A popular theory states that something is not worth doing if it makes you less that your hourly wage. For example, if you make $30 an hour and you can hire someone to mow your lawn for $20 an hour, you should go ahead and pay for the service. As someone who is earning more and yet trying to combat lifestyle inflation, I’ve been struggling with this idea. According to this rule, all of a sudden I can start paying people to do all kinds of stuff for me. Laundry. Cooking. Cleaning. Or can I?
Thought #1: What Is Your Real Hourly Wage?
- First, roughly estimate your hourly wage. If you work 40 hours per week, a quick way to estimate your hourly wage is to take your annual income, remove the trailing three zeros, and divide by two. For example, if you make $100,000 per year, then you make $50 per hour. A person earning $20,000 per year = $10 per hour. If you are using gross income then you’ll end up with gross hourly age.
- Take taxes into account. If you earn $50 per hour gross, that might be only $35 per hour net. Someone earning less at around $10 per hour gross will probably be earning more like $8 per hour net. Try this net paycheck estimator or look at your paystub.
- Be realistic with hours. Do you really only work 40 hours per week? If not, adjust accordingly. Now add in your commute time, the time it takes to get ready each morning, the time it takes to decompress after each day. Your job takes up a lot more hours than you might think.
Now, what is your final per-hour wage? If I made $50k per year, but worked 50 hours per week plus 1 hour total each day for commuting + getting ready, with filing single and taking standard deductions, I’d be down to around $13.50 an hour. Paying someone to do the lawn for $20 an hour is not longer a mathematically prudent idea.
Thought #2: Are you salaried?
The premise of the argument implies that you can simply work instead to cover certain expenses. Hire the maid for $20 a hour, the landscaper for $30 an hour, restaurant food at $20 per hour – hey you make $40 an hour so who cares? Work in your office, and make up the difference and then some. But many of us are salaried workers. If we work 40, 50, 80 hours a week, we won’t earn any more money.
In other words, this only works if you can at the same time make more money elsewhere. Someone who works in their own business or does consulting has much more freedom in this regard. I don’t know if I’m that good at time management to pull this off, though.
Thought #3: Will you always be making as much?
I’ve come to see regard frugality as a habit, which can take years to form. Getting used to paying for everything to be done for you is going to hurt if you want to retire early. If you get used to a higher cost of living, you’ll need a much larger nest egg to generate more income. Living a simple and frugal life now will help make the same life an enjoyable one down the road.
In addition, by doing things yourself you may be learning a skill that can also pay off when you can’t justify paying for it anymore. Gardening and growing your own food is a skill. Cooking is a skill. Performing your own car maintenance. Doing your own home repairs. And so on.
Not Just Math
Obviously, if there are activities which you prefer not doing, or can simply be done by someone else for a fraction of the cost, it can definitely be worth it to outsource. Childcare is a common example, although some do it for the socialization. Besides cost and skill development, I would also adjust for personal taste.
For one, we are considering putting in our own hardwood floors in our new place instead of paying for installation. It will probably take us a lot longer than professionals to put it in. Although we’d be saving at least $10,000 in labor costs, and we’d probably earn more in our regular jobs if calculated on an hourly basis. But I will be learning a lot about home remodeling during this project, it will be a nice respite from staring at a computer screen all day, and it will be personally satisfying.
On the other hand, I hate driving in traffic. I learn nothing from doing it more. If I had access to good public transportation, I would totally pay for it. Similarly, driving around for an hour to save $10 on an item is not going to be worth it to me. However, I love bargain shopping online, and I might research for hours on the best model and price on a $99 item. But I can do that while in my pajamas at odd hours.
Are there some frugal activities that you no longer do after your income increased?
By Jonathan Ping | Frugal Living | 3/31/08, 8:00am