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How To Quickly Calculate The Value of Your Time

Posted By Jim On 12/27/2007 @ 8:36 am In Personal Finance | 9 Comments

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?