Your Money or Your Life is not your average personal finance book. Weighing in at nearly 400 pages (including the prologue and epilogue), this selection seemed to be a “heavy” read. To the contrary, I found the book easy to work through, and extremely insightful and motivating. In fact, I’d rank it up there with The Total Money Makeover as the top books that have completely changed my outlook on money.
The basic premise of the book is that one invests much more “life energy” into their jobs than they realize. People further devalue this life energy with frivolous purchases and wasteful spending. If we would all simply determine how much we really earn at our jobs, and how much we really need to exist, we would discover that we are much closer to financial independence than any of us ever dreamed.
Your Money or Your Life: Nine Steps to Financial Independence
- Making Peace with the Past. During this first step you will find out how much money you have earned in your working lifetime. I’ve always been afraid of doing this because the YTD earnings on my pay stub are scary enough – to think how much money has slipped through my fingers and into the hands of retailers, banks, etc. After you discover how much money you’ve earned over your lifetime the next step is to determine how much of you managed to keep. Gather up your assets and liabilities and take an inventory of your finances.
- Being in the Present – Tracking Your Life Energy. This might be the most powerful idea in the entire book. Essentially, it is the author’s stance that most people have no idea what their “real hourly wage” is. In other words, you may earn $20 an hour while on the clock, but you spend an hour commuting each day, blow $10 on lunch, and have to maintain a fancy work wardrobe. The costs may drive down you actual “real wage” to only $16.00 an hour. This is a particularly useful exercise for families weighing the option of a spouse staying at home. When all factors are considered the “real wage” may not be worth continuing to work for money.
- Where Is It All Going? Start tracking your income and expenses each month. Ideally, your savings should increase over time and your expenses should come down, as you appreciate the value of your life energy more and more!
- Three Questions That Will Transform Your Life. Now that you have calculated your “real” hourly wage and are tracking your expenses it is time to decide if those expenses are worth trading for your life energy. I find myself now standing in a store asking myself, “Is this gadget really worth four hours of life energy at work?” No. I promptly put it back and realize that the item adds little value to my life, is not worth exchanging life energy for, and does not provide fulfillment based on my values and life purpose.
- Making Life Energy Visible. Using the tracking data from Step 3, create a giant wall chart to plot your total monthly income and expenses. The gap between the two should represent your savings. Putting this in a highly-visible location is very motivating and creates kind of a game – each month you will want to drop that “expenses” point and increase your income.
- Valuing Your Life Energy – Minimizing Spending. This step represents the end of frivolous spending. To achieve financial independence you must start to value your own life energy as a precious commodity, a finite resource that is cheapened with every gadget and toy your conspicuously consume each month.
- Valuing Your Life Energy – Maximizing Income. The author best sums up this section of the book in the following statement: “Money is simply something you trade your life energy for.” After reading this chapter you will answer the question, “What do you do for a living?” differently. I’ll now say, “I am a writer, but I create software for money.” In other words, we should no longer be defined by what we do from 8:00-5:00 Monday-Friday.
- Capital and the Crossover Point. Using the formula capital (savings) times the current long-term interest rate divided by 12 months you can determine your monthly investment income. To achieve financial independence you must get that monthly investment income above your monthly expenses identified in Step 3 and graphed in Step 5. The author presents a technique for doing just that through the use of a long-term investment vehicle.
- Managing Your Finances. The final chapter in Your Money or Your Life outlines the investment vehicles to utilize to get to financial independence ahead of the traditional retirement age (65).
When I closed the book one thought came to mind – If I had only read this book ten years ago! I’m quite sure if I had I would have already experienced financial independence. I still can, it will just take longer thanks to my past choices which cheapened my life energy. Normally, I finish off a book and put it up on eBay to generate some funds to purchase my next book. However, this one is going on the bookshelf next to Millionaire Mind and The Total Money Makeover.
I highly recommend this book for anyone interested in improving their personal finances, and/or anyone looking to improve their work-life balance.