How much is your time worth?
Did you see the Justin Timberlake thriller In Time last year? Probably not. Nobody else did either. Well, I did, I guess. And while the movie wasn't very good, it contained an interesting idea that I think relates to personal finance.
The movie's plot revolves around a world where everyone is genetically engineered to live until they're 25. After that, they have exactly one year left before they die. The amount of time they have left to live is displayed on their forearm and because of how limited of a resource it is, people use time as the method to barter and exchange things with each other. Time becomes a currency. Want a cheeseburger? That's twenty minutes. Bus fare? Two hours. You get the picture.
If you can get past some overly-cheesy acting moments from Justin Timberlake, the movie makes an interesting point about the importance of valuing your time. While it's easy to waste five minutes here and there in your day-to-day life without realizing it, in the movie people are acutely aware of just how much time they have left. It's marked on their forearm after all, and they weigh all of their decisions on whether or not the trade-off is literally worth their time.
Interestingly, the most successful people I've met in Real Life treat time with the exact same care. They value their time more than anything. More than their Stuff. More than whatever is in their bank account or 401(k). Time is the most precious resource because once you spend it, you can't get it back.
When you value your time, you begin to evaluate your decisions through a completely different lens.
Take the choice between two very similar jobs. Maybe at one you can make $40,000 working down the street from your house, and at the other you can make $50,000 by working somewhere that's half an hour away. Most people would think it'd be a no-brainer to take the $50,000 job simply because of the pay increase. After all, everybody has a commute, right ? Besides, it's $10,000, and we all know that more money is better, right?
Let's do the math. If you have a 30 minute commute, every day you'll spend about an hour in the car (five hours every week).
With 50 weeks in the year (assuming you take your 2 weeks of vacation that most Americans don't take advantage of), you'll spend around 250 hours every year in the car — just over ten days — not counting any traffic delays you might have.
If you value your time at $25/hour (~$50,000/year salary), over the course of the year you'll be spending $6250 worth of your time commuting, most likely being stressed that whole time. When you add the wear and tear on your vehicle, the trade-off begins to sound very different than it did at first.
This isn't even factoring that the average American spends almost $4,155 a year on gas alone. Even if you only can attribute 60% of your gas costs to work, that's still $2,493 in gas you're spending just to appease the $50,000/year job requirements (namely, showing up).
However, if you took the job closer to home, you would save $6,250 in the value of your time as well as $2,493 in gas over the course of the year. So, while the perceived pay gap is $10,000 at first, the actual pay gap between jobs when accounting for the value of your time and added gas would be about $1,257/year. This $1,257 is 2.5% of your $50,000 salary. With that in mind, the question becomes much, much different. (And keep in mind that we still haven't discussed the opportunities to create additional revenue from the 250 extra hours you'll have every year!)
Are you wiling to take a 2.5% pay cut to spend more time at home? To do more of the things you enjoy while spending less time getting being stressed? Or, to put it another way: Is a year's worth of time, stress, and sanity worth $1,257?
Obviously there are some other factors that we still haven't accounted for.
- Even if you worked closer to home, it would take some time to get to work.
- Do both jobs offer the same opportunities down the road?
- Are they both equally compelling career options?
The comparison isn't perfect, but it's not supposed to be. It's supposed to make you think. How do you spend a currency like time, one that isn't measured in dollars and cents?
I'm not saying you should throw away your car and quit your job tomorrow. But if you begin to factor in items that might seem less tangible than money, you might start to make decisions based around the quality of your overall life experience, not just the numbers that show up on your bank statement every month.