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What's The Real Price?


How much do you really earn per hour? It's a simple question, but few of us have any idea what the correct answer is (unless the answer is zero).  Here is the correct way to compute it:

hourly wage = (Income – cost of earnings) / hours invested
Cost of earnings includes: professional expenses, income taxes, commuting costs (gas, vehicle maintenance, wear and tear on vehicle), etc.
Hours invested: hours worked, commuting time, time spent keeping up professionally, etc.

Basically you divide your actual income minus all expenses related to work by all of the hours required to get that money.  Very few people bother to figure it out this way, however, using any other approach is just engaging in self deception.


An engineer earns $100,000/year, gets three weeks paid vacation, two weeks of paid holidays and takes on average one week of paid sick leave per year.  He typically works 50 hours per week, and spends two hours driving to and from work, 35 miles each way.  He also spends 10 hours per week keeping up technically in his field.

Hours worked: 52 weeks - 6 weeks = 46 weeks * 50 hours = 2300 hours.

Hours Commuting: 46 weeks * 5 days/wk * 2 hours/day = 460 hours

Hours keeping up: 46 weeks * 10 hours/week = 460 hours

Total hours = 3220 / year

Distance = 70 miles/day * 5 days/wk * 46 weeks = 16,100 miles

Cost of commute = 16,100 miles * $0.50/mile = $8050.00

($0.50/mile is roughly what the IRS estimates is the cost of owning, operating and maintaining a motor vehicle.)

Cost of keeping up (magazines, books, classes): $1000/yr

Social security, medicare and income taxes paid: $23,000/year

Total expenses: 8050 + 1000 + 23000 = $32,050

Earnings / hour = (100,000 - 32,050) / 3220 = $21.10/hour


  • While these numbers were picked somewhat at random, none of them are particularly unusual for people working in engineering fields.
  • Social security and medicare taxes, it could be argued, provide a benefit later in life and should not be deducted from income; however, you have no say in the matter and I wouldn't count on it being there in its current form when it's time to retire, but either view is reasonable so long as you recognize the issues.
  • This engineer could give himself an instant and significant pay raise by finding somewhere to live much closer to his job since that would substantially reduce both commute cost and hours invested.
  • This means that a fancy $5 cup of coffee with everything imaginable in it would cost him about 12.7 minutes of his life, or if it was purchased on the way to work each day: 46 weeks * 5 days/wk * 12.7 minutes = 48 hours and 41 minutes of his life each year was spent working to pay for morning coffee.

Whenever you look at a price tag, divide it by the appropriate dollar value per hour for your life.  This is how many of the limited number of hours in your life you will have to dedicate to this purchase.  Time which could be spent with friends, family, or pursuing life dreams and goals. If you buy on credit such as your house or credit cards, don't forget to add to the price tag all the hidden charges you will be paying before you compute the number of hours.  These charges include things like interest (often more than the actual purchase price), bank charges, closing fees, mortgage insurance, etc.

We need to stop thinking in terms of dollars and start thinking in terms of the real cost, life! Except for those rare few individuals who are unfortunate enough to be born into a wealthy family with incompetent parents who pay their children's way through life, most of us exchange pieces of our life for money, and in turn, exchange the money for goods and services.  In other words, each of us trades a piece of our life for that restaurant meal, sports car, vacation, house, or can of soda pop.

If you knew you were going to die at the end of the week, would you spend the rest of the week working in order to buy a 48 inch plasma television?  Let me rephrase that: would you spend every remaining hour of your life working to buy a new television?  While I am sure there are probably cases where it has occurred, you don't generally hear of people regretting the things they didn't own before they die.  It's usually the things they didn't do that matter most - the life they didn't live.

Wouldn't it be nice if every item on the store shelves had an electronic price tag that told you how many days and hours of your life you would have to give up in order to own it?