A different way of looking at income
by Celine on February 6, 2009
in Earning and Income
How much do I get paid per month? This is the common question we ask ourselves when looking for new jobs or business ventures. The “per month” way of measuring income has always been the default approach. But is it the best one?
When I was listening to “The 4-Hour Workweek” audio book for the first time, the writer, Tim Ferriss, proposes a better question which changed the way I perceived income:
How much do I get paid per hour of work?
Why is this a better question? Let me answer that with an example:
Jose earns P100,000 per month, working at a high profile job for 10 hours a day, 5 days a week. He works 10 hours a day because apart from the actual time in the office, he does overtime and takes some work home.
Maria, on the other hand, makes P50,000 per month, working 12-hours a week as a freelance web designer.
Based on the details above, this means that Jose makes only P500 per hour, while Maria makes P1041 per hour(*). Apart from that, Maria has a lot of “free” time on her hands, which she can use to spend quality time with loved ones, pursue hobbies, and even look into other income streams.
“So what?” you might say. Jose still makes more per month.
That may be true, but unless Jose is truly passionate about his job and never thinks “I’d rather be doing something else” or “I’d rather be somewhere else”, then he’s just trading his life for money. Rita Mae Brown said it best, “Don’t trade the stuff of your life, time, for nothing more than dollars. That’s a rotten bargain.”
If we look at income this way, then it seems like entrepreneurial ventures, consultancy, and freelancing sound like the best way to go. Corporate telecommuting is also a good option, provided that your boss doesn’t require time-based logs of your work, and that you are productive enough to get the most tasks done in the least amount of time.
Try to do this exercise for yourself and see how much you get paid per hour. What are your results like? Was it less or greater than what you expected?
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(*) Of course, if you’re a service provider like Maria, this doesn’t actually mean that you should charge clients by the hour. In creative fields, that’s never a good idea because you can easily be exploited. Charging by project milestones is the best way to go. To know your hourly rate for yourself, note the overall fee you received and divide it by the number of hours you worked.
Image by Steve Woods
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In my previous job, I get paid well but I had to work more hours, I’m on call 24/7 and worse, I have no overtime pay. Then reality dawned to me that the company doesn’t really pay me much coz based on the actual hours of work I’m rendering, my per hour rate is dirt cheap. I quit that job.
Knowing your per hour rate can also help you to decide when to do things by yourself or pay someone else to do it.
I can’t blame people who look at how much they can REGULARLY bring home at the end of the month because they also consider stability and other benefits. You may find job with bigger pay per hour but that job may not be stable or doesn’t have any benefits. There are many factors really. Both monetary and non-monetary. For me, it boils down to your priorities, goals…
For consulting, it’s not always good to charge per milestone. In our company (we do envi and engineering consulting) we only cost job per milestone, if the detailed scope of work is known. It’s more profitable but risky that’s why the scope of work has to delineate the extent and limitation of the tasks.
When the scope of work is not defined well, charging per hour is the best way to go to minimize risk. In our company, we call it time and materials not to exceed certain amount. We charge all our time (professional fees based on the actual number of hours worked times the hourly rate) and materials (equipment rentals, print-outs, mileage, other direct costs plus add-on fee which is usually 10% or as defined in the proposal/contract. Time and materials may not be as profitable but risk is minimized.
Hi there..
I happened to stumble on your blog today and I really liked it. I hope you don’t mind if I’ll add you in my blogroll. I find it easier to follow your blog.
Anyway, I am reading the book too of Tim Ferriss. I wish I learned earlier about all these telecommuting or freelancing types of income opportunities. Though it is not yet too late, i have been a corporate slave already for almost a decade now.
And I agree. Things are better if we are slave with our passion..
@ Nina: Thanks for dropping by
I agree with you, but it seems like even stability is a myth even when it comes to regular jobs. Many people who thought that their companies were doing well, or that they have a stable job find themselves being laid off now.
If someone in a regular job can find a way to be very productive at work to avoid overtime, as well as find an alternative source of income that isn’t presence-based, then they can feel more secure financially. They won’t be solely dependent on either the stability of their regular job or the success of their alternative income sources.
I also agree that unless project milestones are well-defined, per hour rates are the next best thing. But I always prefer charging by milestones. My preference is dependent on my businesses, of course. The best way to charge probably differs depending on the industry.
@Cyramiles: Welcome to Frugal Pinoy
Tim Ferriss has some great ideas, but the book can sound pushy sometimes. Like all business books, it’s best to take what works for you and don’t worry about the rest.
Well, it’s true that people working on regular jobs are being laid off due to global financial crisis. Things can change overnight that’s why we should have emergency funds whether we are employed or free-lancing