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Calculating the Value of Time: How Much is Your Time Really Worth?
The Growth Multiple Method
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.
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SIMILAR ARTICLES & IDEAS:
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Key Ideas
Net Worth = Assets - Liabilities
Your net worth gives an overview of your financial situation at this point. It is the difference between what you own and what you owe.
Your net worth is positive if your assets exceed...
Calculating your assets and liabilities
Assets are anything of value that you own that can be converted into cash. Examples include:
- Investments
- Bank and brokerage accounts
- Retirement funds
- Real estate
- Personal property: vehicles, jewellery and collectables.
- Cash
Your liabilities represent your debts, such as loans, mortgages, credit card debt, medical bills and student loans.
Find your ideal
Determine your target net worth - where you want to be in the near-term and long-term future.
The following formula is helpful:
Target Net Worth=[Your Age−25]∗[1/5∗Gross Annual Income]
A 50-year-old with a gross annual income of $75,000 might aim for a net worth of $375,000 ([50 - 25 = 25] x [$75,000 ÷ 5 = $15,000])
Your net worth can be much more or much less than the amount indicated by the guideline.
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Key Ideas
Insurance Is A Bet
Generally, insurance is understood as a bet. We pay a premium and are secure about some uncertain future costs which may be substantial for us.
If we check the calculations of our monthl...
The Insurance Calculation
The calculation for insurance runs like this: The company is profitable when the cost of premiums that we pay is greater than the future claim that we may ask for (having a certain probability).
Cost of Premium > (Cost of claim) x (Probability of claim)
Reasons We Buy Insurance
- We believe that the probability of us experiencing the event that we are insured against is high.
- The claim that we may get in event of something happening is substantial with the cost of premium being on the lower side (basically a bargain).
- To offset substantial costs by paying less. This is when we know it's a bad deal, but the potential risk can be catastrophic and severe, so we are happy to pay more to avoid a probable calamity later.
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Key Ideas
The Half-Life of Facts
Facts decay over time. And the time it takes to disprove or replace half of it can be predicted.
Data in medicine become half as relevant in 2-3 years. For exact sciences, 2-4 years.
Half life of facts and compound knowledge
If we want our knowledge to compound, we’ll need to focus on the invariant general principles.
Half-lives show us that if we spend time learning something that changes quickly, we might be wasting our time.