Financial Advice

I’ve been surprised lately how few of my friends know how much money they make per year. Some just don’t care (which is a major problem), others make hourly and don’t understand how to do the conversion. This article should help with that later reason and help you understand why this is important to know.

If you aren’t a big fan of reading or would like to listen to the same basis as this article check this Youtube video I did for this.

Hourly Wage to Yearly Salary Conversion Technique

This is really super easy to understand for people who are full time. If you’re part-time or get overtime it gets a bit more difficult to calculate but generally, this rule applies very well. This trick can also be used if you make salary and you want to know how much you make per hour if you generally only work 40 hours.

The conversion trick is for every…
$5/hr you make $10,000/yr
$1/hr you make $2,000/yr

So if you make $18/hr that roughly equals $38,000/yr.
$20/hr is $40,000/yr.
$25/hr is $50,000/yr.

I’m sure you get the trick. It works well for parties with finance nerds but besides that why do you really need to know this? Well here is why….

Budgeting

In order to properly budget you need to know how much money you make. You should know your income in terms of hourly, monthly and yearly in my opinion. Those are the most common measurements of pay in terms of time.

Knowing your pay in all those terms will help you follow specific rules for spending such as with Rent/Mortgage you should never pay over 30% of your income in rent. If you do you’ll probably be underwater when it comes to expenses. It could be better to live on a nice end of town but not super expensive and save the money up for something better.

Lending

You should know your yearly income when speaking with lending institutions like a bank or credit card. Many times these institutions will use your income to determine how much they loan you or allow your credit limit to be.

Banks will likely put a cap on your mortgage in align to the 30% rule and I am sure they have a similar rule for spending on an automobile.

Credit Cards will use your yearly income to determine how much they will make your credit limit. The higher your credit limit means the lower your credit utilization. The lower that is the higher your credit score goes, which is good in my mind.

Understanding Job Offers

If you are going from a salary position to an hourly position or vice versa you should be able to understand the conversion of yearly salary and hourly wage quickly especially if you plan to be in a negotiation. $50,000 is a lot of money and can be hard to understand. If you aren’t fast with your numbers you may think $50,000 is better than $30/hr.

To best understand job offers and deals I very much suggest understanding this trick.

Cost of Living Comparison

Money is different in many different parts of the country. $50,000 does not go as far in New York as it does in Toledo, Ohio. In fact I think in order to live the same lifestyle in NYC as $50,000 in Toledo you’d need to make $100,000 according to a few cost of living calculators I’ve looked at. This is probably a big generalization but still it illustrates the point pretty clear.

Cost of living is very different in many different places across the world. It is important you understand your wages completely before moving to a different town or accepting another position.

Proper Perspective On Money

Knowing the amount you make per year lets you truly understand the gravity of big purchases. If you only make $40,000/yr and know that it will make you understand it’s probably not a good idea to buy a car equaling a who year’s salary! With knowing your total yearly pay a lot of expenses are put into a proper perspective.

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