I bet you know your salary. You may also know what your gross hourly rate is, so the rate you get paid before tax. But do you know what your REAL hourly rate? In fact, do you even know what it is!?
In the quest for financial independence, Vicki Robin's ground breaking book "Your Money or Your Life" offers invaluable insights and practical advice. One of the book's tasks is the calculation of the "Real Hourly Rate." By considering not just the monetary compensation but also the hidden time commitments and expenses associated with our jobs, we can gain a clearer understanding of the true value of our time and make more informed decisions about our lives and finances.
Part One: Calculate Your Hourly Rate
To begin, determine your hourly rate by dividing your take-home salary by the number of hours you work in a given period (weekly or monthly). I found working this out weekly the easiest especially for what we need for the next two steps. This straightforward calculation provides an initial benchmark for evaluating the worth of your time.
Part Two: Account for Additional Time Commitments
Next, it's crucial to consider the hidden time commitments that come with your job. These could include commuting, preparing for work, unwinding after work, and other related activities. Calculate the total time spent on these extra commitments and add it to your working hours.
For instance, if you work 40 hours a week and spend an average of 10 hours commuting, preparing, and winding down, your total time commitment would be 50 hours. Recalculate your hourly rate by dividing your take-home salary by this new total.
This step is essential because it acknowledges the opportunity cost of your time. By factoring in the additional time spent on work-related activities, you gain a more accurate understanding of how much time you truly invest in your job.
Part Three: Deduct Extra Costs
In the pursuit of a better income, we often overlook the expenses associated with our jobs. Take a comprehensive look at the costs incurred due to work-related activities. These might include transportation expenses, such as fuel, tolls, or public transportation fares, as well as costs for meals, work attire, and other coping mechanisms.
Subtracting these expenses from your take-home salary, you obtain a more realistic reflection of your true financial gain. It allows you to evaluate whether the additional costs are justifiable in relation to your perceived hourly rate.
This picture shows the breakdown of my weekly numbers. What is crazy is that my commuting is relatively low comparable to others. I don't buy a lot of clothes, I generally take lunches and I believe my expenses for work are pretty reasonable. Yet even with that the amount it effected my hourly rate was huge.
If you have a long commute or had to factor in an expensive train ticket, or perhaps the requirement to wear suits, or to always go out for lunches, then this would massively impact your rate.
Give it a go and let me know how you get on.
Conclusion: Vicki Robin's "Your Money or Your Life" challenges traditional notions of financial worth by introducing the concept of the "Real Hourly Rate." By expanding our understanding beyond mere monetary compensation, we can make informed decisions about our careers and lifestyles.
Calculating your Real Hourly Rate involves three key steps: determining your base hourly rate, considering the extra time commitments associated with your job, and deducting the additional costs incurred for work-related activities. This holistic approach offers a more accurate evaluation of the value of your time and helps you align your finances with your life goals.
Armed with this knowledge, you can make conscious choices about spending, saving, and pursuing alternative income streams that may offer a higher Real Hourly Rate and ultimately lead you toward financial independence and a more fulfilling life.
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