How You Can Value Your Time
Last week, we looked at all the reasons why you should know the value of each hour of your time.
But how can you work out your own income return on investment for each hour you spend in your business?
To get started, you need two numbers:
- The amount of time you spend to earn money.
- The amount of money you earn during that time.
Step 1: Working out the amount of time you spent
In the UK, the average business owner works 52 hours a week.
That’s 2,704 hours worked each year. Let’s assume they also take two weeks of holiday per year.
That leaves them with 2,600 working hours each year.
If you want to work out how many hours you worked, you can use an app like RescueTime that tracks all the activity on your computer. If you don’t operate your business from your computer, you probably have rough weekly schedule. If not, track your hours for a week or two and use it as a guide. When you’ve figured out how many hours you work per week, multiply it by the 52 weeks in the year (deducting any holidays). It doesn’t need to be perfect—you just need a decent estimate to work with.
Step 2: Working out the money you earned
The next step is to work out what your total income was for that year after taxes.
The easiest way to do this is to use your P&L or tax return information. I keep all of this information on a spreadsheet personally, but I know a lot of people like to use accounting software like quickbooks and Xero. It doesn’t matter which method you use; you just need to make sure you have a number for your take home pay (after taxes).
Once you have this number, you can move onto the final stage.
Step 3: Calculating your value per hour
The simplest way to work this out is by dividing the amount of income you made by the amount of hours expended to make that income.
“Income (£) / Hours Worked (h) = Value Per Hour (£ per h)”
To do this, divide your total money earned (Step 2) by your total time spent (Step 1).
For example, if you worked 2,600 hours a year:
- If you want to earn the same income as the average UK worker £26,500, then your time needs to be worth £10/hour
- If you want to earn the same income as the average Chief Executive £117,700, then your time needs to be worth £45/hour
- If you want to earn the same income as the Prime Minister £152,532, then your time needs to be worth £58/hour
- If you want to earn the same income as the band One Direction £59m, then your time needs to be worth £22,692/hour (yikes!)
Not all hours are created equal
I recently came across this interesting fact about Bill Gates.
“With a worth of $72 billion, a 6% rate of return would earn Gates roughly $114.16 per second he is alive, making it a poor investment for Bill Gates to bother picking up a $100 bill if he dropped it.”
Would it really be a bad investment of time if he bothered to pick up that $100 bill? Of course it wouldn’t. He would have earned $214.16 in that second if he had picked it up. Why? Because we are talking about passive income. He wouldn’t lose any money either way.
#1 Passive income
This is a really hard one to gauge, but you should always look to create passive income streams. This will turbo charge your rate per hour because you will be creating recurring income that no longer requires an investment of time. I will be covering more on this topic in future articles.
#2 It’s not all about income
This whole article has been about putting a cash value on your time, but it’s not all about money, right? There are plenty of activities that you will complete that don’t have a direct cash reward, but that are still equally (or if not more) valuable than creating income. This could be spending time with your friends and family, learning, looking after your health. Don’t neglect these activities, even if you are money driven—actually, especially if you are money driven. They are vital for your personal health and wellbeing, as well as the health of your business because it makes the hard work manageable, sustainable, and prevents burnout. Ignoring activities that provide vital balance will impact the income you make one way or another.
It’s important to value your time
This brings us to the end of the article. It is important that you understand the value of your time, and that you put this information to good use. As an entrepreneur, time is your biggest asset. Those who efficiently leverage their time—and the time of others through effective outsourcing—are the ones who meet their goals without prematurely running themselves and their business into the ground. With your value per hour calculated, start to look at the low-value tasks that regularly suck up time in your week. Compare your value per hour with the cost of hiring someone to take that task off your plate. Remember, just like Bill Gates picking up the $100, you now have that time available for higher value tasks. You earn when you work and you earn when you outsource. This is the counterintuitive understanding that leads to strong, sustainable success.
You should use this article as a guide to:
- Prioritise your activities
- Outsource tasks you’re not good at, especially those that don’t return the value you want from your time
- Understand and evaluate why you’re not making the income that you desire (either from your products or your time invested)
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