How to Determine Your TRUE Hourly Wage

Do you know what your TRUE hourly wage is?  Most of us really don’t. You may know what you get paid hourly for the “work” you do or what your annual salary is but that is not your THW (True Hourly Wage).  Far from it. 

Your TRUE hourly wage equals your TRUE income divided by the TRUE number of hours required for work. 

THW = True Income/True work hours

You will want to keep this as simple as possible in order to be able to quickly calculate this and track your progress over time (subscribe to the blog to download a free THW calculation spreadsheet). 

You can definitely add in additional nuances and layers of complexity but be careful to not lose sight of the ultimate goal, which is to consistently increase your THW. 

I find that it is easiest to calculate your THW on an annual basis to be able to get fairly accurate numbers. 

How to determine your TRUE income:

Again, keep this simple. We are going for mostly accurate here.  Your true annual income is what you make, both while you are actively working (e.g. job), and what makes money for you when you aren’t actively working (e.g. Investment accounts). 

Add up these items: 

  • Gross annual income (wages and self employment)

  • Any investment or retirement account funding from your employer (matching, profit sharing, etc.)

  • Annual Net Business income (after business expenses)

  • Annual investment account income and growth. 

If you don’t have all of these types of income, that is fine. Just add up the one you do have.

Then, subtract these items:

  • Annual personal costs of everything due to your work that you are not reimbursed for.  Good examples here are: daycare, gas, car insurance, car depreciation, car payments, work-required clothing, work meals or functions that aren’t reimbursed.

  • Annual federal and state taxes you pay.

When determining what the amounts are it may be helpful to use some rules of thumb. For investment accounts, for instance, if you have $20,000 in your investment accounts, you could just multiply it by 7% (a conservative rough average return on a long-term index fund portfolio) to come to $1,400/year.  

This can also be a helpful way to estimate the “income”you get annually from other investments such as rental real estate. 

So, an example would be:


  • $50,000 annual salary. 

  • $1,500 as a 3% employer 401k match. 

  • $1,400 as 7% annual return on $20,000 401k. 

  • $200 as 2% annual return on $10,000 CD at the bank. 


  • $750 Gas

  • $2,400 in lost value and insurance cost on the car that is “necessary” for you to drive to work.

  • $9,825 in tax (8% federal, 4% state, 7.65% social security and medicare tax)

  • *Notice I’m not even including daycare or car payments in here.

This would come out to a true annual income of $40,125. 

This number can be encouraging as you are able to see that your investments are actually adding to your income each year with little effort from you.  However, it is usually discouraging to see the realistic toll that the subtractions are having on your income. 

How to determine your TRUE Work Hours:

Warning, this part of the equation is usually a significant reality check. If you want to continue to live in ignorance, stop reading now. 

Your TRUE total work hours are defined as any time that is spent or lost due to your work. 

You need to be ruthless with this definition so that you can get an accurate picture of how much life you are choosing to spend on work. Yes, it is a choice. 

These are items that we will include here:

  • The hours you are “working” at your place of employment. 

  • Your “get ready for work” time. Would include any additional time you prepare getting ready for work (dressing, makeup, shaving ,etc.) that you wouldn’t do on a non-work day. 

  • Your commute time. 

  • Your lunch hour if it is in the middle of your work day.  I choose to include this because usually your lunch hour isn’t completely free. Can you go fly fishing during your lunch hour?  Play with your two year old as long as you want to at the park? Then it isn’t completely yours. 

  • Any work outside of your normal work place. It includes every minute you work on off days and every time you email, text, or call regarding work outside of normal work hours. Don’t underestimate here. 

  • Any tainted personal time. By this, I mean the time it takes you to disengage your mind from work when you get home to be fully present with your family or friends. Some people power down during the commute home. You may be able to switch out of work mode very quickly or you may carry the stress of work hours into the evening. You will need to be very honest with yourself here to understand how much life you are giving to your work.  

Now, add these estimated hours up for an annual number. 

Here is an example assuming a 5-day, 8-5 (one hour lunch), work week with 2 weeks of annual vacation to keep the numbers easy-ish:

  • 2,000 hours of “work”. 

  • 125 hours of extra get ready (30 minutes per work day)

  • 125 hours of commuting (15 minutes each way)

  • 250 hours of lunch “breaks”

  • 5 hours of “working” while on vacation (30 minutes per day)

  • 48 hours of weekend or longer hour workdays (4 hours per month)

  • 62 hours of tainted personal time (15 minutes per day when you arrive home from work and aren’t yet pleasant or present with your family)

This comes out to TRUE annual work hours of 2,615.

So, in this example, your THW (True Hourly Wage) is $15.34 per hour! That is nearly 40% less than the “$25/hour” you are supposedly making with a $50,000/year job.

As depressing as this can seem on the surface, it really is up to you on how you respond to this information.  Knowing your THW is one of the greatest tools on your path to financial and life independence.

Choose to implement the habit of doing something every day, however small, to increase your THW.  Now that you can see the metrics behind the real monetary value you are receiving for your time, you can make better informed decisions on your path to financial independence.

Kyle Mast, CFP®

Feel free to offer your thoughts or comments and I will do my best to respond.