06 September 2008

Book Review: Your Money or Your Life

Your Money or Your Life
By Joe Dominguez and Vicki Robin

I read a daily money blog. One book that altered the author’s perspective and relationship with money is Your Money or Your Life, so I thought I’d give it a go. The book is divided into 9 steps which I found quite helpful, especially when coupled with Dave Ramsey’s Total Money Makeover. Both books advise following their plans to the tee in order to secure the promised results. I understand this viewpoint, but ultimately decided that neither provide exactly what we’re looking for. Combining the two programs into one that is tailored to meet our family needs is our best choice. Our financial plan is a living, breathing, evolving guideline that will likely change as we continue to read personal finance books, enter different seasons of life, and become more knowledgeable and experienced in these matters. But for now, this will suffice until we learn something new and say the inevitable, “Oh man, I wish we knew that 2 years ago!”

MAIN THESIS.
• Our greatest resource is our life energy. We trade it daily for money, claiming we are “making a living” when frankly, we are likely “making a dying”
• To achieve financial independence (when our investment income exceeds our expenses), we need to determine what is “enough” based on our personal values
• If we execute a sound financial plan properly, our time necessary for gainful employment is finite. After that, we can spend our time doing what we choose, again based on our self-defined purposes

PROS.
1) Gives concrete steps to achieving financial independence
2) Provides a tracking system to increase accountability, see concrete results, project future results, and ultimately maintain motivation

CONS.
1) Too philosophical in some areas for my taste. Perhaps it is because I have been very interested in these topics for a few years and don’t need all of the background information. Just get to the point!
2) It was written in the early 90s so some of the salaries presented may seem like rather low expectations if the reader doesn’t account for the 20-year gap

BRIEF SUMMARY OF STEPS
Step 1: Making Peace with the Past
a) Figure out how much money you have made your entire life. This includes every job (even lawn mowing or babysitting when you were 12), birthday money, etc.
b) Determine your net worth. You’ve made x amount of dollars. What do you have to show for it?

Step 2: Being in the Present—Tracking Your Life Energy
a) Calculate your “real hourly wage” by accounting for all the extra time and money that your job requires outside of your work hours (lunch breaks, paying for meals at work or at home if you don’t have time to cook, commuting, decompressing time, worrying, etc.)
b) Keep track of every penny that comes in and out of your life

Step 3. Where Is It All Going?
a) Create a table of income and expenses, split into categories and balance your income with outgoing expenses. In addition, convert the amount of money spent to hours of life energy spent based on your real hourly wage

Step 4: Three Questions That Will Transform Your Life
a) On your monthly tabulation, ask these three questions of each category totals expressed as hours of life energy and record your responses:
1. Did I receive fulfillment, satisfactions and value in proportion to life energy spent?
2. Is this expenditure of life energy in alignment with my values and life purpose?
3. How might this expenditure change if I didn’t have to work for a living?

Step 5: Making Life Energy Visible
a) Create a large wall chart plotting the total monthly income and total monthly expenses from your Monthly Tabulation. Put it where you will see it every day.

Step 6: Valuing Your Life Energy—Minimizing Spending
a) Be frugal by asking the three questions every month, defining your true needs, spending consciously, and making wise purchases through research

Step 7: Valuing Your Life Energy—Maximizing Income
a) Ask yourself: Am I making a living or making a dying. Examine your purposes for paid employment and begin opening up your options for increased earnings so work reflects your values as well

Step 8: The Crossover Point
a) Chart monthly investment income (using formula). After several months, project when this will exceed your expenses, which will give you a finite period of time where you are required to work.

(Capital x current long-term interest rate) / 12 months = monthly investment income

Step 9: Managing Your Finances
a) Become knowledgeable and sophisticated about long-term income-producing investments and manage accordingly

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