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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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Get The Most Out Of Your Time
It starts with knowing what your time is worth. For instance:
- People who spend their time doing more profitable work make more money.
- People who spend their time investing in others build better relationships.
- People who spend their time creating a flexible career enjoy more freedom.
Understand that there will be tradeoffs, but that it can be managed.
Monetary Value of Time
We all have some idea of how much our time is worth. On extreme ends, it is easy to know if a task is worth your time. For instance, if someone offers you $0.07 per hour and another $7,000 per hour, you would have no problem to decide.
However, in the middle of the time-value spectrum, it is less clear if a particular task is worth your time. While everyone has an hourly value, few people know the exact amount.
The Real Worth Of Your Time
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.
- How much time you spend to earn money.
- How much you earn during that time.
Track Your 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.
Track How Much Money You Earn
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.
The Value of Your Time
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.
Checks and Balances
- 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.
What Value You Can Expect
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?
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.
The Expected Value Method
- 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.
Keep in mind
- 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.
SIMILAR ARTICLES & IDEAS:
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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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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.
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Investing defined
Investing is about laying out cash or assets now, in the hope of more cash or assets returning to you tomorrow, or next year, or next decade.
Most of the time, this is best achieved th...
Productive assets explained
- Productive assets are investments that internally throw off surplus money from some sort of activity.
- Each type of productive asset has its own pros and cons, unique quirks, legal traditions, tax rules, and other relevant details.
- The three most common kinds of investments from productive assets are stocks, bonds, and real estate.
Investing in Stocks
- It means investing in common stock, which is another way to describe business ownership or business equity.
- When you own equity (the value of the shares issued by a company) in a business, you are entitled to a share of the profit or losses generated by that company's operating activity.
- Equities are the most rewarding asset class for investors seeking to build wealth over time without using large amounts of leverage.
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