Everyone loves a good deal. Most involve saving money. Some involve earning it. In either case, the financial component is just one side of a deal. The other, often overlooked, side of a deal is the amount of time it requires of you to take advantage of it.
Without having a sense of the monetary value of your time, efforts to save money are often misguided or even counter-productive.
Saving $100 on a TV sounds like a great deal. But I’ve read reports of people camping out for three days to take advantage of such Black Friday deals. By working for three, eight-hour days at the US federal minimum wage of $7.25/hour, a person can earn $174. So even for a person only earning minimum wage, that $100-off deal on the TV is actually costing you $74 if you forgo three days of work in order to take advantage of it.
Less extreme and more common examples abound of a deal not being worth it because of the time involved. Have you ever obsessed over saving the last dollar on a flight, hotel, or car reservation? Or have you ever spent way too much time comparison shopping the price on a product you are going to buy?
There really is no such thing as a deal unless you have a sense of how much your time is worth. Only then can you determine whether the time it takes to take advantage of a deal is more than offset by what you earn or save through the deal.
So how do you figure out how much your time is worth?
How to Calculate the Value of Your Time
- Hourly pay. If you get paid by the hour, the easiest way to calculate the value of your time is just to take your hourly wage. If you make, say, $18/hour, then your time is worth $18/hour.
- Salaried pay. If you are salaried, then you’ll want to estimate your hourly wage. The easiest way to do so is to take your annual salary, lop off the last digit, move the decimal point two places to the left, and divide by two. As an example, let’s say you make $60,000 per year. Lopping off the last digit, you are left with $6000. Moving the decimal two places to the left, you get $60.00. Dividing by two, you get $30.00. A person who makes $60,000 per year makes approximately $30 per hour. [If you make $60,000/year and work 52 weeks/year at 40 hours/week, then your hourly wage would be $60,000/(52*40) = $28.85. $30/hour is close enough.]
Some people will argue that the monetary value of one’s time is less than the above approximations because those calculations indicate the monetary value of hours worked, not the monetary value of a person’s total hours or total hours awake.
I understand their point. But I’d still argue that the best approximation of the monetary value of one’s time is arrived at by something like the calculation above, where you calculate the vale based on hours worked.
Here’s why I’d make that argument. There are more money-saving and money-making opportunities than you can shake a stick at. You could spend all of your time outside of work chasing after them. But as I discussed in my last post, life is about pursuing what matters most. Money and time only exist to help in that pursuit. Spending all of your time chasing after deals robs you of the opportunity to have a good conversation with a friend, to attend your son’s or daughter’s sporting event, or to do any of a number of other things that are constitutive of what matters most to you.
How to Use the Value of Your Time to Evaluate a Deal
I will share many deals through this blog that will save or make you money. Whenever possible, I will estimate the amount of time I expect it will take for you to take advantage of the deal. So you will know not merely the dollar amount of the deal, but the dollar amount per hour of the deal.
As a starting point for assessing whether you should take advantage of any particular deal, you should then compare the dollars/hour I estimate the deal is worth to the dollars/hour you earn in your job. Say, for instance, I publish an opportunity to earn $100 that will take 4 hours. Should you do it? Well, the deal is worth $25/hour (i.e., $100/4). If you make $10/hour, the deal may well be worth it. But if you make $50/hour, you should probably pass.
I look forward to helping you get really good deals, ones that provide you with the maximum dollar/hour benefit.
Questions: What do you think of the dollars/hour approach to analyzing deals? Can you think of an example where you spent more time than you ought to save less money than your time is truly worth? You can leave a comment by clicking here.
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