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How To Quickly Calculate The Value of Your Time

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In my recent research of buying flights for our honeymoon, the question of the value of how much our time is worth has come up every single time we’ve compared flights. Do we want to spend an extra $100 each on flights and cut the travel time down by two hours each? The answer, in part, depends on how much we believe our time is worth and we use a simple calculation to determine that.

Take your annual salary, divide it by 2000, and then divide in half – that’s the number I use to determine how much my time is worth. The 2000 reflects the number of hours in a year for your average professional, 50 weeks of 40 hours days (assuming 10 holidays sprinkled throughout the year), and then you divide that by half because of taxes, medicare, social security, and then tack on a little bit of a premium (and mostly because dividing by half is easy). So, if you make $50,000 a year, the value of an hour of your time is worth $12.50 after taxes.

The value of your time isn’t a strict financial calculation though because not all hours are created equally and not all decisions are made strictly on dollar amounts. An hour on my honeymoon is worth far more than an hour sitting at home playing video games. An hour on my honeymoon is worth far far far more and making a decision based on a calculated dollar amount would’ve been a mistake (and no one, except actuaries, makes decisions based only on money anyway). However, knowing the dollar value of your hour is a useful number to keep in your mind as that can almost be a minimum for you.

So, let’s say I know that the salary value of my hour is $12.50, I can easily make a decision on whether I want to fly somewhere or drive somewhere. I did this on flights home to Long Island and here’s the comparison. By car, I would pay around $30 in tolls, $20 in gas, and it would take approximately 3 hours to drive. That’s a total cost of $87.50, if each hour were worth $12.50. Flying costs me about 2 hours, including airport time, with negligible costs in gas (airport is ten minutes away). If I can get a flight for under a hundred bucks back home, easy via Southwest, then it’s about equal from a dollar perspective. In reality though, I can do other things when I’m on a plane whereas I’m focused on driving when I go by car.

There you have it, a quick easy calculation of the value of your time so you can easily make comparisons like the car vs. plane choice above. Again, not everything is strictly dollars and cents, but knowing that number can be helpful.

Do you calculate the value of your time? If so, how?

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9 Responses to “How To Quickly Calculate The Value of Your Time”

  1. Dan says:

    Good analysis. There is a potential pitfall with this method of decision making. If you can’t use the extra time to earn $12.50 per hour, than you’re probably better off with the least costly choice. Plus, you might miss out on some great experiences.

    In 2003, my wife and I took a trip from Ohio to Key West. We saved several hundred dollars by flying into Fort Lauderdale, renting a car, and driving down to Key West, despite adding roughly 10 hours to our round trip. This was a better choice financially because I was in the military and could not use the extra 10 hours to earn more money to recoup the extra cost of the plane tickets. Also, the drive down US 1 is one of our fondest memories of the trip. We even took a detour on the way back to drive through Miami Beach.

    I think you’ve hit on one of the most important lessons in personal finance. Every purchase is a tradeoff. Sometimes we trade money for time or convenience. Neither choice is wrong. The important part is that we are in control of our financial lives.

  2. Most scholars calculate your time to be worth about $13 per hour so you were pretty much dead on. I find this helps with determining whether to purchase a lawn mower or to pay some kid to do it for you. These are the kind of cost benefit analyses we should be making every day.

  3. MoneyNing says:

    Hmm.. Shouldn’t you take all your income and divide it by the number of total hours in the year? You are actually earning X dollars with ALL your time. Even though you are working just 40 hours a week doesn’t mean each additional hour you put in earns you more.

  4. Glenn Lasher says:

    In considering any time savings to be had by flying, you need to consider a bunch of things besides the flight time. You waste a lot of time checking your bags, checking in, getting scanned, getting your bags scanned, getting “randomly” selected for a body cavity search, etc.

    I don’t know if this is viable in your case, however, I find that traveling between Albany and New York makes the train also look like a very attractive option. It takes about 2½ hours each way, whereas it would be four to five by car. Unlike flying, you don’t need to go though all the nonsense; you can show up at the platform two minutes before the train leaves (not recommended, BTW, especially in Penn Station), flash your ticket at an attendant, proceed straight to the platform, board, and you are on your way. Formal ticket collection doesn’t occur until you are under way.

    Additionally, while traveling via train, your cell phone and air card work and are permitted, and they even provide (in business class) an ordinary, standard AC outlet for you to plug in your computer. Also, you have more legroom (even in coach) and aren’t ordered to switch off your gadgets fifteen minutes before landing.

    As a final note, if you are, like me, concerned about the environment or peak oil, trains use less fuel, emit less pollution, and keep their emissions near the ground compared to flying. That comparison works comparing trains to driving also (except for the “near the ground” part).

  5. We just came back from vacation. We could have saved $20/night for a hotel farther from the mountain instead of ski in and ski out. But we didn’t. Our income hourly is more than $20 for 30 minutes.

    Also in the city, we chose a hotel located in downtown so we didn’t have to use transit to get around the city. Instead we walked. We paid I figure $20 more/night but transit would have costed $16. Hmm…$4 savings?

    Or finally using a cab to the airport. $5 for us to go by bus taking 1 hour, plus 2 snowboards, 2 suitcases. Or $32 for a cab including $5 tip, taking only 20 minutes. We took a cab, cutting it close but our hourly was probably still more than waiting for the bus. And we got to sleep in.

  6. Patrick says:

    I actually do a very similar calculation. I use 2,000 hours but I usually subtract 40% for taxes instead of 50%. But I think 50% is faster. I just use it as a rough rule of thumb.

    As far as searching for deals, I probably put a relative amount of time into it vs. the purchase price/complexity. Small items, I’ll do a quick 5 minute check. For a cruise, I might spend a couple hours.

  7. Lazy Man says:

    The tax assumption is probably good for a lot of people, but can be dangerous for the outliers. My wife for instance gets numerous tax brakes (like tax-free housing allowance) with her military job.

  8. Greg says:

    It’s always an interesting discussion. But as others alluded to, most time spent on savings should be compared with earnings of zero. That’s because during the time spent saving money, we would have earned no money at all. We are not forgoing work earnings.

    A far-fetched exception would be if a factory worker punched out at the timeclock during the day to go home and clip coupons, forgoing money he or she would have earned at the factory. Then, savings from clipping coupons needs to be worth the same or more than after-tax earnings from working at the factory.

    If we related everything to work earnings, watching a three-hour football game on TV would cost you $37.50. (using numbers from the example.)

    That said, obviously, free time has value. I just think its value is unrelated to work earnings.

    Love your blog.

  9. jsbrendog says:

    it’s kind of depressing to think about when your time is only worth $12.50 an hour or so.


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