of it spent working, the shorter you can make
those hours and the more time you have for what truly counts.
Of course for some people what really counts is
their work. You have to take into account how much you'll like
a job. And if you happen to make a decent wage doing something
you love, that's great. It's certainly a worthy goal to aim for.