- Nate Carter
Work/Life Balance: Rethinking Your Hourly Rate
Working Nights and Weekends Dilutes Your Hourly Rate
Technology is supposed to make our work life easier, but the constant supply of emails and texts chains us to work. These devices erode our work/life balance as we are perpetually on call. The trend of constant availability to employers is coupled with working more hours each week. Even with the benefits of periodically working from home, work can encroach on time that should be spent with friends and family. With more people now fully teleworking from home, the delineation between work and home has become even more blurred, with many people reporting working even more hours.
Being overworked contributes to high stress levels, health issues and deprives workers of time to recharge to perform at their best. In addition, the extra hours rapidly dilute a worker's income on a per hour rate. Calculating your earnings on a per hour rate can be an unpleasant surprise.
Calculating Real Hourly Rate
To determine what you really earn, first calculate earning per hour before taxes. A $100,000 job at 40 hours per week equals $48 per hour. The same job at 60 hours per week earns $32 and at 80 hours per week per hour earnings fall to $24. Once you realize you actually earn $24 per hour, you may find other more enjoyable jobs that offer a higher hourly rate of return.
Second, factor in the daily commuting time into your total hours. A weekly commute of one hour each way adds ten hours to your workweek. Working closer to home, living near your work or being able to telework part of the week can improve these numbers.
Third, add up all the expenses required for the job such as a professional wardrobe, dry cleaning or type of vehicle. Deducting these expenses from your annual salary usually brings down the hourly rate by a few more dollars.
Fourth, assess in monetary terms the cost of missing certain life events due to an overloaded work schedule. This includes not being able to attend your kid's soccer games, missing out on reconnecting with friends or skipping hobbies you enjoy. This all takes a toll on our mental health and well being. In addition, people who are overworked are often not focused on personal finance. They are sleepwalking though their financial life and missing out on creating the income streams which, over time, reduce the need for job. It is far more lucrative in the long run to take a job that pays $2 or $3 less per hour if you can dedicate more time to growing your passive income.
For any investment it is important to consider the tax implications, including in regard to your own labor. If you work 80 hours a week to make $100,000 per year, you really have two concurrent $50,000 jobs. This "second job" puts you into a higher marginal tax bracket and that income tax considerably more.
The initial $50,000 in income might face an effective tax rate of 10%. But, the second $50,000 of income could be at an effective tax rate of 20%. The federal government is taking an extra dime from every dollar you earn and your state income taxes is also higher on this income. Instead of being paid more for each of these additional hours of work that are unappealing, we are paid less.
On top of it, the "second job" may make you ineligible for certain tax deductions due to the higher income level. The Lifetime Learning tax credit, student loan interest deduction and child tax credits all phase out as income rises. Losing such deductions further reduces the hourly rate as you miss out on valuable tax deductions.
Time Is Valuable, Maximize Your Return!
Once you analyze your per hour income rate, you may find there are far more jobs available that offer a similar income level with less stress and expenses. You may also find jobs that are more personally rewarding with a better work/life balance at a comparable hourly rate. Going to a job you truly enjoy will pay many dividends to your long-term mental health. On Sunday nights if you dread going to work the following morning, it might be the time for a change. Your time is precious, and getting the best return on your labor on a per hour basis will maximize your long term happiness.