The Other Time Value of Money: Farming Out Tasks and Chores
In entrepreneur culture, there’s been a trend to advocate for farming out tasks based on the value of your time. The idea has been moving mainstream, with recommendations to farm out nearly anything where you can get the work done for less than what you would theoretically make doing your job for those same hours. Hence, it makes theoretical sense. Yet it can be quite dangerous in the real world.
Rational Origins of This Time Value Idea
The idea has very rational origins. For successful self-employed people, time is a very scarce and valuable commodity. If you have an abundance of work, you can maximize your total value by farming out routine tasks that take up your time and then use that time for more valuable revenue generating activity. Pretty straightforward. You can actually make more money in the same amount of time.
For the self-employed, this might mean farming out accounting and bookkeeping tasks, janitorial tasks — anything where you can make more doing your billable work. The caveat is that you only get ahead if you use that time for billable work. Let’s look at an example.
Let’s say you do website design, and you earn about $75 per hour for your time. You presently devote 50 hours per week to your business, 40 of which are doing website design. These 40 are the only hours you earn money. You split the other 10 hours: four hours of marketing, four hours of billing and bookkeeping, and two hours of cleaning your office space.
All 10 nonbillable hours are good candidates to farm out. You can probably get the work done for less than you charge your clients.
But for outsourcing to make financial sense, the hours you free up need to be used to make money.
You might make the same $75 per hour, or you might make a little more or less, depending on circumstances. But if you farm out those tasks and go home early, that doesn’t put you ahead financially. You may choose to do so, but that’s a quality of life choice. It’s still going to cost you money to do it.
Delving Into the Rate Analysis
For employees, the rate analysis doesn’t make a lot of sense. Say you’re a schoolteacher who makes $30 per hour, or roughly $60,000 per year. You figure that your cleaning, yard work, cooking, grocery shopping, and pool maintenance can all be done by someone else for less than $30 per hour. So you farm it out — and quickly go broke.
If you’re a schoolteacher, the time you get paid is the time you’re at work. You can’t make more money by farming out your household tasks. Not unless you get a side job. That’s when it could make financial sense.
You might find that tasks that take you 10 hours per week are unpleasant, and you’d rather someone else did them. But you don’t want to go backward financially. So you take a part-time job that nets you more than the cost of farming out the work. Now you’re ahead financially.
If you aren’t using the hours you’ve saved to generate additional revenue, outsourcing work won’t put you ahead financially.
Calculating the Time Value of Money: Whose Hourly Rate to Use
The analysis needs to be off of your rate. Yard work can be a good example. Say it takes you two hours per week to mow your lawn. You can hire a landscaper to come in with a machine, and she’ll do the whole thing in 15 minutes. The time — and the hourly rates — simply aren’t comparable.
But you’re currently spending two hours.
If you weren’t spending two hours doing yard work, you could use those two hours to earn income.
Doesn’t matter how long it takes the landscaper. The calculation is really how much you can earn vs. the cost of hiring it out. Using your hourly earnings only helps you estimate what you could generate with that time.
Replacing Time With Income
For many employees, the option to work additional hours to make up for farming out routine tasks simply isn’t there. Not without a side hustle.
The additional work doesn’t need to be the same work, or even pay the same. Our schoolteacher earning $30 per hour as a teacher might make $20 per hour tutoring on the side. Or our entrepreneur who was making $75 per hour designing websites might teach a web design class at $30 per hour. The financial question is, are you making more during the time you would have been doing the task than it costs you to farm it out?
The Quality of Life Aspect
The decision to farm out tasks is often a quality-of-life decision. We decide, for example, that the five hours per week spent doing yard work and seven hours per week doing cleaning would be better used doing other things, like devoting time to your family. So we farm them out.
But justifying that with your hourly rate is nonsense. If you earn $150 per hour as a lawyer, farming out your cleaning just because you can get it done for $15 per hour doesn’t make financial sense. Not without increasing your income. It doesn’t matter if you’re making $150 per hour as a lawyer or $12 per hour stocking shelves, it only makes financial sense to farm out work if you replace that time with income-generating work and that income exceeds the cost of farming out the task.
This is where there’s a lot of bad advice. Farm out what you chose to farm out. But you’re only doing it for financial gain if you actually gain financially. Otherwise it’s merely justification.