Finding a balance between private and professional life can be tough: hiring someone to maintain your home or to iron your clothes can be highly helpful; and more often than not, it is backed by a sound business case.
The opportunity cost
It is easy to think that doing things on your own means you save money as you do not have to pay for the work done. But in order to know how much you really saved, you need to take into account how much you could have earned if you had spent your time doing something that generates value. It is called the opportunity cost, and it is very important to consider when deciding to hire a service or acquire certain goods.
Imagine you have to paint your apartment. You can hire a painter or do it on your own. In order to make a financially sound decision, you should compare the cost of the painter with how much it "costs" you to do the job yourself. So if you have to pay €1,000 to the painter for the job, including the materials he uses, you need to assess how much you could have earned in your own job (or the value of the free time you are sacrificing) in the time it takes to paint your apartment.
And of course there is the notion of efficiency and productivity. Professional service providers are usually capable of doing tasks in less time and with better outcomes than us. So, when calculating, take into account the time it would take you to do the same task. For example, with the help of the following table:
It is cost-effective to hire services that cost less per hour than what we earn per hour. In certain cases it might even be cost-effective to hire a service that costs more per hour than we earn in one hour if that service accomplishes a task in less time than it would have taken us to finish it.
The cost of help
The current gross social minimum wage in Luxembourg is around €16 per hour for a qualified worker, around €12 per hour for a non-qualified worker and €9 to €10 for young people between 15 and 18. Based on your working arrangement, the Joint Social Security Centre (Centre Commun de la Sécurité Sociale - CCSS) will calculate the gross salary, the social security contributions and the flat-rate tax (10%) to be withheld. So, for example in the case of domestic help, at the end of each month you pay your helper the net amount directly, and you will receive from the CCSS an invoice for tax and social security. At the end of the year, you will receive from the CCSS a special certificate that grants you the right to an income tax allowance for extraordinary expenses.
Opportunity cost in everyday life
There are many tasks we take on, thinking we are saving money, but if we look closer it might be more cost-effective to hire somebody to take our car to the garage, mow the lawn or deliver your online shopping – what you save in time and transportation probably more than covers the extra charge of delivery!
Obviously the opportunity cost only exists when the workload is larger than our capacity to accomplish it. We should concentrate on the tasks in which we are most efficient and get most value out of (for example in my case: writing this column and spending time with my family); outsourcing all our tasks to the point of having nothing left to do makes no sense from an economic point of view.
So, do not get me wrong – this post is not about being lazy but about making sound financial decisions when contemplating the possibility to outsource a task, especially those we are not (so) good at doing. Plus, by hiring help, we are helping to promote a productive economy where everyone specialises in what he or she does best.
