Are You Overspending? The Power of Your Real Hourly Wage. 2018-07-11

Ever wonder where your money goes? It's easy to lose track, especially with so many tempting purchases around. One simple trick to gain control of your spending is to calculate your real hourly wage and use it as a benchmark for your purchases.

Calculating your hourly wage isn't as simple as dividing your monthly salary by the number of working hours. You need to consider the bigger picture. Let's walk through an example.

Imagine you earn S$5,000 per month. Let's also assume you receive a one-month bonus and your employer contributes 17% to your CPF (Central Provident Fund). This brings your total annual income to S$76,050. After deducting income tax (let's say S$1,390), your net annual income is S$74,660.

Now, let's calculate your real hourly wage. Divide your net annual income by 12 months, then by 22 working days per month, and finally by 8 working hours per day: S$74,660 / 12 / 22 / 8 = S$35.35 per hour.

This S$35.35 is your real hourly wage – the actual value of each hour you work. Now, the magic begins! Use this number to evaluate your spending habits.

Thinking about buying that new outfit? Before you reach for your wallet, ask yourself: "Is this dress really worth the equivalent of X hours of my work?" Suddenly, that impulse purchase might not seem so appealing. This simple comparison can help you eliminate unnecessary spending.

Let's look at some bigger expenses. Suppose your monthly house installment is S$2,000. Divide that by your hourly wage (S$35.35), and you'll find that your housing costs consume 56.57 hours, or about 7 days by 8 hours per day, of your monthly income. That's 31.8% of your working month! Seeing the cost in terms of workdays can be a real eye-opener. It highlights just how significant a portion of your earnings goes towards housing.

Now, consider a car payment of S$1,500 per month. This translates to 42.43 hours, or about 5.3 days, of work (24% of your working month). While this might seem less than your housing cost, remember that car ownership involves additional expenses like insurance, maintenance, and depreciation. Unlike a house, which can appreciate in value or generate rental income, a car is a depreciating asset. Its value steadily declines over time.

By converting expenses into "hours worked," you gain a clearer perspective on your spending. Your real hourly wage becomes a powerful tool, reminding you to spend wisely and prioritize your financial goals. If an expense seems excessively high when measured against your hourly wage, it's a strong signal to reconsider. This simple technique can empower you to take control of your finances and make informed decisions about how you allocate your hard-earned money.

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