Personal Finance 101: The Cost of Your Time

pf101When I first began to recover from debt, I sold off a large portion of my DVD collection. For a few items – box sets and the like – I sold them individually on eBay, but for quite a few of the single DVDs, I sold them at a used DVD store in one big lot.

Recently, when telling this story to an acquaintance, I was informed that I was “an idiot” for ever selling those DVDs in bulk, because I could get “way more” selling them individually on eBay. He walked away, assuming that I must have nothing of value worth saying.

I smiled, because I realized that this person puts no value whatsoever on his own time.

Let’s take a random DVD from my collection. If I list it on eBay, I might get a $12 bid, and the shipping and handling cost pays for itself. On the other hand, I could sell it at the used DVD shop and get $3 for it. Easy win for eBay, right?

Not so fast. First, I have to create the auction, which takes, say, ten minutes. Then, during the auction, I have two different questions about the DVD that I have to answer – three minutes each. After the auction is over, I have to nag the buyer a time or two to get payment – another five minutes. Then, when I finally do get paid, I spend ten minutes wrapping the DVD, then another ten minutes going to the post office and getting it weighed.

All in all, forty minutes of work in exchange for $9 – and that’s assuming the sale goes perfectly, the buyer doesn’t have a complaint, and the buyer doesn’t do some sort of payment revoking trick.

If I have a pile of 100 DVDs that I want to sell, I would have to invest that forty minutes for each DVD in the stack. That would be 66.7 hours of time invested to make $900 more than the other route – and, again, that’s assuming that all of the 100 buyers are happy with their purchase. For every purchaser that’s unhappy, you add more time and lose some income.

On the other hand, I take those DVDs to a used DVD store, sell them all in about half an hour, and there are no further concerns. I don’t have that extra $900, of course, but I do have 66 hours of my time and no concerns that people might revoke payments or I might have to make amends for other issues. It’s over with – I’m free to use the money and move on with my life.

Now, there are times when the eBay sale is worth it. Let’s say I’m selling a DVD box set. I might get $6 for it at the shop, or I can get $30 for it on eBay. For that one sale, the $24 difference is well worth my time investment of forty minutes.

To put it simply, money is not the only criterion that should be considered in a financial transaction in our lives. Time is often a major concern – and I see it overlooked time and time again.

The Principle of Paying for Time

This principle applies again and again throughout our lives. Here are three more recent examples from my own life.

Expensive cheese, valuable time

A few days ago, I was making a pan of homemade chicken and spinach “white” lasagna. Unfortunately, I discovered I didn’t have enough ricotta cheese for the recipe – we had very little. I had two options – I could drive to the Fareway in Ankeny, about fifteen minutes away, or I could see what the tiny store in town had.

I stopped by the little store in town. They didn’t have any ricotta, but they did have low-fat cottage cheese at a very reasonable price, and for many recipes, cottage cheese is a fine substitute. I probably paid $1 more for the cottage cheese here than I would have if I had driven to Fareway, but I saved 20 minutes – a fair exchange.

$5 delivery

We live in a very small town. Recently, we rented a van for a trip. The service offered delivery to our address for $5 – that would have saved us thirty minutes.

If it were not for the fact that we already had errands to run near the rental car place, we would have gladly used that service. $5 for an extra half an hour the day before a trip is an excellent deal.

Analysis paralysis

I spent three months shopping for a netbook to replace my dying laptop, hoping to eventually find the best price. When I finally pulled the trigger, I only spent $10 more than the lowest price I had seen in many, many hours of searching.

One final note: I’m not suggesting that one should always substitute the fastest route for everything – in fact, that’s a bad policy on the whole. Instead, just be mindful that what you do does have a time cost (and often other costs), and then choose the option that’s truly the best value for you.

Good luck!

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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