You might think calculating how much your life is worth (actual wage) is an odd way to start off a blog based on living Less But Better. However stick with me, it is one of the first and most important things I recommend you do.
Why
Most people would say their life is priceless, however in working for a wage you are actively assigning a price to your life. You are selling your most precious resource, time (life), for an agreed value.
There are always exceptions to the rule, for example if you are one of the lucky few who are actually paid to do what you would be doing even if you weren’t being paid for it, then read no further. However I recommend asking yourself: Would I be doing this if I weren’t being paid for it?
For the rest of us, this is one of the major reasons I recommend working out what your life is actually worth.
While you would assume this is simply your hourly wage, it is unfortunately not the case. It will no doubt surprise many people to calculate what they are actually worth per hour. It certainly surprised my wife when she learnt that even though she earns ~$10 per hour more than I do, she actually ended up with ~$1 per hour LESS in her pocket once everything was taken into account.
Your actual take home pay can be significantly different to your ‘on paper’ wage and is an excellent point of reference to highlight any immediate adjustments to your day to day life that can lead towards a Less But Better lifestyle.
This exercise should further highlight the fact that your most precious resource in this life is time. Do you want to spend your most precious resource in life working for $X amount? or would you rather be doing something more important to you? (e.g. spending time with loved ones).
The fact that time is our most precious resource was only really highlighted to me once we started a family and I realized how much time I would never get back I spent working for $X rather than with our daughter.
Another excellent way to implement your findings from this exercise would be in relation to the way you spend your money (or life): Is this object or experience I am about to spend $X on, worth X non refundable hours of my life?
This immediately encouraged me to rethink how I spent my time and what I spent it on. One immediate change it highlighted to us was the importance of minimizing our time spent working (Less) yet maximize our returns on hours worked (Better). One example was working less to spend more time with our daughter and cutting costs elsewhere e.g. minimizing transport costs by down sizing one of our cars (among many other things).
The way of doing this is to calculate all your expenses, both time and monetary, that are required for you to work and subtract it from your wage.
How
The method to calculate your actual take home wage is simple:
- Find out your post tax wage
- Calculate every cost involved with working
- Subtract all above costs from your post tax wage
- Balk at your actual hourly wage
1. The first step should be easy; write down your post tax wage. This is the amount you actually receive in your bank account. It is a really good idea to calculate this on an hourly wage basis as it better highlights what you are worth for every hour worked.
2. The second step is more involved; calculate everything you spend money on directly related to work.
This covers basically anything that you wouldn’t do if you didn’t have to work. The excellent thing about doing this thought experiment is that it also relates directly to FIRE (Financial Independence Retire Early) as you can forget all of these expenses when you retire early. More on this later.
Things to take into account should include but are not limited to:
- All transport costs
- Transport to and from work (e.g. fuel, maintenance, public transport, etc.)
- Your hourly wage for all work related travel time outside work hours
- This is a big hidden one you often don’t take into account, think commute time to and from work, air travel for conferences etc. This is essentially time spent that you wouldn’t if you weren’t working
- e.g. lets say you earn $45 per hour after tax, work 8 hours a day for 250 days per year and commute 30 mins per day each way. Go ahead and drop your take home hourly wage to $39 ((45*8*250)-(45*250))
- If you weren’t working would you even have this car/bike/etc.? think registration, maintenance etc.
- Time spent on morning tea and lunch breaks (at hourly wage)?
- This is a controversial one as you would most likely be doing this outside of work. However keep in mind, you aren’t being paid for your breaks, wouldn’t you rather be spending this time on your own terms rather than eating at your desk? It is up to you whether you include this or not
- Clothes
- Include everything you wouldn’t buy if it wasn’t for work, even if you wear them otherwise
- Any hours worked outside of your required amount that is unpaid (at hourly wage, see travel example above)
- Think: planning, emails, calls, organizing, etc.
- For many, this might even include time spent simply thinking about work
- Any food/drink bought that you wouldn’t at home, during or for work
- Presents for coworkers
- The not-so-optional work lunches and dinners (both time and money)
- etc.
3. Calculate the total of all the above work related expenses and subtract it from your post tax wage. Again I would recommend doing this to an hourly wage, as your actual take home wage could be significantly different to your post tax hourly wage.
4. Contemplate how much you are actually worth per hour for your days work
Conclusion
This exercise has the potential to leave you with a somewhat depressing realization:
- “what am I doing with my life?”
- “working this job isn’t worth $X per hour”
However it should also lead to more positive thoughts such as:
- “where would I rather be spending my most precious resource? (time)”
- “what changes can I make to improve my actual worth per hour”
Even though I hadn’t done this experiment at the time, I essentially went through this process when moving from my higher paying I.T. job to a lesser paying hands on job. Even though I was earning more on paper, I actually ended up earning a very similar take home wage after I moved. Not to mention much higher job satisfaction and a much better work life balance.
It is up to you to consider what changes you might like to make, on your journey towards being Less But Better.
While I feel I haven’t done this subject justice, and I’m sure I will be back to update this one often.