January Financial Fitness Challenge--Know What Your Time is Worth
Among the resolutions we make at the beginning of a new year, most revolve around time and how we "spend" it. Whether the goal is to become more physically fit or financially fit, to organize the garage or organize your personal papers, success hinges on the use we make of time.
I frittered away an afternoon recently, then chided myself, "That was a waste of time." And that got me thinking, not for the first time, just what is my time worth? What would you say your time is worth?
One answer is how much someone is willing to pay you to do a job, either your regular job or maybe a special project. Another answer might be how much you would be willing to pay someone else to do a job that you don't want to do or are not very skilled at doing.
Similarly, life insurance professionals put together calculations of your financial value to your family if you were to die. Paying to replace the person who shops, cleans, launders, gardens, chaperones, chauffeurs, teaches, mends, cooks, coaches, and heals could require more than $100,000 a year.
Don't shortchange yourself
Just for exploration, let's say you make $45,000 and work the standard 2,080 hours a year. That makes your hourly value about $21.63.
Now let's say you have your eye on a new car that costs $22,500. One way to think about how much it's worth to you is to calculate how much of your time it will take to pay for that car. This example would have you working half a year just to pay for the car.
Then, if you don't have enough cash to buy that car (few people do), you have to decide whether or not it's worth it to borrow the money. Let's also say you don't have a down payment or a trade-in and you plan to finance the entire $22,500—oops, it's more like $24,076 with tax and title.
If you qualify for a new car loan rate of 3.7%, a 60-month car loan will cost you $440 a month, or $26,408 altogether once you pay off the loan. You'd work 1,221 hours—about 30 weeks—to pay for the car, ignoring all the other elements of your budget.
The best use of your time might be to do exactly nothing.
Of course, it's not that simple. Numerous other expenses make demands on your paycheck, so it takes a lot longer in actual time to pay for the car. And we're considering your pay before taxes and other withdrawals; a common estimate says you work at least 100 days each year just to cover the tax bills.
And it's likely that, by the time you pay off the car, you'll be earning more money than you are today. But you get the point—time really is money!
To help you calculate the value of your time, use this handy calculator developed by British economics professor Ian Walker. He adjusts for taxes and the cost of living to arrive at your real hourly wage.
Nickeled and dimed
At the other end of the spectrum, consider a small expense, say a magazine at the checkout counter or a daily specialty coffee. If you routinely experience spending leaks of about $20 a day, in effect you're losing an hour of your time for each leak. Is that how you want to "spend" your time?
Consider how else you could spend a similar amount of money, say, for groceries, or even for a night at the movies with your spouse. Is that a preferred way to spend your time; your money?
The point of roughly calculating your hourly value is not to account for all the items in your spending plan this way. It's to help you decide if the way you're spending money is consistent with your goals and intentions. It's a different way of looking at your discretionary spending, especially, and thinking about the value you place on your time and your money.
Time well spent
The way you value your time affects your leisure choices, too. Sometimes spending an afternoon lolling on a beach—wasting time?—can be a priceless way to recharge. The best use of your time might be to do exactly nothing.
You might value time by how much you'd pay someone else to do a job that you don't want to do.
It's probably only fair for me to point out that this is the conclusion I came to after thinking that I'd frittered away that afternoon. That fritter time was just what the doctor ordered that day. I'll spend a lot of afternoons that way with little to regret.
Financial Fitness Challenge
The people at your credit union are serious about helping you achieve and maintain financial health. They bring you this website and other tools to help you make the most of your financial resources. The Financial Fitness Challenge continues to look at ways you can make better financial habits no matter what condition the economy is in.
Each month we randomly select five winners to receive $50 Visa gift cards; we choose each month's winners only from that month's entries, so enter often. Remember to register for the Financial Fitness Challenge.
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