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The Opportunity Cost of Overtime On Salary

Updated: Apr 22, 2020

Don't just work overtime, know the value of your time

For those who have read Tim Ferris' book, "The 4-Hour Workweek" you'll know that he's voraciously against working overtime as a salaried employee. I think by nature we can all agree but do we know to what degree?

To show the opportunity cost of working overtime let's use an imaginary married couple, Smart Sam and Workaholic Wayne. Both make $50,000 (The US average salary) but have differing jobs and mentalities.

Smart Sam works at a job that does not pressure overtime and when occasionally asked to, uses the techniques taught in the "4-Hour Workweek" to not work more than she needs to. She works 2080 hours a year for $50,000, or $24.04 an hour.

Workaholic Wayne works 1 hour of overtime a week on average and does it so he can look good for his boss. This means that he works 2132 hours a year for $50,000, or $23.44 an hour.

41 hrs/wk X 52 wks = 2132 hrs; $50,000/2132 = $23.44/hr

If Workaholic Wayne had a job that paid $48,800 but did not ask him to work overtime he'd be better off! This should be a consideration when going into a new job.

And don't get me wrong, we're not saying not to work overtime ever, we're saying put yourself where you can gain the most value. For some people this might mean staying later because they'll be learning or practicing a skill that'll help them later on. Of course starting a new job that pays the same or higher pay but requires more overtime may benefit you if there's more growth potential. This is for the individual to decide.

But let's not stop there. Smart Sam has a whole hour more a week than Workaholic Wayne. Let's say that Smart Sam, instead of waiting at home bored for her husband to return jumped on a dog walking website and walks dogs in that 1 hour a week for $10. An additional $520 doesn't sound like much but after accounting for investing it compounds to $5,379.71 over 10 years.

And maybe this isn't incentive enough, maybe Smart Sam believes that she is worth more than the $10 an hour she can get walking dogs so she instead promises herself to read a financial, self help, or skill advancement book or takes a class to improve or create skills. This allows her to change her bank accounts, her investments, and learn new skills that she can apply to her current job. After 10 years of this how many languages could she learn, coding languages she could type, compound interest could be made, and so much more. To illustrate, what if Smart Sam picked up a Master's degree and used that hour to attend a class? The combination of the new degree and skills would definitely bolster her resume.

There are jobs out there that will not pressure for overtime. Talk to your friends and network. See what's out there and really push for having more time for yourself and you'll find value driven back to you.

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As an Amazon Associate I earn from qualifying purchases. I also would never recommend something that I, myself, would not do and can genuinely say that there is great value in these recommendations.

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