How Much Is Your Time Worth?

photo by fdecomite

photo by fdecomite

How much is your time worth? Ask 10 people and how many answers would we get? Some answers might include:

1) My time is priceless.

We already know this is not the case. We have all come to terms with our employer or customers and established some value for our time and effort.  We might refer to this value as our wage, rate or income.

2) My time is worth my hourly rate of income.

First we need to recognize that your hourly rate is probably not what you are really making. In the way back time machine of personal finance blogs you will learn from Trent over at The Simple Dollar that you actually put a lot more time into your job than the 8 hours you punch each day. Factor in driving time and expenses for clothing etc and your rate is probably somewhat less than the “hourly wage”, “salary” or “commission rate” you are paid.

However I would have to respectfully disagree that this comes close to the value of your time. While this value might reflect your rate of pay, unless you are breaking the law, few people actually get to keep all that they earn.

 3) The value of your time is =

[Wage(100-Tax rate)]/Cost of living

This one comes from economist Ian Walker as quoted on CNNMoney.com.
Basically the calculation says that your time is worth your wages subtracting federal taxes and factoring in a cost of living adjustment for the market that you live in.

Walker factored in some of the money you don’t get to keep as mentioned in #2. However, there are holes to be punched in this one as well. Is Federal tax the only tax we pay? Of course not. What’s the difference between Federal and state, property or sales tax? One comes directly out of your paycheck and the others don’t. Still, these are not voluntary taxes. Fundamentally we must pay our taxes regardless what they are for or when they are charged. Shouldn’t all of them be factored in?

4) Your time is = Weekly income / 168 hours.

The Weakonomist recently shared his opinion:

You don’t actually make $30/hour. It’s not even close to that in fact. You make $30 for every hour you work, but you only work 40 hours a week. There are 168 hours in a week. So you actually make about $7.14/hour. That’s $7.14 for every hour of every day. $7.14 for sleep, for time with the kids, for watching TV, and doing chores.

I believe the Weakonomist is getting closer but none of these to reveal how much your time is really worth.

Using the principles of Lean we would take a different perspective on the question of, how much is your time worth. We would begin with getting to the root cause of why we even ask the question. To cut to the chase we would discover that the question is asked simply to determine a benchmark or method to measure if an expense or investment is worth the money spent.

If you make $30 an hour and want to hire someone to fix a leaky faucet for $30 is it worth it?

If you earn $30/hr and work a 40 hour week with no vacations you will earn a total of $62,400 each year. But of this money a chunk will be withheld for taxes, FICA etc… Then we must also add in other taxes not directly charged like property, state and sales taxes.

These however are not your only expenses. While some money that you spend is discretionary, meaning you choose what to spend it on, many of your expenses are fixed. You must pay for housing, food, utilities, insurance etc. Granted, you do work in order to afford these benefits but our true objective is not to simply survive with a roof over our heads, our true objective is to make some amount above and beyond our expenses of living. It is just like running a business. Let’s assume you are able to save the national average of 5% of everything you make, like a business this would be your net profit.

If you managed your life like an entrepreneur managed a business you would be working not for the opportunity to pay bills and taxes you would be working for the net profit. After all the investment into a company, after all the hours of hard work and sweat, after all the bills are paid and taxes covered what is left is net profit, or the money above and beyond expenses of running the business. This is what a business is really working for and this is what you should be working for as well.

Where does this lead us? It leads us to a completely different way of looking at the time/value equation. When determining if it is worth hiring a plumber the questions should not be how much your time is worth but how much time your money is worth?

If all your effort and time invested into making a living is compared to how much you save, not how much you make then suddenly you realize your money is worth a whole lot more time than anyone thinks.

As an example let’s consider you needed a plumber to fix a leaky faucet for a total charge of $30. It doesn’t matter at all how long it will take the plumber, the only thing that matters is that it will cost $30.

Now consider how long it takes you to earn this $30. Using everyone else’s calculations the answer would be somewhere between an hour and two because they only look at some version of gross wages and don’t factor in fixed and variable costs.

Using my perspective of it is not you make, it is what you keep you realize that a $30 expense is actually quite valuable. How long does it take to earn this $30?

Keep in mind that this $30 comes from your savings, not your earnings. Of every $1 you generate in income $.95 is already spoken for in rent, utilities, food etc.. Only $.05 of every $1 is available to pay the plumber.

At a 5% savings rate, if the plumber cost you $30, how much did you have to earn in wages to accumulate that $30?

The calculation to determine this is $30 divided by .05 or $600! That’s right, in this example you would need to earn $600 to have enough money to pay your bills and be left with $30 of disposable income to pay for the plumber.

For every dollar you spend out of your potential savings you would need to earn $20 income. When viewed from this perspective it is really easy to justify virtually any DIY project.

It is far easier to save a dollar than to make a dollar. Learn how much time your money is worth with this calculator.

Thoughts, comments or questions? Please take a moment to comment below.

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