Worldwide Success

There is an old cliché that is generally well-accepted, but not always put into practice:  Time is Money.  Successful people know very well how much their time is worth and they take the value of their time into consideration when looking at alternative solutions to common problems.   But not everyone thinks that way.  Many people believe that the do-it-yourself approach is always more financially advantageous than paying someone else to do it.  The fallacy in this thinking is that, even though on the surface do-it-yourself seems cheaper, it usually fails to take into consideration the value of the person’s time.

Every do-it-yourself decision should account for not only the material cost of the project but also the amount of your time required multiplied by your hourly rate.  Independent contractors are very aware of what their hourly rate is.  However, employees and business owners that don’t charge clients on an hourly basis may not think in terms of hourly rates.  That is a mistake.  You should be very aware of how much your time is worth.

Figuring out your hourly rate is not difficult.  Take your yearly net income, divide by 52 weeks and then divide by the average amount of hours that you work per week.  You should use your net income figure which is your gross income minus income taxes in order to compare apples to apples when comparing against the cost of do-it-yourself tasks.

For example, let’s say you make $70,000 per year, and you are in the 28% tax bracket.  Assuming you are an employee, you may want to add about 15% to your annual salary to account for benefits.  Let’s also assume you work on average 45 hours per week.  In this case your hourly rate would be:

70,000 x (1- 0.28) x 1.15 / 52 / 45 = $24.77 or approximately $25 per hour.

Now, let’s look at an example of how you can use your hourly rate to help you make a decision.  Say one of your appliances breaks and you have to decide whether to fix it yourself, let someone else fix it for you or buy a new one.  Let’s assume the appliance costs $400 new but you think you can fix it by replacing a part that costs $100.  Your very first impulse might be to buy the part and try to fix it yourself.  However, since you have no experience fixing this type of appliance you will likely spend a significant amount of time on the project.  Here is a possible scenario:

• Spend two hours doing research on the internet to figure out what you need to do.
• Spend half an hour looking for your manual to get information that is more specific to your particular appliance.
• Spend an hour reading the manual.
• Spend half an hour looking for the tools and additional materials your need, only to realize you don’t’ have them.
• Spend an hour going to the store to buy $50 worth of tools and materials you need to do the job.
• Spend two hours disassembling the appliance.
• Spend an hour replacing the part.
• Spend two hours re-assembling the appliance.

Before you realize it, you have spent 10 hours on the job.  Where you actually spend time may differ from the example above, but it is not unrealistic to expect to spend 10 hours on a complex project that you have never done before.  Even though the total for the part, tools and materials only cost you $150, you have spent $250 of labor cost into the appliance at your hourly rate, and your total cost to get the job done was $400.  For this amount of money you could have bought a brand new appliance.  Even if you only spend 5 hours on the job, it is still $125 in labor cost that you need to account for in your analysis.  Added to parts and materials, you are talking $275 for a repair job versus $400 for something new.  Is it worth it?

This is just one example of how something that on the surface seems cheaper to do yourself ends up costing a lot more once you account for your time.  Usually things that you don’t have any expertise in end up costing more to do yourself than buying new or paying someone else to do it.  Always try to do a realistic assessment of how much time it will take you to get the job done and don’t forget to account for the time required for things like learning and shopping for materials.  They add up quickly.

Know your hourly rate and account for your time the next time you consider doing something yourself and you may end up not only making a better economic decision, but also becoming more satisfied with the result.

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