Buying Time Formula
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| Credit: Pictofigo |
Do you pay $20 to skip a 20 minute line at the airport? Many people would do the following math, take their hourly wage and compare it to the cost of the offer, and if their hourly income is greater than the cost, then it is a good deal. In this example, if you make over $60 per hour you would take the deal.
Buying Time Formula v1.0
An offer is a good deal if,
Let’s start with the basics. The total number of hours in a year is equal to 365d * 24h = 8760 hrs/yr. But not all of those hours can be used because humans physically need sleep. Therefore, assuming an average of 8hrs of sleep a night, the average person has 5840 available hrs/yr. Some of those hours are for work in which you earn a wage, economists use the term “labor”, and the remainder is considered “leisure” time. For the average job, this equates to 50 weeks * 5d * 8h = 2000 labor hrs/yr, and 3840 leisure hrs/yr. The key thing to notice is the ratio of work to leisure, roughly 1:2 for the average 40-hour work week. The work to leisure ratio must be taken into account to properly value leisure time.
Applying this to the original example, let’s compute the amortized value of leisure hours = wages (dollars / work hr) * (work hr / leisure hr) = wages * (2000 / 3840) = ~½ hourly wage. Now the value of leisure time must be greater than the cost of of the $60/hr offer. In this case, leisure time must be greater than $60/hr: leisure time > $60/hr ⇒ ½ hourly wage > $60/hr ⇒ hourly wage > 2 * $60/hr ⇒ hourly wage > $120/hr to take the offer. This leads us to a generic equation for buying time:
Buying Time Formula v2.0
- Transportation. Should I pay for a Lyft, drive, or take public transit? Should I pay for a congestion toll?
- Household chores. Is it worth outsourcing my laundry, or hiring a cleaning service?
- Should I sign up and register for Global Entry for my air travel?
Scenario 1: You work a standard 40hr work week and make $50/hr. To get to work in the morning should you walk which will take 45m, or take a 15m Lyft that costs $10?
Answer: Take Lyft. You are saving 30m at a $20/hr rate and your leisure time is worth $25/hr.
Scenario 2: Same job, but you’re leaving work to go to dinner, it’s a 15m walk or a 5m Lyft for $8?
Answer: Just walk. You have the same leisure value of $25/hr, but the time saving comes at an expense of $48/hr.
Also, note that you don’t always have to stay under the formula guidelines. Like other capital, leisure time can be saved or spent. If in Scenario 2, you had walked all of last week, you may have saved enough leisure time to treat yourself to a Lyft.
Let’s plot out all possible work to leisure ratios on a curve.
Figure 1 plots the number of labor hours worked per week against the work to leisure ratio. Notice the limits, at one end you can see retirement, at 0 hrs/wk, the ratio is 0, which makes sense, a retiree will not be spending a lot of money to buy more leisure time, since all of their time is leisure already. For a semi-retired individual, that works approximately 10 hrs/wk, the ratio is ~1:10, they are still rich in leisure time, so they shouldn’t be spending a lot of money since they’re not in a rush. Moving up the curve, you can see that ~60 hrs/wk yields a 1:1 ratio, simplifying the equation to match the calculation with v1.0 of the formula. At the end of the spectrum, the ratio approaches 6:1 for 100 hrs/wk, or extremely high-pressure jobs, which causes a person to seemingly “overspend” for leisure, but is quite rational when traced back to their truly limited amount of free time.
Time for a reality check, does the explanation above match real-world human behavior? Given a person’s behavior, can you infer their work/life balance? The 100 hrs/wk investment banker and lawyers tend to blow off a lot of steam with intense, lavish activities. Parents that are time-crunched splurge on valet parking and fancy meals. People with more time tend to be more moderate with their consumption. Have you plotted yourself on the graph? If not, take a moment to do so now.
Does it matter where you are on the graph? Where to do you want to be? To get some perspective, let’s define work as being paid to do a task you otherwise would not do, and leisure as time you spend doing what you enjoy, or derive value from. You work to be able to live and pay for your leisure time. It follows that over time you want to spend more of your time in leisure, not labor. Your goal should be to minimize your work to leisure ratio and move yourself on the curve towards a ratio of 0, assuming you have amassed enough wealth to pay for your leisure activities - a big assumption (this is what earning a living and planning for retirement is all about).
Buying Time Formula v3.0
- Work less. Obvious and effective, this helps increase your leisure time directly. Countries, like France, enforce labor laws limited the work week to 35 hours compared to 40 hours in the USA.
- Sleep less. If you can’t lower your working hours, try conditioning yourself to require less sleep. All of the above examples assumed 8 hrs of sleep, some people can naturally operate on 6 hrs or less, and they naturally get more free time. Many people operate in this way with the help of caffeine, some take much more powerful drugs like Adderall. Do consult your doctor before any health changing habits that could result in serious harm.
- Leisure == Work. The old saying “Choose a job you love, and you will never have to work a day in your life” rings true. Now, no job is perfect, but if you are in a place where 80% of your time is working on stuff you enjoy, you can significantly change your leisure outlook. Moreover, you can still purchase leisure time for the higher rate, since your work time is already accounted for.
- Low-cost leisure activities. Getting fulfillment out of more affordable activities will serve you well in the long-term, by reducing how much you need to work to pay for them.
- Decouple wages from time. A job that pays by the hour incentivizes you to work more hours. You can’t use the “work less” strategy to gain more leisure if you fall below the minimum necessary to pay for leisure activities. A job that is salaried provides the flexibility to take vacations without losing income and encourages work efficiency. If you can get the job done in half the time, you can increase your leisure.
- Earn more. The most obvious and difficult. There’s a finite amount of time in a year, but there is no such limit on money. If you can afford to not work, then you’ve made it. Otherwise, it may make sense to take up another gig to reach your goals. Being a productive worker, and using some of the strategies above and specifically decoupling wages from time, so you can generate passive sources of income, can get you closer to reaching optimal leisure.
