Here’s a very neat method I learned from the classic personal finance book, Your Money or Your Life: how to calculate my real hourly wage and why I should do it.
Which raises the question: are the things we’re spending money on worth the life we’re giving up to buy them?
How to Calculate Your Real Hourly Wage
Coming up with our real hourly wage isn’t as straightforward as we’d like to think. We think that our salaries (including benefits, etc.) is our real wage. Not so.
The real hourly wage is computed by considering how much you actually earn when you include costs for you to be able to keep going back to work.
The usual expenses associated with job-keeping include:
- Commuting to and from work
- Costuming/work clothing
- Escape entertainment
Once you add up all these additional costs and subtract it from your salary, you come up with your real hourly salary.
We usually work 8 hours a day, 5 days a week, with 1 hour daily for lunch. That’s our basic work hours and the basis of our compensation.
What should we consider as work-related expenses?
- How long is your commute to get to and from work? Consider how much gas, toll and parking fees you need to pay to get to work.
- Take note of how much time do you take to get ready for work. Do you also need to put on make-up, hair products?
- Work snacks and lunches. Do you brown bag from home or do you buy from the work cafeteria or nearby restaurant for convenience?
- Are special clothing required in your work? Do you need to purchase clothes that you only wear at work, for example, suits, scrubs, overalls?
- Do you need to hire a helper/nanny to take care of the kids so you can go to work?
- Is your job making you sick? Include in your calculations the amount of money needed to recuperate and go back to the daily grind.
- Do you feel the need to take long vacations away from work to decompress/destress? That’s also a work-related expense.
- How about enjoying a cup of expensive coffee that you feel you deserve after a long, stressful day or week at work? That too, is a work-related expense.
- Are you required to entertain or host clients and coworkers from time to time and these expenses are not reimbursable at work? List these expenses down.
To determine if an expense is work-related, ask yourself: will I be spending this money or time if I don’t work here?
Examine your work-related expenses to see how much you are actually earning in exchange for your life. See how much you exchange your life for money using the Life Energy calculator.
I’m pretty sure you’ll be surprised at the result as I was. And, depending on your work-related expenses, your co-worker who may receive the same salary as you may have higher or lower real hourly wage.
Most of us usually don’t take note of work-related expenses that we will accrue when applying for jobs. We should be seeing as these factors greatly affect whether accepting certain jobs are right for us or not.
Case Study: Money- Life exchange of a former BPO employee
Putting a monetary value on your life is quite sobering and really makes clear to us the impact of our spending habits. Click To Tweet. To make things more concrete, I will put in the Life Energy calculator my salary in the Philippines when I used to work in the BPO (business process outsourcing. Yes Americans, I stole one of your Wall Street-based jobs for this much.) industry in 2010s.
Here are the basic information on my salary:
- My monthly salary plus 30% night differential totaled P36,000. Since we received a 13th month pay, I calculated P36,000 x 12 and then added P30,000 as the 13th month did not accrue a night differential. The total amount was P462,000 annually.
- I worked 9 hours a day (including a 1 hour lunch which I still count as work) for 5 days.
- It was a permanent position so I worked for 52 weeks a year.
- This computation was in 2010-ish pesos.
Computing my work-related expenses, thus:
- P50/day for getting ready cost, which is low considering I use up water to shower, electricity to fix my hair, and make-up to make myself look human for work.
- I take 1 hour to get ready every day, totaling to 5 hours a week.
- Here’s the painful part: my commute, on a good day, was 5 hours a day, translating to 25 hours a week. If you live far from your workplace, you know my pain. I worked in the Fort Bonifacio/BGC area. Traffic was baaaaaaaad.
- Daily commuting cost is P100, a total of P500 a week.
- For lunch, I averaged about P75 per meal, a total of P375 a week.
Putting all these information in the Life Energy calculator, it told me that my real hourly wage was P65.03.
The breakdown of my wage was as follows:
- 32.9% or P65.03/hour was my real hourly wage
- 34.5% or P68.21/hour went to expenses to go to work
- 32.6% P64.19/hour went to various taxes
What it meant for me
If my real hourly wage was P65.03, I only need to divide that to 60 to know how much a minute of my time cost.
P65.03 / 60 = P1.083
A minute of my time cost P1.083.
For every minute I spent at work, I was paid P1.083.
Knowing my real hourly and by minute wage, here’s how much of time some of my purchases and other aspirational things I wanted to get, cost:
(in uninterrupted minutes, non-stop)
Starbucks Caramel Macchiato Tall
|P150||138.5 minutes or
2 hours and 18.5 minutes
|Watching a movie in 4DX||P500||
461.68 minutes or
7 hours and 42 minutes
Dance class, 1 lesson
|P300||277 minutes or
4 hours 37 minutes
|Toyota Vios 2018, gasoline, manual||P629,000||
580,794.09 minutes or
13 months and 1 week
Modern row house and lot in Bulacan
|P800,000|| 738,688.82 minutes or
1 year and 4.8 months
|Studio Condominium in BGC||P7,000,000||
6,463,527.24 minutes or
12 years and 3.4 months
So every cup of caramel macchiato I enjoyed with my friends (or ordered just to have an excuse to stay in Starbucks) was bought with 2 hours and 18.5 minutes of my life. My dance classes (which I loved) costed me 277 minutes of work.
If I wanted to buy a row house in the suburbs, it would’ve had to work 1 year and 4.8 months non-stop, without sleep. Buying a studio condominium in BGC was just out of consideration. No studio condo however posh the location might be, was worth working for 12 years and 3.4 months non-stop with no sleep for me. It was out of the question but still fun to calculate, if sobering.
What adjustments could I have made?
Notice that my work-related expenses was at P68.21 an hour. That was higher than my real hourly wage of P65.03.
It meant that I was spending more money to keep my job than keeping money for my self from that job. The biggest factor to this was my my 5-hour daily (on a good day) commute, which translated to 25 hours of commute weekly. And this was my typical commute; I didn’t even factor in the hell we face during typhoons and floods. As we all know, commuting during typhoons in Metro Manila is hell.
What could I have done to raise my hourly wage and reduce my hourly work expense?
Considering that my biggest expense was commute (25 hours a week! that’s practically a second job already!), I could have looked for employment nearer my home offering a comparable salary.
How should our real hourly wage inform our finances?
Of course, each of us have different work-related expenses. Some of my co-workers resided around 30 minutes to 1 hour from work, drastically reducing their expenses. Others had to rent in the area because they’re from the province, so their living expenses were higher. There were also those who drove their cars, paid for gas, toll, and parking fees. I even had co-workers who got sick because their bodies had to adjust to the rigors of working at night-time.
People who received comparatively similar salary packages (as is common in the BPO industry in the Philippines) can have very different real hourly wages.
So how does knowing our real hourly wage benefit us?
1. Knowing the value of our time
By calculating our real hourly wage, we would know how much we are actually paid after spending money to go to and keep our jobs.
By knowing this value, we can assess what adjustments we need to make in terms of our time and money expenses to make working with the company worth it. Or assess whether it’s time for us to look for a job somewhere else where our overhead expenses (transport, health, help, etc.) are not as exorbitant.
2. Determining the real value of the things we buy
Remembering that our time on Earth is limited and that in getting money, we exchange a portion of our lives, we are effectively buying that thing with our life.
We should ask ourselves: is that thing we want to buy worthy of the time we spent and never getting back?
Is that thing really an efficient way to use your limited time on Earth?
Is that family vacation at the beach worth it?
Was the fifth designer bag that you rarely used worth it?
How about that cute but low quality dress from Forever 21 that will never survive its second round in the washing machine worth the XX minutes you had to work to buy it?
I honestly can’t answer these for you. You have to calculate these things for yourself. Calculating our real hourly wage empowers us to make better and more informed choices.
3. Helping us find a way out of/beat the rat race
I think we’re all familiar with the rat race. We dread that we’re just in a never-ending cycle of long, unfulfilling jobs, making enough money to fund expenses to maintain said jobs with very little extra to keep us barely financially afloat.
By listing down all the time and money expenses we spend to keep our jobs and deriving our real hourly wages, we'll realize which expenses are absolutely necessary and which ones we can forego. Click To Tweet
From here it will be easier for us to make decisions about our careers, whether to continue on this path or consider something else.
One of our biggest complaints about the rat race is that employers give us only enough money to maintain the job. By calculating our real hourly wage, we would know the following:
- What our work-related expenses are and how much we allocate to them
- Find out which expenses are necessary and which ones are not
- Ways to reduce amount allocated to necessary expenses
- Possible ways to eliminate unnecessary expenses
Many of our work expenses are not strictly necessary and are self-imposed. With a little bit of effort and planning, we can streamline our work budgets to beat the rat race. Seeing the actual numbers on a page make the problem of beating the rate race manageable. Click To Tweet
I hope this article helped you realize how important it is to calculate your real hourly wage. Want to find out what your real hourly wage? Use the Life Energy calculator and feel free to share with me what you find out.
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