Figuring Out Exactly How Much Your Time Is Worth

JacksonA couple of days ago, I made

an offhand mention of 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. This resulted in several emails from readers asking all sorts of questions on the topic. For the most part, I pointed them to the true hourly wage, which is a portion of the 31 Days to Fix Your Finances series, but I thought it might be worthwhile to actually address the calculation itself.

Calculating this number is fairly easy. First of all, 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 child care, 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, time invested in securing and maintaining child care, 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 McDonalds-esque 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. I like to use the analogy of my blogging with this: I make a little more than minimum wage from blogging, but with each post, my hourly wage from it goes up slightly. Why? That post is more than just the time I invested in it: it sticks around and continues to earn over time as visitors to the site find it and read it.

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 neighbor kid $10 to mow your yard, then it’s worth it – you actually earn $2 by sitting on your porch writing while the neighbor kid mows the yard. But if your time is worth only $8 an hour, then you’re better off mowing it yourself. Once I figured out my true wage, I started thinking of a lot of things in this light.

For me at least, when blogging significantly surpasses my true hourly wage, I may consider making blogging my full-time job. It’s not there yet, so for now I just do it in the evenings as a hobby.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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