When we think about our hourly wage, we don’t usually think very hard about it. We typically see it as a relatively fixed number that may increase periodically. Unfortunately, the fixed wage that we think we’re making is actually less, probably much less. Our real hourly wage is pretty simple to calculate it just requires a little bit of thought.
What We Think We Make
The typical approach for calculating our hourly wage is very simple. Weekly pay divided by hours worked equals hourly wage. Let’s use Phil as our example going forward. Phil makes $1,000 per week before tax and works 40 hours per week. $1,000 weekly pay / 40 hours worked = $25 per hour. Sadly, it is rarely this simple when all factors are considered.
Phil, along with most of us, have a handful of expenses that accompany our jobs. On top of added expenses, we also have time demands outside of our normal work hours. Without these expenses and time demands, our jobs wouldn’t be possible and these are the things that need to be considered while calculating your real hourly wage.
Added Expenses and Time
Phil has a bunch of factors that play into his actual hour wage. Taxes, his commute, fuel, car maintenance, work clothes and time spent preparing for work.
Taxes – Phil’s gross pay is $1,000. After paying taxes his net pay is $850.
Total: $150 per week.
Commute – Phil lives about 20 miles away from his job and it takes him about 15 minutes to get to and from work. This costs him 30 minutes per day.
Total: 2.5 hours per week.
Fuel – Phil’s truck averages about 25 miles per gallon and gas is currently costing him about $2.50 per gallon. With this, his commute is costing him about $4 per day or $20 per week. (We could also quantify the amount of time it takes Phil to go to the gas station and pump his gas.)
Total: $20 per week.
Maintenance – This added mileage requires Phil to change his oil an extra time each year, costing him $25 or about $0.48 per week. He also needs new tires every other year costing $1,000 or about $9.62 per week. (The added mileage on Phil’s truck is making it depreciate faster than it would otherwise, this could be quantified and added to our calculation.)
Total: $10.10 per week.
Work Clothes – Phil’s job requires that he wear steel toe boots. He spends about $150 per year on boots or about $2.88 per week. He also spends another $150 per year on pants, shirts, etc. (Phil spends time and fuel going to the store to purchase these items, this could be quantified and added to our calculation.)
Total: $5.76 per week.
Added Time – Phil’s work day doesn’t start until 7AM, but he wakes up at 6:30AM to get ready for work and prepare his lunch for the day. This costs him about 30 minutes per day.
Total: 2.5 hours per week.
Recovery – Phil works a physically demanding job. He is exhausted by the end of the day and he typically needs about an hour each day to recover and relax after work before he is ready to be productive again.
Total: 5 hours per week.
The Real Calculation
These added expenses amount to an additional $185.86 per week. Instead of making $1,000 per week, Phil is actually only profiting $814.14. The additional time demands amount to a total of 10 extra hours per week. Instead of just working 40 hours per week, Phil is committing 50 hours per week to his job.
These numbers change his hourly wage quite drastically. Using the same formula, weekly pay / hours worked = hourly wage, Phil now makes much less per hour. $814.14 / 50 = $16.28 per hour. This is almost a $10 per hour difference than his original $25 per hour.
Final Thoughts
When it comes to work, we all have different time and expense demands unique to our situation. There are a plethora of different circumstances that could affect our real hourly wages. You can go pretty in depth with these calculations if you’d like. For example, all of the things that “could have been quantified” in the above examples.
I personally stick to the bigger ticket items and don’t go too crazy with the small things. If you have lots of small things that amount to larger amounts, that’s a different story. Either way, this can be a pretty eye opening exercise. This can be especially useful when comparing job offers or contemplating a job switch. In that scenario, it may be more beneficial to factor in as many different time demands and additional expenses that you can.
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