CFO of Life #39: "Time is Money: Decoding the Price Tag of Your Time and Making Every Second Count"

Time is precious and we all know it so “one must work with the time and not against it,“ as Ursula K. Le Guin says. But in order to know how “precious” it is, we need to know what the proper value of our time is. And that’s what I try to help you achieve with this week’s article.

Most of us use our time for fun, to watch TV and to go to work, as that’s usually our primary source of income. To put that into the context of today's article, your job is a simple exchange of a unit of time for a number of $, or a unit of entertainment for a period of fun. And that’s how I view time, as a fungible commodity I exchange in order to receive a payment, some entertainment or a good time.

To do so, I have separated my time into three different categories: Work time, Free time and Me time. Work time is dedicated to all work-related endeavours, free time is one for entertainment and education and “Me time” is the one for family and travel.

But are those different types of “time” worth the same? Well, for me, they aren't. While I clearly know the price of my work time (my salary), which changes infrequently, it is easy to evaluate the cost-benefit analysis of it. Then my free time is a lot more valuable and I rarely “sell it” in order to take any additional work. If you want to increase your income, this is the “time” you can sell in order to profit more, but you can always use it to educate yourself and increase the value of your salary.

At the same time, any “Me time” I have is priceless and I would not jeopardise it at any cost. Because at the end of the day, we all need that connection with our closest people, we need the time to travel, explore and enjoy life. Otherwise, you would only live to work!

Establishing the current value of our time

So now that we have set up the different types of “time”, we should establish the current value of our time and then find out the ideal value of our time. Once that is done, we should explore additional formulas and concepts that would help us understand how to value time and what would influence the way you value your time.?

To start, let’s find the current value of your time. This would be based on a 40-hour work week, but if that’s not your reality, just amend the formula.

The formula for the current value of your work time:

Yearly income / 2080?

(2080 accounts for how many hours you work in a year if you work a 40-hour week)

To amend this, simply replace the number 2080 with the number of hours you work a week multiplied by 52 to account for the number of weeks in a year:

52 * number of hours you work a week = your equivalent of 2080

Now that you have the number, ask yourself:

Is this the ideal value of your time?

If this is not the ideal value of your time, then you should consider how far away you are by finding the ideal yearly value of your time. That’s not hard to do, so let’s look at an example:

If your ideal yearly wage is $52, 000:

$52, 000 a year /52 weeks is $1, 000 a week.

That $1, 000 a week is $25 ph if you work a 40-hour week.

This formula would only show you the $ per hour you want to achieve, but not what you need to do to get there. Beware that taking this road would take some time to get where you want to be, it would require some conscious planning and hard work, but you can make it - just employ all of the concepts below.

You can always use the approach from the point of “Ideal hourly rate”, to find that you simply multiply the ideal hourly rate you want by the number of hours you work a week, and then by 52. Here is an example:

If my ideal hourly rate is $75 for 40 hours a week:

$75 * 40 hours per week = $3, 000 a week

$3, 000* 52 weeks in a year = $156, 000 yearly salary

This is our “target salary” that would have our Ideal hourly rate and hopefully make us feel happy with the amount of money we receive in exchange for our time! To be honest, this is not an outrageous amount, as quite a lot of people get paid that much. And if you take your time and use it wisely, you can invest it into education and networking and increase the likelihood of getting to your ideal hourly rate.

Additionally, it is important to understand the Return on Time Investment (ROTI). That is the concept of assessing the benefit received relative to the time invested.

The formula for this is:

ROTI = (Return/Benefit of Task) / Time Invested

This formula allows you to calculate the value of your time by evaluating the return or benefit you receive from the time you invest in a particular task or activity. By comparing the ROTI of different tasks, you can make more informed decisions about how to allocate your time effectively.

For example, if you have the option to take on a freelance project that pays well but requires long hours of work, calculating the ROTI can help you determine if the financial return justifies the time investment.

Another key formula you should consider is the Time Value of Money. The idea of this is to recognise the changing value of money over time when making financial decisions.

While this concept focuses on the value of money, it indirectly highlights the importance of considering the opportunity cost of delaying financial decisions or investments. The value of money changes over time due to inflation and other factors, making timely decisions an absolutely crucial concept to understand.

For instance, if you delay investing in a retirement account, you miss out on the potential compounding of your investments, resulting in a lower accumulation of wealth in the long run.

In order to properly manage your time, you need to look at all the factors that form your decision-making. I call those "Time-thinking" factors. They are psychological and time-based factors involved in every decision you make. Last week I shared a few of them involved in the pursuit of "Why you need to value your time ". This week I share 7 more which are directly impacting your decision of "How much your time is worth".

True Hourly Rate

Determining the true hourly rate you earn by accounting for all aspects of your work and related expenses. The concept of the True Hourly Rate takes into consideration not only your earnings but also factors such as commuting time, work-related expenses and unpaid overtime. By calculating your True Hourly Rate, you gain a more comprehensive understanding of the value of your time and the actual financial impact of your work.

For instance, by factoring in the time spent commuting, any work-related expenses and unpaid overtime, you may find that your True Hourly Rate is significantly lower than your base salary, which itself is a precursor to making you rethink the value of your time and potential trade-offs.

Cost of Delay - Understanding the potential loss or opportunity cost associated with delaying important tasks

While not a precise formula, considering the cost of delay prompts you to evaluate the financial and personal impact of postponing critical decisions or actions. It emphasizes the importance of being proactive and timely in managing your finances.

For example, if you delay paying bills or addressing financial issues, you may incur late fees or miss out on investment opportunities that could have yielded higher returns.

Personal development and growth

Allocating time for activities that contribute to your personal development and growth is one of the best returns on time you can find. It directly increases the value of your time, which with time will multiply again and again! That’s why spending time learning new skills, pursuing hobbies, reading, attending workshops, or investing in educational opportunities is never wasted!

Time efficiency and productivity

Reflect on ways to improve your time management skills and increase your productivity. By optimising your workflow, eliminating distractions and focusing on high-priority tasks, you can make the most of your available time and achieve more in less time. Which itself can drive a higher ROTI for you.

Health and well-being

Recognise the value of time dedicated to your physical and mental well-being. Regular exercise, proper sleep, meditation and self-care activities contribute to your overall health and productivity. Prioritise time for activities that support your well-being and help you maintain a balanced lifestyle.

Time scarcity

Reflect on how much time you have available and how limited it may be. Time is a finite resource and once it's spent, you can't get it back. When you have limited time and multiple competing priorities, it becomes even more crucial to prioritise tasks that align with your goals and values. This also covers the time you spend binging TV shows - you should always be aware of the tradeoffs that you make.

Delegation and outsourcing

It is that simple, if it’s something you can easily do or something you are not an expert in, just outsource it. Most of the time, it will be more cost-effective to do so than to struggle and try to do it yourself. It will free up your time, so you can devote it to higher productivity tasks.

In order to find the optimal point of balance between work and personal, you need to understand the value of your time. That’s why, evaluating concepts such as ROTI, True Hourly Rate, Cost of Delay and Time Value of Money would help you understand how far away you are from the ideal situation. However, it is important not to neglect the psychological factors that build your "time-thinking" and the long-term benefits associated with properly managing them.

Remember, your values are all yours and are dependent on your personal circumstances. It is vital that you deploy your time in the most efficient way possible in order to prioritise doing what matters to you and gives you the most joy in your life. Don't forget to regularly review and adjust your time allocation, so you can maintain a healthy work-life balance and ensure you have spent your time wisely!

Next week, we will set up a great system that will help you "multiply" your time!?

Thank you for reading! All comments and topic suggestions are highly appreciated. Post #39 in the series CFO of Life

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