It's both fascinating and useful to calculate the value of your time. Financial freedom gives you options and flexibility. But without time, that means nothing. Time is a precious resource that we should spend wisely. But you already know this -- we've written about it quite a bit.
Knowing the value of your time is helpful for a variety of reasons:
If you're a freelancer, it can help you decide on gigs.
It can help you decide whether a frugal habit is worth it.
It might convince you to pay someone to help you with tasks.
There's a pretty standard method for calculating the value of your time. Simply figure out your hourly wage by dividing your income by the number of hours you work. That's easy enough, but there are a few problems with that approach:
You don't get paid for your free time. You're only paid for the time you spend working. So the better question might be: What is your free time worth?
You might not enjoy your job. I hated the low-paying job I had during my first year of college, and I didn't want to work any more than I had to. So while I wouldn't give up an hour of my free time to earn an extra $5.75 at that job, I would have spent an hour on some frugal task that saved me $5.75 -- maybe even less.
It doesn't consider how busy you are. The value of your free time should also depend on how much of it you have available.
Not all time is valued the same. As a freelancer, when I take a vacation, I lose money. So the value of my time is actually in the negative. And I'm okay with that because, dammit, sometimes you need a vacation. At the same time, I would not wait in line for an hour to save $30 on something because I hate to wait in line.
Because of these reasons, the idea that you're worth a certain amount per hour has always rubbed me the wrong way.
Ever heard that fun fact that Bill Gates is so rich, if he found a $100 bill in the street, it wouldn't be worth his time to pick it up? I've always thought that was silly. First, it takes a quarter of a second to bend over and pick up that bill. Even if he's "on the clock," he's not trading in that time for anything -- he'll be paid whether he picks it up or not. Plus, at this point Bill Gates' income is passive. He earns money in his sleep. So picking up that bill would still be an extra $100 on top of whatever he makes. It'd still be a drop in the bucket to him, but you get the idea.
Calculate a better value of your time
When I came across Clearer Thinking's "time worth" tool, I figured it was another standard hourly wage calculator. But once I started reading, I found out that it's actually a pretty detailed and personalized survey on how you value your free time.
Here's how they describe it:
"This tool will ask a series of questions to help you estimate how much money each hour is worth to you, so that you can make wiser decisions about how to spend that time. It'll also provide you with a customized report based on your results that highlights any inconsistencies in your answers and makes concrete suggestions for applying your newfound knowledge in your daily life."
Basically, it's designed to estimate how much you value an additional hour of your time (your "free time," in so many words, or the time you spend on top of your current schedule).
"So if you currently work 35 hours a week, for instance, this tool will estimate how much money you'd need to put in a 36th hour of work. Here's another way to think of the same idea: the additional hour value of your time is the amount of money you'd pay to free up an hour of time."
Who should use it
They write that the tool was designed "with employed individuals in mind."
So if you're unemployed or retired, you might not find the tool very accurate. After all, your free time is measured by different considerations. They add another caveat:
"If you have very low savings or an unstable income, the calculator may overestimate the value of your time and underestimate your need for funds. If you fit this description and this tool recommends that you spend more money or reduce the number of hours you work, please be very careful about acting on its advice."
With that disclaimer, let's jump in and see how it works.
How it works
First, the survey asks you some basic questions about your current work. How much are you paid per hour? How much do you enjoy your job? This survey serves as a point of reference for all of your decisions.
From there, you are presented with four scenarios. In answering these questions, you should consider the numbers, yes. But you should also consider how busy you are, how much you enjoy your job, and how much you like or dislike the task presented in each hypothetical. It'll make more sense when we look at each scenario.
Scenario 1: The wage you'd accept for 1 hour of work
In their first hypothetical, they want to know how much you're willing to work per hour if you lose your job so they ask you to determine the minimum hourly wage you'd accept for a similar job that you like just as much and that would require the same number of hours per week. (You should also suppose that you can easily find another similar job even if you passed up this new opportunity.)
Of course, in answering this, you want to consider how much you're earning now. So basically, how much lower would you be willing to go for the same workload and type of work? Your answer helps determine how much you value your work time.
Scenario 2: How much you'd spend on a time-saver
If there was a tool that could save you time, how much would you be willing to spend on it? This helps them gauge how much you're willing to pay for your free time.
Scenario 3: How long you'd wait for a gift
In the third scenario, they want to know how long you would spend waiting in line for a gift card. For me, this value varied considerably from the first two, because I don't enjoy waiting in line, even if I am being mildly entertained. So I'd rather skip out on the gift and work in that time, or just do nothing. Still, it's a good hypothetical because it helps round out your value.
Scenario 4: Your rate for a longer work week
If you had to take on a longer work week, how much extra would you charge for your time? Say, for example, that your company wants you to transfer to a similar job that you would enjoy just as much but that would require an extra 10 percent of your time than you currently work. You could ask for a raise to take on the new position, so they ask about the minimum total amount of money you'd accept to agree to the new job. Again, this answer helps determine how much you value your free time.
After averaging out the numbers you enter for those four scenarios, Clearer Thinking gives you a dollar figure for your time. Mine was $31.25, pretty close to the standard method that I criticized earlier in this post.
But using the quiz rather than the standard method actually gave me insight into how I value my time, not how my employer values it. The customized rate for my time was only about a dollar more than my current work rate, and that's good. I enjoy my work and I'm not overwhelmingly busy, so this makes sense.
You can get some really personalized advice based on your own numbers. Here are a few of my favorites:
"If you're considering waiting in line for 20 minutes to get something free, ask yourself whether you'd be willing to pay $10.42 for that thing. If not, you probably shouldn't wait."
"If you're thinking of buying a time-saving device (e.g. a dishwasher or garlic press), estimate how many total hours it will save you. If it costs less than the number of hours it'll save you multiplied by $31.25, it's probably a good purchase. So for example, if it will save you 10 hours, pay no more than $312.5."
"If you're debating whether to purchase an item worth $20, you should spend much less than 38.4 minutes making up your mind. If you spend longer, the value of the time you've devoted to deciding whether to buy the item will exceed the value of the item itself!"
The survey isn't absolute. But then again, it can't be. It can't take every scenario and preference into consideration. The value of your time varies depending on how you feel about all the different ways you spend it. And sometimes your time is just priceless -- it doesn't always translate to dollars.
But if we're going to calculate our time-value, this tool does offer insight beyond simply knowing how much your boss pays you per hour. Check it out yourself, and tell me what you think.