What's your time really worth?
By Gordon Powers, Sympatico / MSN Finance
Is it worth driving the extra few minutes to save three cents a litre on gas or a couple of bucks on groceries? Should you hire a housekeeper to free up your time? A gardener?
Well, it all depends on what you figure your time is worth.
Valuing your time in a monetary way is a tricky proposition. For instance, if you earn $75,000 a year through a regular work week (8 hours a day, five days a week, for 48 weeks) your time is worth roughly $39 an hour. If your yard service costs about $20 an hour, you've got a pretty sound economic reason to write a cheque, instead of buying that leaf blower.
But that's not the whole story. Unfortunately, a sizeable chunk of what you earn goes to the government. In addition, your money goes a good deal further in, say, small-town Ontario, than it might in Toronto.
Ian Walker, a professor at the University of Warwick came up with a formula a few years ago to help assess the monetary value of your time which, he suggests, has become increasingly more valuable in recent decades.
His calculation takes into account your gross hourly wage, your marginal tax rate, and the cost of living in your area. The equation looks like this:The value of your time = [wage (100-tax rate)]/cost of living.
His analysis is based on the assumption that what you make is an indication of how you value an hour of your time, because that's what you're willing to sell it for to an employer. But the calculation also depends on the cost of living in your area and those killer taxes, since they determine how far your money will actually go when it comes to spending it.
At $75,000, your marginal tax rate in Ontario would equal roughly 35%. And, if you’re lucky enough not to live in Toronto, your cost of living might be .95 times the national average, reducing that real hourly wage to something like $25 per hour. Here's a tool to help you with your own calculation.
Of course, the formula doesn't distinguish between earned income and investment income, which are taxed at different rates. And it's not easy to get a good cost-of-living number outside the big metro areas. But one thing is sure – unless you make more money than you can count, the more you can do yourself, the further ahead you’ll be.
Posted by: Austin Powers | Apr 24, 2021 10:22:31 AM
That is a completely wrong formula due to the fact you're assuming one would be able to get a job that provides $39/hour for the full 16 hours of every day of the year which is a horrible assumption. A person has roughly 5840 hours of time a year. The first 1920 hours would be worth $39/hour, now say this person would only be able to get another job offering $10/hour, therefore his other 3920 hours would only be worth $10/hour. So based on your expert advice, people may actually be worse off.
Posted by: yagottabekidding | Apr 24, 2021 11:02:48 AM
My calculation differs somewhat. When I look at the cost of an item - and if it ppears to be affordable to me - I look at how much I have accumulated in true savings over the year.
If for example - my accounts are $5200 larger than the prior year - then I have 'earned' $100 per week that is truly mine to spend - to indulge myself.
Just call it a five day week. Now that means my efforts have provided me with $20 per day in excess of my normal living expenses. If I choose to spend that $20 on lawncare - then I have effectively worked a day for the opportunity to choose to spend the money on that treat instead of doing the work myself - and perhaps saving the $20 for some other purpose - such as accumulating several $20 and really treating myself... Presumably the person who chooses to spend each $20 without reference to 'my' sort of logic has no interest expense or consumer debt to consider.
Posted by: Ron Karney | Apr 24, 2021 12:00:16 PM
I like Austin Power’s comments - my hourly rate as a result of my normal job isn’t a good number in figuring out spending decisions because I’m paid on a salary. I don’t have the option of working overtime and earning more money at that rate. So for me to take extra time to do something while saving money will always be financially worthwhile regardless of my hourly rate. I like the comment though about the hourly rate for the kind of job I could get for my extra time. This becomes my marginal hourly rate. (just like the marginal tax rate).
Posted by: Accter | Apr 24, 2021 12:29:20 PM
Interesting concept.
I look at it in a slightly different light also. With my job I can have unlimited overtime so availability of work isn't an issue. The issue becomes that I choose to be at work for my hourly take-home amount. When I choose not to be at work I am inherently determining that that leisure time is infact worth more than my work time to me (this is also a sliding scale as the less leisure time I get the more it increases in value). I also don't adjust for cost of living as this just doesn't seem a reasonable adjustment and my lead to false economies.
Basically speaking if I was offered 2X wage I would work more but only up to a point (as my reduction of leisure time would increase my leisure time value).
Also to take into consideration is that I personally enjoy yardwork so as I consider it somewhat leisure time the example above wouldn't really fit with me as I discount my yeardwork costs for my enjoyment (can you tell I'm an accountant).
However I don't cut coupons, drive to multiple stores or any such other ridiculous actions as I won't make the dollars an hour my leisure time is worth to me right now (I personally get no enjoyment from this so it doesn't happen).
My 2 cents worth.
Posted by: Pippa | Apr 24, 2021 12:30:08 PM
It would seem to me that if you are not at your regualar job been paid then you have to pay someone for services with after tax dollars. It more of a question; ' do I want to pay someone else" or ' do I want to save money and do it myself'. It will always be cheaper to do it yourself as the contractor is charging you his hourly rate, probably much higher than yours. I think that you can only use that formula if one is actually getting paid for hours outside his/her regualar work.
Posted by: Wondering | Apr 24, 2021 12:50:51 PM
Unless what you do for work is something you can do anytime, the $$ value will certainly vary. Someone earning a truly hourly wage would certainly be able to find more work at that wage so the comparsion holds although a salaried individual does have less flexibiklity. On the other hand a 75K salary is really worth closer to 88k when you factor in employee benefits, changing the math again.