​Rethinking Our Hourly Wage to Maximize Our Work/Life Balance

How Many Hours Are We Truly Working? Including Those Late Night Emails...

In recent years people seem to be working far more hours per week as work/life balance takes a back seat to always being available to employers. Responding to email at all hours, staying late, going in early, and traveling on the weekends encroaches on time that was allotted for friends and family. This trend also deprives us of the time needed to recharge in order to perform at our best. This leads me to ask, how much are we really being paid when we work so many hours? A higher salary job may have hidden drawbacks such as fewer tax benefits and a lower per hour salary.

Calculating What We Really Make Per Hour

I try to measure a return in a way that allows me to compare apples to apples and this should also apply to a salary. The first step is to calculate what we actually earn on a per hour basis before taxes. A $100k job at 40 hours per week equals $48 per hour. The same job at 60 hours per week is $32 per hour and at 80 hours per week is $24 per hour. Once we realize we are actually making $24 on a per hour basis, we may find that there are more desirable jobs with less stress at that pay rate.

The second step is to start factoring in the cost of our daily commute, annual expense for a professional wardrobe, dry cleaning and any other expenses that are required for the job. Our hourly pay rate slips down a few more notches and we realize there might be whole new list of jobs that we might prefer to do at $21 or $22 per hour.

The third step is assessing in monetary terms the cost of missing certain things in life due to an overloaded work schedule. This includes not being able to attend kids soccer games, missing out on reconnecting with friends or skipping hobbies we enjoy. Depriving ourselves of these benefits takes toll on our health and well being. It may also mean we are neglecting to spend time building a business or real estate portfolio, which could eventually negate the need for a W2 job. It may be much better to take a job that pays $2 less per hour if we could spend more time with family or dedicate more time to growing your passive income.

Factor In The Loss of Some Tax Benefits

For any investment decision it is important to look at the tax implications* and this also applies to our own labor. If we are working 80 hours a week and making $100k per year, we really have two concurrent $50k jobs. This "second job" also pushes us into a higher marginal tax bracket which means we are making less per hour for the late night hours that are least desirable. In 2015 an individual with income between $9,225 to $37,450 is taxed at a rate of 15%. For any income from $37,451 to $90,750 the tax rate is 25%. That means the federal government is taking a dime more out of every dollar we earn above $37,451 and our state tax agency is also likely to be taking a bigger cut as well. An economist would say we want to get paid more, not less, for each additional unit of labor that is less appealing. On top of this, that "second job" may also make us ineligible for certain tax deductions due to our higher income level.

Examples of these tax deductions include:

- The Lifetime Learning Tax credit of $2,000 for higher education expenses begins phasing out for single filers whose modified adjusted gross income is $55k and is completely phased out at income levels of $65k or more.

- Student Loan Interest Deduction, a credit of up to $2,500 for interest paid on qualifying student loans, begins phasing out for single filers whose modified adjusted gross income is $65k and phases out completely at $80k or more.

- Child Tax Credit of $1,000 per child begins to phase out for singles/head of households filers at $75k.

Time Is A Valuable Investment...We Should Maximize Our Return

At the end of your analysis you may find you can take home the same amount of money on a per hour basis with a job that has less stress and fewer ancillary expenses. You may also find you work better in a job that gives a more preferable work/life balance even though it pays less. There is real value in intangible benefits such as enjoying walking through the front door of your job every day versus dreading Sunday nights because the work week begins in the morning. Time is precious and valuable so we want to make sure we are getting the best return on our investment.

For a more in depth analysis of some of these topics you may consider reading Your Money or Your Life by Joe Dominguez and Vicki Robin. It is a frequent recommendation among the Bigger Pockets crowd for good reason.

Best of luck as you seek to maximize your work/life balance,

Nathan Carter

*The above article is neither tax advice nor legal advice (because I skipped the bar exam and moved to Lebanon). Please consult an attorney or a tax professional for any related questions.