Agile Personal Development

This is the fourth of six posts on how to establish and track your Life Budget.

In this post I’ll describe how to establish your Life Budget, using some typical amounts of time needed for different life activities.

How much time is available for these different activities? In a typical week, how many hours do we really have available to do things we want to do? An interesting economic paper on how people spend their time provides a rough average of the hours used for commuting, working, doing household chores, and how much time is left for ‘leisure’ activities.

The approximate breakdown of the 168 hours per week is: 40 hours for working, 4 hours for commuting, 20 hours for housework (cooking, cleaning, laundry, etc), and 75 hours are for ‘personal care’ (sleeping, eating, etc). That leaves about 29 hours for potential ‘leisure’ time (doing fun stuff). What activities do you try to cram into those 29 hours? Exercising, spending fun time with your family, writing your blog, reading stuff online, watching TV - wow, that is a lot just for 29 hours a week. Of course, if you are the average American, you are already spending 32 hours watching TV! Clearly there are some choices being made about priorities.

Aligning that data with the Life Budget categories I described in a previous post, here is a good starting budget with hours per week for each activity. After reviewing the breakdown, take a look at your own personal data (see the last post for how to do this) and modify as appropriate.

Work (45 hrs per week) Some of you probably scoff at the idea of only working 40 hours a week, that seems to be the minimum these days. Many of you probably work closer to 45-50 hours a week, especially if you have a Crackberry hanging off your hip. Add in the 4 hours of average commute time, and you could be spending close to 55 hours a week on work-related activities. However, let’s stick with the 40 hours a week of work and 4 hours of commute time, and add another hour for miscellaneous activities, for a total of 45 hours per week.

Exercise (7.5 hours per week). As mentioned in a previous post, you should get at least 30 minutes of moderate exercise 5 days a week. For the calculation of hourly wage for exercise, I used an estimate of 1.5 hours for each session of exercise (30 minutes for the exercise, and an hour to warm up and cool down). That works out to be 7.5 hours per week.

Required Activity - Home and Auto Upkeep (3 hours per week). I’m aligning this type of work with the housework category mentioned in the study. However, the Miscellaneous category below also includes activities that are defined as housework. The exact split between the two is really a matter of what you define as Home and Auto Upkeep, and what you put in the Miscellaneous category. Through my own experience, 20 hours is a lot more per week that I spend on these tasks. I find I spend about 3 hours on Home and Auto Upkeep, and 5 hours on Miscellaneous activities. You’ll need to use your own experience here.

Miscellaneous (5 hours per week). As noted in the previous category, I recommend starting with a 5 hours per week budget for Miscellaneous activities.

Required Activity - Sleep (56 hours per week). Assuming a required average of 8 hours of sleep every night, you should budget 56 hours per week.

Required Activity - Personal Care (19 hours per week). Using the average of 75 hours a week from the study mentioned above, and subtracting out the 56 hours for sleeping, that leaves 19 hours a week for personal care as I’ve defined it (eating, showering, etc).

Investment for Future - Working on Marriage (7 hours per week). In a previous post, I set a minimum budget of one hour a day, or 7 hours a week for communicating with your spouse. Of course, if you don’t have one, spend your investment time in personal development.

Investment for Future - Time Raising Children (10 hours per week). The calculations of $13-19 per hour of time spend engaged with your children is based on 10 hours a week. Adjust as you see fit, particularly if you don’t have children.

Investment for Future - Personal Development Activities (11 hours per week). As mentioned previously, spending 10% of your awake time “investing” in your self is a good target, which works out to 11 hours per week.

Entertainment (4.5 hours per week). For those of you counting at home, there are about 4.5 hours left in the week for Entertainment and Volunteering, the last two categories. You may also find that you spend more time on the activities above, and there is even less time (or if you are lucky you have more time) for these last two categories. The amazing thing is the data that an average American spends 32 hours a week watching TV - what of these other activities are they not doing? This is where you need to make a choice based on your personal priorities. Do you want to improve your relationships, or watch the latest reality show?

Volunteering (discretionary, or include in Personal Development hours). One way to treat your volunteering time is as part of your personal development activities (assuming giving back to your community is part of your personal development plan). If you do that, you won’t need to budget any specific hours. If you don’t consider volunteering to be part of your personal development activities, you’ll need to adjust one of the other categories to take some hours out, like the 4.5 hours in entertainment. Or maybe you can volunteer on your lunch break, or spend time with your children while volunteering, and double count your time.

So what can you do if your actual hours don’t add up to 168 hours per week? You have a few options (besides developing a time stretching machine):

1. Increase your earnings per working hour. This will allow you to work less hours and bring in the same income. Pretty simple, but this can be really hard to do. Some ideas would include working from home part of the time, or using your commute time to tackle some of your personal development activities (like reading more, spending time doing self-reflection, or listening to audio books).
2. Reduce the amount of time doing housework. You could either not take care of your house (probably not a good idea, especially if you have one of those vindictive home owner’s associations - the fees for your grass not being cut for a year is probably pretty high), or you can hire someone to do it for you. If the opportunity cost of doing something more meaningful with your life is higher than the equivalent rate to buy the service, you should pick this route. And your neighbors will be a lot happier too. You’ll need to do something like this to maintain the 8 hours a week budget for the Home and Auto Upkeep and Miscellaneous categories.
3. Reduce your sleep or personal care time. This means sleeping less, eating your breakfast while commuting, or finding some other way to take advantage of time spend on other activities. One important action is to determine how many hours of sleep you personally need a night. According to the National Sleep Foundation, the amount of sleep you need is really dependent upon your own body. In general though, 7-9 hours is considered the appropriate amount of sleep per night for an adult. You may need less (or more) sleep than the average 8 hours a night. I wasn’t able to find a good value for the financial impact of lack of sleep, but it appears that if you get less than 6 hours a night, this can cause significant health issues. Plus the general reduction in quality of life if you are tired all the time.
4. Prioritize your personal development activities. Do you have personal development goals of being a better parent or spouse? Or maybe you want to start exercising more? By prioritizing your goals, you can take credit for both activities at the same time, and free up time for other activities.

Now that you have a good understanding of your Life Budget, it is time to start tracking it to see how you are doing. More on that in the next post.

This post is the third of six posts on developing your Personal Time Budget (aka Life Budget).

In previous posts, I established categories for tracking your personal time and how to calculate the equivalent hourly cost for doing (or not doing) specific life activities. In this post, I’ll walk you through how to calculate your current time income and expenses so you can see how you are doing.

I recommend the following 4 step process:

1) Select a tool for tracking. This could be a spreadsheet, an online time tracking tool, or even just a paper log that you keep. Make sure it has a way to identify which Life Budget category your are tracking to.

2) Track your time. I recommend doing this for at least a month. This is an area where you should not estimate, but should actually write things down (or log online) as they happen. You’ll be very surprised at how much of your time is used up on random things. Do this daily if possible. Personally, I’ve had pretty good luck with the Toggl online tool (see the link above). What I like about it is that you can set up each Life Budget category as a ‘Project’ and easily track all your time during the day easily. It also has some nice reports. I’ll post later on details of how to use for Life Budget purposes. More on this in the fifth post in this series.

3) Calculate your current income and expenses. Apply the hourly rates for each activity from the last post, and determine whether you are going into Life Debt, or getting positive returns on your life. The important thing to remember is that just like with time, if you don’t spend it on important things, that time is lost forever. If you meet your Time Budget, you break even. You can only get positive returns once you have taken care of everything else first.

Obviously the specific dollar amount isn’t equivalent to anything in real financial terms (you haven’t lost the ability to go buy something for that price), that isn’t the point. The point is to track how well you are doing over time. Are you decreasing the loss of Life Budget income every day? Are there certain areas that cause you to lose more income that need to be worked on? A Life Budget is just a good way to track progress against your life plan, using financial terms to make it easier to understand.

If you get stuck on this step, don’t worry, I’ll provide more details on how to set up a Life Budget in the next post.

4) Identify areas for modification. You’ll likely see some major items pop out as being the cause of going into Life Debt. In the next post, I’ll describe some ways to implement a new Life Budget, and how to keep on track.

This is the second of six posts on establishing your Personal Time Budget (aka Life Budget).

In the last post, I identified the major budget categories for your life budget. This post describes how to assign dollar values to each activity. This will allow you to decide the impact of choosing how to spend your time each week. For example, the time you spend exercising is worth about $21 per hour due to the increased life span (see below for the calculation). So every hour you spend doing something with lower value (like watching TV) you are really losing $21 (assuming you haven’t done your exercise for the week yet).

Calculations for Income Categories:

Work (varies depending upon your salary and hours worked). You probably know about how much you make per hour. Either you are paid by the hour, or you get a paycheck for a certain number of hours per week. That is a pretty easy calculation. But what about the extra hours you spend commuting to work? Or stuck in some airport for the night while on business travel? This is the true number of hours you need to consider. Calculate the time you spend away from home due to your job (or the amount of time you spend at home doing work) in a typical four week period. Then divide your wages by this number to get your approximate earnings from your career. Compare this to what you thought you made per hour. When you wake up from your depression-induced coma, think about how this impacts the rest of your life, and whether this is where you want to focus your time. For example, if you make $60K a year ($5K per month), and work about 40 hours per week, you might think your hourly wage is around $29 per hour. But take into account your half hour commute back and forth to work, the one week per month you travel, and your actual income is closer to $23 per hour (a 20% reduction in income!). There is a good Simple Dollar post that gets into this in more detail. Although I’m not convinced that all of the added costs from your job should be deducted from your salary (since I believe most jobs have these types of costs, so in the end it comes out even), I like the concept.

Exercise ($21 per hour). Within the U.S. health care industry, a year of life is worth approximately $50,000. The benefit of a new treatment or drug is calculated by dividing the overall cost of treatment versus how many quality years of life you get out of it. If the benefit of the treatment is less than $50,000, then the treatment is considered worthwhile.

Being out of shape has real costs associated with it through loss of quality years of life. According to this article, obesity, high blood pressure, heart disease, and other health problems decrease your life expectancy. Being overweight or obese supposedly can take 20-30 quality years off your life! (Note: this assumes you are a 20 year old male and are really obese). This may be a little extreme, but it gives a good example of the type of impact this has on your life. The article also states that if all causes of cardiovascular disease were eliminated, the life expectancy in the U.S. would go up by 7 years. Let’s assume by staying fit during your life, you get an extra 5 quality years. Based on the value of a quality year of life of $50,000, it is worth about $250,000 to stay fit. (If you want to calculate the added life expectancy for you, try modifying the inputs to an on-line life expectancy calculator like this one or this one and see how things change if you get your weight down and start exercising).

So how does this work out into a cost per hour for exercising? According to the CDC, you should get at least 30 minutes of moderate exercise 5 days a week. That works out to 130 hours per year. If you assume you need to work out for 30 years, that is 3900 hours to stay in shape and reap the $250K of benefits. That turns out to be about $64 per hour that you work out! That is some serious money. Now, I realize that it takes more time out of your day to work out than just the 30 minutes of exercise. Depending upon how you exercise, you may need to drive to the gym, get changed, warm up, exercise, cool down, shower, etc. This means that for the total time you spend getting the 30 minutes of exercise, you are essentially “earning” $32 (a half hour worth of the $64 per hour) for the total time. So if you spend an hour and a half getting ready, exercising, and cooling down, your equivalent hourly rate during the 1.5 hours is about $21 per hour.

Calculations for Expense Categories:

Required Activity ($0 per hour) - Home and Auto Upkeep. Doing these activities is a required task, with no positive or negative value associated with it. This of course assumes that you actually do the activity. If you don’t replace the oil in your car on a regular basis, you’ll soon have to buy a new engine, which will then have a very negative value. Not taking care of your house will reduce the value of it when you want to sell. If you choose to not do the appropriate level of upkeep, you’ll need to calculate the negative value of not doing the work.

Required Activity ($0 per hour) - Personal Care. Ever work with someone who smelled like they haven’t taken a shower in a week? Maybe they forgot to brush their teeth for the past year? Probably not, since this is a required activity for most people to continue in their careers. I guess there is always the option of working at home, although your family may lock you in your home office. As with Home and Auto Upkeep, there is no positive or negative value associated with these items.

Required Activity ($0 per hour) - Sleep. Without ~8 hours of sleep a night, you will have a lower level of productivity in your career and may not be in a good mood for the rest of your life’s activities either. If you sleep for the right amount of hours, there is no positive or negative value on your life budget. However, if you don’t get enough sleep, there is a negative cost for each hour you don’t sleep. According to the National Sleep Foundation, 70 million people are impacted somehow by either sleep deprivation or by a sleep disorder. They estimate the impact of these disorders at around $100B annually, or about $1429 per person per year. Their general estimate is that Americans get an average of 6.9 hours per weeknight and 7.5 hours per sleep on weekends, for an average of 7.1 hours every day (this last part is my calculation). Their recommendation is an average of 8 hours of sleep a night, so the average deficit of $1429 per year is based on losing 0.9 hours of sleep a night. (If anyone wants to criticize the massive assumptions and non-scientific approach to these calculations, feel free to, I deserve it). Overall, this works out that every hour of sleep under 8 hours per night that you skip is a loss of about $4-5. Certainly worth the cafe-mocha-chocolatta-frappa-ccino you need every morning just to get going.

Investment for Future - Working on Marriage ($55-$110 per hour). If you aren’t working on your marriage, you could be headed for a divorce. This results in some significant financial penalties. To start with, the process of divorce costs somewhere around $15K (assuming you and your soon to be ex-spouse somewhat agree on how to split things up - if you don’t agree, you could end up a lot higher). In addition to the divorce costs, there is an increased cost of living from creating two new households. This article describes a 40 year old study that identified that for couples with young children, the cost of maintaining a new household goes up by 12-32% over their baseline costs while married. Assuming you don’t get a large pay raise at work, you’ll need to adjust your cost of living downwards to cover the added costs. This means you will effectively lose about 10-25% of your annual income after divorce. This obviously does not take into account the emotional toll on you (this could result in poor health conditions, losing a few more quality years off your life) or if you have them, your children (lots of therapy).

So how many hours are needed to maintain a good marriage? I haven’t been able to find any 40 year old studies on this topic, so I’ll make the assumption you need at least an hour a day specifically focused on maintaining your marriage. This allows for good communication between you and your spouse, which seems to be the leading cause of divorce in the first place. So for each year you maintain the marriage, you need to invest at least 365 hours. If you assume that each year you maintain the good marriage is a year you aren’t losing your 10-25% annual income (plus the $15K for the divorce itself), that works out to be about $55 - $75 earnings per hour if you make $50K a year, $68 - $110 earnings per hour if you make $100K a year (the lower end of the ranges assumes you are 35-54 years old with 2 pre-teen children, the higher end assumes you are younger than 35 with 2 young children). Adjust this downward if you don’t have children.

Investment for Future - Time Raising Children ($13-19 per hour). This is likey to be a little controversial, but I’ll proceed anyway with reckless abandon. There is a recent post by Jonathan Fields about how spending time at work and not with your children can have a negative impact on them. He specifically cites some studies that indicate spending time with your children (particularly at dinner time) has a significant impact on their development and self-sufficiency later in life. For example, one study found that eating dinner together 5.4 nights per week versus 3.4 nights per week had a measurable impact. That seems like a really small amount of time investment (an extra 2 hours or so a week) that results in a big payoff. Besides spending an hour or so each night, you need to include going to piano recitals and soccer games too. Although my children aren’t that age yet, my understanding from colleagues is that small children have a soccer-related event an average of 4 hours a day. And that is in the off season. OK, maybe I’m exaggerating a bit. But it seems reasonable that if you want to be really engaged in their life, you should plan on at least 10 hours per week of time completely focused on them. For those of you counting at home, that works out to be about 520 hours per year, for 18 years, for a total of 9360 hours for each child. Of course, throwing in a family road trip every year where you get to spend 24 hours a day with them for two weeks is sure to leave a mark in their memory. So what is the impact if you don’t invest this time?

A potential financial downside (besides the emotional one) of raising children that are not self-sufficient is having to financially support them for 10-15 years after school. What is the financial impact of having to support adult children for that long? One way to estimate it is to assume a similar annual expense as raising a 17 year old, which for an average middle-income two-parent family in the United States is exactly $12,030. How do I know that? It is in this government study by the USDA, and everything the government says is correct. Normally this study is used as a way for non-parents to make fun of parents by pointing out how much money they are “losing” by raising children. However, I’m using it to estimate that if your children have issues and aren’t able to live on their own, you could have a whopping cost of $120-$180K to cover. Seems like it is worth spending some time hanging out over dinner, isn’t it?

Calculating that out, each hour spent with your child is worth $13-19 per hour. Granted, this does not seem like a lot. But this is strictly based on a financial equivalent perspective. You may decide that you want to spend more time with them, and that the time invested is worth more than this. Or, you may not have children and you have plenty extra time on your hands anyway.

Investment for Future - Personal Development Activities (same as your hourly wage). This is a challenging area to quantify. Ranges of what your true leisure time is worth range from less than half of your working wage, up to 2-3 times that value. I can understand the idea that spending time doing what you really enjoy is “worth” more to you than how much you earn by working. However, this doesn’t seem intuitive to me. It seems that time spent on personal development is really about improving who you are as a person, which likely will lead to your hourly rate being higher than it is today. But if your leisure time is already worth more than you make at work, wouldn’t you just keep working at the same level you are today, and spend more time on leisure activities? Why would you want to improve yourself? The flip side is that many people work to make additional money to spend during their leisure time. They clearly believe that by increasing their wages, the value of their leisure time will be worth a lot more (e.g., being able to buy that new boat will make their weekend time worth more than if they sat at home watching TV). Since it appears I need a master’s degree in economics to really have an academic opinion, I’m going to take the easy way out (following many people who actually have master’s degrees in economics) and suggest that the hourly rate is the same as your hourly wage calculated above.

Obviously this doesn’t apply to all hours of the day, however. There should be a minimum number of hours per week that you spend on investing in your personal development. Beyond that, it is an extra bonus. If you drop below that minimum, you start losing that investment. So what is a good minimum number of hours per week to spend on personal development? My recommendation is to use the “always save 10% of your salary for yourself” rule. This is a standard rule in personal finance related to how much of your income to save. If you only count hours that you are awake, and assume 8 hours of sleep a night, there are 112 hours in a week that you “earn”. That leaves 10% of 112 hours = 11 hours a week for personal development. If you have time for more than that, you’ll “make” money that week on your time. If you spend less than 11 hours, you “spend” the equivalent of your hourly wage for each hour less than 11.

Some important things to note - if some of your personal development activities include spending time with your children, you get a double bonus for those hours. You meet your commitment to your children, and you add extra “income” for the personal development activity. More on how to set this up in follow-on posts.

Volunteering ($19 per hour). This website calculates the benefit to a volunteer organization of having people help support their tasks. Theoretically what this is saying is that if you were doing a similar job for money (versus volunteering), you would get paid about $19 per hour. From a time budget perspective, you are choosing to give up this level of hourly wage and do something for free. Another way of looking at this is that for each hour you volunteer your time, you are giving up the same time value as not spending an hour raising your children. It is important to note that this should not discourage your from volunteering your time, but it is important to take care of the other important activities that have a higher dollar amount before you spend time volunteering.

Entertainment (Loss of cost of alternate activities). Certainly there is some positive value for having fun and engaging in entertaining activities. But in the long run, this positive value is likely to be overshadowed by the negative values of not doing other more important activities. For example, if you come home from work, ignore your spouse and your children and lock yourself in your room playing the latest version of Grand Theft Auto, you are costing yourself $13-19 per hour by not being engaged with your children, and if you also ignore your spouse, add another $55-110 for each hour you are doing drive-bys. Note that entertainment activities are assumed to have no long term intrinsic value, and are different from personal development activities. For example, if one of your life goals is to see the top 100 movies of all time, then there is some value to you of meeting your personal objectives. But if you are watching TV just because it is on, your time is slowing drifting away.

Miscellaneous ($0 per hour). These activities are just like the required activities listed above, no positive or negative value, provided that they don’t interfere with other activities that are planned. If they do, then you calculate the hourly loss the same as with entertainment, as a loss of the value of the alternate activity you would be doing otherwise.

In the next post, I’ll help you calculate your income and expenses for these categories so you can determine what areas you need to work on when you set up your Life Budget.