If You Work Full Time, Calculate Your Hourly Wage
When you work full time, you can track your expenses and budget using a percentage of your income to try to figure out what you can really afford. But thinking in terms of monthly or even weekly cash allocations isn’t necessarily the most efficient way to think about your dollars.
However, calculating your hourly wages can help you determine how much things – say, 10 hours of labor – are actually costing you and whether or not they are worth.
For example, if you earn $ 50,000 a year, work 40 hours a week, and take two weeks of paid vacation, your hourly wage is $ 25 ($ 50,000 divided by 2,000 hours worked). You can use this calculator to convert your annual wages to hourly wages.
Now, if you are thinking about buying something or making a big purchase, you can shift your perspective from whether you can “afford it” to how many hours of work it will cost you. Then you might find that, for example, a $ 100 dress isn’t worth four extra hours at work.
In a way, it is similar to the envelope budgeting system in that you have a much more specific idea of how much money you are actually spending. While the envelope system requires you to physically hold your dollars and go with them, calculating hourly wages makes you wonder how much time and energy it literally takes to buy something.
Of course, a full versus hourly comparison isn’t a one-to-one comparison when you factor in things like benefits, vacation time, holidays, retirement contributions, and overall stability, but that’s a neat cut. (And the calculator above gives you the ability to include some of these variables.) Once you figure this out, you may have a different perspective on the value of the goods or services that you would normally spend money on without thinking about anything.