What is an hour worth? (or, the trouble with frugality)

In my attempts to become something of a time management guru, I've been reading other classics in the genre, and seeing what tips those authors pass along. One book I read recently: Time Tactics of Very Successful People, by Eugene Griessman.

While some of the advice is delightfully dated ("for many people, the car phone has become a necessity" -- remember 1994?), some is timeless. Griessman suggests that you calculate how much your time is worth. An easy way to do this is to divide your salary by roughly 2000 hours of annual work (50 40-hour weeks; he builds vacations in but this makes the mental math more difficult). If you make $50,000 a year, your time is worth roughly $25 an hour.

All well and good, but this is the part I really like: "Give yourself a raise," he writes. Double that per hour figure for your mental calculations. If you make $25 an hour, think of your time as worth $50 an hour.

Why? Well for one reason (though he doesn't say this) if you work for someone else, this is the actual cost to employ you with taxes, benefits and overhead. But the point is that if you think your time is worth a certain amount, "don't be surprised if before long you are actually making this kind of money." Half the income game is mental, anyway. And furthermore, "you will begin to realize the cost of an hour frittered away." You'll be less tempted to make silly time-wasting choices in a misguided pursuit of frugality.

Now, there's nothing wrong with frugality. I've written pieces praising it for the young who need to build up enough savings to gain control over their lives and careers (it's a lot harder to save when your expenses go up with children and the like). I also write at length in 168 Hours about my colleague Leah Ingram's adventures turning her blog, Suddenly Frugal, into a book.

But many people, in attempts to be frugal, discount the opportunity cost of time. If you put a high value on your time, you'll immediately see how stupid it is to drive 10 minutes out of your way (20 minutes round trip) to save 5 cents a gallon on gas or buy three boxes of cereal for $1/less each. If laundry takes two hours out of your weekend, and a laundry service can do it for $25, it definitely makes sense to outsource it. It makes sense, in all these cases, to save time even at the lower per hour rate. But if you double your per hour rate, you'll waste less time even considering it. Better to use the saved time pursuing moonlighting opportunities that actually will pay you the higher rate (see my old LauraVanderkam.com post on Cutting Coupons? Not in the Craig's List Economy). There is a limit to how much you can cut. In theory, at least, there's no limit to how much your income can grow. If you're trying to get out of debt, figuring out a way to make an extra $100 a week will be a lot more effective than saving $5 by making your own laundry detergent.

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