Time
Is Money: How To Calculate Your Wage For Savings
Exchanging
time for money is a basic economic activity. It underscores every transaction.
You go to work and exchange your time and labor for a salary. You're tired on
the way home, so instead of cooking, you exchange money for the time and labor
of a fast-food worker. You want to go out to dinner with your partner, so you
give money to a babysitter in exchange for leisure time.
We make
these exchanges all the time, usually without thinking too carefully about
them. But, for most people, particularly young people, the biggest reserve of
capital you have is your available time. That's why it's important to budget it
accordingly. If you're considering a freelancing project, negotiating a salary
or hiring an assistant, these calculations are fairly obvious. However, there
may be other circumstances where a slightly more nuanced approach is
justified.
How do
you decide how much your time is worth? Well, there are a few ways. If you're
employed, you can use your hourly wage as a baseline. If you're relatively
satisfied with both your work and your salary, that's a pretty good estimation
of what your time is worth. You could also use a maintenance calculation.
Figure out how much you need to earn to break even each day, counting all your
bills and saving for the future. Then, divide that by 8 or 10 for the number of
hours you think you should be working. That's what an hour of your labor is
worth, at a minimum.
Once you
have that figure, it's much easier to decide whether a cost-saving measure is
worth your time. Here are a couple of tough call cases so you can see how much
your time is worth. Would you...
1.)
Clip coupons?
Couponing
is one of the traditional tenets of frugal living. Veteran shoppers pore over
weekly circulars looking for discounts on everyday items. They create extensive
databases listing weekly sales and specials. They find, clip and organize
dozens of tiny slips of paper.
These
activities reflect a considerable time investment. Between research, planning,
organization and storage, couponing could easily take 10 hours a week. The
result for that savings? Very successful couponers might save $90 a week.
That
works out to $9 per hour. Would you take a job earning $9 per hour? Given the
flexibility of hours, the ability to work from home and the relative ease of
the task, perhaps you might. It's a mistake, though, to think of that $90 as
"free money." It's actually the result of significant labor.
2.)
Shop at a second-hand store?
It takes
quite a bit of extra time to go thrift store shopping for things you need.
These stores can be poorly organized, so it may take time to find anything.
You're going to walk away empty-handed quite often. If you have to make one
shopping trip a week, it might take an hour of your time.
If you
can find something you need there, though, the savings can be considerable.
Let's imagine some numbers. Suppose you need a new dresser. A new one from a
furniture store might cost $200, but you can easily find one at a thrift store
for $50. That's "earnings" of $150.
If you
have a successful outing like that once a month, you're spending 4 hours to
earn $150. That's a little more than $37 an hour. Spending an hour a week at
the thrift store might not be such a bad idea!
3.)
Manage your own retirement fund?
Keeping
up with investing can be a hassle. In order to make the most of your money, you
need to stay abreast of financial news and developments. Unlike most tasks,
this one also requires a considerable up-front cost in terms of time. There's a
vocabulary to learn and quite a bit of research to be done before wading in. It
might take you 4 hours a week of reading and studying just to master the
fundamentals for a month. Add another 2 hours a week after that for checking
news and staying current on the markets. Your first year, you might spend 160
hours developing your skills as an investor.
The cost
savings, on the other hand, could be significant. The median retirement fund is
about $101,630. A fee-based advisor would charge 2% annually to manage those
funds, which in the first year would be $2,020. In the first year of investing,
you'd be "making" $12.70 for managing your own retirement funds.
After the initial investment, your "salary" - assuming fees stayed
the same - would be just over $19.
There's
obviously much more to the decision to begin an activity than the money per
hour. There's also your personal capacity, the time it adds (or subtracts) to
family or leisure time, and the extent to which you enjoy the activity. It's
worthwhile to remember that you're not always better off doing it yourself and
that your time has value. Spend it wisely; it's the most important asset you
have.
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