Knowing How Much Your Time Is Worth to You Is a Key to Better Financial Decision Making
My local council operates a green waste scheme. For £60 a year they will pick up a 240-litre wheelie bin full of garden waste from my front drive. They collect every other week, except in winter when it’s once a month.
They also operate a very good, free to use, garden waste disposal site just 2 minutes’ drive from my house. But on sunny weekends there’s often a queue, so a round trip might easily take me 20 minutes.
I love my weekends and so am delighted to pay my council to save me some valuable time and effort. If it cost £600, I’d use their free facility.
It's a trade-off between money spent and time gained.
HOW MUCH IS YOUR FREE TIME WORTH?
£10 an hour, £100, £1,000 even? It’s a handy figure to decide on because you can then use it as a yardstick for any number of financial decisions.
Your number is going to be a function of your financial position, your age (probably), how many free hours you have and how many interesting and exciting things you wish to fill them with.
You can take a structured approach to putting a value on it - James Clear, author of Atomic Habits has a good methodology on his blog*.
Or you can do a quick experiment in your head and pretend that you are a Boy Scout or Girl Guide again. In those days, you did chores to earn achievement badges but how much would a neighbour need to pay you now to mow their lawn or wash their car?
TIME AND MONEY DECISIONS
With many financial decisions there is a clear monetary difference between option A and option B.
Take a mortgage for example. If your fixed rate is coming to an end, your existing lender may offer to move you to a new one, with a quick and painless process. Or, you can switch to a different lender to get a better rate as it’s unlikely that your existing lender will offer the absolute best terms in the whole market.
If you value your time at £50 an hour and switching lenders will save you £200 over a couple of years, you may well take the view that it’s not worth the effort switching, once you have estimated how many hours it will take you. If the difference is £2,000, it’s probably a different matter altogether.
The same theory applies to switching savings accounts, insurance providers, utilities, phone contracts, or moving from one global stockmarket tracker fund to another. Anything where, within reason and as long as it works, the highest interest rate or the lowest cost option is probably the “best”.
If the time it takes you outweighs the monetary benefit, it’s just not worth it.
To find out more about how a structured approach to personal finance can save you time, effort and money, click here.
*'Value of time' - Atomic Habits, James Clear
The value of your investments can go down as well as up, so you could get back less
than you invested.
Tax and Estate planning is not regulated by the Financial Conduct Authority.