As I've noted before, freedom of schedule and scheduling my leisure time is huge for me! But, I think one of the issues that a lot of people run into is how to value their leisure time.

It's an important question to ask yourself, and it can make a huge impact on your decision to take those extra hours, join that startup, or even whether that expensive productivity solution is worth your cash.

Now for this exercise, we are going to assume roughly a forty hour work week and have an hourly rate of $20. To be healthy we will assume that for five days of the week that means: 8 hours of work, 8 hours of sleep, 4 hours of non-flexible tasks (family, communication, commute, gaming addictions, etc), and 4 hours of leisure time. And we will assume that on the weekend your working hours are split between commitments and leisure so add 4 hours more for each of those days. That means you have thirty-six hours of leisure time in your savings to use each week.

Usually, people will say something is worth their time base on their income. So, if your neighbor asks you to watch their cat an hour a day and gives you $21 a day, then its worth it. But, I think that this is a wrong way of looking at things.

Given my bent for economics you will probably say, "Well of course it's not worth your time because you hate cats and the opportunity cost of taking care of a cat is $5/hour." This is definitely in my internal equation, but there's more to it than that. The total profit of taking care of my neighbor's cat would be $16 a day. See, I'm a sick and twisted kind of economist at heart and think that to give up one of my flexible leisure hours in the example something should have a total profit of $30 per hour!

It's pretty simple where this number comes from and can change a bit from culture to culture. In the US we have the concept of overtime: if you work over forty hours in a week any extra hours are paid at 1.5 times your regular wage. The arguments can abound that since we are using a professional (likely salary) position in our example then overtime regulations don't apply. But: for the most part it is instilled in our culture and day to day. If it wasn't, startups wouldn't offer beer Fridays, free lunches to come in on Saturday, or ping pong tables and futons so that you never have to leave the office. The incentive may not be purely monetary, but the idea of making up for hours over a normal work week is built in to the workplace mindset.

So, we are at $30 per leisure hour what does that mean? Should I just sit and do nothing for thirty-six hours a week unless someone pays me $30? Should I never spend money on entertainment?

The answer to both of these is a resounding "NO"!

But it is a thing to think about when weighing your decisions. The goal for every transaction should be to get to a net total profit for each hour. This means we are adding up the explicit costs and implicit costs for our actions. To be a bit simpler, add up all of your emotions (and put a rough monetary conversion to them) with the actual money trading hands.

For me there was a decision to take a freelance gig on the side of my job for the next two years. The pay worked out to be right at the value of my leisure time. But there was the added stress to consider that tipped the scale towards declining the offer. Not to mention it ate away about two thirds of my flexible hours. So, making further decisions would be limited for every hour of commitment. It wasn't worth the cost, I would have had a net loss when my true costs were weighed out.

On the other side, the other day I was stressed out and feeling a bit out of my element. I paid $30 for some games to play on my Playstation. Looking at face value people would say that was a net loss. But, the emotional value of a mindless arcade game taking my mind off of my anxiety far outweighed what money I had put down. In fact, I think it was one of the most profitable few hours of my life in the last week (not to discount some of my other experiences).

All this to say, keep in mind your physical and emotional health when making decisions about what to do with some of your more flexible hours. This exercise and economics are not about money, it just happens to be a really easy way to compare things. The most important thing when making a decision is what you as a whole get out of it. Sometimes, I know that it is not an option and making the bills requires the extra time put in: that is fine, and I've been there too. Value your family, friends, and those that you love.