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.