I borrowed The Complete Tightwad Gazette by Amy Dacyczyn from my local library a while back because I’d read so much about it on other personal finance blogs. I started reading through it, and I found so many good tips and ideas that I decided to buy a copy for myself from Amazon. This post is part of a series where I’ll share my take on some of my favorite tips from the book.
Calculating Your True Hourly Wage
In discussing the net value of a second income, Amy brings up a useful technique that’s also discussed in Your Money or Your Life by Joe Dominguez and Vicki Robin. The idea is to calculate exactly how much money you’re making from your job after you account for all the related expenses. Divide that by the number of hours you spend working, getting ready for work, getting to work, and relaxing after work and you’ll have your real hourly wage.
How much do you really make after you take out taxes, transportation costs, clothing, meals, the things you do to relax after a hard day at work, and all the things you pay others to do because you don’t have enough time? How many extra hours do you spend getting ready for work, driving through traffic, or watching TV to de-stress?
This number is useful for two reasons. First, you’ll open your eyes to what you’re really bringing home from your job. Second, you can use this figure to decide if it’s worth it to pursue certain activities or to do things yourself instead of hiring someone.
What about Bob? (An Example)
Let’s use a simple example to show how you’d do this calculation. Bob makes $18/hour working 40 hours a week at his job – making a total of $720 each week. First, we’ll take out taxes. His federal, state, and local taxes add up to about $110/week leaving him with $610/wk after taxes.
Bob lives 10 miles from work and estimates he spends 2.5 hours driving every week and about $30/wk on gas & maintenance for his car. So now he’s down to $580/week for 42.5 hours spent.
Bob doesn’t have to wear anything special for work, but he does have a tendency to eat out instead of bringing his lunch from home. Additionally, he usually ends up eating out for supper twice a week because he just doesn’t feel like cooking after getting home from work. His lunches and eating out cost him about $80/week. While he could eliminate those expenses now, Bob is honest with himself and admits he probably won’t do that as long as he’s still busy from work. This drops his net pay down to $500/week.
Bob figures he must have at least an hour every evening in front of the TV just to relax after work. He could do something else if he didn’t feel so stressed out from work, so he adds 5 hours/week to his total bringing it to 47.5 hours. Additionally, Bob spends Friday and Saturday nights going out with his friends to get away from thinking about how much he hates his job. He figures this costs him about $40/week and 2.5 hours. (Now he’s at $460/week and 50 hours for those playing at home.)
Finally, Bob pays about $20/week in services he buys because he doesn’t have enough time due to his job. These are things like home maintenance, simple car repairs and maintenance, and someone to mow his yard. So he’s down to $440/week for 50 hours of effort – or $8.80/hour. That’s less than half of what he “earns” at his job!
Your Own Situation
Bob’s calculations aren’t going to work for you. But you can follow the same sort of process to figure out your real hourly wage. Carefully consider all the expenses and time attached to what you do to earn money but also try to be realistic. This can be an especially eye-opening exercise for two-income households with kids. If both parents work and you have to hire babysitters or pay for child care, you could easily be better off if one parent quits their job to stay home with the kids.
Make sure the expenses you relate to your job will actually go away if you quit your job. If you’re not willing to do some of those things, that’s not going to change if you work less. This is especially true when thinking of the frugal activities you could pursue if you had more time. You have to be willing to actually do them or you’re not saving any money at all!
Finally, don’t take my example of Bob too seriously. There are definitely things he could do to improve his real hourly wage by making some simple choices (like brown-bagging his lunch). But the point is that Bob’s job pushes him to do those things because of stress, time constraints, or whatever other reasons keep Bob from eliminating those extra expenses.
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This is a must calculation for the working mom. It surprised a friend that she earned so little after all the taxes and expenses and meals out because she was stressed out! This is a good study to do for everyone since we all get “drawn” into those items/services that save us time because we are too tired from our jobs. This brings us into reality of spending/earning and what we can potentially save. As to the tv, I am finding that just turning it off and putting on a cd is relieving stress and I am relaxing more and getting more accomplished. Great post Paul. Blessings.
Thanks for your comment, Donna! It pays to take a little time to sit down and do this exercise for yourself. The results can reveal the fact that you may be able to take a lower-paying, lower-stress job and still meet all your needs. Or as you pointed out – it can highlight where we may be spending money needlessly and can start saving right away.
Regarding the TV, I’d agree that music is a better option. I like to use Pandora when I need a little distraction music. Blessings to you!