A New Way to Measure Your Success
There are varying degrees of success and many different ways to define it. For example, in order to be a successful frequent flyer, you will probably need a lot of connections. 😀 And if you’re trying to lose weight, success is all about mind over platter, and winning that Nobelly Prize. 😄
Financial success is often evaluated in terms of income or wealth. But I often argue that time is our most precious resource. Unlike money, all our days are numbered. So given this reality, perhaps the best way to evaluate our success is to find out how much we value our free time. 🙂 This can be done with the following steps.
- Think of an activity that is neither pleasant nor unpleasant to do for you. It also can’t help you gain skills or make you smarter.
- Determine the minimum amount of money you would charge to perform that service for 1 hour for a stranger.
This mental exercise will reveal how much you value your time at an hourly rate. 🙂 For example, services I can provide that I neither like nor dislike include slowly folding laundry and walking around town for no reason.
I would have gladly accepted $20/hour to fold laundry 10 years ago. But things have change now. I would not give up my free time for any amount less than $40/hour today, because I can offer valuable skilled labour. Furthermore, I’m 10 years closer to death so there has to be an added premium on the remaining time I have compared to the past me. Due to simple economics, the fewer days I have to live, the more valuable those days are to me.
In a way, $40/hour is an indicator of my level of success in society. Perhaps a doctor or lawyer would value their free time at $120/hour. This wouldn’t be surprising given their place on the social economic ladder. It is not only a measure of their immense human capital compared to mine, but also their financial status.
How the Value of Time is Tied To Success
As self sustaining adults, the value of our free time should be the lowest at the start of our careers. But over time this value should increase to keep up with our growing human capital. Over time our demand for time is increased, and demand for money is reduced because we can earn money easier and more quickly.
But measuring success based on the value of time has some drawbacks. It is based on our subjective perceptions. Maybe our labour is worth less in the free market than we think it does. The measurement also falls apart for the unemployed. For example, a retired grandma may want to fold laundry for as little as $5/hour. But that doesn’t necessarily mean she’s not successful in life. She probably just has nothing better to do since she’s retired and has free time 24/7.
Nevertheless, the hourly rate can be useful to encourage self development and determine relative success. 🙂 For example, let’s say our free time is worth $30/hour now. If this grows to $50/hour in a few years then we are probably going in the right direction in terms of our career and finances.
A Loophole Around Sensitive Financial Discussions
Lots of people are uncomfortable talking about money with friends. But when I ask my buddies about their free time hourly rate I usually get a candid response with no awkwardness. So perhaps this is a suitable way to discover people’s financial situations without directly asking them to disclose private information. For example, if your friends put a lower value on their free time than you, then it could mean they earn less money than you do.
So, how much is your free time worth? 😉
Random Useless Fact:
I always enjoy this kind of thinking and it puts into perspective what is worth spending time on vs. what isn’t. I usually think of this from the other side where instead of thinking of a certain premium I would pay for my time, I think of expenses in terms of the work involved to offset it (usually for frivolous purchases so passive income is spoken for)
The same trend happens where something would have cost a day and a half of work when I was in my late teens compared to now where it the same purchase speaks for only 2 hours of work. The math shifts in the same way where working for a day and a half is not worth it but only for a couple hours is. Solid post!
Good point. Thinking about expenses in terms timed worked is another way to frame our values and determine what’s really important to us. 🙂
This is a video about valuing time from people in the personal finance. For the reader’s, Jason Fieber has a new blog called mrfreeat33.com
Thanks for the video. That’s interesting how they value their times differently depending on how the question is framed. It sounds like all 3 people are super productive, or at least they value their time a lot. $200 to $300 per hour is quite high. I’m going to check out Jason Fieber’s new blog. 🙂 I like his focus on dividend investing. I was following him on his old site before he sold it.
As self sustaining adults, the value of our free time should be the lowest at the start of our careers… funny, but I’ve always thought the opposite, my time early on was oh so valuable to setting up the life I have now… my time back then was oh so precious and honestly I would not give it up for anything except family, because family is family… But now, because I valued my time when I was younger, I can now provide my time to anyone who asks open and honestly for it, now that my time is freer, because our financial system chugs along with little input from me… maybe to the person who wants my time, its valuable, but for me, it’s just free. At some point, dollars and cents and value only get in the way of having a life and sharing smiles 😉 – Cheers
That’s an interesting angle. One I didn’t think about before. I like it when you explain your Phil-osophy 😀
Interesting look on things. It’s hard to say for me where I’d value my time. For strangers they’d have to pay me a lot. But then I’d be really curious why they’re paying me so much and not some other stranger a lot less, so I probably would turn it down from paranoia…
Maybe they want to pay you a lot because you are a famous finance blogger, Stephen. 🙂
Great blog, I have read many of the post for a few weeks now. Gives a lot to think about! Valuing time is an interesting excercise which I have done a few times. I’ve also thought of the value of e.g. a sunny day – on holidays, the weather is extremely important and I could pay up to €400 a day for a perfect weather (as with poor weather the days might be a bit frustrating and already trips are expensive when both the paid costs and alternative cost are taken into consideration). However, lately I have started to contemplate whether I think of money too often. Is it really healty to think of things with $/€ value? Or should one just try to forget money often and concentrate more on the present moment etc. Maybe I am in the extreme end and have tought of money my whole life way too much, and starting to realise my obsession with money. One one hand, it has been beneficial to me as Im 28 years old and been financial free for a year now (I have made most of money from rental apartments which I own now 82, but before that… Read more »
The things we focus on the most tends to also increase the most. I think the reason you are financially independent is because you thought extensively about money. But now that you have enough to live exclusively on passive income you can take a step back and enjoy a more balanced life. Money is always important to think about. We need it to provide comfort so we can live better in the present. So I think money is a means to an end. Remembering why we want to have money in the first place can help us appreciate money and life more. Congrats on your real estate empire. I want to be financially free like you too. It might take me a few more years though. 🙂
Yeah, you are correct at least fpt the most parts. It does not really matter how long it takes, as of course the travel is lot more important than the result. But even more important is what you become on your jornye. Maybe I am an extreme but I have really started the question the money centric world we live in. I tried to find a good book about money worship/obsession etc, but have not yet found one – maybe that is some evindence how deep obsession is in our culture. People are e.g. so interested about other people’s net worth – why? I definitely am not judging anyone doing so, as I have always been interested in money, my own and others’. But I’m just wondering why. As a child I wanted to be a professional athlete and money was secondary (important but not a priority). Then I understood I would not make it as an athlete and wanted to have other meaningful goals in my life: money obsession came in the picture. You are 100% right, that surely I have earned this much money because of this obsession, but I still feel that I was barely enjoying the… Read more »
A cool idea I really like is minimalism. You may have heard of this movement before. It criticizes the consumption driven world we live in and offers an alternative way of living and well being that doesn’t revolve around financial success. A group of 2 people called The Minimalists wrote a book about it. After making lots of money, but not enjoying their life journey, the 2 people decided to make a big change to how they live. It’s an inspiring story. I don’t know about others, but the reason why I’m interested to know other people’s net worth is because I have to compete for resources. Food, shelter, and other resources are finite, so my quality of life is determined by how much resources I have compared to others. I think this can be explained by evolutionary pressure. Throughout human history those with more money and property had the potential to live longer, have more offspring, and experience more fulfilled lives than poor people. So if I compare my net worth to others, then I could gauge my relative purchasing power and make informed decisions about whether I should work harder to make more money, or indulge more in… Read more »