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What is Your True Hourly Wage?

November 2013 By

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 bill.

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 to.

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 enjoy them.

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.


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