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I recently finished up a classic, Your Money or Your Life by Joe Dominguez and Vicki Robin. This is the progenitor of the entire Financial Independence movement (at least the modern version) and I’d never picked it up. I’m glad I did. While a lot of the information isn’t revolutionary 25 years later, I’m sure it was a game changer at the time. Nobody was talking about this.
This book changed the lives of millions and helped countless people get out of debt. However, reading it in 2015 was hard at times. A lot has changed since then, particularly in the investing. Bonds aren’t doing much for income investors these days. The section of specific tips also got pretty boring (but so do a lot of modern day blog posts on the same topic).
Joe comes out strong with some quotes I want to remember. First he reminds us about why work.
“Once upon a time “earning a living” was the means to an end. The means was “earning” and the end was “living”.
What is Peak Fulfillment.
“Financial integrity is achieved by learning the true impact of your earnings and spending, both on your immediate family and on the planet. It is knowing what is enough money and material goods to keep you at peak fulfillment – and what is just excess and clutter.”
How we’ve come to define ourselves by our jobs.
“The dreams we had of finding meaning and fulfillment through our jobs have faded into the reality of professional politics, burnout, boredom and intense competition.”
“When swapping tales at high-school reunions, how do we secretly assess the success of our peers? Do we ask whether our classmates are fulfilled living true to their values or do we ask them where they work, what their positions are, where they live, what they drive and where they are sending their kids to college?”
and the nature of wants.
“Wants are almost insatiable; that one want satisfied makes way for another. The conclusion is that economically we have a boundless field before us.”
“What is enough? It’s the peak of the fulfillment curve. Part of the secret to life, comes from identifying for yourself that point of maximum fulfillment. Clutter is anything that is excess for you. To let go of clutter then, is not deprivation, it’s lightening up and opening up space for something new to happen. Enough is a wide and stable plateau. It is a place of alterness, creativity and freedom.”
Below I’ve outlined their 9 steps to Financial Independence and a better life.
Step 1 Making Peace with the Past
- Find out how much money you have earned in your lifetime. Every penny, from every job, ever.
- Find out your net worth (assets minus liabilities).
Doing this step puts it in black and white how much of your hardwork has slipped through your fingers. It creates an honest reckoning with yourself on how you’ve handled the sum total of all your earnings. As Joe puts it, “it will clear the fog shrouding your past relationship with money”. It let’s you start fresh. Don’t feel bad if you didn’t manage to keep as much of it as you think you should of. Shame doesn’t have much purpose here.
Step 2 Calculate Real Earnings and Expenses
The point of this step to see that what you “earn” doesn’t end up being near as much as you think when you take out all the costs associated with your job. When you pull out taxes, lunches, fuel, clothes, you may be end up with a lot less than you think.
Now track every single cent that goes in or out of your account. Start a daily money log and track it all. This is the best way to become completely conscious of your spending.
Step 3 Create Monthly Reports
Luckily in the modern world, this is easy enough to accomplish with excel, Mint, Personal Capital or others.
“Just as overeaters abhor getting on the scale, overspeanders dread tax time and indeed any time they’re asked to tally up their expenses – because that means it will be Budget Time.”
Now convert those expenses in to ‘hours of life energy spend”. When you equalize money spent, with time off your life, it makes you hesitate before wasting that money.
Step 4 Three Questions That Will Transform Your Life
Evaluate your spending by asking 3 questions about the total spent in each of your subcategories:
- Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
- Is this expenditure of life energy in alignment with my values and life purpose?
- How might this expenditure change if I didn’t have to work for a living?
Following these steps will help show where spending is automatic or addictive. It may also open up some categories where you’ve been being cheap in categories that bring you joy. It will also help you ensure you’re practicing what you preach.
Step 5 Making Life Energy Visible
Take everything we’ve done to this point, and make large printouts that are in a prominent place in your home. Take that graph of income/expense and post it on the wall. Do the same for increasing net worth. I personally keep these spreadsheets on my computer, but I could see value in a monthly printout on the wall.
Step 6 Value Your Life by Minimizing Spending
“Waste lies not in the number of possessions but in the failure to enjoy them.”
Spend less. Spend intelligently. Don’t spend at all if you don’t need to. The book goes through a whole lot of tips, many of which I’m sure were original at the time, but have been rehashed by the blogosphere over and over since then.
Step 7 Maximize Earnings
You can’t save your way to FI if you aren’t making any money. The more you earn the easier it is to reach your goals. Don’t forget this part. It’s crucial to avoiding the red ring problem. Don’t be or feel limited by your background or current field.
Step 8 Watch for the Crossover Point
You’ve now crossed the finish line! Celebrate. If you want to quit your job now, you can. If you love what you do, you can keep working. You can switch industries, take a sabbatical or go part-time. Often times it’s a good idea to build up additional cushion, but it’s whatever you want to do.
The authors define this as “Monthly Income = Capital x Current long-term interest rate/12 month.
Step 9 Managing Your Money
This section isn’t helping many people in 2015. It has a a big focus on government and AAA rated bonds. At the time the book was written, bonds yielded 10-12%. That doesn’t exist in this day and age. We have to be more creative now with dividend payers, real estate, side hustles, and other options.
Overall, Your Money or Your Life was a solid personal finance book and I’m appreciate to the authors for helping start the movement. I admire Joe and Vicki’s attempt to get us off the consumption bandwagon and on to path that’s more sustainable for people and the planet.
Munger: The Psychology of Human MisjudgementJune 26, 2017
Millennials are Holding Too Much CashJune 25, 2017
The AC Interview Series with Nate from Investment ZenJuly 18, 2016
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