How much is your time worth? and are you valuing it consistently?
It’s something I have been thinking about a lot after reading The Art of Thinking Clearly (awesome book by the way), since it’s one of the examples of irrationality the author pointed out, and we have to make decisions like this all the time, every single day.
The author’s example goes something like this –
You buy most of your groceries from one store, but there is another store across the street that sells milk for £1 less, for the quantity you usually buy on one trip. If you buy everything at the first store except for the milk, and buy milk at the second store, it adds 5 minutes to your trip compared to just buying everything in the first store.
If you do, you are valuing your time at less than £12 per hour. That sounds reasonable enough.
Say now you go buy a car. You are haggling with the salesman, he is standing fairly firm at £30,500. You know if you keep at it for an hour, he will probably agree to £30,000, because no salesman will lose the sale of a £30,000 car for £500, if you are insistent enough.
Would you? Would you spend 1 hour to save £500 on a £30,000 car? Most people wouldn’t.
If you wouldn’t, you are now valuing your time at more than £500 per hour.
Humans are very bad at evaluating these kind of balances, because human brains like to think about things in proportion, even when it doesn’t make any sense.
£1 is £1. £1 from a £2 carton of milk is exactly the same as £1 from a £30,000 car. By thinking in proportions, we are thinking irrationally.
I have been trying to force myself to value my time consistently in the past few months, and while I have no idea if I am worse off or better off than if I hadn’t, it certainly made making time commitment decisions easier.
I am currently valuing my time at £10. It’s a number I drew out of thin air. It’s not based on my current salary, which is £-25,500/yr thanks to Imperial College. But I’m sure whatever salary I am going to make will be within one order of magnitude from that (£1/hr to £100/hr), so it’s a good starting point.
So what kind of decisions can you make based on that knowledge?
- Should I spend 5 minutes to save £1 on milk? £12/hour. Yes.
- I have £10,000 sitting in a bank making negligible interest. It’s really not that much money. Should I bother spending 3 hours every year researching how to invest it and make all the arrangements, to get a roughly 8%/yr return? 8% per year is £800/year. £266/hour. Yes.
- I currently pay £1,000 per year on car insurance and I haven’t compared offers recently. If I spend an hour looking around and making a few phone calls, I can probably save at least £100. At least £100/hour. Yes.
- Should I spend 5 minutes filling out on online survey for a 1 in 10000 chance of winning an iPad? Expected return is 0.0001 * £500 = £0.05. £0.60/hour. No.
- I have 5 LED bulbs consuming about 50W total. I need to go out for an hour. Is it worth spending 20 seconds to turn them off? Price of electricity in London is about 15p/kWh. Price of the bulbs are £50 combined, and have expected lifetimes of 15,000 hours. The cost of leaving them on for an hour is 0.75p (electricity) + 0.33p (aging). Value for my 20 seconds is £1.94/hour. No. Worth it if you can do it in 4 seconds or less though! 2 seconds if you are away for half an hour. Obviously never go back home if you forgot to turn off your lights, unless you’ll be gone for months.
- Should I drive to work (30 minutes) or take public transit (1 hour)? According to some random site, cost of driving for 30 minutes a day in London is about £3,000/year. Cost of a 2 zone annual Oyster pass is £1,284. 30 minutes saved per work day * 5 working days per week * 52 weeks per year = 130 hours. Extra cost of driving is £13.2/hour. No. Probably yes if you are in the US where gas/petrol price is more reasonable, though.
- Should I prepare fruits myself (select 5 kinds, buy, store, peel, cut, etc, £1.50), or just get an expensive £3 platter from Waitrose(*) that contains 5 servings of different fruits? It would take me about 20 minutes more to prepare fruits. £4.50/hour. Waitrose.
- I forgot some coupons for the restaurant I am going to at home and didn’t realize until I’m on the road. It would take me 20 minutes to go back and get it, for £2 off. Should I go back and get it? £6/hour. No.
- You bought something for £5, and find out that you don’t actually need it. Should you spend 15 minutes going to the store, 15 minutes queuing and explaining, and 15 minutes going home? £6.66/hour. No.
As you can see, many things are very clearly worth it or not. Next time you have to make a decision on whether to make a time commitment or not, try doing some rough calculations in your head, and you may be surprised how easy the decision really is, and how often your intuition is wrong!
If you make more than £20/hour or so, you’ll find that most small things are really not worth your time, while no matter how much you make, anything to do with larger amounts of money (insurance, car purchase, etc) will be worth your time, so don’t feel like you are wasting time spending hours researching on a new car! Feel like you are wasting time turning lights off instead!
We are not taking into account other rewards like happiness and environmental-feel-goodness, etc.
Also, go read the book!
* For my non-British friends, Waitrose is a relatively high end (aka expensive) supermarket chain