A true saver knows how much cash they can stack per week. You might think, Who Cares! I already know what my salary is, why would I need to know my earnings per hour? This gives you a reference point when your estimating how long it would take to pay for a purchase or stack a certain amount of cash. If you haven’t calculated how much of your income you’re actually stacking away each week and how much time that income costs you, then grab your calculator and give it a go.

If you’re paid hourly, this may be a straight forward calculation. But what if you’re a salaried employee or if your weekly hours vary? It seems easy enough to take your gross earnings and divide by pay periods or weeks, but if you look at your income that way, you would be overestimating it.

Knowing your earnings per hour gives you a clear picture for how much time it takes to be earn the cash needed for that cup of coffee. Below is a look at how a Saver calculates their earnings per hour.

**Step 1. Determine your total take home pay **

First off, you need to determine your income after taxes, CPP and EI and any other fees you might have like union dues. You can estimate your salary by using an online resource (see below) or using your pay stubs. If you’re salaried, than you just need one pay stub preferably from the earlier months of the year. If you’re an hourly employee, you might have to average out a number of pay periods. Also, if you’re contributing to an RRSP, defined contribution pension plan or employee stock purchase plan, you should add these values back into your paycheck (it is your $$ after all and your RRSP is one of your stacks!)

Also, if you have any unavoidable expenses related to your work, then subtract those as well. For example, you might want to include the cost of transportation, child care or specialty clothing. Likewise, you might also get other benefits from your employment. Things like health care premiums, insurance or subsidies for a cell phone might be worth including in your income.

**Step 2. Determine how many hours work takes out of your day**

The key here is to look at this number as the time it costs you to work. It’s not the billable hours, hrs per pay period, or the 40 hours written on your employment contract. What you should do is write down the time you leave your home in the morning and then the time that you get back through the door in the evening. Even if you take lunch breaks to reduce stress or even work out, I don’t think that you should exclude those hours from this calculation. Be honest about your numbers and don’t exaggerate.

Though I recommend using the above method of calculating your hours, as a gross estimator, there are approximately 2,000 hours in a work year.

**Step 3. Divide your take home pay by the hours**

The goal is to come up with a dollar value for every hour that you work. If you either multiply this to come up with a yearly figure or work backwards from a yearly figure then you’ll have to account for holidays and illness as well.

## The Average Canadian Example

Joanne is a salaried employee who earns $50,000 according to her contract. She represents an average Canadian who earns$928 per week before taxes.

**Step 1:** In 2014 she paid $8,611 in taxes resulting in $41,389. She also paid EI of $913.68 and CPP of $2,306.70. This leave her with $38,169

**Step 2:** Contractually she works 37.5 hours a week. However, she leaves her home at 8:15, commutes 30 minutes, works an envious “9-5″ but often leaves at 5:30 and arrives home at 6:00 pm. In effect, she’s missing out on 10 hours of every work day, or a 50 hour work week).

**Step 3:** There are 250 working days in 2014 plus we’ll assume 10 days of vacation, or a total of 240 actual working days.

($38,169 / 240) / 10 hours a day = **$15.90 an hour. **

If you had calculated the 9-5 based on her gross earnings you might have assumed your nominal wage was closer to **$25.00 an hour.** That’s a really big difference!

Let’s assume that every day you go and buy a cup of coffee for what seems like $5. After you add in sales tax (don’t double count the income tax) it works out to $5.60. It actually takes you 21 minutes to earn that coffee not including the opportunity cost of spending that cash instead of saving it.

$5.60 / ($15.90 per hour /60 minutes) = 21 minutes

## An Above Average Canadian Example

If you repeat the same calculation but assume you earn $100,000 a year, then your hourly wage is $29.90 and it takes you 12 minutes to earn that cup of coffee. The reason for this of course is your marginal tax rate of 38%.

- Taxes of $24,883
- CPP of $2,425.50
- EI of $913.68
- Take home pay: $71,778

## The Bottom Line

You probably don’t earn as much as you think you do. Your earnings per hour is a good metric to know so that when you make purchases, you can relate them to how much effort it actually takes you to earn that purchase. The reality is that Time is Money.

What if you’re offered a promotion at work? But if you have to work 70 hours because that’s what the new job requires, then it may feel like you have a huge salary, but when you calculate your earnings per hour, it might not be so spectacular.

### Resources:

- The best Canadian Tax calculator on the web by Ernst & Young: http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2014-Personal-Tax
- CPP Rates: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/cnt-chrt-pf-eng.html
- EI Rates: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/ei/cnt-chrt-pf-eng.html
- Working days in the year: http://www.workingdays.ca/workingdays_holidays_2014.htm