This is a follow-up from my previous book review on Your Money Or Your Life where I thought it was interesting to perform the life energy (or real hourly wage) computations to find out what I am exactly trading my time and effort for, in terms of money. Before I show my own computations, I learnt that the website has a life energy calculator, which is self-explanatory and you can try for yourself. The following steps illustrate the concept:
- Work out your annual/monthly/weekly salary and how many hours you have to work to earn it.
- Deduct for all expenses associated to that work, from commuting and ‘getting ready’ to recovery, both in terms of hours and costs.
- Also deduct for taxes due on the income earned.
- Finally, compute the real hourly wage.
While the calculator only gave the final answer, I thought the ‘intermediate workings’ were equally informative, such as the first step. My exercise mostly revolved around the first step, and I realised that it wasn’t even so straightforward, especially in the Singapore context. There were a few questions I had to ask myself in thinking about what should or shouldn’t count:
- Number of hours worked on a daily or weekly basis?
- Gross salary or take-home salary (i.e. after CPF deduction) or Gross salary + employer’s CPF contribution?
- Monthly salary only or annual salary including bonuses and allowances?
- Last year’s salary or projected salary for the year?
I guess it comes down to what we intend to use the final answer that we land on for. For me, I was interested in having a number that informs me how much I am trading my time for to make my purchases. As I wouldn’t be able to do so using CPF money, it made most sense for me to go with the strictest definition, i.e. take-home pay only, but it should also include my annual bonuses and allowances too since these are technically expendable.
Then there are also all the other things I do on the side. If there is actual time spent working towards earning extra money, these should be counted in as well. On the other hand, true passive income cannot be meaningfully included because no actual time is being traded for the additional money. Income streams like dividends and interest earned or rental payments will fall into this category.
After setting out the definitions, I excitedly went ahead and did my computations, and this was what I ended with:
|Average Monthly Take-Home Income||Average Monthly Working Hours||Cash per Hour|
|My wife’s||$4,XXX||— hrs||$24.90/hr|
What came out definitely took me by some surprise as I was under the impression that the figures should have been a lot higher. It might well be because I am only counting based on take-home salary and CPF is indeed a significant chunk of one’s salary. But even after accounting for that, the rates all went up by about $6-$8 only.
It really made me think hard about my recent purchases and whether they were justified for the amount of work I have to put in. And I haven’t even included the other steps that deduct for associated costs or taxes yet! But I think those are quite minimal and also vary quite a bit. Apart from commute, there seems to be nothing else that either of us have to spend on specifically just for our work and we are probably likely to incur those costs anyway. Hence, the magic numbers in my head are now $40/hr for myself (just to make it easy to remember) and $32/hr as a couple.
It also provides me an alternative lens to re-evaluating decisions that directly trade time for money and vice-versa. I have written about my thoughts on purchasing a car, which at the moment is to stick to BlueSG and public transport. But with the table above, it also suggests that a car is well-within the affordable range for us and may be a cost-saving option for us after all. I will mull on this further as I continue to find possible options for a second-hand car that makes the calculus worth it…
Have you calculated your own cash per hour? Is it higher or lower than expected?