How much is your time worth? Simple question, complicated answer. And I think most people are thinking about it incorrectly.
Actually, there are tons of answers, and people have tried to find a “best” answer before. None of the answers that I’ve found have satisfied me, because those answers apply the same value to Hour 1 as to Hour 8 as to Hour 50 of your busy workweek.
They’ll take your total earnings (A), divide by your total working hours (B), and say, “Voila! An hour of your time is worth A divided by B.”
You work a full-time job making $80,000 per year? Then your time is worth $40 per hour. Cut and dry. When you Google “the value of time,” this is what the #1 result suggests. That’s lame!
I don’t mind working during the work day. But I’d prefer not to miss out on weekend fun, family time, or evening events. The more of my time that you take from me, the more valuable the remaining time becomes. That’s common sense, right?
If you can’t tell, I dislike the idea that all time is worth the same. I think it’s a bit ridiculous.
The Marginal Time Value Philosphy
In response to this ridiculousness, I give to you, the Marginal Time Value Philosophy. In short:
The first few hours you work are easy, go fast, and therefore are worth the least. They are also the hours that you need the most. You need them to pay the bare bones bills. That need—i.e. your demand—means you’d be willing to take a worse deal for them.
The last hours you work are the grueling hours. You’ve earned what you need, and you’d rather being doing something else. You don’t need these hours as much—your demand is low—and therefore you should charge a higher rate for them.
While I’ve never seen it called out, this is the underlying philosophy behind the growing FIRE movement.
Not yet convinced? Well…
This example will prove it to you
You might disagree with my baseline argument, and I’m willing to admit that I might be wrong. But I think I can convince that we need to apply different rates to different hours. Give a thought to this example:
Would you accept $2000 per week for 20 hours of work? That’s $100K a year. On average, it’s $100/hour.
Would you accept $15000/week for 150 hours of work? That’s $750K a year (whoa!). It’s also $100/hour. But you’re working 21.4 hours per day. On average, you have 2.5 hours each day for sleep, eating, errands, fun etc. Every single day. Can a human work that much?
Two scenarios, both $100/hour. And yet…
I think most of us would say YES! to the first situation, admitting that your time can be worth $100/hour on average.
But I think most of us would say NO! to the second situation, saying, “Eventually, I would not accept an average of $100/hour.” It’s just not worth it anymore.
And that is exactly my argument! The value of your time changes depending on how much time you have left. Real life isn’t as black and white as this example, but the principle is there.
How much is your time worth?
Moving on from that hypothetical, I’m going to pose two more hypothetical questions and one real question. I’ll give my answers afterwards if you’re looking for an example. The questions are:
Question 1: In extreme circumstances, how many hours are you willing to work? These are your negotiable hours. You’ll probably choose a number less than 150 hours per week.
Question 2: How much money do you need in order to meet your bare minimum lifestyle? Cut the fat. This is your minimum required salary. (Think net, not gross)
Question 3: What is your actual take-home pay rate? Divide your real-life average paycheck by your real-life average number of hours worked. This is the “old fashioned” metric that I am not a fan of.
Three questions. Negotiable hours. Minimum required salary. Actual take-home pay rate.
The answers will be different for everyone. We all have limits, thresholds, and no-go zones. Rice and beans and terrestrial radio have their limitations.
My personal answers:
- 72 hours a week are negotiable
- …and $2500 a month is my minimum required salary, or $600 per week (again, that net pay, not gross pay).
- To make math easy, my take home pay is $20/hour (net, not gross)
I wouldn’t be happy working 72-hour weeks for $600, but that would be the extreme scenario in which I could still live my life. Do you know what your numbers are?
The example: Hour #1
Next, we put the Marginal Time Value Philosophy into action. Let’s start at the beginning: Hour #1.
Using our hypothetical , how much do I need to earn in that first hour? It needs to be worth at least $600/72 hours, or $8.33. If I earn $8.33 each hour, I’d reach $600 after 72 hours.
Thankfully, I make more than $8.33 an hour. My take-home pay was actually $20 for that hour. At this point, there are two follow-up questions:
1) How much did I earn above my needs?
2) What is my adjusted minimum salary for the rest of the week?
The first question has a simple answer: I earned $20, I needed $8.33, so I made $11.67 above my needs. $11.67 is my marginal value for this hour. That’s how much I earned above my needs.
The second answer is also straightforward: I originally needed $600 for the entire week, and I earned $20 in hour #1. My remaining need, therefore, is $580 for the rest of the week.
Hour #2 through Hour #31
So let’s move ahead to hour #2. I need $580 more this week, and I still have 71 remaining negotiable hours. Therefore, as long as I make more than ($580/71 = $8.17) this hour, my budget and life will be ok.
I make $20 this hour (again). I then ask the same two questions. For this second hour, my marginal value is $11.83, and now I need to earn $560 for the rest of the week.
Notice that my need is going down ($8.33 to $8.17) and my marginal value is going up ($11.67 to $11.83). The more I work, the more valuable the next hour becomes.
This pattern plays out over and over again. The marginal value of my time slowly creeps higher. I need the money less and less, but I’m consuming more of my available time.
This metric–the marginal time value–behaves exactly the way I feel about my time.
But let’s stop this pattern for a second to take a look at Hour 30. After 30 hours of earning $20 per hour, I’ve now met my needs for the week (30 hours*$20/hour = $600. Nice!!). For the 31st hour, I need to earn…nothing! Yet, I continue to earn $20 during this hour, so my marginal time value is now $20/hour, matching what my employer is paying me.
The Marginal Time Value takes off
After hour 31, I’ve earned a total of $620. For the rest of the week, I just need to make sure I don’t lose $20. Yes, it’s a ridiculous thing to think about; how can you lose money by working? But let’s keep the model consistent.
Looking forward, I need to ensure that I earn more than (-$20) in the 41 remaining negotiable hours, or -$0.49 per hour. My marginal earning for Hour 32, therefore, is the difference between $20 and -$0.49, or $20.49.
I keep working until hour 40. My marginal earnings for that hour are $25.45. And that’s when my personal workweek typically ends. I usually don’t work over that, and certainly never approach my non-negotiable zone of 72 hours.
The beauty, if I may say so, of the Marginal Time Value Philosophy is that it accounts for the time when you are earning money beyond your needs.
Spending additional time at work (when I could be pursuing my other interests in life) becomes less and less enticing. Each hour eats up bigger and bigger percentages of my remaining free time, and therefore is worth more and more to me.
My first hour of work is worth $11.67
My 40th hour is worth $25.45.
My 60th hour of work is worth $70!
Applying the Marginal Time Value to Real Life
Since the marginal time value of my Hour 40 is $25, should I assume that an hour of my time on the weekend worth ~$25? Yes and no.
My first hour of work beyond 40 is worth $25.45. Work, in this model, is time that I don’t really own. If I’m with my friends, or exercising, or plugging away at a fun DIY project…that’s not work. That’s pleasure. I don’t ever think that I’m burning $25.45 an hour by hanging out with my girlfriend (pro tip: never tell your girlfriend that you’re applying a marginal value rate to your time together).
If I mow the neighbor’s lawn for $20/hour, some ridiculous people would say, “That’s fine; you said you take home $20/hour from your normal job.”
But the point of the Marginal Time Value Philosophy is that the 41st hour of my workweek is worth more than that. It’s worth ~$25/hour. If I say yes to that neighbor, then I better to find another $5 of value in there. Where might that $5 come from?
- Maybe I love mowing lawns (i.e. it’s not work to me). I’d take $20/hour to have fun.
- Or maybe I listen to an eBook (pleasure) or turn it into exercise (health) with an old-school mower. I’d accept money to listen to an eBook or work out.
- But if I dislike mowing and I’m in it for the cash, then spending my 41st hour of work to mow their lawn for $20 is a bad deal for me.
Maintain balance: what’s work, what’s fun?
Some people assert that applying a dollar value to your time is a sure-fire way to spin down the rabbit hole of bad thoughts. You’ll turn into a Scrooge, balking at every wasted minute. You lose money while sleeping, and you’ll lose sleep thinking about it. It’s a vicious cycle!
One goal of this blog (for me, and hopefully for you too) is to spend more time doing the fun stuff in life. My suggestion would be to apply today’s idea only to hours that you feel you do not own, and never to your leisure hours.
But the next time your neighbor asks you for “just an hour” to mow her lawn, you might think twice about what that hour is worth to you.
Thanks for reading the Best Interest. If you have 5 seconds (what could that be worth??), consider subscribing to get articles like this emailed straight to you every week–no fuss, no spam, no junk.