The "Hourly Rate Principle" is a decision-making criterion for managing your time, based on the value you generate in an hour of work. It suggests to use your actual hourly earnings as a reference point while deciding between alternative activities that would take different amounts of your time (e.g. commuting via taxi or bus).
T1 minutes over a cheap alternative that will take
Say you earn $100 per hour at work. Your commute options are:
If the taxi costs less than $50, choosing the taxi would be beneficial according to the Hourly Rate Principle. The 30 minutes saved could be spent working, generating a potential $50 (half your hourly rate). However, if the taxi costs more than $50, the bus is a better choice because the money saved outweighs the potential income from the time saved.
Suppose you have a side business, and you're spending a lot of time on administrative tasks that could be outsourced. If you make
the Hourly Rate Principle would suggest outsourcing those tasks and dedicating that time to your main work where you create more value.
If meal preparation takes you two hours and you earn $100 per hour, that's effectively a $200 cost for preparing your meal (not including ingredients). If you can order a healthy and enjoyable meal for less than this amount, it might be worth considering, freeing your time to engage in work or activities that provide more value.
If a home repair takes you six hours and you could have been working and earning $100 per hour, that's a $600 cost. If hiring a professional costs less than this, it could be more cost-effective and time-efficient to hire the professional.
Suppose you need to learn a new skill for work. If learning on your own takes 50 hours, that's a $5000 cost at an hourly rate of $100. If there's a course available that costs less and can significantly reduce the learning time, the Hourly Rate Principle suggests that taking the course could be a better investment.
The Hourly Rate Principle is a tool for decision-making. While it can guide you towards more efficient use of your time, it should be used in conjunction with other factors that contribute to your overall wellbeing.