How much money do you earn per hour?
You might think, "Who cares? I know how much I make in a year!" You make $30,000 or $50,000 or $75,000 or $120,000 a year. Right?
But the amount you earn "per year" doesn't tell us very much. Working 40-hour weeks for $120,000 is remarkably different than working 90-hour weeks for $120,000.
To discover the value of your time, you need to ask yourself: How much do you earn PER HOUR?
There are two ways to calculate this:
The Rough Estimate: Lop Off Zeros, Divide By 2
The rough way to figure out your hourly rate is to assume that you work 2,000 hours per year.
40 hours per week multiplied by 50 working weeks per year equals 2,000 hours.
With this assumption in mind: simply take your annual salary, lop off three zeros from the end, and divide the remaining number by two.
You earn $40,000 per year.
Lop off three zeros - $40
Divide by two - $20
You earn $20 per hour.
You earn $70,000 per year.
Lop off three zeros - $70
Divide by two - $35
You earn $35 per hour.
You earn $120,000 per year.
Lop off three zeros - $120
Divide by two - $60
You earn $60 per hour.
The Precise Method: Ratio Analysis
Of course, the method we listed above is a rough estimate. Not everyone works a standard 40-hour week with no overtime.
Some people work much more -- 50 or 60 or 80-hour weeks. Others work part-time.
To resolve this, we turn to the more precise method of figuring out how much you earn per hour. It's called the "ratio analysis" method.
Sounds technical, huh? Relax. Don't let that phrase scare you -- this is actually a pretty simple method.
Ratio analysis involves calculating the relationship between the hours you spend at work and your income. If you earn $400 for a 40-hour week, your dollar-to-hour ratio is 10 to 1 (or $10 per hour).
Let's assume you get a raise, to $500 per week. On the surface it might seem like your dollar-to-hour ratio has now increased to 12.50 to 1. ($500 divided by 40 = $12.50 per hour). Hooray!
But the promotion forces you to work 60-hour weeks. Your dollar-to-hour ratio is actually only 8.3 to 1. ($500 divided by 60 = $8.33 per hour).
In other words, your salary has gone up, but your hourly rate has gone down.
Let's run through a few more samples:
You earn $38,000 a year.
You work 40 hours per week, with three weeks vacation.
Working time = 40 hours x 49 weeks = 1,960 hours per year
$38,000 / 1,960 = $19.38 per hour (or a 19.4 to 1 dollar-to-hour ratio)
You earn $18,000 a year.
You work 15 hours per week, with three weeks vacation.
Working time = 15 hours x 49 weeks = 735 hours per year
$18,000 / 735 = $24.48 per hour (or a 24.5 to 1 dollar-to-hour ratio)
You earn $350 a week.
You work 20 hours per week.
$350 / 20 = $17.50 per hour (or a 17.5 to 1 dollar-to-hour ratio)