Attaching an hourly rate to your time away from work can ensure you are making the most efficient use of it
We’ve all heard the phrase “time is money,” and many of the biggest expenses in both our professional and personal lives come from paying for people’s time. Lawyers and consultants charge their clients hundreds of dollars an hour depending on their experience and expertise. The most costly car repairs are not a result of replacement parts, but the labor bill required to install them. For just about every business on the planet, the largest impact on the bottom line comes from employee wages. But once we leave the office on Friday afternoon, we often fail to account for the value of our time when working for ourselves. By giving ourselves an Hourly Rate, even on the evenings and weekends away from work, we can ensure that we are getting the best return for our time spent.
To come up with a calculation for our time, we have to first consider what the real opportunity cost is, regardless of what we are paid. If you are paid by the hour and are able to work overtime whenever you please, then the calculation is simple: what you make per hour at work is what an hour of your time is worth. (Some may have to take an average for a month or even year if they are subject to fluctuations in Hourly pay like those who rely on tips for most of their take home income.) If you are salaried or your hours are capped, then the calculation becomes a bit more subjective. For many, 40 hours a week is the bare minimum required for a salaried position, and working extra hours doesn’t generate immediate income. Instead, you have to determine what the value of your time is now, in future raises or bonuses, which are not always guaranteed.
If you want something a bit more tangible, or something you can earn immediately, then you have to consider what side jobs are available. If driving for Uber is the best option available, then whatever your hourly rate would be is how much your non-work time is worth. If taking your professional skills and finding freelance work is the best option, then a realistic expectation for what you can charge, even if you won’t be able to command that fee until you build up a bit of a client base, becomes your off time hourly rate.
To put it more simply, how much money per hour could you realistically make in your free time?
Once you have this rate, you should take part in only the activities that give you a greater or equal return.
Take cutting coupons for example. If by cutting coupons both literally and digitally for two hours, you only save $15 on your trip to the grocery store then this is a poor use of your time, since you have lost the opportunity to earn $30. Some may find a lot of joy in couponing. Finding a great deal or seeing how many coupons they can stack on a purchase is a fun hobby for them. If they can make money while providing themselves with a couple of hours of entertainment, then the time is well spent. However, if couponing feels like work, then you would be better off automating your savings [insert link] and working at $15 an hour.
This goes for any activity you do on a regular basis. Cleaning out your closet every 6 months and selling what you don’t need is a great way to declutter, make a little extra income, and does not need to be subject to your hourly rate. But if you spend three hours a week cleaning your house, and could instead spend that time making extra income, then hiring someone to clean for $30 dollars for the whole day is actually the better financial decision.
However, this thought process should also extend to making sure you take time to relax, recharge, and counter act the effects of stress on your mind and body. Taking an hour to walk, or watch a movie, or cook a healthy dinner, or spend time with your family and friends also has a real economic impact. If you overwork yourself, you will be less productive and focused at work, you will take more sick days, and it could impact your interpersonal relationship will your boss and coworkers. This can cause you to spend more on medical costs and impact your future income with lost promotions or lost jobs.
If you focus on maximizing the return on your time, just as you focus maximizing return for your money, then you will find you will find that you save more over the course of a year without wasting your energy on fruitless exercises.
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