The Time-Money Quotient: How to Value Your Free Time

“Time is free, but it’s priceless.”

Harvey Mackay

Question: what has more inherent value: time, or money?

It’s often stated that time is precious, mostly because it’s finite; we can’t buy more time, and one day it will run out.

On the other hand, money is the lifeblood of productivity and is quite literally what runs the world. A wise group of businessmen once said, “Cash Rules Everything Around Me (C.R.E.A.M).”

So which is it, time or money?

It turns out, the answer is both. Or, more accurately, it depends.

When I was a kid, I had seemingly unlimited amounts of time, and I didn’t have a dollar to my name. I would spend hours walking around our neighborhoods, collecting cans and bottles from recycling bins and so I could redeem them for 5 cents each.

These days, I have the opposite problem. We’ve amassed a net worth higher than 90% of American households, yet I can’t find time to go to the post office and mail a package.

We’ve done the big things right. My commute is less than 5 minutes. I automated all of our finances. I stopped wasting time trying to beat the market. We batch cook our meals once a week.

Even still, we’re starting to feel the onset of burnout. Pursuing FIRE is not worth it if you come out on the other side a charred mess.

So how should we value our time when thinking about buying it back?

Determining the Value of Your Free Time

Of course, I am not the first person trying to value my time in terms of money.

In Your Money or Your Life, Joe Dominguez and Vicki Robin explore this topic, and develop a Life Energy Calculator.

James Clear, author of Atomic Habits, also provides a brilliant write-up on the topic.

Each of these sources helps you to evaluate your earning yield in dollars per hour, and to judge whether it is an equitable trade of money for time. While this is a worthwhile exercise, and may be enlightening, it is only telling part of the story.

Consider this: what if your time is a finite commodity? (hint: it is!)

Or what if you have already accumulated some wealth? Many of you reading this have already built a nest egg. At some point, you will be willing to trade some of that money for more time, especially as you get older.

Think about how much you valued the $100 that your earned shoveling driveways when you were a kid. Now think about how much effort Warren Buffett would expend to make an additional $100.

As we get older and navigate different periods of our lives, the opportunity cost of trading time for money shifts, sometimes drastically.

Introducing the Time-Money Quotient (TMQ)

The Time-Money Quotient, or TMQ, is a numerical value that will quickly tell you whether an exchange of your time for money (or vice versa) is worth it. It is highly dependent on your situation, ie. your discretionary time vs. your discretionary income.

1. Calculate your Discretionary (Free) Time

Make a rough sketch of your typical week, as I’ve done below. Block off each hour of the day, and fill in the time that you’re busy and the time that you’re free. Add up for free time from each day to get your discretionary time per week.

As you can see, I have roughly 27 hours per week for discretionary activities. It’s actually a bit more on the weekends, because spending time with Baby BF is not always work. But sometimes I have to listen to “Little Bunny Foo Foo” 75 times in a row, and that’s a form of torture.

2. Calculate your Discretionary Income

If you track your spending with Mint, Personal Capital or good old Excel, then this should be easy. Figure out the total amount of after-tax money that you save or invest each year. Add in any discretionary spending that otherwise could go to savings. Divide by 52 and you have savings per week.

3. Evaluate the Time and Money Cost of the Expenditure/Opportunity

Now evaluate the expenditure in question. It should have a time component and a money component. Example: I could cut my own grass at a time cost of 2.5 hours per week, or I could pay a service $40 to do it.

Divide the time of the opportunity by your free time, and divide the cost by your savings.

(2.5 hours / 27 hours free time) = 9.3% of my discretionary time

($40 per lawn cut / $1000 savings) = 4.0% of my discretionary money

You now have the opportunity expressed a function of your discretionary time and discretionary income, in percentages.

At this point, you can compare the opportunity in terms of its percentage usage of time and money, respectively. Would I rather give up 9% of my time, or 4% of my income?

Finally, you can divide your discretionary time percentage by your discretionary money percentage to get a ratio, also called the Time-Money Quotient.

In most cases, a TMQ <1 means that you should expend the time, and a TMQ >1 means that you should spend the money. If the Time-Money Quotient is right around 1, then it’s up to your personal preference and neither choice is wrong.

Using the Time-Money Quotient: Examples

Here are some examples from my life where I weighed the value of my time against the monetary cost or benefit in order to make a decision. In every case, I am determining whether to buy back time (Time Enhancement) or trade time for more money (Money Enhancement).

For these examples, I will use 27 hours of discretionary time per week and $1,000 of discretionary money. YMMV.

Laundry Service (Time Enhancement)

I’ve never seriously considered paying to have my laundry done, but I know people who do. I’ve heard a rough estimate of $40/week for a couple average loads. I’m estimating that it takes 15 minutes to load/unload/fold a load of laundry.

Discretionary time = 2 loads x 15 minutes/load = 30 minutes (0.5 hours)
Discretionary money = $40 / week

Time percentage = 0.5 / 27 = 1.35%
Money percentage = $40 / $1000 = 4%

Time-Money Quotient = (1.35% / 4%) = 0.3

The TMQ is much lower than 1 , so I’m definitely going to spend the time folding clothes!

The Brewpub (Money Enhancement)

Here’s an example of an earning opportunity. I’ve calculated that every time I work down at the Brewpub, I earn approximately $250. However, it’s typically a full day of work, somewhere around 9 hours including commute.

Discretionary time = 9 hours
Discretionary money = $250

Time percentage = 9 / 27 = 33%
Money percentage = $250 / $1000 = 25%

Time-Money Quotient = (33% / 25%) = 1.3

Since the TMQ is close to 1, I could go either way here. Personally, giving 33% of my time to boost our savings by 25% doesn’t sound great. However, I have a hack.

These days, I only brew on weekdays. I take paid time off from work and spend the day at the Brewpub. Here’s what my TMQ looks like in this case

Time percentage = 0 / 27 = 0%
Money percentage = $250 / $1000 = 25%

No brainer. I’ll gladly exchange an occasional PTO day, of which I get plenty, for a 25% boost of my weekly savings. Not to mention, I’m still getting paid by my W2 employer. Win-win!

Applications of the Time-Money Quotient

Think about some routine line items from your budget that you could eliminate, but would cost you more time. Now this list will vary greatly, depending on your level of Mustachianism. Here are some examples that the typical middle class family may be dealing with.

As you will see, most of these items are services we pay for. This makes sense: a service is an exchange of time (and/or expertise) for money.

• House cleaning service
• Commuting costs: public transit vs. driving
• Working overtime (money enhancement)
• Cooking meals at home vs. eating out
• Homework help vs. tutoring for your kids
• Side hustles (money enhancement)

The interesting thing is, the Time-Money Quotient will automatically be customized to your specific situation. If you’re early in your career and saving more money is important, the TMQ will reflect this. If you’re like me and you wish you had more hours in the day, the TMQ will show that my time matters more.

Summary

Depending on your stage in life and pursuit of FI, the relative value of time and money could vary greatly. It’s important to take this into account when deciding how to spend your life energy. The Time-Money Quotient is a useful tool to gauge the worth of your time.

For us, time is precious right now. Working 40+ hour weeks and raising a toddler is quite draining, so we are continuously looking for ways to free up more time. Until we reach our Coast FIRE glide path, we have to carefully decide where it’s appropriate to spend money and buy back our time.

How about you? How do you decide the appropriate trade-off of time and money? Do you have any hacks or tips to free up more space in your schedule? Let me know in the comments!