Tuesday, December 7, 2010

How Much Is Your Time Worth?

The value of knowing what your time is worth so you can quickly determine whether or not it’s worth your time to do a task yourself, pay someone else to do it, or simply not do it at all. Many people see calculating this number as a difficult task but actually it is very simple and can be done in a few short steps.

First, how much did you make while gainfully employed last year? Don’t include investment returns or anything like that. Now, from that amount, subtract every single extra cost incurred because of that employment, such as transportation costs (gas, car maintenance and repair, etc.), your work wardrobe, extra meals, office supplies, gifts, and so forth. Spend a bit of time thinking about this: what extra costs do you have because of your job? If you don’t know an annual amount, figure out what it costs you per week and multiply that by 52. You can handle taxes, Medicare, and Social Security either way – it’s your call on those. I would also add back in any benefits given to you by your employer, like health insurance and so on.

Then, calculate how many hours you devote to your gainful employment each year. You might work 40 hours a week for 48 weeks a year, but that’s not really it. You also have your commute, the extra time you work outside the office, business travel, business dinners and parties, and so on. Again, if you don’t know how much time you invest, make a week’s estimate and multiply by 52, or make a month’s estimate and multiply by 12.

Once you have those two numbers, take your real wages and divide it by the real number of hours you put in for your job. That, my friend, is what your time is worth per hour using your current employment as a benchmark.

Obviously, doing this in ten minutes as a napkin sketch will be a real shock, and many of you will brush off what that number is actually telling you – I’ve seen it happen many times. But here are just a few things that you can get out of that number:

If your job makes you miserable, really look at that hourly wage and ask if your misery is worth it, and realize that you can earn $9 an hour at Home Depot while saving your creative juices for other things. You’d be surprised how many people who have “good” jobs in actuality are being paid low wages for their true efforts.

If you’re working hard at building a career or a business and that makes this number seem low, then realize that you’re building a small amount of non-financial capital with each hour you work.

If you’re trying to decide if doing some task is worth your time, calculate how much money that task is worth to you. Let’s say that you can make $12 an hour sitting on your back porch writing, but your lawn needs mowed. If you can pay the local teen law service $10 to mow your yard, then it’s worth it – you actually earn $2 by sitting on your porch writing while they mow the yard. But if your time is worth only $8 an hour, then you’re better off mowing it yourself.

Happy calculating!

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