The Value of Time: How Much is Your Time Really Worth?

Not all uses of time are equal, and this simple truth can make a big difference in life. People who spend their time doing more profitable work make more money. People who spend their time investing in others build better relationships. People who spend their time creating a flexible career enjoy more freedom. People who spend their time working on high-impact projects contribute more to society. Whether you want more wealth, more friendship, more freedom, or more impact, it all comes down to how you spend and value your time.

If you're like me, you probably want the things listed above (friendship, freedom, impact) and others too (health). But you can't have everything at once, so you need to understand how to effectively manage the tradeoffs that you face on a day-to-day basis.

This article explains how to figure out what your time is worth and use that information to spend your time more effectively. Understanding how to get the most out of your time starts with knowing—in exact terms—what your time is worth.

The Value of Time: What is One Hour Worth?

A few weeks before I began writing this article, I was shopping for a small travel bag. After much searching I found one that I liked and, at just $19, it was very affordable. But there was one problem: the bag was made by a company in the United Kingdom and it cost $45 to ship it to the United States.

I was immediately turned off by the idea of paying $45 to ship a $19 bag, so I searched for retail stores. The company had a physical location in New York City and I was already planning to visit the city a few weeks later. I looked up the store location and realized that it would take me about one hour to go out of my way and stop at the store during my trip.

That's when I thought of the question that prompted this entire article: “Was one hour of my time worth $45?”

Should I save time and pay $45 to get the bag shipped to me? Or should I save cash and spend one hour of my time going to pick it up in person? I had no idea if going to the store or paying extra for shipping was a better use of my time and money.

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The Time vs. Money Dilemma

At some level, we all have an internal gauge for how much our time is worth. For example, if someone offers to pay you $0.07 for one hour of work, you would immediately decline. Meanwhile, if someone offers to pay you $7,000 for one hour of work, you would immediately accept.

On extreme ends of the spectrum, it is easy to know if a task is worth your time. As you move toward the middle of the time-value spectrum, however, it becomes less clear if a particular task is worth your time or not. And this is the problem: most of life is lived in the gray zone of the time-value spectrum.

For example:

• Should you buy the nonstop flight and save two hours or get the flight with a stopover and save $90?
• Should you pay your neighborhood teenager $20 to mow your lawn so you have an extra hour free on the weekend?
• Should you spend this week working with a client that will pay you $2,000 right away or working on a business idea that could generate $20,000 over the next year?

We make choices like these everyday, but most people base their decisions on gut feelings or guesswork and never calculate what their time is actually worth. Everyone has an hourly value, but very few people can actually tell you what that number is. Until recently, I was no exception.

How to Calculate What Your Time Is Really Worth

My time vs. money dilemma prompted me to reach out to every expert I could find on the subject. I talked to entrepreneurs, productivity consultants, executive coaches, and even professional poker players about the best ways to determine how much my time was worth and how to make better decisions based on that information.

Then, I tracked every hour I spent over a three-month period and calculated the value of each hour using six different equations. Don't worry. I've distilled all of this research and experimentation into a fairly simple process, which I'll cover right now.

The remainder of this article is divided into two parts.

1. Part I is fast and easy, and covers everything most people will need. Within 15 minutes, Part I will help you develop a reasonable estimate of what your time is worth and you'll be able to make more informed decisions because of it. I recommend everyone read Part I.
2. Part II is time-consuming, but valuable. In particular, entrepreneurs and executives will find Part II useful. Part II builds upon Part I and helps you assess the expected value of different uses of time, so you can make better strategic decisions that will pay off in the long-run.

Before we dive into Part I, I'd like to share a free spreadsheet I created with examples of every equation in this article. You can use this spreadsheet to plug in your numbers and get an immediate value for your time. I will be referring to this spreadsheet throughout the remainder of this article.

Free Download: The Time-Value Spreadsheet
Click here to get your copy.

Part I: Realized Income Methods

We will start by using Realized Income Methods to calculate the value of your time. These calculations are based only on income you have actually received (or realized), hence the name Realized Income Methods. These calculations will help you make better decisions about how to spend money on day-to-day purchases. (i.e. Should I pay $45 for shipping or should I drive to the store?)

To get started, you need two numbers:

1. The amount of time you spend to earn money.
2. The amount of money you earn during that time.

Let's talk about how to measure these two factors and come up with a quick estimate for the value of your time.

Step 1: How to Track Your Time

The first step is to measure the total amount of time you invest to earn money, not just the hours you are physically at work. For example, if you spend one hour commuting to work each day and eight hours at work, then it cost you nine hours to earn money that day. Similarly, you should add in any time you spent working on a side hustle or dropping your kids off at daycare. Using these numbers, we are trying to get a complete picture of the total amount of time you invest each year to earn money.

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