How Much Money Do You Really Make Per Hour?

My first job after college paid $8 per hour — not good for an Ivy League alumni. That job was something to do while I tried to rediscover myself. I was lost and dispirited because I did not get accepted into a medical school. At that time, I was addicted to Magic: The Gathering. I justified spending $10-$15 almost everyday thinking I will earn that money in 1-2 hours the next day. With more financial maturity, I realize that justification was silly. Likewise, I think it is silly for someone who makes $30 an hour to think that a $500 iPhone can be his with only 17 hours of work.

Apple iPhone

Photo from

Measuring Your True Earning Power

Taxes and Living Expenses

The idea that you make $30 an hour because your wage is $30 an hour is completely flawed. First, there are taxes and living expenses to consider (do not include discretionary expenses):

  • Taxes — Federal, Social Security, Medicare, State, City, and Local taxes
  • Savings — 401k, IRA, etc. (Yes, I advocate paying yourself first and I consider saving for retirement a necessary expense)
  • Housing — rent, mortgage, renter insurance, homeowner insurance, property tax, maintenance costs, etc.
  • Utilities — water, gas, electricity, telephone, Internet, cable, etc.
  • Food and Clothing
  • Transportation — car expenses (e.g., car loan payment, insurance, maintenance, toll, parking, gas, etc.), or mass transit
  • Insurance — life, medical, dental, etc.
  • Health — insurance co-payment, insurance deductibles, medicine, supplements, gym membership, etc.

As you can see, your true earning power is severely eroded by taxes and all the living expenses.


Second, the hours you work is more than the hours you spend at work. For instance:

  • Time to get ready for work — e.g., shower, putting on make up, getting dressed, etc.
  • Time to get to and from work
  • Time at work including breaks
  • Time to defuse work-related stress

As you can see, a lot more of your time is spent for work than the typical 40 hours work week.

The True Earning Power

Therefore, if we take these factors into account the true earning power can be expressed as:

True Earning Power = (Monthly Income – Monthly Taxes and Necessity Expenses) / Time

For example: Joe makes $5,000 a month. His taxes and living expenses total $4,000 a month. He usually wake up at 6:30 AM to get ready for work, and return home around 6:30 PM each day; totaling about 12 hours per day, 60 hours per week, or approximately 260 hours per month. Using the equation above, Joe’s true earning power is only $3.85 per hour!

For Joe, that new iPhone is not 17 hours of work ($500 / $30), but more like 130 hours of work ($500 / $3.85) !

For my wife and I, our combined true earning power is about $6 per hour. So the fact that I spent $30 for a half hour massage last week is making me sick right about now.

3 Strategies to Increase Your Earning Power

There are 3 main strategies to improve your earning power:

  1. Increase your income — If Joe gets a 10% raise to $5,500 per month, his new earning power will be approximately $5.29 per hour. Formula: ($5,500 – $4,125) / 260 (I added $125 to expense for increased tax)
  2. Reduce your taxes and living expenses — If Joe cuts his expenses by 10% to $3,600 per month, his new earning power will be approximately $5.38 per hour. Formula: ($5,000 – $3,600) / 260
  3. Decrease the time spent for work — If Joe cuts his time spent by 10% to 234 hours per month, his new earning power will be approximately $4.27 per hour. Formula: ($5,000 – $4,000) / 234

I hope you enjoy this post, and please share your thought.

About the Author

By , on Sep 17, 2007
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (8 Comments)

  1. Jonathan says:

    like this Pinyo. There are always multiple options available to us for maximising our income and I like the 3 options you’ve laid out, personally I’d go for the reducing expenses element

  2. Pinyo says:

    @kev – I’m glad I can help. I think we all need a raise after this post.

    When my employees ask for a raise, I usually tell them let’s go take a ride in the elevator. 🙂

  3. kev says:

    This post is very informative…AND depressing!

    I need to go ask for a raise! 🙂

  4. Pinyo says:

    @ChristianPF – a whole lot 🙂

    @Kyle – yes, once you learn your true earning power, every expense is a bit harder to swallow.

  5. Pinyo says:

    Thank you. I read “Your Money or Your Life” as well, but I wanted to simplify the idea further and make it impactful when I think about spending money on things that I wanted, but did not need.

    When I think of it this way, it really makes a big difference. I can ask myself questions like “Is that $30 Filet Mignon worth 5 hours work?” Often time, the answer is no.

  6. Kyle says:

    130 hours of work for an iPhone, wow, I think I will pass. My old rotary phone works just fine 🙂

  7. ChristianPF says:

    I wonder how many hours of blogging it will take to buy an IPhone? Now that is scary 🙂

  8. Matt says:

    Great post. I’ve heard of calculating your real hourly wage before from “Your Money or Your Life” but they don’t usually ask you to take into account your fixed monthly expenses. Using this method I can find out how much luxury money I make per hour which would be a better gauge for when I want to spend money on a non-necessary item.

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