The 365 Commitment

Valuation Exercise

What is one hour of your time worth?
Have you ever considered assigning a value to yourself once you achieved your goal? Call it a post-valuation of self. This is an exercise a startup goes through when they want to raise capital for their new enterprise. The entrepreneur has to assign a value to their business now, which is pre-seed. Then assign a value to their business after they get to their first major goal, which is post-seed. This is the way that investors calculate what their investment is worth. The investment community uses fun words to describe the process of evaluating risk.
Apply this same idea to our own lives to provide us with a new perspective in evaluating ambition. This will prove to us how much investment it will take to create the outcome that we want. This is a utilitarian way to look at your dreams, but I would argue, what other method works? Faith? Faith does work, but requires application. It is more motivating to understand how much faith you will need. We should never confuse faith and hope. They are cousins and you cannot have one without the other, but they are not the same thing. You cannot hope to become something only. You have to actually exercise faith. Which means that you are going to have to transfer value.
Breaking down your dream into a practical valuation will provide this perspective. This helped me with a realistic view of what I was trying to achieve and in what duration. This is critical to success. A shocking realization will come when reach the goal. Then discover it was not worth the effort to get there. That is not a good situation to be in and I have been in that scenario a few times now. If you set out to achieve a goal, it is a good idea to make this determination. That you will get rewarded enough to compensate you for your hard work. I do not know about you, but I want my investments to provide me with a high “multiplier.” I want my effort to reach a goal at 5X, 10X, 15X my effort!
So how do you do a post-evaluation on your future ambition? This is a subjective exercise. If you think about the future state you can break your dream down into smaller components. You can then take reasonable guesses about the value that each component represents. I like to break this down into money. Money is not actually valuable. Money represents the value you are willing to transfer.
How much value does one hour of work from yourself produce? This is a humbling exercise. We could have a view of our value that is not in alignment with what we are actually getting. I can almost guarantee that. Go with this for a minute. Use 1 hour as the basic work unit. With time off, breaks and all that the mythical “man” year is 2,080 hours in a year. This is the magic number that all professional services people aim for. Billing out 2,080 hours in a calendar year. I have achieved that in my lifetime as a paid professional consultant. BTW, I did not like the result. To make this easy, let us assume that we are earning 100,000 in pre-tax money a year for our work effort. Now we may not be actually working 2,080 hours a year. For this exercise, let us assume that you are willing to work for that number of hours per year to earn an income. So this is now simple math. Your work unit is actually worth 100,000 / 2080 = 48.08. So your work effort is worth $48.08 per hour. That is how much people are willing to transfer to you for your efforts.
Is this enough to achieve your dreams? I am going to guess, no. Now comes the fun exercise of plotting what your dream actually is going to cost you in money. You will transfer the equal value in money to other people so that you can have the lifestyle that you want. Exactly how much is that going to be? You may think this is impossible, but it actually is quite simple. At least in a “back of the napkin” sort of way.
I learned this lesson on my honeymoon when I was recently married. I was staying at a bed and breakfast and there was this nice classic BMW parked in the garage and it was gathering dust. It was one of those classic 7 series vehicles. The 1987 model. My curiosity came into play because this was a very well preserved vehicle, low mileage. Here it was 1997, 10 years later and this car was well preserved, albeit about an inch layer of dust. I had to inquire with the proprietor. That led me to the story that would teach me about this valuation exercise.
This man and his wife went on a much needed vacation from his executive job. His stress level, health and their marriage was “on the rocks.” They got in their brand new 7 series and drove up the coast and ended up staying in this very same bed and breakfast. They had some money in the bank, and some value in their home in Orange County. Yet, the vacation was short. He had to “get back to work,” to continue to afford their current lifestyle. This was 1997 and his work unit was worth about $350 per hour. His wife and him both realized that they were not “happy” and this was not heading toward what they wanted. They figured out that this bed and breakfast was for sale. This man told me of his valuation exercise. How much was his time worth? What did he want to achieve? 
After some “back of the napkin” math. He quit his job. Sold his home in Orange County. Took all the money out of the bank, out of his 401K and bought the bed and breakfast. That was 10 years before this moment that I was hearing of this story. His work unit was now worth about $1000 per hour. How? Quite simple. They needed to earn about 200k in revenue to keep the place running, pay their expenses and live their life. A little extra to go on a vacation once a year. He determined that it took 4 hours a week of work to run the bed and breakfast. Advertising efforts, greet guests, cook breakfast, and show guests their rooms. They would be empty during the week and full on the weekends. So he was working about 4 hours per week X 52 weeks which equaled about 204 hours a year. Take the 200k income need and divide by 204 and you get a hourly transfer value of 980. He had a more fulfilled life. He was writing a book. His wife was learning to paint. They loved each other again. The kids love visiting because of the location. This was their dream life. All this dream life required was his ability to transfer all his assets minus the brand new 1987 7 series BMW. That was roughly 800K in 1997 dollars. That was his price tag, that was his valuation on this dream. So his pre-seed investment was 800K to get the lifestyle and the hourly transfer value that he needed. 
So what do you need to live the lifestyle you want? How much pre-seed money is it going to take to get there over the duration? Let us say that you decided that you need to buy a place to live, in a community that you love. You also need to have a certain skill set that you can charge enough money for that can pay your expenses. This should be easy to calculate. Determine the average cost of living in where you want to go. Determine the type of job and skill you need to produce that money. How many hours do you want to work a week? Here is your equation: 
Annual Cost of Living Amount / 52 X Hours Per Week
= Hourly Transfer Value
That his how much you will have to earn per hour of work. What skill, assets, or other income source will get you there? How much is that going to cost? What training do you have to have? What investments do you have to make? How long do you want to spend in your life before you can “live your dream?”
Here is your equation for this contemplation: 
Cost of Training / Education Required
+ Cost of Income Producing Assets (if any)
+ Cost of House Sale in Location Desired
= Total Value Transfer Required for your Dream Life
Now determine how many years you want to commit to preparing and accumulating enough. This will be a very realistic “back of the napkin” calculation of how much money you need to earn to get to your dream. Yet, include your current living expenses in your annual calculation. For example. Let us say that you determine that it will take 1,000,000 dollars of value transfer to have the dream life that you want. Assume you are going to take 10 years to get there. Now, we need to account for inflation and taxes, but I want to keep this simple for the illustration. You will hate taxes when you figure out how many years you have to add to your preparation to get to your dream! Ugh! 
Anyway, 1,000,000 over 10 years is 100,000 per year in accumulated value. If your current lifestyle requires 100,000 per year to maintain then your total income need per year is 200,000. Assume you work 2,080 per year then your hourly rate of transfer needs to be around $96 per hour. Is that what you are getting today? No? Then why not? You better fix that problem if you want to reach the dream. You can work more hours. You can get a better job. You can improve your skills to get a better job. This is what it means to live with purpose. You are going to achieve your dream. So you are going to convince other people to transfer value to you for your work performed. 
I know you might be thinking, “but life is not about money.” I agree. Life should be about what you value. Unfortunately, what you value has a price tag. We need to transfer enough value to other people so that we can live in a manner where we can realize our value. Sound horrible? Sound way too pragmatic? Well that is the way this system is. Go ahead and scream and cry and get your finger paints out and create a poster and stand on a street corner. Then when you get tired, go back to your high rent apartment, and your $15 per hour job and do it again the next day. The reality is that if you want to achieve your dream, figure out how much value you will need to transfer to get there. 
Notify of
Inline Feedbacks
View all comments
Share the Post:

Recent Blogs

Comparison Game

Just thinking about common issues that plague our mental states. One of them is the comparison game. Similar to the

Read More
Would love your thoughts, please comment.x