Many Americans, especially homeowners, face this constant dilemma: Should we do it ourselves or contract it out? Today, this is a headline-grabbing issue for many businesses. They even must decide if work should be contracted locally or to some lower-wage country around the globe. Yet, before it reached the desks of top executives, almost every day most of us had to decide whether we should do a task ourselves, contract it out, or leave it undone.
The traditional economic approach (which helped win a Nobel Prize) was a fairly simple one. Determine your hourly wage and multiply that by the number of hours the task would take you. Compare that with the cost of hiring someone to do the job. The result answered the issue of whether or not to do it yourself. Of course, under this analysis a retired person always would do the job, because a retiree no longer has an hourly wage. The analysis also is not helpful to many workers who do not have the option of putting in additional time on the job.
Economists now say the traditional analysis is just a starting point.
Next, you have to consider any additional supplies or equipment that must be purchased or rented and any other expenses you would incur. The professional already owns these items and includes them as overhead in the fee. You might have to buy or rent items for which you have no other use. The average home garage, workshop, or toolbox has a number of items that were used only once or twice and aren’t likely to be used again.
Second, consider costs other than supplies and equipment. As an example, let’s look at a mother trying to decide if she should stay home to care for her children or take a paying job and put the children in day care.
You start by comparing the mother’s salary with the cost of day care. From the salary income you also have to subtract taxes and the costs of going to work (commuting, working clothes, perhaps increased meal costs, additional supplies). After subtracting all those costs you arrive at the true net income from the mother’s job. Many families find that the mother’s net income is not very significant after all the costs are considered. You might not have as many additional costs for the typical home project, but the analysis is the same.
In past visits I’ve demonstrated how a similar analysis can help a retiree decide whether it makes sense to go back to work. This was in the April 2002 issue and is available in the web site Archive in the Cash Watch section.
Even then, your analysis is not done.
Another factor to consider is whether you can deliver the same quality of work as someone you would hire. This cannot be quantified, but you have to consider it.
Finally, there are other intangible factors to review. Would you derive satisfaction from doing the task? Perhaps you might receive a mental or emotional benefit from accomplishing it yourself. Or would it be just work? Perhaps the task would be something worse. Maybe it would be a frustrating, time-consuming, blood-boiling nightmare. Unfortunately, with jobs you haven’t performed before the answer often isn’t known until after the work is done, or at least attempted.
If you cannot work extra hours for pay instead of doing the task, you should try to value your leisure and compare that with the cost of doing the task. Would you be better off enjoying the leisure time or saving the expense and doing the work yourself?
Some people spend a lot of time on tasks that bring little financial reward. I’ve seen many people spend quite a bit of time searching the golf course for lost balls. Others fight corporate bureaucracies to get small amounts removed from their bills. For them, a couple hours or more spent fighting a bureaucracy over $20 is time well spent.
Economists used to believe these actions were irrational. Now, they realize that at least some people get a satisfaction, known as psychic income, which makes the time spent on the tasks worth while.
Contract it out or do it yourself? Only you can decide. Be sure you have considered all the factors, including the non-monetary ones.