How do you calculate your hourly rate?

What most people do is to use the total monthly or annual salary divided by the number of hours spent at work. If you make $4500 gross per month and work 22 days per month, 8 hours per day. Your hourly rate will be $4500 / 22/ 8= $25.6 per hour.

Do you really think you make $22.7 per hour? Of course, not, you are making $11 per hour! Let me explain to you why.

Let’s assume Peter’s monthly salary is $4000 and he works in a company. Here is how Peter spends his money on work-related activities on a regular day:

• Breakfast on the go with coffee: $5

• Lunch at work: $10

• Coffee break with colleagues after working long hours at 3 pm: $4

• Transportation costs to the office: $5 per day

• After work drinks with some colleagues, social events once or twice per week: $70

• Order food for dinner once or twice a week, because after a long day work, he is too tired to cook: $30

Total $220/week, $11,440 per year.

Here are some other work-related expenses

• costumes for work, because he needs nice shirts, suits, and briefcases to look professional: $500 per year

• vacations because after months and months of hard work, Peter is quite exhausted and he needs to take a vacation to relax and recharge: $5,000

• entertainment, he needs his NetFlix, games, and social nights to have fun and escape from work mode: $200/month, $10,400 per year.

• gym membership, Peter works in the office all day and it is not healthy, so he needs to go to the gym: $70 / month, $ 840 per year.

• There could be many other work-related expenses such as a career coach, medication, or hospitalization for stress-related illness.

• If he has young children, he also needs to pay for daycare.

Let keep it simple, only include 4 other work-related expenses, which is a total of $16,740 per year.

How much does Peter spend on work-related activities? $11,440 + $16,740 = $28,180.

How much does it cost him on the hourly rate? $32,180 / 12 months / 22 days / 8 hours = $13.3

So let see what Peter’s real hourly rate is.

$25.6 — $13.3 = $12.3, which is only 48% of what he thinks he is paid.

Why should you calculate your hourly rate after work-related expenses?  

The right formula to calculate your real hourly rate is:

Real Hourly Rate = Gross hourly rate — work-related expenses/hr 

Imagine if Peter does not have this job, he would not need to spend money on transportation, lunches, coffees, costumes, social events with colleagues, escape activities, and so on. Even stress-related illness and medical expenses can be avoided. All those expenses are incurred because of his job. That is why those expenses should be considered.

I ask you to calculate how much do you spend on work-related activities, and how much does it cost you from your hourly rate. I am sure the result will shock you.

How to increase your hourly rate?

In order to earn a salary and make a living, you have to spend on transportation to work, you have to spend on certain things that are unavoidable. Same as Peter, you can increase your hourly rate with some simple behavior changes.

• Eat breakfast at home

• Bring lunch from home

• No coffee from coffee shops

• Do meal preparation on the weekend

• Reduce unnecessary social events, instead, relax at home or read a book. It can reduce so much stress and improve his mental health.

• Do not spend too much on fancy clothes which you are only going to wear for work.

You can reevaluate other expenses that are caused by your job: including escape entertainment, expensive purchases to reward yourself because you work so hard, and so much more. Do those expenses worth it? At the end of the day, they are the result of your job, why spending more money on things that you use in order to make this money? It does not make any sense.

It is only so much you can do

You can not save every single penny to boost up your hourly rate. You can only save as much as your earning is capped. But be conscious of how much you spend on work-related activities can help you reduce expenses and increase savings. The next step is to make your hard-earned, hard-saved money working for you. How to do it? By investing smartly! A lot of people are afraid of investing, that is why they can never be rich. Read this article to understand <Why You Are Afraid of Investing and Can Never Be Rich>.

If you want to find out more about how you can improve your personal wealth. Follow my account for more content on the topic of personal financ, helping you to launch your life on the Fast Track.