What is your real hourly rate?

Do you know your real hourly rate? Many clients come to me because they are trapped in a career or job that they no longer want.  One of the most common reasons that they give for not leaving is that they are paid too well and they can’t take a cut in income.  Sometimes though when you get down to it, that change in income may not be as dramatic as you think. There may be more alternatives than you think.

To help get some clarity it can be worth sitting down and really getting to grips with the figures. One question to ask is, “What is my REAL hourly rate?”

Let’s say you are in a middle management post on on a salary of £100,000 a year for 40 hours a week. After tax, that’s very roughly about £38 per hour.

Most jobs of this kind have some expectations around working late, weekend work and overnight stays.  If you include all those hours then your annual hours worked could shoot up to an average of 50 per week. That takes it down to about £30 per hour. Add to this the length of your commute to work, the time spent handling emergencies from home and the time just thinking about when you get back into work.

Let’s say, an hour commute on the train each way, including the walk, plus maybe 2 hours a week for emergencies and worry time. That’s another 12 hours – quite a conservative estimate for that kind of job. That means your actual hourly rate is just around £25 per hour. What else would you love to do, that could earn you £25 per hour. How else could you spend your time that would be worth more than £25 per hour to you?

Why not sit down, right now, turn on your computer, or open your notebook  and work out what you really earn. Try to be as thorough as possible. Think outside the box and try to include everything that is relevant to hours worked and income generated.  Naturally if you have a financial advisor or an accountant, their advice is going to be really helpful. Here is how I try to arrive at figures for my own situation, and you can probably find more thorough real hourly rate calculators online.[amazon_link asins=’1612680194′ template=’ProductAd’ store=’rsandersuk’ marketplace=’UK’ link_id=’e19eb9d7-7df7-11e8-bccb-5582574feebd’]

How to get an idea of your REAL hourly rate

Get a clean  page, or create a spreadsheet. Create three columns, headed: 1. Income/2. Hours worked/3. Expenses/ 4. Work Benefits

In the Income section, write down all the work-related income you receive, after tax.  This would be your actual annual salary. It could also be a calculation of annual salary based on your hourly rate multiplied by your hours worked over a typical year. Again make sure that you subtract taxes.  If you receive any additional support, such as social security benefits, include these if they are impacted by your income. You can also add in any likely bonuses that you might receive. Include overtime, tips and any other financial income from your job or jobs.

In the Hours Worked section, write down the total number of hours you work in a typical year at the job.  Include your commute time and time spent working at home. How much time do you spend doing work-related stuff even though you shouldn’t. Are you working late at the office or starting early in the morning. If that is not officially part of your salary hours, add it in. If you are lying awake losing sleep over your job then include that too!

In the Expenses section we are interested in costs that arise as a part of your job.  You may be paying for petrol or train tickets. You may have to buy equipment, uniform, or certain clothing that would not be needed normally. A suit and smart shoes might be a less obvious example.

Also add in food and drink expenses that would not arise if you were not in that particular job, but allow for the fact that you always have to eat anyway.

If you run your own business, include any entertainment costs, especially as these are often not seen as legitimate expenditure by the tax man.

In the Work Benefits section, list any additional benefits you get from your employment and apply a value to them. You may get a work pension or expenses. You may have health insurance, or gym membership. A company car would be a financial benefit. Only include them if you use them!

Putting it together

[amazon_link asins=’0812981316′ template=’ProductAd’ store=’rsandersuk’ marketplace=’UK’ link_id=’407179da-7df8-11e8-ad50-f96d8a18fa9b’]When you have got as complete a picture as you reasonably can, and it may never be truly complete, add up all the columns.

At the end, add the annual benefits to the income column total and subtract the annual expenses. Divide this total by the hours worked and that is your REAL hourly rate.

How do you feel, now that you have done this?

Naturally if you want to change your lifestyle or career this can be quite a compelling exercise. Make sure that you apply the same rigour in considering any new change as you did in assessing your current position.