Using Your Real Hourly Wage to Make Smarter Financial Decisions

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real hourly wageAre you familiar with the concept of a real hourly wage? I first came across this concept while reading Vicki Robin’s Your Money or Your Life.

Your real hourly wage is the amount you are actually making per hour after all work expenses are accounted for. These expenses include things like the cost of your commute to work each day, work clothes, unpaid lunch breaks, etc.

Discovering how much you actually earn per hour can be a real eye opener. But once you know this number, you can use it to make smarter financial decisions.

You could use this knowledge to decide what side hustles to pursue or continue pursuing, whether to say yes to a job offer, or if purchasing an item is worth your time.

Related: 40+ Side Hustles That Anyone Can Do

Using Your Real Hourly Wage to Make Financial Decisions

Because your time is your most important asset, figuring out this number is paramount when trying to make smarter financial decisions. To figure out your number, there are several calculators available online.

Most require you to enter your take home pay. Of course, taxes decrease your true hourly wage, but this makes it easier to do the math. To show you how this works, let’s take a look at a simple example using a free online calculator.

An Example of How Real Hourly Wage is Calculated

Tim has recently decided to improve his finances and wants to see what he actually earns per hour after taxes are accounted for. He first answers all of the income related questions.

Here is what his income and work hours look like:

  • Take-home pay per period is $1,000 a month
  • He gets paid bi-weekly
  • And works 8 hours per day

Before inputting his expenses, his hourly wage comes out to be $12.50 per hour.

Since he is interested in learning his true hourly wage, he inputs all his expenses:

  • In the mornings, he spends 20 minutes of his time getting prepared for work
  • He drives 30 miles for work each day, which usually takes him 50 minutes each day
  • Spends $10 per workday on lunch
  • His lunch break is an hour (this increases his time at work to 9 hours per day)
  • $50 of his paycheck per month is spent on purchasing new work clothes

After inputting this information, his jaws drop when he learns that in reality, he only gets paid $7.34 per hour. But learning this information empowers him to make smarter financial decisions.

The first decision he makes is to ask his employer if he can take a shorter lunch break of 30 minutes, instead of the hour he has been taking. His employer agrees to this, and his true hourly wage increases to $7.72 per hour! He considers bringing his lunch to work and decreasing the amount of money he spends on work clothes every month to increase it some more.

Looking at the example above, can you think of some more ways Tim can increase his true hourly wage?

Using Your Real Hourly Wage to Determine Whether A Side Hustle Is Worth It

Now that we have discussed how to figure out our actual hourly wage, let’s discuss how we can use it to determine whether a side hustle is worth it. I have personal experience with this.

Before discovering high paying side hustles, I drove for Uber for about a year. Although I made some decent money, I never considered how much money I was actually earning after taking out my expenses.

Anyone driving for Uber has these expenses:

  • A lot of unpaid breaks
  • Car maintenance
  • Rideshare insurance
  • Gas

Although I included car maintenance and rideshare insurance, it was only when I let a CPA review my numbers that I thought more about unpaid breaks. I didn’t consider them when calculating my hourly wage.

When he included them in his report, my hourly wage dropped a couple dollars an hour. I was shocked. So shocked that I decided to pivot away from doing Uber after learning this information.

I highly recommend that anyone pursuing a side hustle consider all of the costs involved. You should also do this when considering a job offer.

side hustle ideas

Should I Accept this Job Offer?

When considering a job offer, knowing all the expenses involved would be smart before accepting.

Here are some questions to consider:

  • How long would it take me to commute to work?
  • How much gas would I spend on my commute?
  • What types of clothes would I have to purchase?
  • Would I have to pay for a parking spot?
  • How long are lunch breaks?

The answers to these questions should help you make the right decision, especially when comparing multiple job offers. Another thing to take a look at when analyzing a job offer is what benefits the job offers.

Although the calculators I used were very helpful, none of the ones I used asked about job benefits such as:

  • health insurance,
  • paid time off,
  • tuition reimbursement, etc.

All of these benefits potentially increase your true hourly wage, so be sure to consider them when making such an important financial decision. The concept can also be used as a tool to help you determine whether the purchases you are making are worth it.

Is Purchasing This Item Worth Your Life Energy?

“Money is something you trade your life energy for. You sell your time for money.”

– Vicki Robins

In the book Your Money or Your Life, Vicki Robins shows us how knowing our true hourly wage can help us make better purchasing decisions. She considers money to be something we trade our life energy for.

One of the exercises in the book asks you to calculate how long you would have to work to pay off an item.

Let’s say Tim from earlier wanted to purchase a very stylish Lexus with a price tag of  $30,000 instead of buying a cheaper used car, how many hours would he need to work?

  • To find the answer, we would simply divide $30,000 by his true hourly wage of $7.74, which ends up being 3,876 hours.
  • He’d have to work over two years to afford this car.

The question he should ask himself is:

  • Is this purchase worth my life energy?

It’s a question only he can answer. Ask yourself the same thing when making purchasing decisions.

When was the last time you calculated your true hourly wage?

Do you believe doing so can help you make smarter financial decisions? Are you tempted to ask your boss for a shorter lunch break?

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Grow Rich Money

Jerry Brown

AUTHOR Jerry Brown

Jerry Brown is an adventurous bibliophile who loves personal finance. He is the mastermind behind the blog Peerless Money Mentor. When he is not reading thought-provoking books or studying finance, he is spending time with family. biking, or taking a random adventure somewhere.

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