Time Value of Income

Attaching a monetary value to one’s time and energy, particularly in a work situation, is not uncommon.  Most people know how much money they earn per hour.  On several occasions in my life I have taken jobs that paid around $7.50 per hour.   That’s pretty black and white.  1 hour of my time and energy at work was worth $7.50.  On the other hand, salaried positions are slightly less black and white in terms of time value.  My first salaried position paid $28,000 per year.  The value of an hour of time in a salaried position depends on the number of hours worked during a particular year.  If, for example, in my salaried position, I worked 40 hours per week for 50 weeks, I would accrue 2,000 hours per year, and my hourly rate would be about $14 per hour.  In that case, 1 hour of my time and energy at work would be worth $14.  If however, I worked an extra hour per day for the same number of weeks, I would accrue 2,400 hours per year and my hourly rate would drop to $11.66.  In that case, 1 hour of my time and energy at work would be worth $11.66.

As I said, most people, even those who are salaried, have figured out how much money they earn per hour, but just in case you haven’t, or haven’t done it in a while, we’re going to take some time and go through this together.  But then, we are going to take it one step further.  I’m going to ask you to determine your wage by minute.  Most people have never done this exercise. However, the information that we learn by doing the wage by hour and the wage by minute exercise will be very useful in the exercises that will follow.

Please note, some of these figures that you come up with might not be totally accurate, don’t get hung up on that. The information will still be beneficial and the figures will be close enough for our purposes.  I’ll refer back to this exercise and some of the numbers we figure out here in later posts and exercises.

Okay, so here we go.

Wage by hour:

Begin by figuring out how much money you earn per hour.  For the purposes of this exercise, we will only use our “gross earnings.”

• If you earn an hourly wage, like $10 per hour, then this is easy.  Your time value for this exercise will be $10/hour.
• If you are salaried, then we recommend, for simplicity that you divide your yearly salary by 2 and then drop the zeros.  So it looks like this:

Example:

$24,000 per year divided by 2 = $12,000, then drop the last three numbers and you get $12.

Wage by minute:

This is a computation that very few people undertake.  But when we get ready to look at the time value of our  expenses, knowing our wage by minute can actually be very beneficial.

To figure out your Wage by minute, take your hourly wage and divide it by 60:

$10 per hour divided by 60 (minutes) = approx. 17 cents per minute.

 

So hang on to this information.  We’ll use it in some of the upcoming posts!

 

 

 

Perceptions of Income – Gross v Net

We need to take a moment to discuss your gross income versus your net income.   In case you don’t know, your “gross” income is the full amount of a source of income (like your paycheck) before taxes or any other deductions are taken out.  After they take the taxes and deductions out of your source of income, you receive what remains and this is referred to as “net” income.  As an example.  If your hourly wage is $10 per hour and you work 40 hours during the week, your gross pay is $400.  But when you receive your paycheck, you notice that it is only $350. That is because they have taken out all of the taxes.  The gross pay was $400, the net pay was $350. Pretty straightforward, right?

Okay, so this is where a lot of programs leave this information.  There is money that is “taken out” of your paycheck and you should know the difference between “gross” and “net.”  But there’s some important information that is being left out, and in my efforts to eliminate our tendency to DISCOUNT the value of anything, we need to look at this just a little bit longer and perhaps from a slightly different perspective.

First, it is very important that when we look at our hourly wage or salary that we give it the total value.  For instance, in the example above, you earned the full $400 and we want to recognize the full amount.  But what happens is we tend to focus only on the net income because that is what you are going to use to pay your bills.  There is a tendency to think of the money we didn’t receive as being “taken out” – which is only part of what happens.  That money is taken out, but it is used to pay for something.  That is to say that you are actually spending that money.  You are spending that money on a lot of things.  Some of it goes to pay for roads, police, military, libraries, schools.  Maybe some of it goes to pay for your health insurance or a retirement account.  Maybe some of it goes to child support.  Wherever this money goes, it is you that is spending it and we want to recognize that it is our money that is leaving our possession.

The point of this discussion is not to argue whether your tax money is being spent well, or what is fair or right, or who is to blame for anything.  The point is to illustrate that the money between “gross” and “net” is money that is spent on goods and services.  It is money that you earned and we do not want to DISCOUNT the value of those resources by not acknowledging them.   So, yes, the money is “taken out” but then it is paid to someone else.  It is not something that is happening to you, it is a process in which you are actively participating.