What is your true hourly wage?
What is your true hourly wage? Think you know? It might be different than you think. Your hourly wage or your salary can be deceiving.
You only get paid by your employer for the time you are actually at work. Fair enough, that is how it works.
But, when you factor in the time you spend getting ready for work, the commute, the time you spend shopping for clothes to wear to work, fixing or eating your lunch...all of this is time out of your day that is associated with work.
For your True Hourly Wage take all of these factors into consideration, and you get a more realistic value of your time.
So, how does your True Hourly Wage differ from your normal hourly wage?
For example, you go and buy a brand new shiny car for $30,000.
Most people would just think, “well I make $30,000 a year, so theoretically I could pay it off in a year.” WRONG!!! The $30,000 car loan is equivalent to an hour amount that you will have to work to pay off the loan, with interest!
Let’s break it down.
How many hours do you think you will have to work to pay off a $30,000 loan? For now, to keep it simple let’s forget about the interest you owe. In order to find the number of hours you owe, divide the loan amount by your true hourly wage.
$30,000 ÷ true hourly wage = hours necessary to work to pay off the loan
Remember, your true hourly wage is much different than your hourly wage.
You are mistaken if you think you get to keep every dollar you make. Let’s say you make $15 per hour. You say, “Well I make $15 per hours so the equation must be: $30,000 ÷ $15 = 2,000 hours.” WRONG WRONG WRONG!!!
Theoretically, you don’t make $15 per hour or in other words, you don’t get to keep anywhere near $15 per hour.
You have to figure in all of the expenses that go into earning that money. Taxes, gasoline to drive to and from work, childcare, lunch. What about the amount of money you spend on work clothes?
I could go on and on.
There are a lot of expenses involved in participating in the workforce. Many of these expenses are not optional and they come directly out of how much you make on an hourly basis.
These unavoidable work expenses are subtracted from your hourly wage to give you your “True Hourly Wage”.
True Hourly Wage: How much do you really make?
Your true hourly wage is the number you should be using to divide your $30,000 car loan. Your true hourly wage takes into consideration all of your work-related expenses.
Below I have done an example for you. You can also go to this true hourly wage calculator for a faster solution.
By factoring in all other work-related expenses, hours you spend commuting and getting ready for work, etc., you are actually only making $7.60 per hour.
Which means, in this example, you only get to keep half of what you are earning. It will vary as your salary or hourly wage increases.
So how many hours will it really take to pay off your $30,000 car loan?
$30,000 ÷ $7.60 = 3,947 hours of work to pay it off.
Which is equivalent to 100 work weeks or two years of working. Or, twice as long as the original 50 weeks you thought.
But wait, you forgot to consider all of your living expenses like housing, food, education, etc…
Your car alone will take 100 work weeks to pay it off. But you still have to pay off these other living expenses.
How Many Hours of Work to Pay Off a House Mortgage
Using the same method a $150,000 house mortgage will take 19,737 hours of work to pay it off.
That is equivalent to 493 work weeks or almost 10 years of work non-stop just to pay off your mortgage.
Again, that number only represents how long it will take to pay for your housing if you don’t have any other expenses.
What about the cost of interest? You should factor that in, as well. Interest is a huge part of an expense on a 30-year mortgage.
I once read that you are paying off the interest for the first 11 years of a thirty-year mortgage.
You don’t even start paying towards the actual principal on the house until after the eleventh year! How is it possible to get ahead and stay out of debt?
Create a Routine of Happiness
In the end, most of us are just working to pay off living expenses and work-related debts.
You go into debt for a car so that you can drive to work. You are paying for student loans so that you can get your so-called “dream job”.
What about that luxury house or apartment you so much deserve? Of course, you need a vacation away from all that work! All of these debts are pushing you further away from retirement and most likely into a routine that makes you unhappy.
You don’t have to live this way. Each of us chooses a path. We live on a beautiful planet, so make sure you don’t spend your whole life sitting at a desk.
Today, ask yourself, How can I maximize my happiness while I am here on earth? No one else can answer that question for you. If you are stuck, then make a change. If you are living a happy life, then figure out how to prolong your moments of happiness even longer.
Remember, don’t stop creating and learning. The day you stop is the day that you die!
Action Item: Figure out your true hourly wage. Then, any debts you have figure out how many hours you have to work to pay them off. This exercise is not meant to be depressing, but rather as motivation for the future.