How do you spend your time? Yes, spend. Your time has a value and each activity comes with a cost. Do you know what your time value is?
As an entrepreneur, whether you’re an owner of a fresh start-up or growing your established business, whether you’re self-employed, a freelancer, or a consultant, you may wonder what work you should be doing yourself and what should be hired out. For me, I like to be in control, so it’s tempting for me to try to do it all myself. However, I also know I have a finite amount of time and energy. As my business grows, I have less time to devote to every aspect of operations. So, regularly, I need to check myself with a question:
What is my time worth?
Getting a handle on the value of your time involves a couple finance concepts: the time value of money and opportunity cost. The time value of money is an established financial concept that money now (rather than later) is worth more due to its potential earning capacity. I’d say the inverse can also be true: the money value of time would mean my time spent in income-generating activities is more valuable than time spent on other activities. The second financial concept, opportunity cost, comes in to the picture when choosing to spend time on activities that don’t generate income. You could work a couple hours and earn income or sacrifice that income potential by going to a movie instead.
It’s easier to understand time’s value with examples, so let’s first imagine that it’s a Monday evening and I’m trying to decide what activities I can (or should) fit into the three hours I have before bed. My to-do list is long, but I’ll shorten it for the sake of the illustration: I need to make some adjustments to improve traffic to my website; I have an empty fridge and need to make dinner; The house hasn’t been cleaned in two weeks; I need to go for a run; and I need to set aside time with my family. How can I make better decisions about my “free time”?
The value of my time
To assess what I should do myself vs. hire out, I first need to know the value of my time. There are lots of online calculators to help you arrive at a number, but the easiest way to figure the value of your time is to take your annual income and divide it by the hours you work in a year. The result is an hourly rate that equals the value of your time.
Because I’m very busy, my free time is very valuable. I should delegate some tasks or hire them out in order for me to have more free time at my disposal. What it boils down to is: I should hire out all services that charge me less than my hourly value. Then, I should use the time I’ve saved on more productive activities.
With my Monday evening example, based on the value of my time, I should go for a run (I can’t pay someone else to exercise for me!), order take out or delivery for dinner with my family (since I don’t have time for grocery shopping tonight), and then work on my website (which is the best investment of my time for the future growth of my business). What about the rest of my to-do list? Here’s what I should do:
- Sign up for an online meal planning service, like what’s offered by www.thefresh20.com and then hire someone (or use my local grocer’s delivery service) to deliver the items from my shopping list to my house
- Hire a weekly cleaning service
Apply the same time value concept to purchasing goods
We’ve just discussed paying for services. What about when we’re considering whether to purchase a time-saving tool or machine? To get the maximum cost that should be paid for the item, we must calculate the number of hours that would be saved by purchasing the item and then multiply that number by your hourly value. If the item doesn’t exceed that amount, it’s a good purchase.
Consider an example. Let’s say I’m thinking about purchasing a riding lawnmower to save time mowing. I estimate I’d save an hour each time I’d use a riding lawnmower instead of a push mower. If we average 30 cuts per year (grass doesn’t grow year round where I live), I would save 30 hours per year. Estimating the lifespan of a residential riding lawnmower to be about 7 years, over the life of the mower, I’d save 210 hours. Let’s assume I’ve calculated my hourly value at $30. Multiply the hours saved by my hourly value and you get $6300. That means I should buy a riding lawnmower that costs no more than $6300.
- Once you know the value of your time, you then know:
What rate you would take on additional work, if any
- At what point it’s worth it to hire a personal assistant
- When to hire a consultant to help you organize and understand your finances
- To make small purchase decisions quickly, considering your time may be more valuable than the item itself
I’m not saying generating income is the most important thing we should be doing in our lives. It’s not. But, as entrepreneurs, we need to be conscious of how we spend our time and make conscious decisions about what is most productive and meaningful. Please take two minutes right now to assess the value of your time and then make a plan to do what’s most valuable and then delegate/hire out the rest.