How much do you really make per hour at your job? (Part 3)

How to Calculate Your Hourly Rate For Your Job After Out-Of-Pocket Expenses

Here we will be calculating how much you actually have left per hour after factoring in the costs for those activities that relate to your job.

Just like in Part 2, I’ve continued the numbering of the steps so as not to confuse you. I am also encouraging you to do the following calculations on a monthly measure because monthly is big enough to encompass averages but a small enough amount to easily track activities.

Step 14 – Expenses Directly Related To Job

Add up all of your out-of-pocket expenses directly related to your job in an average month. These are expenses you are not reimbursed for.

Money spent buying lunch + money spent buying dinner when working overtime hours + money spent when traveling for business (including to/from airport, on flight, at hotel, vending machines, newspaper stands, etc.) + any other amount you can think of not mentioned here = Out-of-pocket expenses directly related to your job in a month

Step 15 – Expenses Indirectly Related To Job

Add up all of the out-of-pocket expenses indirectly related to your job in an average month.

Money spent at association meetings/conferences (add gas for commuting) + Money spent at business-related (but not direct job-related) dinners and other events, seminars, continuing education, etc. = Out-of-pocket expenses indirectly related to your job in a month

Step 16 – Expenses Related To Commuting To/From Job

Add up all of the out-of-pocket expenses from commuting to and from your job in an average month

Money spent commuting into work + money spent commuting back home = Out-of-pocket expenses for commuting to/from your job in a month

Step 17 – Extra Money Spent During Personal Time Related To Job

Add up any extra out-of-pocket expenses in an average month paying for things that you wouldn’t do if you stayed at or worked from home.

Money spent shopping for work clothes + money spent on personal care (extra haircuts, manicures, etc.) + extra money spent on car maintenance from all that commuting + money spent on dry cleaning and alteration stops, etc. + anything else you can think of = Extra money spent in a month

Step 18 – Total Monthly Extra Out-Of-Pocket Expenses Related To Job

Step 14 + Step 15 + Step 16 + Step 17 = Total extra out-of-pocket expenses related to job

Step 19 – Remaining Net Monthly Salary After Deducting Out-Of-Pocket Expenses

Monthly net salary (Step 5) – Total extra out-of-pocket expenses related to job (Step 18) = Remaining net monthly salary

Step 20 – New Net Hourly Salary

Remaining net monthly salary (Step 19) / Total hours related to job (Step 12) = Actual net salary per hour you make per hour invested in an activity related to your job!!

 

By the time you got to Step 20, how much less were you earning? Were you at 70% of the original amount? 50%?

Let’s go back to the end of Part 1. In our example, the hourly net salary for a yearly take-home pay was $15.87/hour. While I didn’t specifically calculate it (too many variables), if by Step 20 the take-home pay dropped by about one third to $10.00/hour, is that really paying your bills? And, considering a home-based business, do you see how it is more likely you could float on two thirds or even a half of your salary if working from home?

If you had the patience to work though this entire exercise, you will realize that a salaried job does not afford the financial comfort that we think it does. We are fooled by the yearly gross salary amount, but by the time we factor in all of the calculations, there is very little left for us and the rest of our expenses!

Perhaps now, if you have been toying with the idea of working from home, you might be more willing to rethink how much less income you would really need to make a home business viable. I know many people feel they can’t afford to quit their job and that it would take too long to build the necessary income from a home-based business to make it viable. However, from these calculations, you may see that replacing your current income is not as necessary as you once thought, because a home-based business can be less expensive to maintain. As well, any additional costs that arise from the home-based business can usually be written off for tax purposes because you are running a legitimate business, whereas out-of-pocket expenses incurred as an employee cannot. Consult your accountant for more details.

Need more reasons to consider a home-based business? Read this hilarious and revealing blog post from Steve Pavlina called 10 Reasons You Should Never Get a Job. The post dates back to 2006, but is timeless.

If you are working at a job and want suggestions on where to pare back spending, read The Simple Dollar’s Trimming the Fat from Work-Related Spending.