How Many Hours of Net Pay Are Going Towards This Stuff?
Money, Matter and More Musings came up with a great idea to curb spending: think about the number of hours you will need to work for stuff. For instance, ask yourself, “How many hours of work will it take to pay for dinner out tonight at that place that usually costs $40?” You’ll probably reconsider spending those $40 (and how often you spend them) when thinking about the rate of your cash inflow.
A number of comments to this post suggested looking at your net pay, which makes for even more restrictive spending. Feeling brave and inspired, I took a look at my most recent paycheck and did a simple calculation:
Total Net Pay / Number of hours worked for pay period = Hourly Net Pay
The results from said calculation may spark outrage for some as it did for me. My only solace was that yes, although reality brutally slapped me in the face, and it stings, at least I’ll be a bit more careful about where my money is going. After all, I don’t get to see a significant chunk of my earnings. Just take a look.
After pre-tax deductions from my gross income (10% 401K contribution, health spending account, medical and dental premiums, and commuter check program) plus taxes, I lost over $9/hour from my gross pay.
I thought, gee, that paycheck included lots of overtime. How about I look at a paycheck that had no overtime? The same calculation showed a $10/hour loss from gross pay.
Just to make matters a little more interesting, I took the average of my net pay/hour and multiplied it by 2080 (# of business hours in a year: 40 hours/week * 52 weeks) to get an idea of my net annual salary. The results were… ouch!
Turns out that I don’t make nearly as much money as I thought. I wonder how many other people go around spending what they think they can afford based on their gross pay.
Lessson learned: knowing how much money you really make per hour could change your spending altogether. I know I’m going to make serious changes in my lifestyle now that I’ve been humbled by a simple calculation. Next time I’m too lazy to cook dinner at home for the third night in a row, I’ll ask myself, “How many hours of net pay are going to pay for all these dinners out?”
Great info. To take it a step further — from the book “Your Money or Your Life” by Joe Dominguez, he has you calculate your REAL hourly rate. That is the amt you earn per month divided by the total hours you spend either
–preparing for work (showering, etc.)
— commuting to/from
–actually at work
— bitching about work
–worrying about work
–buying stuff just because you hate your job & “deserve it”
— etc
When you add up THESE hours you find out what your real life force net hourly pay is. I was amazed to find out how LOW it was compared to the straight calculation you offer. Then, consider how much life force energy in terms of dollars you are spending each time you buy something. When I first did the calculation, I needed to lie down for a bit from the shock!!
When I first started working I immediately started thinking of every dollar that I spent in terms of the minutes it took me to earn it.
It was super rough translating every expenditure into time (that soda costs 5 minutes! holy crap, I can’t spend an hour on that entree!). But it worked… and now I have money in the bank. No, I have time in the bank.
Okay, here is something that might bring tears to your eyes. Instead of doing those calculations from net pay, try doing it from net after expenses.
In other words, once you have subtracted the amounts that are required spending, such as housing, energy, insurance, etc gives you a total amount available. Take that and divide by hours worked to come up with how many hours that dinner cost. The calculation:
(Net pay – (Rent, Insurance, Power, ….)) / Hours Worked = Discretionary Hourly Rate
For example, if you earn take home of $2,000, but have monthly obligations of $1,500 in bills, you are left with net of $500. In a 20-work-day month (20*8 = 160) gives you an hourly rate of $3.125, meaning you need to work almost 13 hours for that $40 meal!
This is how I look at spending money, or more accurately how much discretionary total I have a month. I’m salaried so the hourly comparison isn’t always best.