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How to value your time

Monday, July 11, 2016

 

Ever wonder how successful people get to where they are today but still retain full control of their business interests? How is it that they manage to do anything and everything before you even finish your breakfast porridge? Surely, they can’t all be super humans and pack in 18-hour work days to get to where they are today?! Of course not! You have the same number of hours each day to play with as Richard Branson. You get to where he is today by strategically leveraging your time so that you are focusing on high-value tasks.

We are confronted by choices every day. Implicit in every single decision we make are opportunities as well as trade-offs. You either go with Plan A and forgo outcome B or vice versa. Fundamentally the question we ask ourselves when faced with each and every choice is Is doing xxx worth my while? Straight away, you can see that you have already embraced the concept that your time is worth money. But how much money?

Why put a dollar figure on your time?


It may seem indelicate and perhaps even vulgar, to conceptually monetise your time. But if you often find yourself lacking in focus and distracted from your goals then putting a dollar figure on your time can be particularly useful.

Price tagging your time makes comparing choices incredibly mechanical and straightforward. If you rate your time at $50 an hour, then it is a no-brainer to hire a painter at $200 to do a 5-hour paint job. Of course, decision making is a far more complex process than a simple cost comparison. We will talk a bit about that later. But for the time being, saying no, or at least starting to automate, low-value tasks is a good starting point.

From a motivational perspective, it is also a very good idea to put a value on your time. Being success-minded drives us to become better versions of ourselves. One way to track our progress is to review the worth of our time regularly and improve our hourly rate. If your hour is worth $50 today, then challenge yourself to increase that by $10 by the end of the year. Now that you are cognisant of the fact that each hour potentially costs you $50, you are less likely to be squandering your time and more likely to make the most of it.

Exactly how much is your time worth?

There are many ways to calculate how much your time is worth, and this is where the maths can get super funky. Fundamentally what you are after is to have a clear idea, on a basic level, what each hour is worth to you. You can simply find out by dividing your gross annual income by 2,080 hours (being 40 hours of work, in one form or another, across 52 weeks). If you are in a salaried position for $100,000 before tax a year than your time is worth $48.08 an hour. Having this understanding of your worth makes it easier for you to focus your energy on tasks that are higher in value than $48.08 per hour and outsourcing those that are below.

If you are into numbers and want to drill down into the nitty gritty, then you can bring in your tax figures to work out an after-tax value per hour. If you are more entrepreneurial minded, then you may want to work out your hourly rate on a per-awaken-hour basis rather than the standard 2,080. Clearerthinking.org has a value-to-time calculator which you may find instructive. A word of caution, don’t get so sidetracked that you mistake the forest for the trees. The whole point of this exercise is to improve your productivity; it is not meant to suck you into over analysing your time worth.

Increasing your hourly rate


Your hourly rate is calculated as

INCOME / TIME

Hark back to school maths when we learnt about fractions, there are two ways to increase the value of your time:

  1. By increasing the numerator, that is your income in dollar terms, or
  2. By decreasing the denominator, that is the time you spent generating that income.

So going back to the $100K earner whose time is worth $48.08: two things can be done to increase that hourly rate by $10 an hour:

  1. By increasing the income to $120,806.04 a year (by either gunning for a pay rise or increasing portfolio return); or
  2. By decreasing the work hours to 1,722 hours a year which is the equivalent of shaving off around 7 hours per week for a whole year.

Increasing income is all well and good, but it is not something that is always under your control. Most of us are not in the position to determine how much pay rise we get, or if we get any at all. Rental returns are dependent on market rate which again is something not entirely controllable by landlords.

Decreasing the time you spend working on becoming more efficient is a more controllable variable for the smart businessperson. By setting yourself a goal to increase your hourly rate, you will push yourself to implement systems that automate low-value but essential tasks for you. You will then free up your time to focus on higher value tasks that round off your business strategy to take you to the next level. Eventually, you will get to the point where you are focusing only on the highest value tasks thereby maximising your value per hour.

A note on non-monetary value

To live a more successful life, you also have to understand that not everything valuable has a monetary value. The 30 minutes jog you do every morning or the hour you spend catching up with a friend over coffee will not generate any income. That said these activities add value to your life in a way that money won’t. How can you put a dollar figure on your health, your mood and your relationship with other people?


Putting a dollar figure on your time is merely a guideline for help you prioritise tasks and make better choices.  At the end of the day to become successful, you must shift your mindset and embrace the concept of value-add. Any activities you participate in should have a value (monetary, non-monetary or both) to it. Your decisions should be guided by the overall value-add your participation in a particular activity will bring to your life. An example: A few months ago I walked past an ice cream shop on Ponsonby Road handing out free ice cream cones. The price for each cone is normal $5.99. The queue was so long it wrapped around the block and went into one of the side streets. Now assuming that the average queuing time for the free ice cream cone was one hour then those in the queue would value their time at $5.99 an hour. Surely we can all agree that this is a pretty poor hourly rate. But if the hour in the queue is spent socialising with friends or doing work remotely on the phone then the value of that time would become greater. That said at a $5.99 per hour baseline the non-monetary value-add has to be somewhat significant to entice even the most astute property investor to join the queue!


 

 

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