Credits: Your Story
Whether you want more wealth, more freedom, or a successful relationship, everything depends on how you manage your time. One thing is for certain- that you cannot have everything at once.
It’s time you know how much your time is worth. People who invest their time in helping others build better relationships and people who spend time in profitable work, often make more money. You need to find an effective way to balance and manage the trade-offs on a daily basis. At some point, in your life, you will face the question “How much is your time is really worth?”
For example, if someone offers you X amount per hour, you will immediately decline it for someone else offering a 3X amount. Most of our life is spent in the gray zone of the time-value spectrum. “Price of anything is the amount of life you exchange for it” Should you spend a week with a client who offers you $$$ right away or work on a business idea that could generate $$$ the next year?
Should you spend $$$ per week on dry cleaning to save a couple of hours on washing? The dilemma is endless. We make such choices frequently. Most of the time, it’s based on our gut feeling and we never actually calculate an hourly value. Everyone has an hourly value but few can tell you what that number is. To understand the time v/s value dilemma, you need to consider the following factors:
- The amount of time you spend to earn money.
- The amount of money you earn to spend time.
Tracking the time you spend Measure the total time you invest in earning money, not just hours you spend physically at work (8 hours approx.) but also the time you spend commuting to work. It adds up to around 10 hours a day, five days a week. Let’s say we work for 50 weeks every year. Thus, on average, you spend 2500 hours a year to earn money. Tracking the money you earn For salaried employees, it’s simple. Just look at your take-home amount and calculate, also include the money from freelancing.
If you run a business, deduct your business expenses from topline revenue streams. If you are an entrepreneur, I recommend using yearly earnings for these calculations because a small business’s income can fluctuate (sometimes drastically) from month to month. Looking at your earnings over a longer time period helps smooth out these inconsistencies and provide a more realistic value of your time.
Finally divide the money you earn by the hours you spent. Are these numbers accurate? Though we may know what we would charge per hour, we rarely calculate how much time goes into earning money outside of our working hours. By accounting for all the time we invest in earning money, we get a clearer picture of what our time is actually worth—and it is usually much less than what you would charge for an hour of work on your job.
This is just one method based on taking home. There are two more methods:
Market Rate method
The rate you could expect to earn if you were hired by another company for a job you were qualified to perform. I looked up the salary for each role I was qualified for and then divided it by the number of hours I work to get another estimate for the value of my time. You can think of this method as what your time is worth in the job market.
The rate you would pay someone else to do the work that you do. Think of yourself as an employer and you want to hire someone to do your job and amount of time you spend on each task. Then calculate how much you would be willing to pay full time for that work. Once you get the amount, calculate the average value of your time.
How to use this information?
The Growth Multiple methods
Take your net income from the previous year and multiply it by a reasonable growth multiple. It’s an easy way to estimate how the work you are doing today will pay off in the long-run, but it doesn’t tell you anything about how to use your time more effectively. For that, we need to use the full Expected Value Method. It’s slightly difficult than the growth of multiple methods.
Break your time by task, find a unit measurement for the task you do and the money you earn, estimate the value of your task. Determine the total expected value. Though there are many thoughts that go behind the scenes, like being successful in wrong things, choices that decrease the value of your time if you spent all your time on it, but increase the value of your time if you do it at opportunistic moments.
There are also dangers like convincing yourself to work for an extra productive hour to increase your economic time value. Purpose of doing all this? Calculating your time worth not only helps in small factors of decision making but also helps you make strategic decisions to improve the quality of your life.
(Disclaimer: The views and opinions expressed in this article are those of the author)