Time Management -- Determining How Much Your Time Is Really Worth -part 2

Realized Income Methods can be used to calculate the value of your time, which will help you make better decisions about how to spend money on day-to-day purchases.

You need two numbers:

1. The amount of time you spend to earn money.
2. The amount of money you earn during that time.

The first step is to measure the total amount of time you invest to earn money, not just the hours you are physically at work.  You should add in any time you spent working on a side hustle. For example, one hour commuting to work or dropping your kids off at daycare. I recommend using 2,500 hours per year as a starting point.

As an online entrepreneur, I spend most of my time working on the computer. When I started measuring my time, I installed a software tool called RescueTime. Using the numbers from RescueTime and a few reasonable estimates, I found that I spend about 2,742 hours working per year.

The second factor you need to know is how much money you earned during the time you spent working. You should also include money from side hustles and freelancing gigs because the time you spent on those activities is included in Step 1. This is the amount of money you have left after deducting taxes.

I use a service called Bench Accounting to track my business income and expenses. Looking at your earnings over a longer time period helps to smooth out these inconsistencies and provide a more realistic value of your time.

Step 3: Calculate the value of your time

Finally, divide your total money earned (Step 2) by your total time spent

We can get now a clearer picture of what our time is actually worth—and it is usually much less than what you would charge for an hour of work on your job. There are a few quick ways to check to see if your hourly value is accurate (look at the examples in Step 3 of the Time-Value Spreadsheet.)

 Market Rate Method – is the rate you could expect to earn if you were hired by another company for a job you were qualified to perform.

Cost-Based Method – is the rate you would pay someone else to do the work that you do.

Examples

• If you know your time is worth $60 per hour, then you should always pay $49 for shipping instead of spending one hour shopping at the store.
• If you know your time is worth $80 per hour, then you should always buy the direct flight that saves you two hours even if it costs $150 more than the flight with a stopover.

Once you know, in dollars and cents, how much an hour of your time is truly worth you can make better decisions on a daily basis.

Don’t miss the next part of the series.

Source: http://www.entrepreneur.com/article/269922, originally appeared on JamesClear.com