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Planning out your financial future requires an annual income calculation. If you apply for a mortgage or a loan, you’ll be asked for an annual income. However, if you are paid by the hour, this requires a simple calculation that I’ll show you how to do.

Before we start, let’s be clear that working a job with hourly wages is quite different from a job that provides a salary. If you work for an hourly wage, you are only paid for the hours worked. You do normally not enjoy paid time off, whether it is holidays or paid vacation.

In contrast to that, a salaried employee enjoys benefits such as paid holidays, paid personal time off (PTO) for vacation, or whatever you desire. Also common is to have paid sick leave as a benefit.

Being paid hourly makes it harder to budget for your expenses because you don’t know exactly how many hours you’ll be working. Hourly workers get often paid weekly or bi-weekly. However, many expenses are paid monthly. So you need to budget accordingly.

The proverbial story goes that the laborer takes their weekly paycheck and goes drinking with his buddies. All while at home, the wife is supposed to get by with what is left over after a night of pleasure and alcohol. While weekly cash payments are not that common anymore, it is still a skill to budget a bi-weekly paycheck, so one has cash in the bank account when the rent or the utilities are due.

## Annual income calculation from hourly wages

To calculate a reasonably accurate annual income, you want to take into account non-working days. A year has usually 52 weeks and there are 11 federal holidays. Most employers give you these days off or you can decide not to work. For the sake of simplifications, we declare the 11 holidays to be 2 weeks for a 5-day workweek.

Further, you want to take into account taking some personal time off for vacations or to see your children’s game. For the example, I calculate with 2 additional weeks of time off, which includes sick time, if it is unpaid.

So for the annual income, we can multiply the hourly rate times 37.5, times 48 weeks. For example, at a medical coder making $20.72/hour the annual income would be $20.72 * 37.5 * 48 = $37,296

## Calculate your monthly income from hourly wages

To calculate monthly wages from hourly wages, you’d need to know how many hours you’ll work in a month. The number of days in a month varies throughout the year. January has 31 days, February has only 28. Further unequal is the number of workdays, because there may be 3 – 5 weekends in a month. An exact calculation of monthly income is rather difficult.

For planning or budgeting purposes we can simplify this in two ways. We can calculate an average monthly income, by calculating each month as an equal 1/12th of an annual income.

The other option is to declare each month to be an equal 4 weeks. This is a little less than what many months really are, but it is good enough to have an even monthly income for your budget. Neither of these options takes into account public holidays or unpaid personal time off.

To calculate your monthly income based on the 4-weeks-in-a-month method, you can simply multiply your weekly wages by 4. For example, if you make San Franciso minimum wages of $16.32/hour and work 40h/week, your monthly income will be $16.32 * 40 * 4 = $2,611.20.

## Calculate weekly income from hourly wages

Maintaining a budget means having a plan of how much money comes in next month. Besides that, you plan how much expenses will go out. If you are paid by the hours worked, then you want to know how many hours you’ll be working that month.

If you have a steady job, you’ll have a target of how many hours you’ll be working each week. Your employer will set the hours in a regular work week for a full-time employee. Common is to have 37.5 or 40 hours in a normal workweek. In some cases, the workweek can be 44, even 48 hours. Some employers are only working 35 h a week, although that is rare for jobs with an hourly pay rate. If you are working part-time, your contract would stipulate how many hours you will be working each week.

Now you can calculate the weekly income by multiplying the hours/week with the pay rate in $/hour. For example, a worker with the current (as of 2021) minimum federal wage of $7.25 per hour and working 37.5 hours a week, will earn $7.25 * 37.5 = $271.88 a week.

### Bi-weekly income calculation

To calculate hourly wages for a bi-weekly pay schedule, you can simply multiply your weekly wages by 2. For example, if you make $10.50/hour at a 40h/week schedule, your bi-weekly income will be $10.50 * 40 * 2 = $840

## Summary

To make your annual income calculation from your hourly pay rate, you need to know how many hours you work a week and how many days you’ll take off from work. Then you can follow the calculations above.

You say: “But I usually work overtime and sometimes even weekend shifts, which pay extra and have an even higher pay rate!” I hear you there, and it is great if you have the opportunity to earn some extra money. You are most prudent to take advantage of these higher pay rates. However, for purposes of budgeting and planning, I’d stick with the regular payments that you can expect. You can’t control overtime or weekend shifts. If you take on loans, you want to be reasonably sure you can pay them no matter what. Because that is what the lender expects you to do.