How to Calculate Your ‘Hourly Wage’ When You’re on a Salary
When you’re working full time, you can track your spending and make a budget using percentages of your income to try to get a handle on what you can truly afford. But thinking in terms of monthly or even weekly allotments of money isn’t necessarily the most effective way to think of your dollars.
How to calculate your hourly rate
Calculating an hourly wage can help you discern how much things are actually costing you — say, eight hours of labour — and whether they’re worth it or not.
For example, if you make $50,000 per year, work 40 hours per week and take two weeks of paid vacation, your hourly wage is $25 ($50,000 divided by 2,000 working hours). You can use this calculator to convert your annual salary to an hourly wage.
Budgeting advice for your salary
Now, if you’re considering buying something or making some sort of large purchase, you can shift your perspective from whether you can “afford” it, to how many hours of labour it will cost you. You might find, then, that a $100 dress isn’t worth four extra hours at work, for example.
It’s similar, in a way, to the “envelope” budgeting system, in that you have a much more concrete view of how much money you’re really spending. While the envelope system requires you to physically hold and depart with your dollars, calculating your hourly wage makes you reflect on how much of your literal time and energy goes into being able to buy something.
Full time to hourly isn’t a one-to-one comparison, of course, when you take things like benefits, annual leave, superannuation into consideration, but it is a tidy shorthand. (And the calculator linked above gives you the option to include some of those variables.)
Once you’ve figured it out, you might have a different perspective on the value of items or services you typically spend money on without another thought.
This article has been updated since its original publication.
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