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01.07.08
What is Your Time Worth?
I have several ventures (and joint ventures) going at any given time. Currently, I have a few ventures in a very good position to make it big but they need a lot of marketing dollars that I simply do not have at the moment. However, I do also have a couple of ventures that can be successful at a lower price point. These are what will become my “Cash Cows.”
This is basically how I made myself such a success before. I built up a company as a cash cow (i.e. to provide me sufficient, on-going income) and then I used those proceeds to “buy” myself time to work on other projects. Most people are familiar with the concept of leveraging wealth, but what if you have no wealth to leverage?
For those just starting out, I like to push the idea of leveraging time. If you can increase the “value” of your time in concrete dollar terms, then you will be moving closer towards the freedom of doing other things. At some point, those things should be recreational but while we’re still coming up in the world, we will use that freedom to build another successful venture (or two… or ten).
As I am about to write on how I determine the dollar value of my time, I am reminded of how people used to poke fun at me for the way I thought about these things.
These are things like how I would hire a maid to clean around the house and paid her $60 per visit for her work in helping maintain my house. My friends would tell me, “that’s too much to pay someone else. Why not just do it yourself and save that money?”
Well, that IS the question now, isn’t it? The answer is simple. Actually, it’s not so simple but I’ll try my best to make it so.
What makes this confusing is that we are not calculating your hourly rate. So, if you make $2500 per month and divide by hours worked, you’d have your effective hourly rate at $15.63 per hour for a typical work-week. However, that only accounts for hours you are actively working. So, we need to calculate the value of your time when you are simply “awake” -even if not working.
This will give you a gauge by which to compare things. You can quickly know if a price for a service it too high by knowing about how long something will take you to do yourself multiplied by your “awake hourly value” versus the rate being asked by someone else to do it for you. Be careful, though, and try not to become too obsessive about it. I had to force myself to go to the movies sometimes because I would think, “man, it’s costing me $75 in time to go out!” But, that’s part of life and living life is most important and more valuable than dollars.
Basically, most people don’t think about their time having a specific dollar value -despite the popular adage of “time is money.” In the past, for instance, I would justify paying my maid $60 to clean the house and do basic chores because her and her helper would take care of my fairly large home within two hours or so. That cost me $30 per hour, right? Right. But, it saved me $40. If I had done the work myself, it would’ve cost me at least twice the amount of time. At that time, my “awake hourly value” was roughly $25 per hour. So, even though my hourly value of $25 is less than the maid’s hourly rate of $30, it would have cost me $100 in my time (i.e. 4 hours of work) versus $60 to pay the maid. When it’s put that way, I think it makes a little more sense, eh?
Here’s how you calculate your “Awake Hourly Value”:
Those of you who hate algebra are gonna kill me for this… hehe.
A / (b * c * d)
A = Annual Income
b = number of days of week worked
c = hours per day awake
d = weeks worked in the year [usually 51])
Back in the day, I was earning roughly $140,000 annually, worked 6 days a week, and slept 6 hours per day. That yields the following formula:
$140,000 / (6 * 18 * 51) = $25.42 per hour
So, if we take a look again at someone making $2,500 per month, the effective “awake hourly rate” is about $7.35 per hour.
At one point -just before I had to leave the country- I was working about 4 days per week, so my awake hourly value went up to $38.13 per hour. Those were the good ol’ days!
Since I returned to the U.S. and began rebuilding my life, my “awake hourly value” has been dismal but growing. Currently, my awake hourly value is just under $9 per hour. So, I do a lot of things myself these days. In time, I plan to get back on my feet and jump back to the days when I had my freedom. For the moment, however, I like to say:
“Time is Money and I have Neither!”
So, my friend, how much is your time worth?
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January 7th, 2008 at 12:16 am
[...] For anyone interested in knowing how I calculate my “Awake Hourly Value,” take a look at this article I wrote entitled, “What is Your Time Worth?“ [...]
January 9th, 2008 at 3:03 pm
I love this formula and the whole concept!
January 9th, 2008 at 5:23 pm
Hi Erica, Thanks for stopping by and I’m glad you liked the article!