I’ve already mentioned in previous articles that time is our most valuable asset because no matter how much money we have we can’t buy more time with it. Today I’d like to take a little deeper dive into how I value my time and how I use that information to help me with decision making.
When it comes to reaching my savings goal of $20,000 this year, I’m not just trying every single method I think of to save money or earn additional income. If I find a way to cut coupons that ultimately saves me $2.00 but takes me an hour to prepare, I’m not going to do that because my time is worth more than $2.00. The same goes for a paid survey app I recently stumbled across that only netted me about $.80/hour.
Decisions that I have made to save me both time and money like ordering my groceries online are easy because I’m saving money and I don’t waste time going to the grocery store to buy them. Most decisions however aren’t so black and white.
Now I’ve read multiple articles about this topic and everyone seems to have their own twist or own logic to why the way they value their time is the best method. I’m going to give it a shot as well.
To Start, let’s all agree that the basic equation for valuing your time is:
My calculation comes from the idea that with the exception of needing sleep, every other hour of my day is spent making trade offs. Whether I am trading my time for a salary at work, trading workable side hustle hours for TV time, or trading my time to earn money on the side, any hour that is not spent sleeping is an hour I could potentially spend earning money.
So with my logic for time in mind, I pulled out my iPhone and saw that I have been averaging 6.5 hours of sleep per night, which is just beating the national average of 6.2). That means I have 17.5 workable hours everyday or 6,387.5 hours per year.
So if make $75k, $100k, or $200k over the course of a year my time would be valued at $11.72, $15.65, or $31.31 per hour respectively.
Why is knowing this number helpful though? I believe that answer is in the eye of the beholder. For me, I like to use this number when deciding if I should outsource a task or if I’m deciding if a side hustle opportunity is worth my time or not.
Let’s say that my time is worth $12.00 per hour and I am deciding if I should pay someone to do my laundry or not. If I do it myself I spend about 1 hour between taking it downstairs, switching it to the dryer, and folding it and that costs me $5.50. The nominal cost + the $12 in potential earnings lost (I traded an hour of work for an hour of laundry) net’s out to -$17.50.
If, however I decide to send my laundry out to have it cleaned by someone else. It takes me no time (I drop it off on my way to work and pick it up on my way home), but costs me -$30.00. With these numbers in mind my break even point will be when I value my time at $24.50 / hour ($156k per year).
Now this isn’t a cut and dry equation. If I really hate laundry then there might be an intrinsic value that isn’t captured in the equation which is why I said every case is different. But when it comes to tasks that I don’t mind doing, this way of thinking has become very helpful in reducing my decisions.
Knowing the value of my time is also helpful when deciding whether or not I want to undertake a new side hustle. I recently came across an app that pays you to take surveys. These surveys last between 5 and 20 minutes and pay anywhere from $0.05 to $0.20 per survey. After a few days I discovered that I was only averaging an additional $0.80 per hour. Obviously this isn’t worth my time, but then a friend argued that if I was watching TV where I would normally earn nothing, then I could do these survey while watching and at leat earn something.
I disagree with his logic for two reasons. The first is a matter of preference; to me the added effort for such a small nominal gain isn’t worth the pleasure of relaxing on the couch for an hour or two. The second, if I am going to take the time to earn more money, I believe I’m better off using that time to invest in my skills for a different side hustle or for my career that will allow me to increase the rate I earn money by more than 80 additional cents per hour.
Again, I’ve seen many different arguments for how time should be valued and how you should use that number to make decisions about your finances. In the end it comes down to what you think is best for you. I encourage everyone to find out their number though because it is a great tool to use when analyzing what is and isn’t worth your time.
As always, let me know what you think. Be sure to click the follow button on my sidebar as well as follow me on social media for more content just like this.