Does it really matter how much your time is worth?

Photo courtesy of Sam Fowler

 

How many times have you been a part of a conversation that went something like this?

I was going to take the bus because it was only $18, but it would have taken 6 hours. Then I saw that flying there would be $80, but it would get me there in only two hours.
Right, because how much is your time worth?

How much indeed.

The word problem

The more generic version of the conversation turns out to be an equation of sorts:

I could do A which costs X but takes N hours, or I could do B which costs Y but takes M hours.

If you remember how to do word problems, you can turn this into the following relationship:

(X ÷ N)  $/hour vs. (Y ÷ M) $/hour

From there, the most obvious decision to make would be whichever one gives you the most money for your time, right?

This impulse is understandable, but it’s also wrong.

How much is time worth?

Take our traveler. Under this kind of time value of money analysis, taking the bus would imply that their time was worth $18/6 = $3/hour, while flying would be $80/2 = $40/hour. I can’t imagine that anyone would value themselves at only $3/hour, not even in this blame-the-poor culture that we seem to be living in these days.

So flying seems like the obvious choice, right?

No. For the very simple reason that this analysis assumes that someone would be paying them for that time. And someone likely isn’t.

The traveler would have four extra hours if flying. That’s four hours to do what exactly? Are these billable hours? Will this person, with their bags already packed, have time to make $62, or more? I think not.

Spending more to get more free time only makes sense if someone would be paying you for all that extra time saved. Or if you have the money to spend.

Absurd conclusions

It’s easy to see how quickly this breaks down. What if you had two options to do something: $10,000 to get something done in a day, or $100 to do something over a full month? It doesn’t matter what it is (landscaping, a new web site, recording an album), only that in one case it’s likely outsourced, and in the other case it’s done mostly by you.

In this situation, in one case you are worth $1,250/hour, and the other you are worth about $0.13 an hour, assuming an normal 40 hour work week. Who are we trying to kid?

And it makes no difference if you don’t have $10,000.

Your true payment

I’m very much in favor of valuing our time highly. We are on the planet for only so long, and therefore should act accordingly. But unless you’re an ace at billing out your waking hours, you may want to keep in mind what you’re actually being paid.

Whether or not you get any money, you are guaranteed to be paid 24 hours each day. Worry less about how much these hours are worth, and more about what you will do with them.

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

I offer a free phone consultation to anyone who is interested in changing their financial narrative. Are you ready? Click here for details.
Mike Pumphrey
Posted on July 2, 2015
  • mpinard

    True! A false choice! 😉