Calculating the Value of Time: How Much is Your Time Really Worth?

Use the Realized Income Methods to calculate the value of your time. It is based on the income you received and will help you make better decisions on how to spend money day-by-day. You need two numbers for your calculations.

1. How much time you spend to earn money.
2. How much you earn during that time.

Measure the total amount of time you invest each year to earn money. It includes the time you spend to commute to and from work, and time spent working on a side hustle or dropping your kids at daycare.

If you're unsure how much time you spend working, use 2,500 hours per year as a starting point as most full-time employees or entrepreneurs will fit around that amount.

If you're an hourly worker or a salaried employee, look at your latest paycheck and multiply it by the number of paychecks you receive per year. Also, include money from side hustles and freelancing gigs. 

You are trying to calculate your take-home pay.

Divide your total money earned by your total time spent.

For example, let’s say you spend 2,500 hours per year earning money:

• If you make $46,226/year, your time is worth $18.49/hour. This is the 2014 median income for women in the United States.
• If you make $62,455/year, your time is worth $24.98/hour. This is the 2014 median income for men in the United States.

If you are surprised by the numbers, remember that we rarely calculate how much time goes into earning money outside of the working hours.

• Take-Home Pay Method. This method is based on the pay you take home.
• Market Rate Method. This method is useful to test your numbers. Check the rate you could expect to earn if another company hired you for a job you were qualified to perform.
• Cost-Based Method. This is the rate you would pay someone else to do the work that you do.

Expected Valued Methods are based on the value you expect a given hour of work to create in the long-run. This method can help you make strategic decisions about where to spend your time.

• What projects should you focus on? 
• Which uses of time are not valuable and should be eliminated? 
• Should you start a business that could pay off really well in a decade?

This method calculates how your work of today will pay off long term, but does not tell you how to use your time more effectively. It works on the assumption that your actions from this year will continue to drive growth over the next 12 months, so the real value of your time is higher than your realized income today.

Take your net income from the previous year and multiply it by a reasonable growth multiple.

• Break your time out by task.
• Find a unit of measurement that connects the tasks you work on with the income you earn.
• Estimate the expected value of each task.
• Add all the expected values together to calculate the total expected value of your time.
• Add extra variables as desired, like how much happiness a particular task brings to your life.

This method is highly individualized.

• Misguided success. Don't waste time becoming successful at the wrong thing. Know your core values and what you want out of life.
• Tradeoffs and Opportunistic addition.  Opportunistic Addition refers to choices that would decrease the value of your time if you spent all of your time on them, but increase the value of your time if you do them at opportunistic moments.
• Non-negotiable free time. Don't convince yourself to work another "productive" hour that will harm the quality of your life.