How much is your time worth?
The relationship between time and money is one we’ve touched on a lot. Time is not a renewable resource and should be valued accordingly. If you read a lot of personal finance articles you may have noticed that doing it yourself is commonly suggested as a better alternative to paying for something. This can often be good advice, but it ignores the possibility that our time is better spent elsewhere. For those of you who have never taken an accounting class, the concept I’m getting at is called “opportunity cost”. Basically, opportunity cost is the cost of doing any one thing measured by the benefits you give up by not doing another.
For example: If a bakery decides to specialize in making pies, its opportunity cost is the money it could have made by specializing in cakes instead.
So, back to how this relates to us…
One way to figure out how much your time is worth is by using your job as a benchmark. If you’re happy with your job and how much you’re being paid it’s safe to assume it’s a good guideline for what your time is worth to you. So say you make $50,000/year (I’ll ignore taxes for simplicity’s sake) working 40 hours per week. You have an hour long round trip commute each day and your employer gives you a standard two weeks of vacation per year.
$50,000/50weeks = $1000 per week. $1000/45hrs per week = $22.22 per hour of your time.
Most people don’t properly value their time. I’ll use extreme couponers as an example because I take great issue with the practice. Some of these people treat couponing as a full-time job. They can spend hours and hours per day doing nothing but clipping coupons to save money on their grocery bill. At face value, saving $500 on your monthly grocery bill may sound amazing. But, if you spend just two hours per day on your couponing habit (a conservative estimate) you’re saying your time is worth only $8.33 per hour! Just slightly above minimum wage! I don’t know any self-respecting adults who would truly value their time at $8.33 per hour.
That is an admittedly extreme example (pun intended) but it illustrates my point.
Once you know the value of your time, considering opportunity costs can help you make 
smarter decisions when evaluating day-to-day tasks as well as new opportunities for income. You’d never spend all those hours clipping coupons if you had considered the benefit of using that time to work towards getting a promotion, starting up a side job, or even looking for a new, better paying job altogether.
Valuing your time and weighing opportunity costs are especially important if you’re trying to create streams of income outside of your main job. One of my priorities this year is to create multiple streams of income to compliment my main job. With this in mind, it’s just not worth my time to save $20 a few times a year by doing my oil changes in my car. I can get much more value out of that time by writing an awesome blog post or working on some of my other side projects. The more time I can spend on these things the more I can increase the overall value of my time. The long-term goal is to increase the value of my time with these side ventures to a point where a 9-5 income is no longer “needed” thus allowing me to leave and free up an unlimited amount of time to focus on what I’d really like to focus on.
How much your time is worth is ultimately a personal and inexact number. The point of doing this calculation and thinking about the opportunity costs of your decisions is to get you to focus on what you really want to be doing with your time. If you enjoy changing the oil in your car, by all means do it. If you hate your job, spend your free time searching for a better one or working on expanding your side gigs.
Your time is probably worth more than you realize, the only way to maximize the value you’re getting from it is to weigh your options at each turn and make smart decisions that will help you increase your overall quality of life.
Thanks for reading! If you enjoyed this post be sure to subscribe by email or RSS to keep up with all the latest posts!
Have you figured out the hourly wage of blog writing? I’d rather not! I value my time a lot, but now I have a lot of time in my hands. When I was working three jobs, I had a cleaner, and paid for most things like oil changes. I valued my free time at more than my hourly wage since I had so little. Now I don’t mind changing oil because I do it quicker myself than taking it to the shop and wait there. Most people on their free time are couch potatoes, so making $1 is better than nothing, since they wouldn’t do anything else. I would compare blog writing to extreme couponing, which I don’t know much about, but it looks like those couponers are entertained by the bargains, the clipping, the binding… it is, like blogging, a hobby that helps you save money. Sure if they stayed for one more hour at work they would make more but this is considered time off for them.
Blog writing does have a terrible hourly rate for most (including me!). If it was more than a hobby and I relied on blogging for income I’d have to reevaluate things, but at least in my case it’s just a hobby and any income is just a bonus from time I’d be spending on the computer anyway.
Opportunity cost is a huge thing! We’re maxed in terms of time right now and often look for ways to take advantage of opportunity cost in order to save us time. The couponing is a perfect example. We use the coupons in the Sunday paper, but that’s it and use only things we’d buy anyway.
I don’t know anyone who says they have too much time on their hands, that’s why weighing your decisions and making the most of your time is so important!
I’ve never believed in this. I’m NOT getting paid for my free time, so it doesn’t have the same value as the time I am paid for. If it was, it would never make any sense to get a part time job. If your free time was worth $20+/hour, are you prepared to spend $60,000 per year on sleep?
On the flip side, I’m unemployed. By this logic, my time is currently worthless.
Jay, great info here. Also, we factor in not just the money part of it, but the stress part of it. We just spent $250 in labor costs to have my brother (a mechanic) fix our car. What took him less than 2 hours would’ve taken Rick probably 8, so cost-wise he still would have “made” a good $30 an hour, but the stress level would’ve been so high (as he would’ve had to learn something new) that we opted to pay my brother instead. And while little bro fixed the car, we spent a nice afternoon ice skating with the kids on our little lake out back. Definitely worth it to pay someone else. Thanks for the great post!
Free time is a concept that I think would generate substantial debate in the personal finance world. There are plenty of examples that don’t make sense to me. For example, there are people who hate their day job (in an air conditioned office) but don’t mind doing their laundry by hand (or some other manual labor chore).
I value my free time in that I can use it to do something enjoyable and possibly even productive. If the task isn’t enjoyable I wouldn’t do it (manual labor of any kind). If it also happens to be productive, then that’s even better (writing blog posts).
As in many things, the rewards need not necessarily be monetary. So if you work in the public sector and consider your work to be for the greater good of society, your wages may be lower. And where public sector salaries are inflated (I mean senior managers and the like), question whether the individual is working towards the public good or their own agrandisement.
You can pay too much for service.
Time spent blogging for example also benefits by building a community and getting to know people. How to quantify this?
As Oscar Wilde said in The Picture of Dorian Gray – “Nowadays people know the price of everything and the value of nothing.” Still true.
Pingback: Weekend Link Love | My Journey to Financial Independence
Valuing your time based off you income is difficult because you can’t always just work extra and be paid for it. If that was the case then I’d tell my employer to let me work one-man jobs to double up on my day rate since I’m paid for 12 hours but gone all 24 anyways.
While the hourly rate for most bloggers is horrible, if it’s something you enjoy doing with your free time then that’s great. On a strictly economic basis it’s absolutely atrocious, but you have to factor in the enjoyment and other intangible things you receive for your time, inspiring/helping others, creating a community. It just so happens that this hobby can make you a bit of side income so I’ll keep at it.
Great post!
Time is more valuable than just about anything, in many contexts. We can possibly make more money, I think we can safely say. But we can’t make more time. Each year I get older, and as I see my older parents, I realize how valuable time is. The opportunity cost of it is important to remember!
I’ve often wondered about this myself. If the question was purely activity to generate a financial return then I would probably ditch blogging, because i think my time would be far better spent doing detailed stock analysis. A pure monetary return doesn’t factor in intrinsic value that you get from interacting with others, sharing your views etc which is hard to attribute value to. Perhaps the coupon clippers get immeasurable joy knowing they’ve found a bargain?!
Pingback: Principled Money Posts #33: travel, holidays and a splendid £300 (about $450) giveaway : The Money Principle