Do you track your money down to the penny? Do you know your real hourly wage?
When you track your money, you gain a clearer picture of your finances. Ultimately, you gain more control of your spending and your life in general. Tracking every penny and calculating your real hourly wage are the two parts of this practice.
Read more to learn how and why you should track your money.
Track Your Money to Reclaim Control
There are two aspects to the general task of tracking your money: accounting for every penny that comes in and goes out and calculating your real hourly wage.
Track Every Penny of Your Money
Tracking your money—every penny that comes into and goes out of your life—allows you to reclaim control over your spending. You can begin to discern necessary and fulfilling purchases from frivolous ones. You make a habit of taking an honest look at how much you earn and what you spend it on, leaving no room for exasperation, excuses, or resignation.
People who are in control of their finances know exactly how much money they spend, and on what. Consider it a solid investment in your financial future.
Start by tracking every penny. There are many formats to do this. You can use physical or digital formats, such as pocket-sized notebooks, calendars, notes on your phone or computer, or online software that tracks spending from your bank accounts.
Ideally, break down payments where you bought more than one thing into each individual item. For example, when you buy groceries, record each individual item. Use round numbers for most items as long as the total accounts for the cents involved.
It’s easy to get wishy-washy or want to round to the nearest dollar. But for starters, in service of getting the most accurate picture possible of your financial life, aim for the nearest penny. If you eventually round to bigger coins, or even whole dollars, that is fine.
Calculate Your Real Hourly Wage
Calculating your real hourly wage is an important step in understanding your relationship with money. Most people take their hourly wage at face value (“I earn $25 per hour”). This neglects two things:
- The time they spend doing work-related activities.
- The money they spend on work-related expenses.
A real hourly wage accounts for all of these factors. Ultimately, you’ll determine how much money your “life energy” is currently worth.
For some categories, like commuting, the time and cost will be obvious and built-in. For others, you need to assign a value.
1. Create a table to calculate your real wage, as shown in this example:
|Job (before adjustments)||40||1,000||25|
|Sickness from work stress||+1||-25|
|Total Adjustments (time and money spent maintaining job)||+36||-360|
|Actual Total (job with adjustments)||76||-640||8.42|
2. Fill in the second row with the hours/week you work, dollars/week you receive, and your hourly wage.
3. Below, record the number of hours you spend on work and work-related activities and assign a cost. Here are the basic categories and some examples; feel free to add your own:
- Wardrobe and upkeep of your physical appearance: time spent grooming yourself for work each day, such as getting dressed and putting on makeup, as well as time and money spent on shopping for professional clothing, shaving your legs, etc.
- Commuting: time spent commuting to and from work, and the associated costs, like gas and insurance.
- Food: the cost of any beverage or meal that you eat out because of work, from coffee to any dining out you do because your job leaves little time to cook.
- Sickness from work stress: any time that you get sick due to stress from your job.
- Escapism: activities that you treat yourself to as compensation for how stressful your job is, like binge-watching The Great British Baking Show to take your mind off of work after a stressful meeting.
- Unwinding: time spent destressing from your job, like talking about it, or money spent on recreational substances.
- Time off: any vacation that you consider necessary to keep you coming back to work. It’ll likely be the vacation where you’re not doing much—maybe just parking yourself on the beach to recharge for a week.
- Miscellaneous: anything else you spend time or money on for your job, like taking out your frustration with your job onto your partner, or buying tools.
4. Add up all of the hours and money in columns 2 and 3 to calculate the hours you dedicate to work and work-related activities, and how much you spend on work per week.
5. Divide your adjusted dollars/week by your adjusted hours/week to find your real hourly wage.
In the above example, a job where the person’s hourly rate is $25 an hour is really only $8.42 an hour when factoring in all of the time and money spent on job-related activity.
Use this real hourly wage to evaluate whether your job, and future jobs, are worth your time. For example, if a job in the city pays more than a job close by, but you have to spend time and money commuting, it may be less lucrative over time than something close by that pays less.
You can also calculate the value of your time down to the minute, which allows you to decide if a purchase is worth your time. In the example above, the person must work 7.12 minutes for each dollar spent. Let’s say they want to buy a new set of earphones for $40. That would require nearly 285 minutes of work time. Is it worth it?
Tracking your money allows you to reclaim control over your spending and, ultimately, over more of your life.
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- The 9 steps to reach financial independence
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