Money Value of Time

12/17/2013 05:55 pm ET Updated Dec 06, 2017

The Time Value of Money is the calculation used to determine what an amount of money you have today will be worth at some point in the future by adding in an estimated amount of interest or inflation for that time period. It's a concept that you've probably heard of and are likely familiar with if you do any kind of saving or investing.

But what about the Money Value of Time?

The Money Value of Time is a phrase that I use to demonstrate the theoretical concept that there is a cost to participating in any activity.

Every person who earns an income has some hourly wage. Regardless of if you are paid salary, straight commission, profit, bonuses or any other type of compensation plan, we all have an hourly wage. Take a person's annual income and divide it by the number of hours they work in a given year you will come up with their hourly rate of pay - the money value of their time.

Therefore the "cost" of participating in any activity varies from person to person based on their income and how much time they spend on any given activity. And any time that they are spending on non-income producing activities has a negative impact on their ability to make more money because it's time they are not spending on things that do generate income.

Assuming their pay is somehow tied to results:
• Waiting in line for that morning coffee at Starbucks... has a cost.
• The time you spend folding laundry or mowing the lawn... has a cost.
• Being on hold waiting for a customer service agent... has a cost.

The Money Value of Time concept helps you understand that anything that wastes your time is a waste of your money. Even if it's not dollars, there is always the opportunity cost that when you are doing one thing, you are not doing another.

The goal of calculating and knowing the Money Value of Your Time is not necessarily to make you perpetually evaluate every single second of every day. It also seems like a quite cold and inhumane methodology for how to evaluate the time you spend with other people -- although I suppose there is relevant application even there. But understanding the Money Value of Time is more of an effort to demonstrate how many high-performing people think about time compared to the average person.

On any given day most people waste a tremendous amount of time. I recently heard a report that the average person spends 1 hour a day just looking for stuff! Many of us waste a good bit of time wandering around in semi-mindless meandering among infinite mounds of minutiae. Truth be told, we're usually not even present to how much time passes by before we finally wake up.

Yet, the more successful the person, the more intentional and protective they seem to be about their time. It's not because they are arrogant, evil, uptight, or pompous but because they have realized that time is one of the truly finite and limited resources. This understanding creates an otherwise unexplainable urgency for them to get things done -- not just at work.

This line of thinking isn't to suggest that work should be the most important thing in your life. But it should be a reality check that the people who seem to get the most out of life are highly conscious, deliberately intentional and relentlessly protective of how they spend their time -- because they know there is a great cost.

Just reading this article has cost you something. Hopefully it turns out to be a worthwhile investment for you.

So, there is always a cost. The question is, are you mindful of the cost and are you calculating it carefully so that you don't inadvertently end up spending too much?

Rory Vaden is co-founder of Southwestern Consulting, a self-discipline strategist and speaker, and New York Times bestselling author of "Take the Stairs."

For more by Rory Vaden, click here.

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