We make way less than we realize – if we factor in the expenses related to our job and the actual time we spend on our job.
Overworked and Underpaid
I used to complain that I was overworked and underpaid. Little did I know how much I was underpaid until I had a conversation with my friend.
This happened a few years ago… Sam and I got talking about his job. He told me he made about $120,000 / year as an accountant. That worked out to $60 / hour.
However, as any accountant will tell you – the $60 / hour number is misleading. So we decided to find out how much he really made.
On a separate note – these are the lively conversations that happen when an accountant and consultant talk!
How much did Sam actually make?
We spent some time running the numbers, and the results surprised us.
Sam’s Hourly Wage: $60 / hour
Sam’s Real Hourly Wage: $19 / hour
Sam was making less than a third of what he thought he was making! Below are the numbers we used for the calculations.
Hourly Wage = Salary / Hours Worked = $120,000 / 2,000 = $60 / hour.
To calculate Sam’s Real Hourly Wage, we needed to also factor in the money Sam spent because of his job. For example, the money he spent on office clothes. These expenses would not be there if Sam were not working. We also needed to account for the extra time he spent for his job in addition to hours worked, like commute time.
Real Hourly Wage = (Salary – Job-Related Expenses) / (Hours Worked + Office-Related Hours)
Job-Related Expenses include money spent on commute, office clothes, etc. We typically do not notice these expenses because they become part of our everyday routine.
Office-Related Hours include time spent on office-related activities excluding the actual work hours – for example, commute time, getting ready for office, etc.
The Calculations
In Sam’s case, the Job-Related Expenses amounted to $1,635 / month. His Office-Related Hours amounted to 50 hours / month.
For the detail-oriented accountant in you, the Detailed Calculations are listed in the last section.
His $120,000 / year salary meant he earned $10,000 / month. However, after taxes, he earned about $8,000 / month.
On average, he worked 70 hour weeks in the office (280 hours / month).
Real Hourly Wage = (Salary – Job-Related Expenses) / (Hours Worked + Office-Related Hours)
Real Hourly Wage = (8,000 – 1,635) / (280 + 50) = $19.3 / hour
Life is all about balance. That is why I am Overworked and Underpaid!
Sam
What We Learned
Apart from making us feel terrible, this analysis taught us some important lessons.
Firstly, there are many costs associated with a job that we were not really cognizant of.
Secondly, having a six-figure salary does not mean one makes a lot of money. Yes, $120,000 sounds like a lot of money, but $19 / hour is barely living wage in a big city.
Lastly, doing this analysis can help compare jobs appropriately. Sometimes a lower-paying job may be better after factoring in these calculations.
Related Article: Cult of Overwork
Detailed Calculations
These are approximate numbers that we came up with at that time. We may not have considered all the things Sam spends money on for his job or may have over/understated some expenses.
Clothes, shoes, socks, accessories, etc.: $300 / month
Commute: $885 / month (gas: $340, car loan: $280, insurance: $75, other expenses like tolls, repairs, etc.: $190)
Food (office lunch, morning and afternoon coffee, etc.): $300 / month ($15 on average a day)
Other expenses (like social events with co-workers): $150 / month
Total Job-Related Expenses: $1,635 / month
Hours worked: 280 / month (Sam routinely worked 70 hour weeks)
Commute time: 40 / month (1 hour a day, each way)
Other: 10 / month (30 min each day getting ready for office and other activities)
Total Office-Related Hours: 330 hours / month