How do you value your time? In a world filled with countless opportunities and endless tasks, prioritizing and allocating your time can make all the difference between mere survival and thriving success. The principles of economics and psychology intertwine to create a profound lesson beyond mere money management. In this article, I explain my discovery, a turning point that redefined how I looked at earning money and living life to the fullest. Whether you’re an entrepreneur, an employee, or someone just looking to find balance and quality of life, the insights I share here could change how you approach your day-to-day decisions. Below is a strategy for maximizing income and time.
My Life-Changing Money Lesson
If I’m doing anything with my time that could be done by spending less than the amount I value, I’m wasting my time by doing it. If I enjoy it, that’s a different story, but if I’m not, it’s a bad value proposition and wastes my valuable and limited time.
This money lesson reflects the understanding of opportunity cost and time valuation, both fundamental concepts in economics and psychology. It also creates a massive quality of life improvement.
- Opportunity Cost: This principle refers to the loss of potential gain from other alternatives when one alternative is chosen. The individual is essentially losing money by spending time on tasks that could be delegated for less than one’s hourly value. The time spent on these tasks could be devoted to more profitable endeavors or activities that provide personal enjoyment or fulfillment. You should pay people to do things based on how much you value your time. A suitable parameter is that if you earn $30 an hour, it’s good economics to pay someone $60 for lawn care if it takes them over two hours to complete.
- Valuation of Time: In economic terms, time is a scarce resource, and how it is allocated can have substantial implications for personal wealth and well-being. By recognizing his value per hour and comparing it to the cost of delegating tasks, the individual places a tangible monetary value on his time. This reflects an understanding that time saved can be used for other endeavors that could bring more financial gain or personal satisfaction. In the lawn care example above, you must also consider the cost in time of buying a lawn mower and trimmer, going to get gasoline, along with the upkeep, maintenance, and storage of all this equipment. If a task interferes with your work, and it’s cheaper to pay someone else to do it than to take time off work to complete it, then it’s a lousy time valuation to work at something you can pay someone else to do.
- Mindset and Behavioral Economics: The decision to delegate tasks to optimize time reflects a mindset focused on efficiency and strategic decision-making. In behavioral economics, this decision-making process involves weighing the utility (satisfaction or happiness) gained from different actions and choosing the one that maximizes overall utility. In this context, the utility can be derived from earning more money or enjoying leisure or personal interests. When you pay for tasks to be completed, you buy back your time to do things you would rather do. This can also help you remain more focused on your career or business tasks and not get sidetracked by domestic tasks.
- Psychology of Control: By consciously deciding what tasks are worth your time and what can be delegated, you can control your energy, life, time, and career. This can enhance a sense of autonomy and satisfaction, allowing you to focus on what you truly value, whether pursuing higher-income opportunities, building a business, or enjoying hobbies and interests.
This mindset prioritizes efficiency, strategic allocation of resources, and personal well-being.
Real Life Example
The money lesson above emphasizes understanding the monetary value of your time and making decisions accordingly. When applying this principle to a neighbor who is not willing to mow your lawn for $60 but mows their own lawn, we can analyze it through economic principles.
- Opportunity Cost: If the neighbor is unwilling to mow your lawn for $60, it implies their time’s perceived value is higher than $30 per hour if it takes over two hours to mow. Thus, the opportunity cost of mowing their lawn (a task that they value at less than $60) is the loss of the ability to spend that time on a task that could earn them more money or provide higher satisfaction.
- Comparative Advantage: In economics, the principle of comparative advantage suggests that individuals (or entities) should specialize in tasks with a relative efficiency advantage. If the neighbor can earn more than $30 per hour doing something else, or if another activity provides better utility for their goals, they should specialize in that area and hire someone else (who values their time at less than $30 per hour) to mow the lawn.
- Rational Decision Making: Rational individuals aim to maximize their utility. If mowing the lawn does not align with the neighbor’s time valuation, they can gain more utility (either through income or enjoyment) by engaging in another activity. It would be economically rational for them not to mow their lawn.
- The Substitution Effect refers to the tendency to substitute goods as their relative prices change. In this context, the neighbor might find a substitute for mowing the lawn (such as hiring a lawn service) if their time could be spent on more lucrative or satisfying pursuits.
So, based on the above money lesson and economic principles, if the neighbor’s time is worth more than $30 per hour, they should reject your offer to mow your lawn for that amount and consider not mowing their lawn. Instead, they should focus on tasks that align with their perceived value of time and possibly hire someone who values their time at a rate compatible with mowing the lawn.
Key Takeaways
- Understanding Personal Worth: Recognize the monetary value of your time and align it with tasks that match or exceed this value.
- Strategizing Time Management: Delegate tasks that can be done at a lower hourly rate than your worth, maximizing earnings and leisure.
- Embracing Efficient Choices: Adopt a strategic approach that balances the pursuit of wealth with personal enjoyment and fulfillment.
- Asserting Autonomy and Control: By valuing time and choosing how to spend it wisely, you can gain control over both your professional and personal life.
Conclusion
The essential lesson drawn from this narrative is the art of intelligent time allocation. By assessing one’s hourly value and juxtaposing it with potential earning or enjoyment opportunities, a person can craft a life strategy that is not only financially advantageous but also personally gratifying. This practice transcends money management, offering insights into autonomy, satisfaction, and life optimization. It represents a cohesive approach that merges financial acumen with a profound understanding of human needs and desires, creating a roadmap to a life that is both affluent and fulfilling. I get a greater value from spending money on services like lawn care, automotive maintenance like oil changes, delivery services, and for great food than I do from just buying things. Buying services give you your time back, while buying things gives you more things you need to maintain. If you ever hope to be wealthy and successful, you must put a high value on your time and energy; it’s a limited resource where all your productivity comes from. Outsource the things that don’t help you move toward your goals as much as possible.