Your True Income

Have you ever stopped to think about how much your true hourly income take home is? You know, after you factor in all the taxes, time and expenses your employer doesn’t cover? Knowing your true hourly income can be a very helpful tool in determining if a new opportunity is really as good as it seems, or thinking about how you are really being compensated for your work.

When calculating your true hourly income rate, there is lots to consider. First, you need to consider taxes. On average, about 25% of paychecks go to federal and state taxes. This percent varies slightly by state and based on how you completed your W-2, so for exact numbers, you can start your after tax calculations using the dollar amount on your regular paycheck instead of trying to figure out your exact tax rate.

Next, you will want to include any expenses that you incur as a result of your job, that you would otherwise not have bought. This is included in the calculation because this is money that can’t be used for personal interests and therefore isn’t part of your true income.

Lastly, you will factor in time spent commuting to and from work, as that is time that can’t be spent doing other chosen activities.

For example, if you work in an office where there is a fee for parking, that parking expense should be factored in, because if you didn’t work there, you wouldn’t have that parking expense. Another example would be clothing, if you work at a job that requires you to wear a certain type of attire. You might own formalwear, but probably not as many outfits as the job requires, so at least some should be factored into your true income calculation.

On the flip side, if you drive to work, but you would own a car regardless of your job, the cost of that car would not be factored in, (with the exception of the gas required to get you to work) because that is an expense you would incur regardless of the job.

Here is an example to get you started:

Unadjusted Hourly Income

$50,000 Annual Salary x 75% = $37,500 after taxes

$37,500 / 52 weeks = $721.15 per week

$721.15 / 40 hours = $18.03 per hour

Additional expenses:

Parking: $40/month x 12 months = $480/year

Gas: 150 miles commuting/week x 52 weeks = 7800 miles/year / 30 gallons = 260 gallons x $3/gallon = $780/year

Formal wear: $150/outfit x 5 outfits/year = $750/year

Commute time:

1 hour commuting/day x 5 days = 5 hours

5 hours x 52 weeks = 260 hours commuting/year

40 hours working/week + 5 commuting hours/week = 45 true hours per week

True Hourly Income

$50,000 Annual Salary x 75% = $37,500 after taxes

$37,500 – $480 in parking = $37,020

$37,020 – $780 in gas = $36,240

$36,240 – $750 in formalwear = $35,490

$35,490 / 52 weeks = $682.50 per week

$682.50 / 45 hours per week = $15.17 per hour

$15.17 versus $18.03 is a huge difference. In just one week, that amounts to a difference of over $38 in take home pay, from just a few work related expenses. That’s a dinner out each week, or a trip to the movies, or just $38 more to put into savings.

Now, often these expenses are unavoidable, so we can’t work to get rid of them entirely, but certainly we can review them and see about cheaper options. Perhaps investigate a cheaper parking option nearby, or explore carpooling with a coworker to save on gas, or buy work clothes from consignment shops, or less expensive stores.

Simply being aware of your true income can be an important tool in knowing the value of a job. When considering a job offer and whether it makes sense to take it, consider these costs and see if the offer is a better deal for you than your current one. The answer might surprise you.

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