Time vs money as a freelancer

One of the things I love about freelancing is that it gives me an immense amount of flexibility in choosing how much of my time to monetize. People often talk about the value of their time, but until you freelance, that concept might be hard to really understand.

When you work 40 hrs a week for a salary, the value of your time is roughly your annual salary divided by 2000 (40 hrs per week for 50 weeks). So if you make $60,000 per year, then the value of your time is $30 / hr. When you include benefits and such, that number might go up to $35 or $40.

However, people don’t really seem to think like this. If the value of your time is $40 / hr, then it makes sense to pay $20 to save an hour of time, for example. If you can hire a cleaning person for $20 / hr who can work as fast as you can, you should. Period.

I think one reason that people don’t see the world this way is that their time is worth $40 / hr, but only for the first 40 hrs per week. They effectively have a limited market for their hours. And you can’t really bank hours to be used later (or can you? topic for another post) so it doesn’t really matter how you use those hours, because a) no one will pay for them, and b) they’re going to be gone either way.

Contrast this with freelance, where people have a lot more control over how much of their time they convert to income. There have been weeks where I wanted to work on a project of my own or where I was traveling when I did no work, or only worked a couple hours on paying work. On the other hand, there have been times when I needed extra income and I was willing to put in 14 hours per day, seven days per week.

Not only are the first 40 hrs usually more valuable for a freelancer, but they go up from there. When I’m pretty booked, I’m still open to taking on additional work, but my rates go up by 50-100%. If I’m working at night or on the weekends, I’m charging extra for that.

It’s a really good feeling to know that if something comes up, you can adjust your schedule to optimize for free time or for extra income. Of course, there’s still lag time, which can be a problem. I haven’t quite figured out how to setup an arrangement where I can work from 0 to 16 hours on any given day at normal quoted rate, and get paid immediately at the end of the day for hours worked. That would be the ideal scenario in terms of being able to adjust my work to meet any financial needs. However, it’s not too bad right now; I generally can adjust the amount that I’m working with a couple weeks notice.

This level of flexibility has a downside, though. I remember when I first started doing freelance, I was very aware of the fact that every minute I stepped away from my computer was a minute that was costing me in time I could have been billing. An hour-long lunch with friends went from costing me $10 to costing me $60 (my hourly rate was $50 at the time). So for a long time, I wrestled with trying to bill as many hours as humanly possible, because I felt guilty otherwise.

Today, I tend to set income goals for the month and then base my hours on that. I look at my entire month as monetizable, and I have to decide how much of my time I want to “buy” back with income that I’ll forgo. And because I’m focusing more on disconnecting my time from my income (which I’ll talk about in a future post), all I’m expecting from my freelance at this point is to hit those minimum income goals.

Still, it’s nice to know that if I want to earn 2x as much in March and then take April off to travel, I can.