The Money Value of Time
© 2002 Elena Fawkner
You have, no doubt, heard phrase "the time value of money". It means that a dollar in your hand today is worth more than a dollar in your hand a year from now. Why? Because of what you can do with that dollar over next year. You can invest that dollar in an interest bearing account and have $1.05 at end of year. If you decide to take your buck in a year, your opportunity cost (foregone investment) will be five cents. Not to mention what inflation will have done to your purchasing power in meantime.
As interesting as time value of money is to economists and financial planners, if you're anything like me, you probably find whole subject just a little short of riveting. So here's something more interesting to think about. The money value of time. Your time, that is.
Why do you need to think about money value of time? Because, quite simply, once you truly understand what your time is worth, in dollar terms, you will work your business more productively and efficiently than ever before.
In my other life, I'm an attorney. I work for a downtown Los Angeles law firm and, like any other law firm, what counts is how many billable hours I clock each month. We have software to track it all for us of course. My time is charged out at $250 an hour. In a minimum of six minute increments. This means that if I so much as pick up and read a one paragraph letter from another attorney, my client is billed $25.
Spend enough time tracking your time like this, getting to end of day and needing to see at least seven billable hours totaled on your computer screen and you soon develop a very healthy respect for dollar value of time.
And because I don't want to have to be at office for ten hours before I've generated seven that are billable, let me assure you I work very efficiently indeed.
In process, I've become an expert at avoiding time wasters and unproductive activities. As a result I can usually generate seven billable hours from being in office for only eight. (The other hour is unavoidable non-billable general admin type stuff.)
My point? Start thinking like an attorney when it comes to how you value and spend your time. Here's how.
First, decide what level of income you need from your business. For purposes of our example, let's say it's $52,000 per year or $1,000 per week.
Next, decide how many hours you want to work each week. To keep math simple, let's say you're going to work 50 hours a week. Therefore, on average, you need to generate $20 for every hour of time you spend working in your business.
But not all of your time will be revenue-generating (i.e., "billable") time. Any business has its share of non-billable time - those routine administrative tasks that must be done even though they make no contribution to your bottom line.
So, now you have a choice. You can either work more hours each week to cover your non-billable time, or you can increase amount you need to earn from every billable hour. The first option means working longer. The second option means working smarter. Your choice.
Whatever you decide, keep that hourly rate firmly in mind. Every hour of your time is worth $20 (or whatever rate you have calculated for yourself).
Think about that when phone rings on a work day and it's your sister wanting you to go with her to shopping mall this afternoon. There's three hours or $60 you've just thrown away (not to mention what you spend at mall!). Tell her you'll go with her on Saturday instead. You have to work today. Think twice about hour and a half it will take you to do your errands this afternoon. Another $30 gone. Do them on your own time, not your business's.