Doing this 1 equation can save you thousands
Thinking about the hours of your day in dollar terms is not a particularly appealing prospect.
We’re all more than our financial worth.
But if you’re paying rent or a mortgage and trying to feed yourself and a family, the need to know what you’re bringing in week to week, or at least could be bringing in, is reality.
And that’s certainly true if you’re constrained by time. For example, if you only have the opportunity to work during school hours and/or if you’re paying childcare.
One way to rethink your time and take more control of it is to determine an hourly rate. Even if you’re not technically billing anyone for it. That way you can figure out what you’re willing to give away to others, and how to spend it in a way that brings the best return.
I learnt this from a new mother turned entrepreneur a few years back, someone who somehow held a part time corporate role, ran an eCommerce business, had young children, and still managed to find time for herself during the day. How do you do it? I asked. I know what every minute is costing me, she responded.
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Time is an investment
This businesswoman had given herself an hourly rate and stuck to it religiously. So if she sat down to do admin work, she could immediately consider whether doing it herself would be more cost effective than outsourcing it to someone else. And when she was asked to do something with or for someone else – say to take a meeting, to discuss a potential partnership or to be on the receiving end of a ‘can I pick your brain’ coffee, she would think: am I willing to give this amount of money to this person?
The ‘give yourself an hourly rate’ idea was recently reinforced to me by time management expert Kate Christie, who advocates for seeing time as something we ‘invest in’ rather than try to manage. Time, like money for most of us, is a limited resource and we want to make sure we invest it in a way that brings in the highest return possible.
Indeed, calculating the ‘financial cost’ of one of your hours of time is the first step to learning how to invest it wisely, according to Kate. If you really want to see what it’s costing you, take that one hour of admin you’re working on each day and price it out over a year. It will be a mind-boggling amount.
How do I figure out my hourly rate?
There are crude options, such as taking your annual salary – or better-yet your aspirational salary – and dividing it by 1,748.
That figure is the total number of working hours available over a year working a 38 hour week, when you put aside four weeks of annual leave and another two weeks of public holidays. So on a $70,000 a year salary, you’d be looking at $40 an hour as the starting point.
There are costs to put on top of that and add to your hourly rate. The overheads – phone and internet bills, office rent, accounting and legal fees, plus superannuation considerations. And there may by childcare and out-of-school care costs. (Check out this guide here for additional help).
Then there’s the question: do you really have or aspire to have 1,748 hours or productive work hours available a year? You might find that you can drop that yearly hourly figure significantly and then bring up your hourly rate dramatically.
The cost is more than financial
But the financial cost – with the clear hourly figure you can apply to it – is only one type of cost to consider when rethinking how you invest your time.
As Kate says, there are other costs too. Costs that we can often overlook in our efforts to be financially ‘productive’.
There’s the opportunity cost. If you’re running your own business and need to work at business development in order for it to grow – how much is it costing you to lose these opportunities, because you’re spending your time on tasks that can be easily outsourced?
And if you’re feeling stuck in your job or the work you’re doing for a client and know you could potentially find more satisfaction elsewhere, how much in opportunity costs are you losing by not spending some time each day trawling through LinkedIn, looking at what’s available and connecting with others? It’s work that won’t earn you anything in the short term but could pay off massively later.
Counting the cost of “picking your brain”
If somebody asks you for that pick-your-brain coffee, it’s certainly financially smart to consider how much that hour of time will cost you and whether that’s actually worth it. Immediately, it’s unlikely to ever seem financially worth it. But there are potential opportunities to consider: the chance to learn, to collaborate and possibly benefit significantly if this person happens to be in a place where they could become a client, or make a vital introduction for you, later on.
Then there’s the emotional cost. If you’re in a job or some kind of position you really, really dislike and you’re desperately unhappy – is the emotional cost worth the financial return?
Maybe it is, for a limited number of hours. Maybe the choices available here are limited, although it’d certainly pay to at least investigate other options. But otherwise, what can you do with your time outside of work to potentially make up for these lost costs?
The physical cost
Finally, as my time management guru Kate told me, there’s the physical cost: how much are your choices on “time investment” actually costing your body? Is it preventing you from exercising, leaving you too exhausted to actually enjoy your day? Then they’re costs that may ultimately cost a lot more than any lost income or revenue.
Years of non-stop desk work might be great for paying off your mortgage, but they may also be limiting your potential to work effectively later on, if your health suffers as a result. There’s the risk of burnout – which, in one recent example I heard about, put a doctor out of work for a full year. Then there’s the cost of years of inactivity that may limit your ability to participate in other things as you get older.
So it’s not just about putting a dollar figure on your time – although that’s a good place to start, as icky as it can feel at first. But that financial calculation, that dollar figure, becomes a baseline for everything else, particularly on the opportunity to pursue the things you really want.
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