Time is Money, but How Much Money?

IMG_4281Recently, I have found myself with a lot more free time. With free time it is possible to take up side gigs outside of your regular job. I personally enjoy buying cheap busted up bikes on Craigslist, fixing them up, and then selling them. Although I only seem to manage to get 1-2 hours a week (the right bikes are not very plentiful online), I make between $40-$50 an hour doing it. There is also the added benefit that I enjoy working on bikes.

I have also had side jobs that were not so successful. For example, I know there are people out the whole make a living selling books on eBay or Amazon. After experimenting with this for a few months myself and only managing to make about $1.50 an hour, I decided it was time to move on to the next thing.

Although these two things were obvious as to whether or not I should continue doing them, what about side jobs that produce closer to “average” results, such at $10-$20 per hour?

You are choosing to put forth your free time in pursuit of earning extra cash, speedily adding more bricks to the retirement castle you are building. How do you determine for sure which gigs are worth your time, and which should be scrapped?

Time is a strange thing to quantify using a dollar amount, but let’s do it anyway. You already choose to put in 40 hours a week in return for a set hourly wage (or salary, which can be broken down into an hourly wage). Lets say you are making $50,000/year, this equates to $25/hour. Most people making 50k would cite this as their hourly wage, but in fact this is not true. There are a few factors that this figure does not take into account.

First of all, the time it takes you to commute to work. Are you being paid for that? Shouldn’t this be counted as time working? What about the time it takes to get ready for work in the morning, or decompress and settle in once you are home?

What about clothes you purchase as a result of your job? Or food or gas money you would not have spent if it wasn’t for your job? These are all things that should be taken into account if you would like to know your TRUE hourly wage. It is easy enough to calculate and I will run through an example below. A word of warning, some people are shocked when they find out what they are actually making. It turns out that commuting and extra time can have large effects on your true wage. Maybe after doing this, you will learn to move closer to work and start pedaling.

One Work Day

Hours worked 8 25X8=$200
Commuting by Car 2 -$20
Getting Ready in the morning .75 0
Decompressing/Settling in back home .5 0
Clothing 0 -$1 (assuming $250/year)
Lunch 0 -$8
Total 11.25 hours $171

$171/11.25hour = $15.20/hour

Shocking, right? And this is with typical behaviors such as living an hour from work, buying lunch out and owning a less than optimal vehicle. All things that are within your control. Some people with worse habits have done this and discovered they were making $0/hour. In other words, they worked so that they could pay for their work.

Since $15.20 is you true hourly wage that you already choose to work for 40 hours a week, It is reasonable to assume that this is how much you value your free time. With this, evaluating the efficiency of side gigs is now easy. If it makes you less than your hourly, drop it. More? Go for it. If it is close to the same, you will have to ask yourself some other questions, like are you gaining valuable skills through doing it, or does it only add stress to your life?

Converting your free time into a monetary amount is an excellent way to better judge what is worth your time. You can also discover ways to increase your hourly wage by tweaking how much time and money actually goes into your job. This technique may also be used in evaluating one job vs the other. It is very possible to have a higher paying job that is further away work out to be a lower hourly wage.

Lets run a fun little experiment.  We will start with a person making $50,000 who is fully sucked into a high convenience and luxurious lifestyle, then make a few simple adjustments and see what happens.

This person will be driving an SUV, have a Starbucks habit, and regularly go out to lunch with office mates.

One Work Day

Hours worked 8 25X8=$200
Commuting by Car 2 -$25
Morning Starbucks to wake up for work 0.1 (drive through) -$4
Getting Ready in the morning .75 0
Decompressing/Settling in back home .5 0
Clothing 0 -$1 (assuming $250/year)
Lunch 0 -$15
Gas for lunch 0 -$5
Getting a treat on the way home (part of decompression routine) 0.1 -$5
Total 11.45 hours $145

$145/11.45hour = $12.66/hour

They are only taking home half of what they earn, extending their mandatory working years by decades. Now let’s get a reasonable sedan, move close enough to work you only drive when it rains, get a nice coffee pot to replace Starbucks, pack a delicious lunch with some kickass cooking skills anyone can learn, and finally, have a treat waiting at home at the end of the day.

One Work Day

Hours worked 8 25X8=$200
Commuting by Bike 0.5 -$1 (Driving some days)
Morning Starbucks to wake up for work 0 0
Getting Ready in the morning .75 0
Decompressing/Settling in back home .5 0
Clothing 0 -$1 (assuming $250/year)
Lunch 0 0
Gas for lunch 0 0
Getting a treat on the way home (part of decompression routine) 0 0
Total 9.75 hours $198

$198/9.75hour = $20.30/hour

There you have it, an instant raise of $8/hour, or $16,000/year, or $240,640 per decade with compounding. For those of you who would argue convenience contributes to a happier lifestyle, would you value it at a quarter million dollars?