Your salary divided by 2,080 hours is the number on paper. What you actually keep for each hour your job takes is usually a lot lower, and it is the better number for deciding whether something is worth buying.
Step 1: the paper rate
$60,000 a year / 2,080 hours (40 x 52) = about $28.85 an hour.
Step 2: use take-home pay
Assume take-home pay after income tax, payroll tax and retirement contributions is about $47,000. (Use the figure from your own pay stubs.)
Step 3: subtract the costs of having the job
Commuting (fuel, parking, transit), lunches bought near work, work clothes, and childcare that only exists because of work hours. Say $3,000 a year.
$47,000 − $3,000 = $44,000.
Step 4: count all the hours the job takes
Worked hours: about 1,920 (48 weeks x 40, after holidays and vacation). Commute: 1 hour a day x 230 days = 230 hours. Total: about 2,150 hours.
Real hourly wage
$44,000 / 2,150 = about $20.50 an hour, close to 30% below the paper rate.
Using it
- A $120 jacket is about 6 hours of real work.
- A $15 a month subscription is about 9 hours a year.
- A $400 phone upgrade is about 20 hours, half a working week.
Thinking in hours does not mean never buying anything. It just makes the trade-off concrete, which is exactly where impulse purchases tend to fall apart.
Do it automatically while shopping
Price in Work Hours is a free Chrome extension from Smart Budget Sheets that shows prices on shopping pages as hours of work, using the hourly rate you enter (paper or real). It runs locally in your browser: https://chromewebstore.google.com/detail/price-in-work-hours/cmlbokmpdeonpjebkcfhchnfmjbocfhm
To get your paper rate from an annual salary first, the hourly-to-salary calculator below does the conversion.
Free tools
- Hourly to salary calculator: https://smartbudgetsheets.surge.sh/calculators/hourly-to-salary-calculator/?utm_source=mataroa
- Subscription cost calculator: https://smartbudgetsheets.surge.sh/calculators/subscription-cost-calculator/?utm_source=mataroa
- Paycheck budget calculator: https://smartbudgetsheets.surge.sh/calculators/paycheck-budget-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.