Decision Factor #6: The Value of Your Time
I don’t know what happened to me at that hypnotherapist and, I don’t know, maybe it was just shock and it’s wearing off now, but when I saw that fat man keel over and die - Michael, we don’t have a lot of time on this earth! –Office Space
Every one says time is valuable, but the adage only really made sense to me after working a full-time job. I will share the three main ways that time was valued during my workday and in my personal time. I hope that my experience can help you value time better.
Method #1: Your hourly billing rate (how clients value your time)
Many service jobs like consulting and legal work bill out their work on an hourly basis. It is important to know your hourly billing rate to make better decisions for the company and be a better employee. For instance, if you bill at $175 per hour, then it is better to outsource a large copying job for $30 than spend an hour at the copier. Heck, the professional copiers will probably even do a better job.
Because these decisions help your company and not you directly, you may ask why you should care. There are three main reasons you ought to take note. First of all, your salary and bonus are ultimately dependent on your company’s overall success–in other words, a rising tide lifts all boats. Secondly, managers and owners will appreciate your contribution and usually put you in higher regard. And finally, the most direct reason: you can get out of mindless tasks if you reason with good economics. In my experience an economic litigation consultant, there were times we needed data that was publicly available but not in readily usable format. Instead of spending our valuable time collecting and preparing the data, it was quicker and cheaper to purchase the data. It’s a classic win-win: less hassle for me as an employee, and a cheaper, quicker deliverable to the client.
Companies really do analyze purchases by considering employee’s billing rates. Consider the example of Flavia, a maker of gourmet coffee machines. On their website, they advertise to law-firms that buying their machine is worthwhile because it can increase the hours employees can bill:
Stressful caseloads and long hours can quickly turn into fatigue. To recharge, nearly 25% of associates leave the office daily to get hot gourmet drinks. That’s non-billable time. Imagine having a versatile drinks station available right in your firm to satisfy employees and impress clients.
In summary, I’d say that knowing your billing rate can help you make better decisions for your company (and indirectly you). But to get into a more personal analysis, there is a second factor to consider.
Method #2: Your hourly wage (how your company compensates you for your time)
Your hourly wage is equal to your annual income divided by the total time you spend at work. A person making $50,000 annually at a 40-hour per week job, with three weeks of paid vacation, is making roughly $25 per hour.
Your hourly wage tells you what others are wiling to pay for your time. One place this is useful is in when you are looking for a job. For instance, a job where you make $100,000 a year working 80 hour weeks has the same hourly wage as one where you make $50,000 a year working 40 hour weeks. In essence, the two jobs pay you the same money for the first 40 hours you work per week. As for the remaining 40 hours, it is up to you and how well you know your preferences to decide whether you want to double your income or have more leisure time. This analysis is obviously incomplete, because after all, the jobs will likely have different career paths and there are tax considerations, but it is a starting point.
Your hourly wage can also be refined to account for various factors like business expenses. The MSN website has an interesting calculator where you can figure out a more sophisticated hourly wage. You need to know things like how much you spend on commuting expenses and how much you work per week.
While it is useful to know your hourly wage for your career, I am less convinced that it can be used as the basis of all decisions. This is because you cannot simply trade your leisure time for work on a salaried job, or put another way, you are not making money every hour of the week. Besides the theoretical criticism, I personally find this method gives absurd predictions. One website using this method practically suggests that everyone who earns $20 or more on an hourly basis should buy Boston Market instead of cooking at home. Sure, you will “save” your time which is more valuable, but you’ll rack up a tremendous expense by eating out every meal. And when you have no cash at the end of the month, you’ll try to figure out how you can convert those hours you watched TV–also worth at least $20 an hour by this method–into more income.
The lesson is that the hourly wage is good for making career decisions but not as good for making personal decisions. For this, I primarily rely on the third method.
Method #3: Your available leisure time (how much time you have to use)
Time is limited. We do have 24 hours in the day, but most of that is already taken up by fixed activities. While working, I found that I spent my average day doing the following things:
- 8 hours sleeping
- 8 hours working
- 1 hour exercising
- 1 hour commuting
- 2 hours eating
- 1 hour personal hygiene (throughout the day)
- 1 hour talking to family and friends on phone
- 1 hour cooking
As you can see, 23 of my hours were fixed and I only really had ONE hour of true leisure each day. Some days I had more time, like when I combined talking on the phone with commuting, but on average, I had one free hour. I can’t really put a dollar value on this time. But that’s okay, because personal finance is not about money. Simply knowing that I only had one hour of leisure helped me make better decisions.
There is of course an incident where I ignored my limited free time. I decided to take a finance class since I estimated it “wouldn’t take much time.” I mean, I used to take four hard classes at one time during school, and I had a whole six months to complete this self-paced course, so how hard could it be? Well, shortly after the class began, I realized that six months was not that long to get through the class material. Soon, I was spending all of my leisure time studying, and it even cut into sleep and exercise time. As interesting as the class was, it is certainly not a decision I would repeat with such limited time.
How do you spend your day? I am curious how much free time people have in general. And if you have some amazing secrets, please do share with the rest of us.
