What is your true hourly salary?

Whether you are employed, an investor, an entrepreneur or self-employed, we all have to make money. If you ever applied to some jobs, the primary comparison in earnings is based on the hourly salary. How much money you make is important, but how much do you actually get to keep? This is your true hourly salary.

This affects your hourly A LOT

Determining your hourly salary is more complicated than we think. While at first glance it may look easy; just check out your working contract, the reality shows a much different picture. Firstly, you have your total income. It is important that you only use your income AFTER tax! Jobs with more income also mean a higher tax rate, often resulting in a smaller margin on what you get to really keep.

In this scenario I will use my own job. I earn 1882€ per month after all tax deductions. For me, this also includes my health insurance, so deduct health insurance from your salary. It is non-negotiable. Another major contributor are car payments. From insurance to fuel, it must be paid. Be careful here, only deduct this if your car is a necessity for work, otherwise it is your hobby. Also include all other payments that need to be made because of the job. Perhaps you need to have a higher caloric intake, need to buy new clothes regularly from wear and tear or others. All of the expenses go from your AFTER TAX salary. For me that’s actually 0€.

You work more than you think

My contract says 36 hours per week. How accurate is it? Many people may believe that they work 40h per week and stop it here. But not yet! You actually work more. No, I don’t mean overtime. You probably need to commute to work. This is not your hobby and while it is technically your spare time, you cannot do household chores or work during that time. You must eventually get home. So this actually goes on top of your working hours.

If you commute 30 minutes to work and back, that’s one extra hour per day. The average working month has 22 days, considering you have a five-days work week. And then there’s your break time. This time you also spend at work and do not do what you would like to do when you are home. This is lost time! So if the average full-time worker has a 40h work week with 5 days per week, he actually spends 47.5 hours to get that salary.

In my case, I work from 9:00 am to 3:00 pm, that makes 6 hours. I commute for 70 minutes per day and take no breaks. I do this 5 times the week. On my 6th work day, I work from 9:00 am to 1:30 pm, commute stays the same. This actually comes down to 41.46 hours per week.

Let the magic happen

The next steps are simple. You take your salary and divide it by your working hours. I will take myself as an example and calculate it for the average person in Germany. Let’s take my salary of 1882€. Because I don’t have necessary car costs and walk to work, it will stay the full amount. I work 41.46 hours per week. That times four. For simplicity, I will add two normal week days with 7.16 hours to it, coming down to the normal 22 days month. I work 180.16 hours per month. After diving all costs, we come to 10.45€. My true hourly salary is therefore 10.45€.

Let’s compare it to the average German employee. The average German full-time employee earns 4323€ gross, which makes a net salary of 2774€. The chance is high that our person also needs a car. Not all costs contribute to the car payment, but let’s say 70% of the average monthly car payments costs do. The average monthly car payment is 425€ in Germany, so we deduct 300€ from the salary.

Next up are the working hours. As we calculated before, the worker has an average work week of 47.5 hours. In a month, that makes 209 hours per month. From here we simply calculate everything. (2774-300)/209 = 11.84! This brings us to 11.84€ per hour, contrary to the 24.56€ that was originally promised. The results are baffling. The average person only gets to keep 48% of their hourly. The numbers are very intriguing.

Less salary but more money

Our numbers reveal a story. The story of many people. Taking jobs that are far away lower our salary substantially in two ways. So what can you do? Surprisingly, you can often take a job that pays less and your hourly will increase. You can sell your car, take the bus or bike. You can find a home office job. The options are countless and will depend on your unique situation.

As an example we take the average person from before. The person quits the job and now earns 1000€ less but works from home! His tax rate lowers so his net salary is 2232€, only 540€ less, although he technically earned 1000€ less. His work time actually reduces from 209h to 176h. He sold his car because it is no longer needed. The results are promising. His hourly is now 12.68€. He gets to keep more of his money and has more time on top. Earning less but having more!

Final words

Now that you know your true hourly salary, how will you proceed? Is your job worth pursuing? Perhaps you can ask for a raise or find creative ways to lower your costs. Drive to work with your colleagues to lower your car payments, be active or take the bus. Perhaps a home office day will do. Either way, this formula helped you to identify your true hourly salary, an often misunderstood concept. Next time you don’t get lured in by high paying job offers. You know which job is work taking!