I recently ranked my 2022 income streams, and pay-to-effort ratio was one of the biggest factors in that evaluation. Most of the time, when we make or spend money, we are also trading time/effort. Though it may not feel like it when we’re young, we have limited time on this planet, and so we should be wise with these transactions!
I encourage you to do a similar evaluation of your income streams, with an emphasis on pay-to-effort ratio. Here are some additional thoughts:
Consider Future Pay-to-Effort Ratio, Too
I’ve noticed that when people (including myself) evaluate pay-to-effort ratio, they’re almost always talking about the current ratio of an activity or job. However, when evaluating the merits of an income stream, it can also be useful to consider future pay-to-effort ratio.
When I was studying for my computer science degree, I was paying more (in tuition) than I was making (from the various CS-related jobs I would do). Now that I’ve graduated, my pay-to-effort ratio as a software engineer is fantastic. Taking into account future pay-to-effort ratio might seem obvious when it comes to college (because we all know that college itself isn’t generally the endgame, it is a means to an end), but it’s important to do this for every income stream you have!
For example, working on Organized Finance had a very low pay-to-effort ratio in the beginning (because I wasn’t making any money from it, and yet was putting many hours a week into curating my feed and connecting with others). As I’ve established my online presence more and learned how to optimize my time, the pay-to-effort ratio has steadily improved. If I’d considered pay-to-effort in isolation in the first few months of Organized Finance, it wouldn’t have seemed worth it to continue. Even now, I put a lot of effort into creating content and running things behind-the-scenes, but I’m confident the pay-to-effort ratio will continue to improve over time, and so I think it’s worth it!
You won’t always know which income streams will yield the best pay-to-effort ratios in the future. Consider a startup: running a startup is generally an incredibly time-intensive endeavor in the beginning. You could make millions from your startup (in which case the future pay-to-effort ratio would be worth it), or you could make nothing (90% of startups fail). Factoring in an educated probability of your income stream succeeding long-term would help in your income streams evaluation.
It’s Not Just About Your Paycheck
Evaluating pay-to-effort ratio can be valuable in many areas of your life, not just your 9-5 and side hustles. Here are some examples:
- You got a $15 parking ticket and you think it’s a mistake. You want to dispute it because it’s unfair, but doing so will require over an hour of figuring out how to file the dispute, calling the appropriate people, and filling out/filing forms. Will the time you spend disputing the ticket be worth more than $15? If so, it might be best to let this one go.
- It takes you over 1 hour each day to prepare lunch and dinner for your family, and you don’t particularly enjoy cooking/meal prep. That’s 365 hours of your life each year! A quick Google search tells me that HelloFresh costs $7.49 per meal — and I know there are cheaper alternatives out there. Would paying for a meal prep service be worth the reduced effort in your life (especially if that effort could be put to use elsewhere)?