Conventional thinking:  I can save a significant amount of money by doing things myself.

Contrarian thinking:  My time is worth money and I know what my hourly rate is.   I will account for my time and hourly rate when deciding to do something myself.

Every “do it yourself” decision should account not only for the material cost of the project but also the amount of your time required multiplied by your hourly rate.  Independent contractors are very aware of what their hourly rate is.  Employees and business owners that don’t charge clients on an hourly basis may not think in term of hourly rates.  That is a mistake.  You should be very aware of how much your time is worth.

Figuring out your hourly rate is not difficult.  Take your yearly net income, divide by 52 weeks and then divide by the average amount of hours that you work per week.  You should use your net income figure which is your gross income minus income taxes because “do it yourself” tasks as not taxable and you want to compare apples to apples.

For example, let’s say you make $70,000 per year, and you are in the 28% tax bracket.  Assuming you are an employee, you may want to add about 15% to your annual salary to account for benefits.  Let’s also assume you work on average 45 hours per week.  In this case your hourly rate would be:

70,000 x (1- 0.28) x 1.15 / 52 / 45 = $24.77 or approximately $25 per hour. 

Now, let’s say one of your appliances breaks and you have to decide whether to fix it yourself, let someone else fix it or buy a new one.  Let’s assume the appliance costs $400 new but you think you can fix it by replacing a part that costs $100.  Your very first impulse might be to buy the part and try to fix it yourself.  However, since you have no experience fixing this type of appliance you will likely spend a significant amount of time on the project.  Here is a possible scenario:

1. Spend two hours doing research on the internet to figure out what you need to do.
2. Spend one hour looking for your manual to get information that is more specific to your particular appliance. 
3. Spend an hour reading the manual. 
4. Spend an hour going to the store to buy $50 worth of tools and materials you need to do the job. 
5. Spend two hours disassembling the appliance. 
6. Spend an hour replacing the part. 
7. Spend two hours re-assembling the appliance. 

Before you realize it you spent 10 hours on the job.  Even though the part, tool and materials only cost you $150, you put $250 of labor cost into the appliance at your hourly rate, and your total cost was $400.  For this amount of money you could have bought a brand new appliance.

This is just one example of how something that on the surface seems cheaper to do yourself ends up costing a lot more once you account for your time.  Usually things that you don’t have any expertise on end up costing more to do yourself than buying new or paying someone else to do it.

Know your hourly rate and account for your time the next time you consider doing something yourself.

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