During high school, I used to work for a general contractor. When school let out, I would head over to the construction site and work until the sun went down, and finish up any last remaining work over the weekend. It was tough work, but the pay was good, and it gave me enough discretionary income to enjoy the spoils any kid in high school could want.
I used this money to save up for my second car, a 1994 Chevy Caprice, (huge upgrade from my first car- a 1977 Mercedes Benz 240D which I bought for $350 from a neighbor after negotiating ). It was an older car, had more miles on it than the odometer could handle, and had a few quirks in the electrical system, but the engine still turned over, and it got me from point A to point B. I had a lot of pride in that car because, I knew I had earned the money to pay for it with my own hard work.
Every Sunday morning as the sun was just beginning to crack dawn, I would spend some time cleaning it. I cleaned it every week because construction sites are tough on cars, and I woke up this early because the hot Miami sun would burn the soap and scorch the fragile paint.
Everyone that saw how much time I put into my car washes would ask me why didn’t I just take it to the car wash? Parents included. I had calculated that if I had just taken it to the car wash, I would spend $20, but I would save an hour’s worth of time.
Which brings me to the reason I tell you this story. Because I knew back then what my time was worth.
I was not getting paid $20/hour, nowhere close. Consequently, my time, my hour was not worth saving that $20. The opportunity cost of washing the car every week was worth it to me.
Calculating Your Hourly Rate
If we were to take your net pay and divide it by the number of hours you worked, we would know your true hourly rate. Your net pay is your hourly rate after taxes and deductions- your take home pay. So let’s say you get $400 deposited into your account every 2 weeks, after working 25hours/week=50hours. The calculation reads:
This $8/hour is how much your time is worth.
This number becomes useful when you want to calculate the opportunity cost of anything.
(The amount of time it takes you to complete a task)x(Hourly Rate)=True Cost
If it takes you an hour on the phone with the bank to reverse a $5 fee, the opportunity cost is not worth it. (True Cost of $8 is not worth the $5 value). If the fee was $35 however, then it would obviously be worth making that phone call. This is how lawyers can justify a secretary, and billionaires hire chefs. The opportunity cost for them to complete these tasks are not worth it to them as their time is more valuable completing other tasks, even if it’s just enjoying life.
We’ll discuss later how to artificially increase this number but for now just understand your rate and you’ll make more informed discussions about to spend your time.
Here’s to hoping your true hourly rate increases over time. As for me, I can now say I thoroughly enjoy taking my car to the car wash.
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