Just recently, I was having a conversation that went something like this:
Person: I really love what I do, but I hate my commute.
Me: What is your commute time?
Person: On a good day 60 minutes one way, but about three hours in total per day.
Me: So you spend an extra 15 hours per week just driving to work? Man, that must really be impacting your real hourly wage!
Person: What is a real hourly wage?
Me: Your real hourly wage is the amount of money you make minus your annual costs, divided by the number of hours you spend making said money. The clock starts when you get up and start your day preparing for work and ends when you get home.
Person: Well I don't really see it like that.
Me: Well if you truly hate your commute, your #1 goal should be to increase your real hourly wage (RHW). Like in a hurry!
But first, you need to first understand one of the most common money misconceptions out there… that time is money.
Money is time.
Have you heard the common money misconception that “Time is money”? Truth be told it's a lie, in reality – money is time.
It has always appeared to me at least, that those who have money seem to always have more time than those who are constantly trading their time for money.
The real truth to the matter is this:
- Money is time, and time is more choice.
- The more time you have, typically the more choices you have to do whatever it is that brings you pleasure, happiness, and fulfillment.
- The more financial control you have the more you can control (to an extent) what happens in your life
And controlling your finances starts with being honest and assessing your real hourly wage, but what does that look like?
Real Life, Real Hourly Wage Scenario
According to a Pew analysis of Labor Department data, the average employee put in almost 39 hours a week and works close to 47 weeks per year.
All told, this means that the average employed adult works 1,811 hours per year, call it 1800 on average. Believe it or not, that isn't much more than what the average adult's workweek look like in 1980 – 38 hours per week according to a Motley Fool article.
However, here is the kicker, the average adult wasn't nearly as much in 1980 as the working class does in 2019. Granted, working from home has assisted in changing that for the better, in all actuality, time is most likely costing you money!
The first step to understanding your real hourly wage is to first figure out what it is.
The Real Hourly Wage of Teacher Joe and Accountant Mary
Let's take a look at a hypothetical couple – Teacher Joe and Accountant Mary – who combined make $151,00. Annually they spend $63,784 (The national household expenditures).
Teacher Joe's Profile:
Works at a school district on a 197-day contract at 7 hours per day for $55,000 per year.
Joe starts getting ready for work at 7:00 am, leaves at 7:30 am, and arrives by about 8:00 am for an 8:30 start.
The school day ends at 3:30 and after dismissal, getting things together and making some copies, Joe is out the door by 3:50 pm and home by 4:20. A few nights a week he grades assignments for another 10 minutes on average bring is average workday from start to finish to a total of nine hours and thirty minutes per day.
Accountant Mary's Profile:
Mary works as a CPA for one of the “Big Four” accounting firms and begins her day checking email and drinking coffee at 6:00 am. After getting ready and commuting to work, she arrives at her office between 8:30 and 9:00 am. She typically works until 5:00-5:30 and her commute home is 45-60 minutes on average.
In total, accountant Mary spends 12 hours per day on average working/commuting.
Mary works 235 days per year and makes an annual salary of $96,000 per year.
So what do they really make per hour?
On the surface, Mary's $96,000 salary might seem like a lot more money when compared to Joe's $55,000. In fact, according to the Department of Labor Statistics, a combined income of $151,000 would easily place them in the top 10% household income.
That being said, upon a further investigation, the amount of time spent preparing, commuting and working to make those salaries when factored by hour really puts the numbers into perspective:
|Hours Per Day||9.5 hours||12|
|Days Per Year||197||235|
|Hours Per Year||1871 hours||2,820|
|Average Hourly Rate||$29.39||$34.04|
As you can see, even though Mary makes $41,000 more than Joe each year, when you boil it down to the hour, she only makes $4.65 more per hour!
But here is the kicker… this still isn't their real hourly wage. This is how much they make per hour, but the real hourly wage formula is a bit different.
Because it doesn't matter how much you make, but instead it matters how much you keep!
Real Hourly Wage Formula
In an article I once wrote about the best financial rule of thumb to follow, I recommended readers to always view money in terms of percentages instead of the actual amount.
The $3 coffee is 25% less than the $4 coffee, which sounds worse than, “Oh it's only a $1 more.” However, the real hourly wage steps it up another level.
To calculate your real hourly wage, the formula is pretty simple and straight forward:
REAL HOURLY WAGE = ANNUAL EARNINGS – ANNUAL COSTS / TIME SPENT FOR WORK
So in Joe and Marry's case, their RHW would look something like this:
$151,000 – $63,784/4691 = $18.50 per hour.
So after making $151,000 annually and spending $63,784, based on the number of hours dedicated to making money, Joe and Marry are worth about $18.50 per hour.
Truthfully, that is actually a really awesome RHW. Most people who make $151,000 per year are most likely spending just as much due to a phenomenon called lifestyle inflation.
But why is this number important to know?
If you know what your real hourly wage is, you will look at how you make, spend and save money differently forever!
3 Ways to use your real hourly wage wisely
A few years back I heard a very wealthy individual say that the #1 thing someone can do with their finances is be honest with themselves.
As the saying goes, you can fool everyone except for the person in the mirror. This pertains to finances more than anything. Knowing your real hourly wage is one of the quickest ways to get real with your finances.
Here are some quick ways to use your real hourly wage to benefit you:
Increase your real hourly wage.
There are two simple ways (Not necessarily easy) to increase your real hourly wage:
- Make more money
- Spend less time making money
For example, if you're someone who spends 10-20 hours per week commuting, you're destroying your real hourly wage. You might make a handsome income, but you're most likely spending a majority of your life to do so.
By no means is increasing your real hourly wage going to be something that just falls into your lap with minimal effort, anything in life will take action. However, you can consider:
- Working from home one day a week
- Finding a lower-paying job with fewer demands
- Inquiring about flex scheduling
- Asking for a raise the right way
- Increasing your efficiency at work
- Learning to say no
- Checking email less (Wastes time)
- Double-dipping time
- Seeking passive income by investing, side hustles, blogging, etc.
See also, 16 Ways to Better Manage Time at Work
Spend your money as if it is time.
Something that knowing your real hourly wage can help with is how you go about spending your money.
Mary and Joe, who's real hourly wage is $18.50 per hour might think twice if they go to buy a new food processor or vacuum that costs $200.
Instead of rationalizing purchases in terms of cost, instead, view spending in terms of hours. The $200 vacuum actually costs Mary and Joe 10 hours. If the vacuum is worth 10 hours of their life, then they should get it.
However, if it's not then they shouldn't get it. This thought process will help when making better money decisions as it pertains to spending.
Save at least one hour per day.
Increasing your RHW and spending less money is definitely important, but the most vital factor knowing your real hourly wage contributes to is your future.
When you look at your real hourly wage and how much time you spend to make money, the burn to save more money couldn't be greater.
If you read Automatic Millionaire by David Bach he talks in great detail about your real hourly wage and making sure to always work at least one hour per day, for yourself!
The concept of paying yourself first still applies as Bach states, but pay yourself with time. Simple translation – you have no excuse not to save at least one hour of your real hourly wage per day.
If you're gonna dedicate 8-12 hours per day making money, you're going to want to save at least one for yourself. In Joe and Mary's case, they would want to save $18.50 per day at the very least.
As they get used to saving close to $100 per week, their goal should be to increase how much “Time” they save! The goal is to have something to show for all of your efforts!
Figuring out your RHW is going to probably shock you. But once you get past the initial shock, you can really make some huge financial strides in a rather short period of time.
Most humans are in life based on the choices they made, however, sometimes we are just not aware of the choices we are making.
So do yourself a favor. Figure out your real hourly wage right now.
- Simply figure out what you take home each month, subtract it by your average monthly expenses, and divide it by the number of hours you dedicated to working per month.
- Pay yourself AKA save at least one hour per day (Or pay off that amount in debt daily)
- Increase your real hourly wage and pay yourself more each week in time!
Question: What is your real hourly wage?
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎