Your Real Hourly Wage and Savings Rate Calculation
Episode 158R
Episode Guide
Episode Timestamps
ChooseFI Podcast Show Notes
Episode Summary
In this episode of ChooseFI, the hosts Jonathan Mendonsa and Brad Barrett delve into the importance of community support and education in achieving financial independence. They emphasize the significance of savings rates, leveraging mentorship, and the impact of financial awareness on lifestyle choices. The discussion is enriched with a real-life listener update that highlights the journey to financial stability, emphasizing the need for being debt-free as a foundational step.
Key Topics Discussed
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Introduction to the Episode
- Overview of the episode's content and guest discussion.
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Recipe Discussion
- Introduction of a new cost-effective vegetarian recipe, emphasizing budget management in meal preparation.
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The Importance of Education
- Education as a transformative tool for breaking cycles of poverty, highlighted by a listener’s experience.
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Understanding Your Real Hourly Wage
- Discussion on the concept of 'real hourly wage' and how it reframes spending decisions.
- Key Quote: "You are giving up life energy when you're purchasing things."
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Savings Rate Calculation
- Steps on how to accurately calculate savings rates and their significance in financial planning.
- FAQ: "How do I calculate my savings rate?" answered at .
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Listener Update from Cassandra
- Cassandra shares her journey, highlighting her path to being debt-free and its effects on family planning and career choices.
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Conclusion and Drawing for Book Giveaway
- Recap of key takeaways and listener engagement with a chance to win a book.
Actionable Takeaways
- Calculate your savings rate to track your financial progress.
- Reflect on the real cost of your purchases based on your real hourly wage.
- Explore educational opportunities that could impact your financial future positively.
Key Quotes
- "Learn from others’ experiences to avoid mistakes."
- "Education can serve as a rescue ladder out of poverty."
- "Take action to create opportunities."
- "Skill acquisition is essential for financial independence."
Related Resources
Discussion Questions
- How can small changes in budgeting have large impacts on your financial future?
- What are the key components that should be included in a savings rate calculation?
Social Media Snippets
- "Even small financial adjustments can lead to significant life changes."
- "Learn from others; it can save you from making mistakes."
Podcast Description
ChooseFI helps listeners understand the steps to financial independence through actionable advice, community engagement, and mentorship.
Podcast Intro:
"You're listening to ChooseFI..."
Podcast Extro:
"You've been listening to ChooseFI Podcast..."
The Path to Financial Independence: Strategies for Success
Achieving financial independence isn't just about saving money; it's a multifaceted journey that requires intentionality, education, community support, and the right mindset. In this article, we will delve into actionable strategies to enhance your savings rate, understand your real hourly wage, and leverage the power of mentorship and education, all drawn from insights shared in the ChooseFI podcast.
Understanding Your Savings Rate
A crucial step in your journey to financial independence is calculating your savings rate. This simple yet powerful metric helps you assess how much of your income you’re saving and how changes in spending habits can significantly alter your financial trajectory.
How to Calculate Your Savings Rate
To calculate your savings rate, follow these straightforward steps:
- Total Savings: Include all forms of savings, such as contributions to retirement accounts (401k, IRA), employer matches, and any additional savings in taxable accounts.
- Total Income: Use your after-tax income for this calculation. This includes your take-home pay after all deductions, including taxes and benefits.
- Formula: Divide your total savings by your total income.
For example, if you save $20,000 from an after-tax income of $60,000, your savings rate would be approximately 33%. Regularly monitoring your savings rate provides a clear picture of your progress and helps set realistic retirement goals.
The Importance of Understanding Your Real Hourly Wage
The concept of your real hourly wage is vital for making informed financial decisions. This figure considers all expenses related to your job and gives a clearer perspective on how much your time is worth.
How to Determine Your Real Hourly Wage
To calculate your real hourly wage, follow these steps:
- Determine Net Pay: Calculate your take-home pay after taxes.
- Calculate Working Hours: Account for all hours spent working, including commute and preparation time.
- Subtract Expenses: Consider expenses incurred due to your job, including transportation, professional attire, and other related costs.
- Divide: Finally, divide your net pay by the total hours worked to find your real hourly wage.
Understanding this figure shifts perspective on spending. For instance, if your real hourly wage is $15, purchasing a $150 item represents ten hours of your life energy, prompting more deliberate spending choices.
The Power of Community and Mentorship
Engaging with a supportive community and seeking mentorship are essential components of achieving financial independence.
Building a Supportive Network
Surround yourself with like-minded individuals who share your financial goals. Participate in online forums, local meetups, or community events focused on personal finance. Sharing experiences can provide motivation, support, and invaluable knowledge from others' journeys.
Finding a Mentor
Seek mentors who have successfully navigated the path to financial independence. Learning from their experiences and mistakes can accelerate your own progress. Approach potential mentors with specific questions about their journeys and tips they wish they knew earlier.
Incremental Changes Lead to Significant Benefits
Small adjustments in your financial habits can lead to substantial long-term benefits. Both hosts, Jonathan Mendonsa and Brad Barrett, emphasize that your path to financial independence is often paved with small, deliberate changes that compound over time.
Examples of Incremental Changes
- Adjust Spending Habits: Aim to lower monthly expenses by examining subscriptions or dining out less frequently. Even a $50 cut in monthly expenses can add up significantly over time.
- Optimize Food Costs: Cooking at home instead of eating out can save considerable money. As highlighted in the episode, choosing budget-friendly recipes can drastically reduce your food costs without sacrificing nutrition or enjoyment.
- Increase Income: Explore opportunities to increase your income through side hustles or negotiating raises at work. Consider if your skills align with freelance or consulting opportunities, potentially increasing your earnings without significant extra effort.
Education as a Rescue Ladder
Education is a powerful tool for breaking the cycle of poverty and enhancing earning potential. Investing in your education—whether through formal degrees, online courses, or self-study—can yield substantial returns over time.
Importance of Lifelong Learning
Embrace a mindset of lifelong learning. This could involve:
- Online Courses: Platforms offering courses in finance, coding, or marketing.
- Reading: Invest time in reading books that provide insights on financial management, such as "Your Money or Your Life" by Vicki Robin.
- Networking: Engage in seminars or workshops to continually build your skills and meet potential mentors.
Conclusion: Taking Action is Key
Achieving financial independence is not merely about understanding concepts; it demands action. Whether calculating your savings rate, seeking mentorship, or making small changes to your spending, the crucial step is to take that first action.
Start by calculating your current savings rate today and identify one area to reduce your spending this month. Engage in your community to inspire and be inspired. Your journey to financial independence is yours to shape. Remember, even small changes can lead to significant impacts over time.
By harnessing these strategies, you are well on your way to unlocking the full potential of your financial future. Take control of your path today!
Brad and Jonathan introduce you to the importance of calculating your savings and your true hourly wage.
[elementor-template id="143609"]Savings Rate Calculator
Looking for the savings rate calculator mentioned in this episode? Click here!
Meal Planning
Jonathan recently introduced Brad to a new dish, a sweet potato enchilada recipe. The meal is delicious and falls under the two dollars per person per meal guideline.
This [has] never been about deprivation. It should not be about deprivation. It's the fact you can do so much more for so much less and you're probably taking that fact for granted. Apply a little bit of intention to your grocery budget. And if we’re going to take some time to apply some intention to our grocery budget, we should probably apply a similar level of intention to all of our life, other aspects of our life.
If you are interested in finding many of these affordable and delicious meals, then here's a free download for Laura's top recipes.
Listen: A Live Case Study with Physician on FIRE and Allison Goddard
Trailblazing With Kim
Kim, from The Frugal Engineers, shared her story on the podcast this week. If you have not had a chance, check out the full episode with Kim here.
She built a life for herself beyond what was expected of her. The reality in her community is that most people did not graduate high school. Kim broke that narrative and secured a full scholarship to a boarding school in her state. With this education, she climbed the rescue ladder out of poverty into a different life.
Mentorship
Kim also mastered the skill of finding mentors. In the coming weeks, we will explore the concept of finding a mentor that can help to transform your life. In many ways, Kim was open to new ideas that allowed her to build an unexpected life for herself.
It's these little experiences, where, again, if you are open to serendipity, you just don't know where life is going to take you. But, my advice, I can give you this advice from a place of a deeply, deeply personal place, where I was someone who wasn't open to new experiences, I wasn't open to meeting new people...It's amazing the good that has come to my life...by just being open to these experiences, by meeting new people. It has really, honestly transformed my life in a dramatic way.
Whether you need an accountability partner or a mentor, consider the idea of being open to new ideas.
Unraveling Your Story
Kim attributed her successful storytelling abilities to journaling. After years of journaling, she understood the story she told herself--about herself. With that understanding, she had a lot of power. The ability to pitch yourself in an interview is a skill that many find difficult to cultivate.
Everything comes down to "Do you understand the story you tell yourself--about yourself."
One way to practice talking about your story is through a blog. Even if you don't have a profit motive, a blog can be a great way to build your talent stack and learn more about yourself.
Real Hourly Wage
After Kim figured out that her real hourly wage was around $12, she decided to make a change. Instead of working for a company, she decided to become a contractor in order to harness more of her hourly wage. After all, clients were willing to pay $90/hour, so she was not content with making $12/hour. She built a practice on the side to create a soft landing when she decided to go full time with her business.
The idea of a real hourly wage comes from Vicki Robin's book, Your Money or Your Life. In the book, she breaks down the finer points of calculating your real hourly wage. However, you can make the calculations with the information below.
First, you need to determine your take-home pay per pay period. Then, determine the number of workdays you work in each pay period.
Time Expenses
Next, find out how many hours you work per day. That doesn't include just "on the clock" time. You also need to think about these questions:
- How many minutes of a commute do you make each day?
- Do you have any unpaid breaks?
- How many minutes does it take to get ready?
- How many minutes does it take to decompress after work?
Hidden Expenses
Also, think about the expenses that are created because of work including:
- The number of miles you put on your car to get to work.
- Any fees, fares, or tolls you pay to get to work.
- Do you have to cover any daycare expenses while you are at work?
- Do you have any dining out expenses with coworkers that are unavoidable while you are at work?
- Consider any unreimbursed work expenses such as a uniform.
- Do you pay any union dues?
- Are there mandatory office gifts to buy?
Now, subtract all of your expenses from your take-home pay per pay period. Then divide that number by the number of hours that you put in each pay period. That is your real hourly wage.
Unfortunately, this can be a depressing number. However, it is important to understand where you sit. You can take these numbers to evaluate the work environment that you find yourself in. Consider making adjustments to your situation to achieve a real hourly wage that you are comfortable with.
Community Feedback
Let's talk to MK to hear what the community has to say this week.
Jen
Jen wrote in to ask about calculating a savings rate. Here's our most common-sense way to approach your savings rate.
First, determine the amount you are saving. Savings can include any of the following:
- Your employer match
- Your contribution to your retirement accounts
- IRA contributions
- HSA
- Taxable accounts
- Savings account
- The principal portion of your mortgage
Next, calculate your total income. Of course, include all of your savings. Generally, your total income is everything that you make after taxes.
Finally, divide your savings by your total income to see your savings rate. There is some grey area to the components of a savings rate. However, if you do it consistently, that is what matters most.
As long as you do [the calculations] in a uniform manner, that’s what matters for you. Right, you're trying to compare across years for your own life.
The goal is to compare your savings rate across time to track improvements. Don't get bogged down in the details, just calculate based on what makes sense to you.
Almost everyone that is just starting on their path to financial independence needs to calculate their savings rate right now.
You might find that you are doing well. Or you might find that you are paycheck to paycheck. Whatever you find, you can use your savings rate as a benchmark for improvement. As you improve your savings rate, your FI date will become more attainable.
Listen: How To Calculate Your Savings Rate
Cassandra
Cassandra first called in 2017, and she leaves a voicemail with an update. She shares their journey to become debt-free, options and salary negotiations after maternity leave; and that the future now holds opportunities because of getting on the path of Financial Independence.
Listen: Impact--The Stealth Wealth Community
Dousing The Flames Of FIRE?
Jonathan mentioned that mainstream media seems to be picking up the idea of hating on FIRE. Remember to block out the noise and stay focused on the positives. The math works, but it is up to you to take action.
If you're looking for good news, you're going to find it. If you're looking for bad news, you're going to find it. So why wouldn't you look for good news? This is just such an obvious strategy for life! And to me, you can make changes. You can take in information and you can take action and move forward.
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