A couple of days ago, I made an offhand mention of the value of knowing what your time is worth so you can quickly determine whether or not its worth your time to do a task yourself, pay someone else to do it, or simply not do it at all. This resulted in several emails from readers asking all sorts of questions on the topic. For the most part, I pointed them to the true hourly wage. which is a portion of the 31 Days to Fix Your Finances series, but I thought it might be worthwhile to actually address the calculation itself.

Calculating this number is fairly easy. First of all, how much did you make while gainfully employed last year? Dont include investment returns or anything like that. Now, from that amount, subtract every single extra cost incurred because of that employment, such as child care, transportation costs (gas, car maintenance and repair, etc.), your work wardrobe, extra meals, office supplies, gifts, and so forth. Spend a bit of time thinking about this: what extra costs do you have because of your job? If you dont know an annual amount, figure out what it costs you per week and multiply that by 52. You can handle taxes, Medicare, and Social Security either way its your call on those. I would also add back in any benefits given to you by your employer, like health insurance and so on.

Then, calculate how many hours you devote to your gainful employment each year. You might work 40 hours a week for 48 weeks a year, but thats not really it. You also have your commute, the extra time you work outside the office, business travel, time invested in securing and maintaining child care, business dinners and parties, and so on. Again, if you dont know how much time you invest, make a weeks estimate and multiply by 52, or make a months estimate and multiply by 12.

Once you have those two numbers, take your real wages and divide it by the real number of hours you put in for your job. That, my friend, is what your time is worth per hour using your current employment as a benchmark.

Obviously, doing this in ten minutes as a napkin sketch will be a real shock, and many of you will brush off what that number is actually telling you Ive seen it happen many times. But here are just a few things that you can get out of that number:

If your job makes you miserable. really look at that hourly wage and ask if your misery is worth it, and realize that you can earn $9 an hour at Home Depot while saving your creative juices for other things. Youd be surprised how many people who have good jobs in actuality are being paid McDonalds-esque wages for their true efforts.

If youre working hard at building a career or a business and that makes this number seem low. then realize that youre building a small amount of non-financial capital with each hour you work. I like to use the analogy of my blogging with this: I make a little more than minimum wage from blogging, but with each post, my hourly wage from it goes up slightly. Why? That post is more than just the time I invested in it: it sticks around and continues to earn over time as visitors to the site find it and read it.

If youre trying to decide if doing some task is worth your time. calculate how much money that task is worth to you. Lets say that you can make $12 an hour sitting on your back porch writing, but your lawn needs mowed. If you can pay the neighbor kid $10 to mow your yard, then its worth it you actually earn $2 by sitting on your porch writing while the neighbor kid mows the yard. But if your time is worth only $8 an hour, then youre better off mowing it yourself. Once I figured out my true wage, I started thinking of a lot of things in this light.

For me at least, when blogging significantly surpasses my true hourly wage, I may consider making blogging my full-time job. Its not there yet, so for now I just do it in the evenings as a hobby.