Not all uses of time are equal and this simple truth can make a big difference in life.

Understanding how to get the most out of your time starts with knowingin exact termswhat your time is worth.

Heres how to methodically find out the value of your time.

This post originally appeared onJames Clears blog.

People who spend their time doing more profitable work make more money.

People who spend their time investing in others build better relationships.

People who spend their time creating a flexible career enjoy more freedom.

People who spend their time working on high-impact projects contribute more to society.

The Value of Time: What is One Hour Worth?

A few weeks before I began writing this article, I was shopping for a small travel bag.

Should I save time and pay $45 to get the bag shipped to me?

Or should I save cash and spend one hour of my time going to pick it up in person?

On extreme ends of the spectrum, it is easy to know if a task is worth your time.

And this is the problem: most of life is lived in the gray zone of the time-value spectrum.

Everyone has an hourly value, but very few people can actually tell you what that number is.

Until recently, I was no exception.

Ive distilled all of this research and experimentation into a fairly simple process, which Ill cover right now.

The remainder of this article is divided into two parts.

I recommend everyone read Part I.

Part II is time-consuming, but valuable.In particular, entrepreneurs and executives will find Part II useful.

you could use this spreadsheet to plug in your numbers and get an immediate value for your time.

I will be referring to this spreadsheet throughout the remainder of this article.Click here to get your copy.

These calculations will help you make better decisions about how to spend money on day-to-day purchases.

Should I pay $45 for shipping or should I drive to the store?)

To get started, you need two numbers:

The amount of time you spend to earn money.

The amount of money you earn during that time.

If you struggle to come up with an estimate for your time, youre not alone.

Most people only have a vague sense of where their 24 hours go each day.

With a five day workweek, thats 50 hours per week.

When I started measuring my time, I installed a software tool calledRescueTime.

This detailed breakdown isnt necessary, but it will come in handy during Part II of this article.

This is pretty simple.

The number we are trying to calculate is your take-home pay.

This is the amount of money you have left after deducting taxes.

This is the 2014 poverty line for an individual in the United States.

If you make $46,226/year, your time is worth $18.49/hour.

This is the 2014 median income for women in the United States.

If you make $62,455/year, your time is worth $24.98/hour.

This is the 2014 median income for men in the United States.

If you make $100,000/year, your time is worth $40.00/hour.

If you make $1,000,000/year, your time is worth $400.00/hour.

Again, all of these numbers assume that you are working 2,500 hours per year.

Obviously, the numbers will shift if you work more hours or fewer hours.

Are These Numbers Accurate?

When I first calculated these numbers I was surprised.

The value of an hour of my time was much lower than what I thought it would be.

Think about how many freelancers charge $40/hour, but dont make $100,000 per year.

Or consider how many consultants charge $400/hour, but dont make $1,000,000 per year.

How can this be?

Now, if youre like me, youd like to verify the accuracy of this first calculation.

There are a few quick ways to check to see if your hourly value is accurate.

Lets cover them now.

Market Rate Method The Market Rate Method is the first way to check your numbers.

I also spend time growing the business, so I could probably be hired for a business development role.

you’re free to think of this method as what your time is worth on the job market.

Cost-Based Method The Cost-Based Method is another way to verify your numbers.

The Cost-Based Method is the rate you would pay someone else to do the work that you do.

In other words, imagine you are the boss and you have to hire someone to do your job.

I started by dividing my job into specific tasks (writing, marketing, etc.)

and estimating the amount of time I spent on each task.

Then, I plugged in what I would be willing to pay someone to do that task full-time.

Finally, I divided what I was willing to pay by the total number of hours worked.

Once I have numbers for all three methods, I calculate the average value of my time.

Again, you could see each method in theTime-Value Spreadsheet.

How to Use This Information

We have now completed Part I.

Now we can narrow the zone of uncertainty and make better decisions.

Ready to see if your time is actually worth more?

Lets dive into Part II.

These calculations are based on the value you expect a given hour of work to create in the long-run.

Expected Value Methods can help you make big, strategic decisions about where to spend your time.

What projects should your business focus on this year?

Which uses of time arent effective and should be eliminated from your daily work routine?

What is the best way to manage these tradeoffs?

Lets start with the simplest punch in of Expected Value Method.

Take your net income from the previous year and multiply it by a reasonable growth multiple.

The key, of course, is selecting a reasonable growth multiple.

For that, we need to use the full Expected Value Method.

Heres the basic logic:

Start by breaking your time out by task.

Find a unit of measurement that connects the tasks you work on with the income you earn.

Estimate the value of each task.

Repeat this throw in of expected value estimate for every task you work on.

Add all of the expected values together to determine the total expected value of your time.

Add extra variables as desired.

Expected Value Methods can be as complex as you want to make them.

Again, I think its easiest to see this worked out in numerical form.

Here are some additional factors I keep in mind when considering the value of my time.

Misguided Success Dont waste your time becoming successful at the wrong thing.

Too many people chase money or power or approval because everyone around them does the same.

What if thats not what you really want?

In 2015, he ranked number one yet again with an estimated net worth of $72.7 billion.

Because picking up the $100 bill does not prevent Gates from earning $114.16 at the same time.

He will be paid whether he picks up the $100 bill or not.

Picking up a $100 bill is not a tradeoff that prevents Bill Gates from earning money.

It is an opportunistic addition on top of the money he is already earning.

For example, consider an author who also does speaking engagements.

They work more and spend less time in rewarding activities such as volunteering or enjoying music.

Instead, I elected to say that my free time was non-negotiable.

Should you work another hour?

Wondering if you should work another hour?

Heres a good rule-of-thumb I learned fromSebastian Marshall: Consider each hour of your day.

9AM to 10AM, 10AM to 11AM, and so on.

On average, do you make net positive or net negative decisions during that hour?

Or does that hour include more mistakes than accomplishments?

Does that hour include more procrastination than productivity?

If its a net negative hour on average, then you should stop working.

The value of your time will likely change every year, perhaps even faster.

The methods I have laid out in this article are flexible and adaptable.

My hope is that the strategy Ive shared here will remain useful for you as time goes on.

Image byPan JJ(Shutterstock).