Most hazard lights on your dashboard can be ignored for a while. For example, the important-sounding “service engine soon” light, which invokes the imagery of an exploding car engine (but can be triggered simply by screwing the gas tank cap on wrong). However, the mischievous battery light is not one of those lights.
It’s tempting to ignore. You’ve probably seen the light pop on right before you turn your car over and start the engine. What you don’t want to see is that light come on while your car is running. It means that there is a problem with your electric system, and usually your alternator has made the long trip to the big junk yard in the sky. For us mortals still driving around on earth, when you see the light appear, you have a few minutes before your battery dies and your car stops running.
I’m familiar with this light since I’ve been victim of its appearance in the past. Add in a few long hours stranded on the side of the road, and you can probably guess the bitter emotions that well up whenever I see the Red Battery of Sudden Car Death. I saw this light just one week ago, right before I started my stay-cation.
In Which I Run a Boring Cost-Benefit Analysis
After my man-trum ended and I stopped pitying myself, I thought up two options for fixing my car problem:
- I could spend two hours replacing the alternator. It is within my limited car fixing ability. Although I should note that it is more like a one hour job, but having no power tools usually means spending an hour trying to loosen various rusted bolts.
- I could take the car into my mechanic and not bother with the repair. Sure, I know how to fix my own car, but I’ve been working a lot, have a strict blogging schedule and I don’t want to spend two hours of my free time fixing my car.
Being an economics-educated accounting nerd, I couldn’t make a decision without a cost-benefit analysis. So I called the local parts store and my preferred mechanic to get my head wrapped around some costs.
I found the best deal for a new alternator at one of the local part store for $132. It turns out that my mechanic has no issue with using parts I bring, so there is no extra cost or benefit with my options for buying the alternator I need.
However, the difference was in labor costs. My mechanic runs at $60 per hour, which is not really a bad price, especially since he has power tools and can change out the old alternator in one hour; half the time it would take me.
What to do? I really didn’t want to use up my stay-cation fixing my car for two hours. However, paying $60 to do a fix I could do myself seemed excessive. Were there any other costs to working on my own car that I was missing?
Opportunity Cost of My Time
It turns out that there is one more cost worth considering in my scenario above. You see, I don’t just blog, I make money blogging. In fact, I make good money blogging.
I’d estimate that an hour of my blogging could turn into a revenue payment of about $32. If I used two hours of my time to blog instead of fixing my car, I could make $64. Thus, by using a mechanic, I could actually make $4. This type of time valuing is a valid consideration and economic concept known as opportunity cost of time.
Opportunity cost arises when you have multiple choices to earn money. Since those opportunities could become money earned, there is a cost to forgoing an option in favor of an alternative. The bigger the opportunity you pass up, the larger the cost you incur. When the opportunity involves spending time, you can use this method to value your time.
So, to summarize the economics, I can have my mechanic fix my car and sleep soundly knowing that I’ve actually made some money avoiding something I don’t feel like doing, right? Have you also used your blog revenue, as I have, to calculate your opportunity cost of time?
Sad News: My Revenue is Not My Opportunity Cost
Unfortunately, my use of $32 is completely inaccurate. While I could generate $32 in revenue per hour, it’s not my true opportunity cost. I’m an entrepreneur and we are creatures who obsess about revenues and forget all the costs that go into coming up with the final income figure.
My margin, or the percent of revenues that actually lead to profit (revenues minus expenses), is only really about 90%. You see, I have to pay for hosting my site, my internet connection and even the equipment I use to write like my computer and router. That means that my opportunity cost is really $28.80?
I’m still not done cutting into my earnings. I also need to add in my taxes which include 14 percent in employment taxes, 15 percent in income taxes and another 7 percent in state income taxes; for a total of 36 percent. Now I’m left with a miniaturized opportunity cost of $18.43 per hour.
Sadder News: My Opportunity Cost is Actually Zero
However, even the $18.43 is too optimistic. While I generally earn $18.43 for every hour I blog, I’m not exactly turning down any money offers. The laws of economics tell me that returns diminish the more I work.
I’d probably need to work a lot more than two hours to generate an additional opportunity. Those two extra hours blogging instead of fixing my car might be more like $9 an hour by the time I get a viable offer. It could be zero, in fact, but it’s definitely less than $18.43.
Even worse, I’m not really serious about blogging for an extra two hours. What I’d really be doing, while my mechanic fixes my car, is hanging out with my family for some much needed R&R. In this case, my supposed blogging opportunity is really just a straw man argument to justify spending money on a mechanic. If I’m not serious about taking an alternative opportunity, my true opportunity cost is zero.
It’s an important nuance to understand, because while I’m rationalizing an opportunity cost to settle my conscience about hiring a mechanic, what I’m really justifying is spending $60 for two hours of leisure time.
Are You Paying for Your Leisure Time?
I’m sharing my story and writing this article with grander intentions than boasting about my blog revenue generating abilities. I hear people quote the opportunity cost of time frequently and it usually comes from two sources:
- Family and friends who are high wage earners
- Bloggers who are successful at making money online
There is a reason for this trend: both tend to work too much. Probably more than they should.
Let’s say that you are me; a married father with children under the age of 18. According to the averages at the Bureau of Labor Statistics, somehow I work only 6.3 hours and have a total of 3.6 hours of leisure time. It sounds funny, but not when you consider that the statistics are daily, so you multiply 6.3, times 7 days and get to the average hours you work each week.
If I then add in 3 hours of blogging every day, you can see that leisure time is almost non-existent. Even two hours a day really impacts leisure. That takes a toll when you are married and it’s even more difficult when you have small children. It’s enough to get me thinking that it would be wise to spend $30 an hour to buy back my leisure time, when most Americans pay nothing.
It’s Actually Cheaper to Blog Less
Now that I’m being honest and confess that my real motivation is to buy leisure time, the real financial decision before me is:
- Should I buy my leisure time at a cost of $30 an hour to hire a mechanic?
- Or, should I blog for two hours less and reclaim my leisure time at a cost of $18.43 an hour?
It would be a no-brainer if I weren’t addicted to this thing called blogging. That’s why I found a way to come up with a comparable alternative to cutting my blogging, without really cutting back on blogging. I could hire someone to write two posts at $20 a post. Given a 15 percent tax effect, it would only be an effective cost of $17 per hour, which is cheaper than $18.43 an hour in lost blogging revenue.
What should I do? I’ve long made up my mind, but don’t duck the more important question: what should you do? I’ve been reading blogs for over a year and I’ve seen many articles where opportunity costs were probably used to justify buying leisure time. Are you guilty? It’s not just blogging, this could be the case for many leisure activities or money making activities where we’ve over indulged.
Don’t get me wrong. Buying leisure time is a valid decision. It’s what you are doing when you buy a washing machine instead of washing by hand or a vacuum instead of sweeping. I’ve also seen people try to convert work into leisure by making things like couponing, a family activity. What is important is to identify when you are so busy you start buying leisure time, understand how much you are paying for it and if you can, find a smarter, cheaper alternative. Maybe it means saving some money by blogging less?
What do you think? How much would you pay for leisure?