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.
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?