How Much Do You Really Make? It Might Be Less Than You Think

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Have you ever looked at what you really make? By that, I mean after the expenses of generating that income and after you’ve paid taxes on it?

After all, even jobs have some expenses, like commuting and clothing, and you don’t get to spend what the taxman takes.

Doing this math is the only way to understand and honestly compare your options. The results might surprise you, especially if you work long hours for a set salary.

A $40,000-per-year job requiring $100 in weekly commuting costs, an annual tax bill of $6,000, and 50 hours of total time each week works out to a rate of just $11.77 per hour in spendable income.

A few years ago, I worked briefly for a temp agency doing construction work. I tallied up the time the job required one week, then deducted commuting expenses and taxes, and it turned out I made just $2.71 per hour. I quit that job quickly.

How to Calculate Your Paycheck

If you’ve ever considered getting a new job, doing freelance work, buying a business or doing anything else to generate income, knowing the real income potential might help you make the right decision. So let’s get started.

Calculate Your Total Work Time

A 40-hour paycheck can involve vastly different amounts of time from one employer to the next.

My experience with that temp agency made this very clear. Like many day-labor outfits, they require employees to show up early and wait for work, which sometimes never comes. You could easily be “at work” for 20 hours to get paid for 10 hours of actual work.

When you think of your unpaid work hours, you might consider only lunch breaks off the clock, but I go further than that. I count every minute from the moment I leave the house. Time is the ultimate currency of life, so I want a true accounting of the hours.

Include all required hours when comparing your income sources. A job next door is not the same as one requiring five hours of commuting per week, even if they pay the same.

Google Maps can provide a good estimate of commuting time to your current or potential workplace. But start the clock when you will actually leave the house, taking into account your good habit of arriving early. Then count all time until you expect to arrive at home again.

Freelancers who work from home might be the most prone to underestimating the total time spent earning their money.

For example, I have no commuting time, but the two or three hours I spend on the first draft of an article is just the start. I also spend time editing second and third drafts, emailing clients, invoicing and writing articles that never sell.

You might easily forget some of these activities. Make sure you include all of the time that is related to your source of income.

Calculate Your Net Pay

To determine how much money you actually take home, deduct expenses. In the case of a business you probably do this already, but jobs have expenses too. They include:

  • Commuting costs
  • Clothing you wouldn’t otherwise buy
  • Childcare
  • Ongoing training or educational costs
  • Income taxes
  • Any other expenditures required to keep the income coming in

The IRS allows a business expense deduction of 53.5 cents per mile for a vehicle, but if you buy used cars and get decent gas mileage, it’s probably less than that. I figure 35 cents per mile for commuting, but make your best guess for your car, and exclude costs you would pay whether you worked or not, like licensing and insurance. Google Maps will also help you calculate the miles to and from work.

Childcare costs can vary greatly, but a 2018 Penny Hoarder survey found that about 82% of parents said they spent $500 or more on monthly child care expenses.

Exclude educational expenses you’ve already incurred. Economists say sunk costs like these are irrelevant to future-based calculations. But include any ongoing educational expenses needed to get or keep a job or business (like annual education required by law for real estate agents).

Income taxes are dependent upon where you live. With a job in Florida you pay no state income tax, but in California you pay a rate as high as 12.3%.

On your federal return, you pay half of your payroll taxes (the employer pays the other half) if you have a job. If you’re self-employed, you pay the whole amount minus deductions (here are 11 deductions for work-from-home freelancers). In either case, you pay income tax at varying rates.

It’s easiest to add up income-related expenses by the year. Then subtract that figure from what you expect to make for the year. Repeat this process for each job, business or other income source you are considering. Then calculate what you get for your time.

Calculating Your Real Hourly Wage Is Just a Start

Here is a simple formula for figuring the spendable income you get for your time:

(Total Income – Total Expenses) ÷ Total Hours Needed to Produce the Income

That gives you an hourly rate — an easy measure by which to compare the job you have with another. You can also compare benefits packages to get a more accurate comparison.

It is just a start, of course. For one thing, it completely ignores whether you like the work. Your hourly pay is just good information, not the whole story. I would happily take a job I loved (there’s no such thing, but just saying) for far less pay than one I hated.

Also, you do have to pay the bills. So you may need to take a $15-per-hour job that’s full time rather than one that pays $20 per hour but is only two days per week.

Still, your time is all you have in the end, so try to get paid more for it. Knowing what you actually make is a good start.

Steve Gillman is the author of “101 Weird Ways to Make Money” and creator of He’s been a repo-man, walking stick carver, search engine evaluator, house flipper, tram driver, process server, mock juror, and roulette croupier, but of more than 100 ways he has made money, writing is his favorite (so far).