There are many parallels in running a business and running your life – especially when it comes to deciding whether to throw time or money at solving a problem. The there is a catch in knowing when and how to value your time over money.
For example, when you’re young and you don’t have a lot of money, your default is to invest your time in solving the problem at hand. Let’s say you are newly married and the house you and your spouse buy together requires some work – maybe even a lot of work. By default, you need to invest your time in, say, painting the bathroom because you can’t afford to pay a professional $30 an hour to do it for you.
Now, fast forward a few years to the point where you are your spouse are established in your careers and beginning to make some decent money. And yet, that darn bathroom needs another coat of paint. After working hard all week, the last thing you want to do on the weekend is spend it painting. You’d much rather watch the entire slate of NFL games. So what do you do? You hire someone to do the job for you. This is because watching football is worth more than $30 hour to you.
This same principle is true in business. In the beginning, you’re forced to bootstrap everything. Haven’t you heard countless stories where entrepreneurs wear all kinds of hats by necessity – including even playing the role of floor sweeper or bathroom cleaner? The resource you have to invest is your time, so you work around the clock doing everything you can to make your business a success.
But what happens later on, after your business has grown profitably? You begin to hire employees or even outside labor to do those same tasks you used to force yourself to do. Why? Because, in part, you now have the resources to outsource that work. Perhaps more importantly, you have also begun to realize that you can get a much bigger return on your time by investing it in other areas.
It all comes down to calculating what the value of your time is – and specifically the opportunity cost that comes from investing it in one area over another.
When you’re starting out in business, for example, the opportunity cost for an hour of your time might be $200 an hour. That means that if the mechanic you need to fix your piece of machinery is quoting you a figure of $400 an hour, you might be inclined to try and make the repair yourself.
Now let’s be clear that opportunity cost isn’t what you could charge someone for your time, it’s the value you could create by doing what you are great at. Perhaps designing a new product or optimizing your social media or selling a new customer. If the value you can create is higher than the cost of hiring someone to do the other task — hire them.
Later on, though, as your skills and experience make you more valuable, the opportunity cost of your time might climb to $5,000 an hour – or higher. That’s because you can spend your time uncovering new markets or visiting key customers that makes your time extremely valuable. At that point, you’re better off spending money to solve any issue that costs less than that.
Think about it: do you think highly successful people like Steve Jobs or Richard Branson would spend the time to paint their bathroom? Even the notoriously frugal investor Warren Buffet understands that his time is far too valuable for that. He would rather spend his weekends and evenings playing bridge because he values his time more than the money it would take to hire someone to redo his bathroom.
So think about how you invest your time and figure out what the opportunity cost might be for you doing something more valuable and spend some money to fix the problem instead.