Regular readers will know I’m always discussing and incorporating time costs into my ROI Analyses. The idea is that nobody’s time is really free. We all trade time for money and money for the time at some point in our lives (think: work).
To use an example, say that your favorite band/musician is coming to town to play a concert, and the local radio station is giving away free tickets to the first 20 guests that show up to the concert. Knowing that there will be a line to claim the free tickets, how long would you be willing to wait in line for the free tickets (how early would you be willing to arrive at the concert)?
At what point do the tickets stop being free? At what point does the cost of waiting to surpass the cost of purchasing the tickets at retail value? 2 hours? 4 hours? 24 hours!? Everyone draws the line somewhere. This post should help make that decision easier.
For a comedic illustration of a similar time/value conundrum, the Portlandia “Brunch Village” episode is pretty funny.
How to Value Time?
I estimate that my free time is worth about $10.00 per hour on average. I came to this estimate in two ways.
In the first case, my wife and I used to share a car, and we would often find ourselves stuck in rush hour traffic on our way across town to pick each other up from work. It added about 30 minutes on either of our commutes each day.
When considering getting a second car to alleviate the problem, I asked myself how much I would be willing to pay someone else to drive that extra 30 minutes for me, and settled on about $5.00 (yes, I’m sort of tight with money if you haven’t noticed by now 🙂). Multiply this by 2, and there is the hourly rate of $10.00 per hour.
Next, I turned to Google to answer the same question and came across this handy Learnvest calculator:
As you can see above, the calculator triangulated nicely on my earlier estimate, coming in at $9.00 per hour.
This was enough to satisfy my curiosity at the time, but doing a little more research for this post, I came across another more thorough time value calculator over at Clearer Thinking. The Clearer Thinking calculator takes maybe 5 minutes to complete and goes through a few different scenarios like the concert example above.
My results from the Clearer Thinking calculator were more than double (!) my initial estimates of $10.00 per hour (sometimes quintuple), but they made sense in their own right as well.
For example, using a blended after-tax salary for me and my wife, let’s say I get paid about $25 per hour with benefits. If I was offered to work one extra hour at work each week for $26, theoretically I should take the offer. However, the truth of the matter is that I most definitely would not. That implies that I actually value my free time at more than $26 per hour, while my previous estimates were much lower at $9 and $10 per hour. What’s going on here?
A big part of the explanation is activity-oriented. You would have to pay me a lot more than $25 to shovel manure for an hour (not my actual job). On the flip side, I’d be happy to drive across town in an air-conditioned car, listening to the radio, to pickup my wife from work for a whopping $25 bucks… a steal.
The other part is maybe we’re a little irrational about how we value our time. There are also probably some complicated psychological factors that go into time valuations, such as the fact that I find it less painful to pick through a disorganized silverware drawer a few times a day rather than sort it all at once out of a clean dishwasher, even though sorting it all at once probably takes less time.
Anyway, in the end, I decided to stick with $10 per hour because it is a nice round number, and it is more intuitive for the activities/”investments” that I evaluate here on this blog. Plus, keeping the lower, $10, the estimate is less likely to scare people off from the idea of incorporating time costs in the first place (I’d rather have an understated number to err on the side of caution).
Conclusion
Each situation is likely to be different, and every person is going to have a unique set of time value preferences. I design all my ROI Analyses in Google sheets with links so that you can download and tinker with the assumptions yourself, should you ever be so inclined. And now, with these calculators, it should be even easier to customize the spreadsheets.
Even if you’re not inclined to customize any ROI spreadsheets, having a loose idea of what your time is worth can’t hurt. It can help make decisions like, should I walk to the grocery or take a car? Should I iron my own shirts or take them to the cleaners? Should I take a subway from Queens to Brooklyn or should I take a cab instead? Etc.
There will always be a trade-off between time and money, but these calculators will help you know when you’re getting a good deal…