Hey folks, Dr Ro here. Hope you’re well.
I wanted to cover a subject which I talked about briefly this morning and it does come up. People talk to me about, well, I put this time into this. Is it worth it for me?
I want to step back and talk about ROTI.
I’m talking about return on time invested. It is a calculation that looks at how many hours you put into what you do versus what you get back and what does that equate to an hourly rate?
Now this becomes a really powerful process when evaluating different business models and opportunities because from the outside, something can look good because you might earn quite a bit of money doing it, or any amount of money doing it. But then when you equate that to the actual time required to do it that’s a completely different experience. I’m going to give you a calculation.
What is your annual salary i.e. what do you physically earn per year in what you do, whether it’s in the job business, whatever, and then how many hours of work do you spend on that job?
For example if you spent eight hours in a job as I’m recording this we’ve got furlough and home-based how many hours do you think you’re spending in a week and then add that over 48 weeks as most people are working 48 weeks. You could be working 46 weeks, 51 weeks so multiply your hours worked, plus the hours travelled in a week.
That will vary, for example if you take the tube to London and back you might be one of these people that literally calculates you spend an hour to work and an hour back and that’s two hours, two hours a day over five days, 10 hours, now looking at 10 hours over 48 weeks. Now you’ve got that added to the number of hours you’re working in your job or you say on an average day, I’m basically working 10 hours a day, 10 hours over five days, 50 hours a week, over 48 weeks is 2,400 hours per year and that might be a number. Everyone’s number will be slightly different.
So now you take your average salary £30,000 a year in this country in the United Kingdom and divide that by 2,400 you’re looking at £12.30 £12.50 an hour. £12.50 is your hourly rate being in a job, you might argue I’m being paid more than that that’s what it looks like on paper, but you have to allow the fact you are travelling to and from work as well. And what about the hours that you work that you’re not paid for, like whatever the job requires type conversation.
You’ve really got to look at this sensibly. The reason I’m saying this is because at the moment people are genuinely looking for opportunities. You need to then look at those and say, well, if I do this parallel to what I’m doing great here’s an example, a property that you own that makes £1,000 a month.
It might be houses of multiple occupation if I take one of my properties that produces that, in that month from the first to the end of the month, if that property is being managed by somebody else and in reality, I’m not really doing anything on a month by month basis.
The initial effort goes into buying the property, once the properties purchased then that time dissipates to a very small amount. Let’s say in a month I spend for the sake of argument, 10 minutes during that month talking to a letting agent doing a few things, paperwork on the property and I’ve spent 10 minutes and earned £1000, so that equates to 1000 over 10 minutes, I’ve got to multiply it by six top and bottom, so that equates to £6000 to 60 minutes, £6000 per hour as opposed to £12.50 for the person on 30,000 a year working 2,500, 2,400 hours.
It’s a very powerful calculation. It’s a wake-up call. If I develop a small portfolio as an example even buy let properties £250 and you’re spending 10 minutes in the month.
I have some buy to let properties and I spend hardly any time on them at all. If you spend 10 minutes on a £250 property, so that’s like 250×6 puts you at £1500 an hour, that’s still a much better hourly rate than in your career.
That’s another way of assessing time invested. I think for most people when they look at their jobs, they realise very quickly their return on time invested is incredibly low and add to that your enjoyment factor and you bring that into the mix, that really makes it scary. You can do this with any business.
Hopefully that was useful.
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