Tuesday, November 18, 2014

Do you know your Real Hourly Wage?

If you had read this book "Your Money or Your Life", you would know that the author came up with a formula adjustment to calculate the Real Hourly Wage. This means that on top of your physical mandatory hour in the office, you need to include some of the intangibles such as commuting costs, clothing costs, meals, entertainments and so on.

The author stressed that these adjustments are important because they are associated with your job and therefore should be adjusted when you are computing your real hourly wage. To a certain extent, the statement does make certain sense. For example, you can't simply disconnect commuting time and costs from your job unless your office is just next door (and even so, you would be spending some time walking there). However, I disagree for certain things like meals and entertainments which is able to run independently on its own. I mean, you still need to eat whether you are working or not idling. So they are necessity costs to us everyday anyway.

For the purpose of this example, I will simplified by using my own case when I started working 7 years ago at one of the big 4 firm, including some simple adjustments to the case.

Starting Salary: $2,600/month
Official Working Hour: 40 hours/week
Overtime (including Sat/Sun): 23 hours/week
Preparation time: 5 hours/week
Commuting time: 10 hours/week

For those who knows how the big 4 firm works, they usually drill graduates down by giving them exceptionally plenty of work beyond their capacity that runs beyond your official working hour time. On top of that, not only are you not allowed to claim overtime wages, there is also no 13th month bonus. Ahh, what a life (or no life) back then.

Going back to my example above, the hours add up to about 78 hours/week, including those adjustments made (now, I really sound like an auditor). Multiple that by 4 and we get around 312 hours/month. Now, if we simply divide this number by the salary of $2,600/month, we will get a real hourly wage of $8.33/hour. So after all these years of burning midnight oil and hard work of studying, I am only earning a real hourly wage of just above $8. Shocking.

Now, we know that there are plenty of assumptions made there and they do not justify anything more than simply adding in adjustments here and there. Of course, your salary will also increase over time as you gain more experience and assuming the hours does not increase correspondingly, your real hourly wage should also go up. What does this mean and how we should use this then?

There are apparently several ways that this methodology can be useful to you:

1.) Comparing jobs

This is a very classic case where you get a better offer with a higher salary from another firm but you may need to spend more time on commuting or doing overtime during the weekend. By computing your real hourly wage, you'll know if the grass is greener on the other side.

2.) Wasting time

Have you encountered a situation where you are simply doing something that you don't enjoy and think that you could have better utilised the time to do things more productively? Or have you ever encountered a situation where you just blankly stare at the sky or window for an hour? These can be considered wasted time that you can go out there to earn some nice bucks for your early retirement. Of course, sleeping time is always debatable on whether they are practical or wasteful. At least for me, I enjoy an 8 hour night sleep everyday.

3.) Exchanging time with money

This is what financial independence is all about isn't it.

You trade time with the passive income that you are everly working so hard for so that you can spend the time productively on things you enjoy doing, and this includes my 8 hours of proper sleep everyday. Just kidding. There are more important things to do with the time I am sure.

We do this because time is finite and money is not. By wasting our time on a meaningless journey to work everyday or working on a project that does not excite you does not seem warranted that we should give up our time and life just like that. We want more, we need more, we deserve more.

Final Thoughts

Just like any personal finance formula, there are no single metrics that gives you the perfect rule that you need to conquer the world. By working out on your real hourly wage, you get a sense of how much you probably need to reach your true financial independence figure.

How does your real hourly wage works for you?


  1. I look at my gross salary and think it's a lot. After all the taxes and deductions I'm barely seeing half. It's pretty depressing. But hey, i"m grateful to have a work and no one is forcing me to work. So can't complain. It's what you do with your money and time that counts. I still believe with a bit of luck, hard work, and creativity you can turn a little into a lot!

    Thanks for the great post, cheers!

    1. Hi Henry

      I used to study and work in the US for a while earlier in the days and I must say the tax there is pretty high. Of course we have some European countries which hv higher taxes than the US.

      You pretty much sums up a formula to be successful. Hard work, perseverance and a little bit of luck plays a long way to shape how you become today.

  2. Hey B,

    Btw, I have a friend who being through similar experinced with u. Work like siao. Weekend also work, tell me after a short get together session that he is going back office and feeling depressed. Ask him why not bring it home? He said some work are classified?

    I ask if things will get better. He told me, have to work the ranks up,senior accountant.. Blar can't remember the hierarchy.

    At age 35, like me, he is already a CFO for listed company for some years already.

    In a way, hang in there, the pay should raise significantly and your 1 year could most probably beat someone 4-5 years ...

    Then you can go for your passion or become Singpore B of leisure !!

    1. Hi Sillyinvestor

      You hit the nail there and in fact I will probably touch on a sequel for the next post on this.

      Companies like Mckinsey, Goldman Sachs drill employees down like crazy but if you manage to withstand that then you are probably set for life.

      Financial bloggers talk about delayed gratification all the time why not apply it to your work life?

    2. McKinsey and Goldman both teaches you how to be wankers for life. Might as well go for the one that pays more.


    3. Hi JW

      They both pay really good so I dont want both of them. It comes with a price.

  3. I was one of those early subscribers for BBOM service when it was launched for ECA during office hours.

    Nowadays with smart phones, even more ECAs during office hours.

    Do we need to deduct these hours?


    1. Hi Uncle CW

      I think we may need to. Hahahaha

      Speaking of that, there is a lot of time that you just chit chat, going to thw toilet etc those are time while you get paid. The joy of being an employee. Probably the only.joy.

  4. Hi B,

    You are correct. It is why I see the value of investing....to gain passive income in order to free myself from working for a living. I'll prefer to "Living for a work".

    1. Hi David

      I think we are on the same camp ;)

      Work for a living and living for a work are totally different. The latter is what everyone should be aiming for.

  5. Hi B,

    I would say the first 5 years of working is plain learning and finding what you like and what you excel in.. pay can be peanuts but when you upgrade your learning and make yourself known in the industry... money will come after that and headhunters will come knocking.

    Your pay should be triple that now :)

    1. Hi Jes

      5 years is a little too much for learning. I think 2 years should be the right timeframe and you should be banging on all fronts after the steep learning experience. Anything beyond that probably means you are not suitable for the role and should be seeking elsewhere.

      But these days not to worry, headhunters will hunt you down everywhere everytime ;)

  6. Hi B,

    You should add in your bonus too. 1st yr no bonus?

    I think the value of knowing the real value of your work per hourly, means that you now know how much time you need to acquire something you don't need. Let's say you want to buy a bag for $2000, you know you have to exchange 250 hrs of your life (based on $8/hr) to get it. Would you still do it? This is a good way to teach kids...buy a toy and see less of daddy? lol

    My hourly wage is actually quite high...but I've a different problem. I need to increase my hours of work to increase my pay. Finding more hours to work will take up most of my energy esp for first part of every year. For those getting a fixed salary, finding less work seems to be a better deal on a hourly basis LOL

    1. Hi LP

      You hourly is probably one of the best out there as a tuition teacher. The thing is you need to maximize and organize your time accordingly.

      For us employees we get paid towards month end regardless so the fixed hours are less valuable.

      Good take there on the bag example. I used it at times to do that calculation myself. Should definitely teach this to my son...hope.he doesn't choose toys over daddy :)

  7. For necessacities, needs to count the difference. If u work at cdb area. The meal cost can be higher. The clothing cost can be higher.

    Also count time u sometimes need to work or think how to work outside office?

    1. Hi Richard

      Thats right there. But if the food is more expensive then perhaps preparing food from home coule become an option.

      The time outside office is really intangibles. I tried not to think of them these days outside of my work. There are much better things to do ;)

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