What's Your Time Worth?

Here's a thought-provoking piece from Yahoo on the value of time. Unlike money, time is not renewable -- once it's gone, it's gone -- and in this fact makes it much more valuable than money. But how do you place a dollar figure on it? Here are the questions Yahoo poses:

What's your time worth? From an economic perspective, is it better to mow your own lawn or pay a service? Iron your own shirts or send them out? Cook or buy take out?

Here are a few examples of decisions we make where time and money are factors:

While you might not drive 30 minutes across town to get $5 off a $200 DVD player, you might make the trip to get $5 off a $15 DVD, because you think one-third off is a terrific bargain. But in absolute terms, $5 is still just $5.

You spend an hour contesting a $3 mistake on your cell phone bill.

You start a new job and drag your feet for two years before joining the 401(k) plan. In that case, you believe your time is literally worth hundreds -- even thousands -- of dollars an hour, because that's what you lost by procrastinating.

So this leads us to the big question -- what is your time worth? Here's Yahoo's take:

The most obvious way is to simply compare your hourly wage to the cost of the service. Thus if you earn $75,000 a year, your time is worth $39 an hour. If your yard service costs about $40 an hour, you've got a pretty sound economic reason to pull out the checkbook instead of that leaf blower.

But that's not the whole story. Unfortunately, a sizeable chunk of your hourly wage goes to Uncle Sam. In addition, your buck goes a good deal further in, say, Hope, Arkansas, than Manhattan. A few years ago, economist Ian Walker of England's Warwick University created a method to calculate the value of one's time based on wages -- adjusted for taxes and the cost of living. To apply his formula to your situation:

• Subtract your federal tax bracket from 100.
• Multiply your hourly wage by that figure.
• Divide the result by the average cost of living rating for your community available from this site produced by the American Chamber of Commerce Researchers Association, or ACCRA, a nonprofit group that compiles cost of living data.
• Then take that result and divide by 100.

What? I need an example of that:

Here's an example: You're a single person living in Las Vegas, Nevada, earning $75,000 a year (or $39 an hour). Your federal tax bracket is 25 percent. The cost of living index for Las Vegas is 1.139. Given these particulars, your real hourly wage using Walker's formula is $25.68.

Now hiring that guy to mow your lawn (or, in the case of Las Vegas, water your cactus) doesn't look as appealing.

The piece ends with the following conclusion:

Of course, few of us can afford to outsource every chore we despise. So prioritize, starting with the tasks that devour the most psychic energy and create the most strife in your relationships. See if you can make a few tradeoffs -- in exchange for hiring the lawn guy, eat out less frequently, get your books from the library rather than the bookstore, and trim your utility bills whenever possible. Then hire the lawn guy or the cleaning lady.

I like the question they're attempting to answer and I give them bonus points for being specific and taking a position on the issue (something many personal finance articles refuse to do), but I'm not sure I agree with their rationale. For instance, it's not like I'll make an extra hour's wage if I don't mow the lawn. What's actually happened is that I've lost/spent money for the privilege of doing something else. This may or may not be a useful tradeoff. I think everyone needs to make a judgment for themselves on what their (free) time is worth and take action accordingly.

For us, we do most of the house and yard work ourselves. Not only do we feel it's a good use of our funds and time, but some of it is enjoyable (working together to rake leaves), educational (teaching the kids the responsibility of chores), and healthy (mowing the lawn with our non-self-propelled mower is a great workout). For other things, those requiring special expertise like car work, plumbing, or electrical work, we hire out. We could learn how to do many of these things, but doing so would take a lot of time and potentially be disastrous (if we did it wrong). In these cases, we think it's best to hire out.

What about you? How do you place a value on your time?

Comments

[Dan]

I've always been puzzled by articles that discuss the value of one's time. They all cite the same formula: if you make $20/hour at work, then it is worth it for you to hire someone else to do something for you if they can do it cheaper than your $20/hour cost.

But that really isn't right. Your $20/hour wage is based on 2080 work hours per year. But you're not paid for your free time, and there are 6680 of those in a year. So to truly represent your value per hour, you need to spread your earnings out over work AND personal time, not just work time.

Some might think that's not fair either - an hour spent mowing your lawn is an hour you aren't making money somewhere else. But how many people really use their personal time to earn more? For many of us who are salaried, we couldn't pick up additional hours (for pay) even if we wanted to.

In my mind, what it really comes down to is the value that you yourself place on your time. Hire a housekeeper if you want, but realize that the benefits you receive from it will likely be more psychic than financial.