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How calculating the value of your time will change the way you make decisions


As entrepreneurs, it’s pretty common for our productivity to directly correlate with the numbers in our bank accounts. If your income is based on actual productivity rather than clocking a certain number of hours, an extremely practical exercise can be to calculate how much your time is worth and start making choices accordingly.

Hypothetically, let’s say I’ve calculated that my time is worth $75/hr. This value is not the same as the hourly rate I charge my clients, but (in this example) this is how much my time is worth taking everything into consideration. I might charge $150/hr for my services, but a lot of the work I do is not billable. For example, I might spend 4 hours per day on non-billables (responding to email, planning my goals for the day, sending invoices, managing my team, etc.) and only 4 hours on billables. In this scenario, I’ve earned $600 in 8 total hours of work, so my actual hourly earnings is $75/hr.

An easy way to figure out how much your time is actually worth is to track how much time you spend on your work over the course of a month, and then figure out what your personal income was during that same time. Divide the income by the hours and subtract relevant expenses, and that’s how much your time is worth.

If you’re paid based on productivity, the worth of your time is probably in constant flux as your income fluctuates from month to month. However, tracking your time’s value for 1-2 months should give you a rough idea of its average value, and you can reevaluate it every few months as needed.

But why is figuring out how much your time is worth useful? It’s extremely helpful in making decisions about how to spend your time and money.

For example: Your house is dirty and needs to be cleaned. You estimate that a good cleaning would take you about 2 hours. If your time is worth $75/hr, the cost to you if you choose to clean the house yourself is $150 in opportunity cost (time spent that you could have been earning money). If you can hire someone to clean the house for anything less than $150, that's a good deal.

By spending $149.99 or less on having someone clean your house, you’ve saved yourself 2 hours of time that you can then devote to other projects and increase your income. Since your average earnings per hour is $75, you’ve come out ahead by choosing to spend money on a cleaning service.

When you work for money, you’re selling your time, and when you pay someone else for a service, you’re buying their time. When I pay someone for 2 hours of their time and labor, I’m adding 2 hours to my day that would otherwise be used up. The trick is to buy time at a lower price than you sell yours for.

Recently I was looking for a certain prescription drug at a pharmacy. The first pharmacy I visited had the medicine, but they were charging $15 for it and they told me I could get it for free at another pharmacy. The other pharmacy was a 15 minute drive away.

So here are my options:

Option A) Spend $15 right now, then get back to work.

Option B) Drive 15 minutes to the other pharmacy, get the medication for free, then drive 15 minutes back before I can start work again.

Option A costs me $15, but assuming that my time is worth $75/hr, Option B will cost me $37.50 (1/4 hr + 1/4 hr x $75 = $37.50). Even though the medicine is free if I take Option B, my time is not free, so Option A is cheaper.

This might sound strange, but when your income is directly related to your productivity and you could theoretically increase your income indefinitely, it always makes sense to make decisions like this.

If you work a salaried job where you earn the same amount every week as long as you do your job well enough to not get fired, this type of decision-making won’t make sense. You’ll earn the same amount whether your get the medicine for $15 or drive an extra half-hour round trip to get it for free, so driving the extra distance makes sense.

Time and money aren’t the only factors, of course. Often there is joy in the little things in life. It might make more financial sense to drive to work so you can get there as fast as possible and be productive, but it might be more fulfilling (and healthy) to ride your bike or walk to work.

Thinking of your time as worth a specific dollar value is a useful tool in helping you make decisions to increase your overall happiness and fulfillment. Often it makes sense to pay more for something in exchange for speed and convenience, because doing so allows you to focus on your work and earn more than you spent. Of course, sometimes it’s even more satisfying to make decisions solely based on how you want to spend your time.

The key is freedom—freedom with your time to focus on your business if you choose to, or freedom to do things that you enjoy even if they consume more of your precious time.

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