Would you drive half an hour to Walmart just to save $4.50 off an online purchase? Should you spend 10 minutes replying to an email to earn $1 — or drive an extra five minutes to save 10 cents off gallon of gas? And, crucially, how much lower pay should you be willing to accept for work that you enjoy more?
We make these kinds of decisions every day, often without thinking about the true cost of the choice. This is a mistake. Time is a finite resource and you should know how to value yours with some level of precision.
"The value of your time is how much you'd have to be paid to give up an additional hour... on top of all the other things you are already doing," Spencer Greenberg, founder of ClearerThinking.org, told Mic. "As you use up more hours, the value [of] each additional hour... should tend to rise."
When you know what your time is worth, you can decide whether it's smart to hire someone to clean your home, wait in line for an hour for an item on sale or enjoy a long lazy weekend without worrying about money.
Here's a quick guide to help you decide what your hours are worth.
How to put a price on an hour
The simplest way to calculate the value of your time is to find your hourly wage. Make an annual salary? Divide it by 2,000 for a rough, back of the envelope estimate that assumes two weeks of vacation and a 40-hour workweek; someone making $72,000 a year thus earns about $36 per hour.
"There’s something very powerful about putting a precise monetary value on time," Sanford DeVoe, an associate professor of organizational behavior at the University of California, Los Angeles, told the Wall Street Journal.
But remember that that hourly number is going to be a little off — and it is really just a starting point. You also need to consider your cash flow and how much you value your free time, a somewhat subjective matter.
If you tend to spend more than you earn, for example, it may be worth buying food on sale at a store half an hour away, even if the savings is less than your hourly wage. If you have lots of disposable cash, but time is scarce, the discount may not be worth it unless bargain hunting is your idea of a good time — or you are saving for a longer-term money goal.
To better estimate the value of your time, based on cash flow and personal priorities, try Clearer Thinking's Value of Your Time Calculator or LearnVest's What's Your Time Worth? tool for a more customized estimate.
How to value your time as a worker
In some circumstances, you literally have to put a dollar value on your time for a prospective employer. If you're trying to determine what you should make at a job you're considering, how to win at salary negotiations or how to decide whether to take a position, Salary.com suggests:
• Finding a "benchmark" job, or a job with a description that matches at least 70% of what your new job will entail.
• Adjusting for employer-specific factors, like location and company size. Larger companies often tend to pay more than smaller ones, and companies in bigger cities pay more than those in areas with a lower cost-of-living.
• Taking your skills into account: If you bring a lot of experience to the table, your time is worth more.
How to value your time when you're your own boss
If you're self-employed, you won't be negotiating your hourly rate, but you still need to decide fairly what your time is worth. Entrepreneur.com recommends determining what to pay yourself by:
• Calculating what your last employer would have paid if you fulfilled all of the responsibilities you're now taking on.
• Using tools like Glassdoor.com to see what a person with your comparable responsibilities should earn.
• Comparing what competitors are charging by looking at their hourly consulting fees.
• Considering what you pay your employees. You should make at least slightly more than your highest-paid worker.
You also want to ensure your salary isn't so high that it keeps your company from being profitable: Many business owners take a lower salary to get off the ground, but raise their wage once the company is making money. It's not that these entrepreneurs don't value their time — they just recognize that the investment they're making may pay off later.
Remember that some things are priceless
Although putting a dollar value on each hour of your time is helpful, time cannot be measured by money alone. Other key considerations include:
How much do you enjoy the activity? It might take 20 hours to knit a sweater. But even if you could have bought it for $20, you didn't waste your time if you enjoyed the process. "A person should not let an hourly value stop him or her from doing things that have significant value and substance," as Inc points out.
And you should always ask: What is the long-term value? College students, for example, trade time in the short term for intellectual and personal development over the long term.
Finally, remember that you simply can't put a price tag on certain activities, and time invested in relationships pays off in ways that are far more meaningful than cash. An hour spent helping a friend is never wasted.
By considering all of these factors, you can put a ballpark dollar value on your time — and also go beyond the financial considerations to ensure you're really making the wisest choices about how to spend your precious hours.
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