The title of this post is a sentence that appears in bold on page 51 of Your Money or Your Life. In fact, it appears twice in bold on that page.

Money is something we choose to trade our life energy for.

This applies to virtually every financial transaction we make. When we work, we trade our life energy for the money we make. Even when we do things like receive an inheritance or win the lottery (a lottery ticket is a bad proposition, by the way), we still had to invest life energy or money to receive those things. Investments, for example, don’t require an input of life energy themselves, but they do require an input of money, which at some point we had to trade our life energy for.

Now, if you start digging into this, there are some interesting consequences.

First, if you earn $15 an hour at work, you’re not actually trading an hour of your life for that $15. This is a point I’ve discussed before. In truth, you’re not earning that $15. Some of it is going away to taxes. Some of it is going toward buying your work clothes. You’re also working some hours for free, including the commute time and so on. If you start calculating the numbers there, you quickly get down to a rate of $8 or $9 per hour (perhaps a little better, perhaps a little worse) that you actually earn from your job that you get to keep.

At my previous job, I had an on paper hourly rate of about $25 an hour. However, once I started figuring in the additional costs, such as child care and parking passes and good clothes for work, and adding in the additional time, such as time spent traveling and time spent working in the evenings for free and time spent commuting (an hour every day), it added up to a much more painful hourly rate.

Today, I can earn a lot less than $25 per hour and still end up with the same amount of money to keep because most of those expenses are gone. I don’t have a commute, I don’t pay for parking, I don’t have to buy work clothes, I have reduced child care expenses, I rarely (if ever) have to travel – these add up, both in terms of financial and time savings.

Second, once you start really realizing how much money you’re receiving for each hour of your life you’re trading, frugality is cast into a whole new light. Quite often, you find that the hourly return on your time while working on a particular frugality task is better than the hourly return on your time at work (or doing a work-related task).

For me, the magical rate is about $10 per hour. If it’s less than that (as gardening is), it needs to have some extra appeal for me beyond mere frugality. If it’s more than that (like turning off the lights before a trip or making our own bar soap), then it starts to become a priority to get it done.

Third, investing also has hourly returns. When you invest, you have to invest some time setting up and following the investments. Thus, investing has an hourly rate of return as well. Sometimes it can even be a negative hourly rate of return over a certain period of time.

Ideally, if you’re investing a significant amount of money and are using passive investing, the hourly rate becomes fairly large. It’s this perspective that encourages me to use passive investing techniques (essentially, I pick a fund or two in my retirement or investing account, then set up an automatic investment into those funds and sit back). I might earn a greater return if I was more actively involved, but I’d be investing significant time to earn that greater return and my hourly rate would go down.

Thus, I would only actively invest if I were having a lot of fun doing it. It would have to bring me personal enjoyment to make up for the drop in hourly rate for the time invested.

Finally, the things I do for fun are altered by this “time is money” perspective. I might enjoy golfing, for example, but to do that, I’m paying about $20 per hour for enjoyment. I could do a lot of things I personally enjoy more for that $20 an hour rate, so why would I golf?

That $20 per hour equates to about an hour and a half of work for me for that one hour of fun, so that one hour of fun better be a very good hour of fun.

When I start using this perspective, the free and fun things to do in life start to take on a lot more appeal. I could ride my bike to the park with my kids for free. I could play a round of disc golf while there with my wife and my oldest son for free. All I’m spending is that time – and I’m enjoying it. I’m not spending money doing it (which is actually time spent working).

In short, when you spend money, you’re actually spending time at work. If you actually earn $8 per hour invested in your job and you buy a $2,000 television, you’re swapping 250 (!) hours of your life working for that television. Why not buy a $1,000 television and reclaim 125 hours of your life?

If you earn that $8 an hour and buy a $200,000 house on a 30 year mortgage, meaning you actually dump in $400,000 after the interest, you’re swapping 50,000 hours of your life for that house. Why not live in a $100,000 house and reclaim 25,000 hours of your life? That’s twelve years of working 52 weeks a year, five days a week, eight hours a day.

Some food for thought this Saturday afternoon.

Three and a half years ago (has it really been that long?), I wrote a post on the three money questions that will transform your life. It was part of a lengthy discussion of the book Your Money or Your Life, from where those questions derived.

As I look back on the financial lessons I’ve learned over the past half of a decade, I think these three questions strike very close to the core of all of it. I’ve used them time and time again, not only to evaluate the money decisions I’m making, but to evaluate the life decisions I’m making.

Let’s walk through these three questions again so that you’ll have some idea of what I’m talking about.

Did I receive fulfillment, satisfaction, and value in proportion to life energy spent?
One of the big ideas in Your Money or Your Life is that every dollar you earn is a representation of some portion of your life’s energy and time. If you make $8 an hour, you’re swapping a portion of your day’s energy and a portion of your day’s time for that $8 (in truth, you’re swapping that hour for less than $8, because there’s the unpaid time it takes to get there, the cost for your work clothes, taxes, and so on).

If you take that perspective, is spending, say, $5 on a magazine at the grocery store really worth it? Do you get an hour’s worth of time and an hour’s worth of energy out of that issue of Cosmopolitan? Is that hour of time and energy invested equal to drinking a few beers while watching a sports game on television by yourself?

I use this filter all the time in my own life. I constantly talk myself out of purchases by asking myself if I’ll really get enough enjoyment out of this item to be worth the time and energy I had to invest to actually earn enough take-home money to pay for the item. This tends to move me quickly toward focusing on low-cost items. It’s why I’ll start my clothes shopping at a thrift store, because if I can find a shirt that meets my needs for $2 instead of $30, that’s a much better exchange of my time and energy for a shirt. It’s why I’d far rather play a board game that I already have in my closet than go out for some expensive activity (actually, I’d do that even if money weren’t an issue).

“Well, what else would you spend that time and energy on?” you might ask. Well, if you consistently make those types of decisions to conserve the money you earn for your hard work, you’ll find that you can eventually spend your time without having to exchange it for money.

Let’s say you work for 40 years for 50 weeks per year and 50 hours per week. That’s 100,000 hours of work during your life, and hopefully it’ll add up to enough to fund your retirement.

If you can consistently find ways to take the proceeds from those hours of work early on and instead invest them in retiremet – an hour’s worth here, an hour’s worth there – you can trim those hours of work. If you can drop it to 90,000, you’re retiring four years early. Drop it to 70,000 and you’re retiring at age 53 than at age 65.

Is this expenditure of life energy in alignment with my values and life purpose?
What do I want to accomplish with my life? What things are truly important to me? How do I handle daily choices with those things in mind?

It takes some self-analysis and reflection to really piece these things out. What are your goals in life? What are your values? Quite often, people simply parrot the values and goals of others without really reflecting on what they want out of life for themselves.

It took me a long time to realize that if I have my family and friends, some books to read, and a few games to play, I’m pretty happy with my life. Everything else is secondary, really, to those things. I don’t need expensive clothes. I don’t need a brand new car. I don’t need the newest gadgets. I don’t need an expensive adventure every weekend. I don’t need to constantly eat out.

The things that really fulfill me don’t revolve around those things, so why would I sacrifice my time and life energy so that I can have more of things I don’t really value?

This is why it’s incredibly useful to spend time reflecting on your goals and what you value in life. What do you want out of life? What goals do you have for the future? What things are truly important to you – and what things are unimportant in the big scheme of things? The more you reflect on these things, the easier it is to use them as a filter for the choices you make in life.

How might this expenditure change if I didn’t have to work for a living?
Your employment situation isn’t just purely a moneymaking operation. It’s an expense, too. You have to pay for the commute. You have to pay for things like work clothes. You sometimes have to pay for socializing with coworkers and out-of-town clients and guests.

These things each have costs, both in terms of money and in terms of extra time and energy. Very rarely are these things reimbursed to you.

What you’ll often find is that, once you subtract out all of these expenses, the actual income you make from your work is far lower than you thought, particularly on a per-hour basis.

I had a friend, for example, who put herself in better financial shape by leaving an administrative assistant position and working instead as a convenience store clerk down the block from her home. She no longer had commuting costs. She no longer had “professional” clothing costs. She no longer had entertaining costs or socializing costs.

Better yet, she had more time and energy for the other things she wanted to focus on in life – her music. She’s now gradually launching a business providing music lessons to children and adults in her free time, something that she deeply enjoys and something that didn’t work before when she was at her “good” job.

If you couple this idea with the other two questions presented here, you may find yourself starting to come to conclusions that lead to a different path in your life. That path leads to happiness and freedom.

I got a wonderful email from Alison about extreme saving practices and how they impact retirement. I originally intended to include it in yesterday’s mailbag, but my response grew so long that I felt it needed a post of its own.

Take it away, Alison:

I’ve recently read Your Money or Your Life and wanted to ask you a question about some of their unstated implications. I was raised in a typical Millionaire Next Door family–except not the kind that spoil their kids and ruin the cycle (both my maternal grandparents and my mother are MND types and I’m on my way). When I read MND, one thing that stood out to me is that the “Balance Sheet Affluent” take every tax-advantaged opportunity they can. This rung true with me and I’m currently maxing out my 401k while also fully funding a Roth IRA. But, while never explicitly saying so, YMYL seems to tell the reader not to focus on retirement type plans as that money, nor any of its interest, is not available for withdrawal until 59.5–far beyond what they think is necessary to do the 9 to 5.

Do you draw the same conclusion from the text?

Applying it to my own life, at age 27 I have substantially (50%) more in retirement funds than non-retirement savings. I appreciate that my early saving is going to, with a little luck, maintenance and further contributions, make me wealthy some day. But at the same time, my husband and I are getting tired of the East Coast grind that makes our high-salary/high-savings lifestyle possible and will probably move back home to the midwest and start a family in the next year or so. We would love to have the lifestyle freedom described in YMYL so I’m thinking we will pull back on the 401k contributions to have a larger down-payment on our future (house, slower paced careers, parenthood, etc.).

Ultimately, what I suppose I’m concluding here is that these two books that are both very well respected in the personal finance arena have some fundamental differences. MND is about harnessing frugality and ambition and using the gap between to create large amounts of wealth whereas YMYL is about harnesesing values and “integrity” (or a short spurt of maximum income production) and using the gap between to create a self-sustaining, contented lifestyle. I guess for now, I live in the grey area in between!

Just some thoughts, I’d be interested to hear what you think YMYL says to us about the traditional modes of retirement savings.

I think you hit upon the big difference between the philosophy described in Your Money or Your Life and the one described in Millionaire Next Door. Let’s look at the difference between the two by looking at how each side views a lifetime of saving.

From my perspective, Your Money or Your Life advocates what I would call an “extreme saving” lifestyle. It encourages people to live in a very lean fashion while focusing on enjoying the free and low-cost things in life. Along the way, the person should be putting their money into very stable investments that bear a regular return until they reach a point (as early as possible) when those stable investments bear enough fruit to provide income. At that point, the person is free to do whatever they wish with their life, from volunteering to writing the Great American Novel and everything in between. Because of the extreme nature of the saving, this “crossover point” can happen pretty early in life, well before traditional retirement.

On the other hand, The Millionaire Next Door advocates “balance sheet affluence.” In other words, the focus of the financial moves in the philosophy here is to maximize one’s balance sheet throughout life, minimizing debts and maximizing assets and avoiding taxes. Over a lifetime, this creates a very powerful safety net and one that can be easily passed on at death.

So, where do they diverge? One big area of difference is with retirement accounts. For MNDers, things like a Roth IRA are incredibly important because they simultaneously maximize assets and avoid taxes. The restriction on withdrawals until age 59 1/2 isn’t that important because a MNDer is seeking to maximize their net worth in many different areas and restrictions in one area aren’t that big of a deal.

On the other hand, people who strictly follow YMoYL have a lot less use for accounts that they can’t touch until age 59 1/2. They’re seeking to reach that “crossover point” as young as possible. The only use a Roth IRA might have for a YMoYL follower is a place to get a bit of a tax advantage from savings as they approach retirement. A true blue YMoYLer has no real need for traditional retirement savings as they intend to have income-bearing assets to cover their lifestyle long before traditional retirement age. At the same time, they’re really not all that worried about maximizing their net worth, as they’re more interested in generating consistent income. When they finally reach a point when they need additional help, then they can begin cashing in the assets they’ve lived on for so long.

Which one is right? I don’t think it’s as simple as right or wrong. I think it has more to do with the individual values of the person.

For example, when I think of someone who might be a hardcore YMoYLer, I think of my good friend Rachel. Her life isn’t centered around money – it’s centered around social work. She makes a low income, but she spends even less and is carefully banking the excess. At some point, and I’m pretty sure that point will come well before retirement, she’ll be able to spend her time volunteering for whatever cause is closest to her heart because she’ll have the assets in the bank to support her. If income happens to come in, those assets become a way to add to the savings and future-proof herself a bit more.

On the other hand, when I think of a MNDer, I think of my wife’s grandfather. He spent a lifetime of work building up a collection of assets that are serving him very well during his twilight years and will likely lead to leaving behind an estate for his children. He lived in a way that accumulated assets, particularly land, and now he’s able to live happily and comfortably because of those accumulated assets.

I think they’re both “right.” They’re both using sound financial principles to live a good life in accordance with their own values.

Should an ordinary person think about retirement? Absolutely, because most people don’t live their lives in a way described in either book, let alone the voluntary simplicity described in Your Money or Your Life.

Is there value in reading either book? I think that Your Money or Your Life and The Millionaire Next Door are two of the most powerful personal finance books a person can read. You don’t have to absolutely subscribe to either philosophy, but by simply reading the ideas and stories contained within both books, you’ll grow substantially as a person.

Marti writes in with a question about the second step of Your Money or Your Life:

Step two, and I’m sure you remember, is about figuring out what hourly wage you’re actually earning at your job, once you factor in the commute, clothes for the job, lunch food and fast food, etc. I’m looking at the category “Escape Entertainment” and I’m a little stuck. Yes, I have cable. Yes, I have a Netflix subscription. Yes, I follow several weekly TV shows. But I don’t necessarily consider those escape entertainment. I never sit down in front of the TV just to channel surf and zone out. If the TV is on, it’s so I can explore characters and stories of a fictional world that I thoroughly enjoy, much the way I would a good book. “Bones” for example, is a show that I enjoy and watch regularly. “Stargate: SG-1″ is one of the shows that my husband and I have on our Netflix queue because we’re huge sci-fi fans.

Yes, I know that the time spent watching those programs could probably be “better” spent playing a game, or going for a walk, or reading, but I don’t consider them escapist entertainment. Am I wrong? Is TV (or for that matter, a pulp-fiction novel) by its very definition an escape, no matter how you look at it? And what about movies? I’m an avid movie-goer. Not because I hate my job (it’s not perfect, but it’s interesting and challenging and if, at the end of two years, I’ll be moving anyway, so it’s really only temporary), but because I truly enjoy movies.

But am I missing the point? The authors write, “Notice the common phrase, ‘escape entertainment.’ Escape from what? … If your experience of life were consistently fulfilling and exciting, from what would you escape?” (pg. 62 – 1999 ed.) And that begs the question, am I actually using those hours in front of the TV or movie screen to escape, and just telling myself that I want to be doing it?

So what do you think? Should I factor the expenses of those movies and subscriptions and the time of watching them, into my “actual hourly wage” as they suggest, or should I leave them out, because I’m not using them as a way to decompress or escape from my job?

Marti raises several very good points here that are each worth adressing.

Not All Entertainment Is “Escape Entertainment”
First of all, there’s a big difference between escape entertainment and ordinary leisure time One is part of a healthy normal life, while the other can be a sign of significant trouble.

I would distinguish between the two as thus: entertainment contributes a significant positive value to one’s life that’s independent of the other aspects of one’s life. Escape entertainment contributes a short-term positive, but only in the sense that it’s reducing the impact of a negative in one’s life.

The reason this distinction is so confusing is that escape entertainment and ordinary entertainment have a lot of overlap.

Take me, for example. One of my favorite television shows is Mad Men. I often enjoy watching it in the late evening after the kids are in bed. It makes me think about a lot of social and cultural issues: what constitutes a marriage? What impact does advertising have in our lives? The questions go on and on. Beyond that, I simply enjoy the well-written plots and characters in the show.

Yet, for a week in the middle of October, when my book deadline was staring me in the face, I had a tremendous case of writer’s block. I was nervous and anxious about the book. And during that week, I spent quite a few hours watching old episodes of Mad Men.

However, this time, it wasn’t enjoyable entertainment. It was escape entertainment. It was helping me to avoid something I didn’t want to face.

In other words, it’s not about the entertainment, it’s about the context. Why are you enjoying this entertainment? Is it because it fulfills you or is it because you need to unwind? Is it because you’re trying to avoid working on something else or is it because the entertainment itself is bringing value into your life? There’s no cut-and-dried answer for this – it’s one you have to look inside yourself to discover.

Do We Need to Escape?
The next question is whether or not escape entertainment actually fills a role in our life. Do we need escape entertainment to unwind or to reduce the stress we feel from our work?

My belief is that we do need an escape valve of some sort in order to help us deal with stress. Escape entertainment is an easy valve for it, but the problem is that it’s a horribly inefficient valve. Rather than focusing your energy on calming down and unwinding, you split your attention between the entertainment and the valve you’re trying to release. The end result? You don’t get much value out of the entertainment and you’re still stressed out.

As I sat there watching Mad Men, I’d often realize that I didn’t really feel any better. I’d also often realize that I had little idea of what was actually happening on the show. I would space out and think about the work I needed to do or about other things I was avoiding. Afterwards, I didn’t feel much relief at all.

The Cost of Escapism
Another problem with escape entertainment is that it’s often expensive for what you get. A new video game bought as fulfilling entertainment (I’m a big believer that interactive entertainment can be very fulfilling) is very worthwhile. A new video game bought as escape entertainment is money spent just to delay an unpleasant feeling.

Even worse, the time invested in escape entertainment is often immense. I remember countless hours playing Warcraft II in the dorms as I avoided my schoolwork, for example. I remember at one point during my previous job, I would come home and watch two episodes of Lost every single night after work.

Those hours lost are themselves a cost, since they’re not actively fulfilling you nor are they reducing your stress levels. You could likely be spending those hours doing something to actually eliminate whatever it is that is bothering you so deeply.

A Better Solution
If you wish to be entertained, seek entertainment. If you wish to de-stress, de-compress, or escape from the situation, do that. Go into a quiet room, turn off the lights, sit down, and close your eyes. Breathe in slowly and deeply. Try to clear your mind of all thoughts. Let the relaxation wash over you.

For the last year and a half of my previous job, this was my routine when I would arrive home from work. I would literally go in, lay down on the bed for about twenty minutes with my eyes closed, and think about nothing. I’d breathe in deeply, breathe out deeply and slowly, and just let my mind and body drift away. After twenty minutes, I would feel tremendously refreshed.

I also find that this works as a great de-stresser and a powerful way to break through writer’s block. Even better, one can easily do this in the shower. Go home after work, take a shower, and then do this under the water.

Here’s the take-home message: escape entertainment can be dangerously expensive in terms of both time and money. Find ways to split the two and you’re much better off – escape through meditation and prayer to quickly relax, and entertain yourself in ways that truly add a positive value to your life. Both avenues are often far less expensive than pure escape entertainment and leave your life in a better place.

Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, as well as the five best posts from two years ago this week. I call it … the Time Machine.

One Year Ago (August 23-29, 2008)
Everything’s So Easy for Pauline: Thoughts on Luck, Fate, Money, and Life This may be my favorite post I’ve ever written for this site. Luck plays such an enormous role in financial success, and looking down on people who haven’t achieved success because of things out of their control is just poor form.

How to Avoid the Trap of Splurging as a Reward for “Being Good” I fell into this trap more than a time or two. In the end, it undermines the value of “being good” – there’s no point to good behavior if you’re just going to shoot it in the foot.

The Retirement Perspective: Today’s Dollars Are Far More Valuable Than Tomorrow’s Inflation ensures that a dollar will be worth less tomorrow than it is today. This is a huge consideration when it comes to long-term planning, like saving for retirement.

Is a Positive Attitude Enough? This is my response to the plethora of “positive thinking” and “positive attitude” books out there. In a nutshell, no, positive thinking isn’t enough.

Personal Finance 101: Money Market Accounts Versus Normal Savings Accounts What’s the difference between a money market account and a savings account? It turns out that there’s a big difference, and knowing that difference can be quite important.

Two Years Ago (August 23-29, 2007)
Seven Nifty Tactics Credit Card Companies Use To Get Into Your Pocket – And How To See Right Through Them Credit card companies try all kinds of ways to extract a few dollars from your pocket, some obvious and some not so obvious. Here are seven of the most common tactics – and how you can protect yourself from them.

Should A Frugal Person Bother With The Coupon Section In The Sunday Paper? Many people immediately associate being frugal with clipping coupons from the paper. I don’t necessarily believe frugality leads one to coupons, though.

An Interesting Voluntary Simplicity Exercise That Can Really Improve Your Financial Situation This is so simple, yet so effective. Just walk into a room in your house and take an inventory using this lens. You might be surprised as to what you find out.

Ten Things Any College Student Can Do To Prepare For Success In Life College sets the foundation for later life in so many ways – I wish I had seen it then. Here are ten things that college students should consider doing because they put some of the foundations for a successful life in place while you’re cracking the books.

What To Do When Debt Seems Insurmountable Many people find themselves in such terrible debt situations that it seems like there’s no way they’ll ever find their way out. What do you do in this situation? Here are some thoughts on how to handle it.

If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

Nine Ways to Get More out of The Simple Dollar
This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are nine great ways for new readers to dig deeper into The Simple Dollar.

1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

3. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

4. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

5. Follow me on Twitter. I post tons of interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

6. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

7. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

8. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

9. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

I am absolutely honored to feature a guest post today by Vicki Robin, someone who I’ve had the privilege to get to know a little over the last year or so. Vicki is co-author of Your Money or Your Life, one of the books that changed my life. Currently, Vicki is teaching tele-classes about money and life as well as speaking, writing and consulting.

Financial independence – ahhh, what a dream! Doing as you please, not as you must. Having all the money you need without needing a job. Travel. Adventure. Relaxation. Time to write that book you’ve been thinking about for years.

Well, I’ve been there and done that since I was 25 years old. I’ve had an adventuresome life. I’ve worked for love, not money. I’ve slept late when my body needed it and worked late into the night when the juices were flowing. And I’ve written a book (actually two, one published) which lays out how anyone can have what I have – without risky business ventures or shady deals or being born into the right family. The book, of course, is Your Money or Your Life, which presents a step by step approach to the process of earning, spending, saving, giving and investing with a focus on having enough for life, not “it all” or “more and more.”

We just updated it and, thanks to The Simple Dollar among other frugality sites, we were able to focus on the core strategy and let go of being the go-to people for how to save money on specific purchases.

I’d like to unpack this notion of “financial independence,” though, so we can see it not simply as being filthy rich with a mega portfolio but rather as having a diversity of ways to assure your needs will be met with minimal if any paid employment. It’s a combination of passive income, occasional income, frugality (increasing your unnecessary income) and reciprocity (freely sharing stuff, services and skills with others).

First, you need to understand Financial Independence as having what YOU need to support a life you love. Not what the Wall Street Journal or People Magazine say is rich, not what your financial adviser says you must have, but what you determine is enough by observing and refining your spending patterns until you neither squander nor hoard money. You come up with “your number” – the monthly income needed to have all you want and need but nothing in excess. This is your “enough point”. If FI means having everything the rich people do, you’ll never get there. But if it means having enough income from sources other than work to cover your expenses, we can all achieve through investing time, intention and focus.

Second, you need to take seriously the old saw of penny saved is a penny earned. Let’s say that through comparative shopping you can get your car or refrigerator for 25-40% off retail price (I have done just that. My car was $16000 rather than $22,000, my fridge $750 rather than $1200). Should such savings generalize to all your spending, then your “enough point” might be $40,000 a year instead of $50,000. That’s phantom income – you still have a $50,000 a year lifestyle, but $10,000 of it comes from sheer frugality.

Third, you need to only buy things that only money can buy. For example, there are several ways to get food on your table. You can buy it. You can grow it. You can forage (like picking blackberries by the roadside). There are also several ways to satisfy a gnawing hunger. One is eating. One is having a glass of water since most of us drink far too little each day. Another is to ask before eating: What am I really hungry for? It may be peanuts or it may be the oil in peanuts or the crunch of peanuts or writing in your journal about how mad you are at so and so. Sometimes we consume something material when the need is emotional or spiritual. There are several ways to read the books we like: buying them new, buying them used, borrowing from friends, borrowing from the library. Likewise, there are several ways to look terrific at a wedding. One is to buy a new dress. One is borrow a dress from a friend. One is to shop your closet and wear last year’s new dress because you still look great in it. Being resourceful is a great income stream because some things you need come into your life without spending dollars. Substituting creativity and awareness for knee jerk spending might save you another $5000 a year!

Fourth, you need to only pay others to do what you really can’t or won’t do for yourself. Every competency is an income stream because you don’t have to pay others to handle it – and plumbers and electricians and mechanics are mighty expensive. You don’t have to do everything yourself, but you can pick one task of daily life to do yourself and this further reduces the amount of income you need to be FI.

Fifth, you need to find ways to share resources with other people. There truly could be one lawnmower or extension ladder per city block if people could work out a trading system. You can rely on pure neighborliness, or you could set up a neighborhood listserve where offers and asks are posted or, if you’re lucky, your community might have a more elaborate alternative currency system. Even without such a system, though, we’re awash in other currencies. Discount coupons can be substituted for dollars so they are a means of exchange. Air-miles are also a currency. IOUs are also currency – that slip of paper could change many hands before it comes back to you for final payment.

Sixth is to turn things you do for love into things you do for money – without stress. Sell birdhouses if you love making birdhouses. Sell flowers if you love growing flowers. Do fundraising part-time if you’ve become a great fundraiser through serving on many boards. Baby-sit if you love kids and one more running around your house is no problem.

Finally, you do need to invest in financial instruments that give you a return on investment – the classic form of financial independence. You might own bonds or stocks or mutual funds or real estate.

My financial independence is based on all these “income streams”. I do have a small but steady fixed income from several sources: bonds, a rental house I own and soon Social Security. I do have a little side income from selling a few hours a month of my expertise (conducting tele-classes, facilitation, coaching, meeting planning, running workshops). I am frugal to a fault and if I were to tally up how much under retail I pay for all my purchases I’d likely find I live on half what others do for the same set of things. Having lived with other people for most of my adult life I know how to share, which means I know how to negotiate, to ask for what I need and take no for an answer, to be direct and not underhanded, to return things in better shape than I found them, to understand where I can be generous and when I just can’t give an inch.

In these tough financial times, which may last far into the future and become the new norm, the smart money is on people who know how to manage these multiple streams of income so that their core well being does not depend on any one of them. This is truly diversifying your “portfolio” for financial security.

One of my favorite sections in what is undoubtedly my favorite personal finance book, Your Money or Your Life, discusses the process one can go through to find a job that is both high in integrity (meaning it’s actually in line with your values – you’re not selling your soul or killing your spirit by doing it) and high in pay.

A lot of people, quite frankly, view this as an impossibility. The general equation seems to be that following your passions means low pay and following the bucks means ditching your passions. From my perspective, this feeling usually results from too many years working thankless jobs that are incompatible with personal ethics and passions. Others have made themselves comfortable with a low-paying job that gives them the freedom that they want, but not the financial resources to create a strong personal safety net.

Your Money or Your Life argues that there is a third way (and, frankly, so does What Color Is Your Parachute?, which is a brilliant guide solely focused on careers). From page 228:

There is no Job Charming. The people we’ve met in these pages have had to do a lot of soul-searching, risk-taking, experimenting, and challenging of old beliefs in order to move forward into jobs with higher pay and high integrity. They’ve had to see that their lives are bigger than their jobs. The parts of themselves that had been suffocated by their paid employment had to be given room to breathe again. Visions from childhood of how life could be had to be excavated from under the status, seriousness and self-importance that masquerade as adulthood. They had to tell themselves the truth about whether or not their current employment was really doing what paid employment is supposed to do: earn money.

In other words, Your Money or Your Life argues that it is very difficult (not impossible, but difficult) to spend significantly less than you earn and build a financial foundation for yourself if you’re working in a way that’s at odds with the person you are. The solution? Get your spending under control, then find a job that pays well and lines up with your values.

Job Hunting Checklist
But how do you actually find that job? The book offers a checklist, and here it is, with some of my notes.

1. Purpose What’s the purpose of the job? Obviously, a big part of the purpose is to get paid – you need money in your pocket, right? But ask yourself this: is the task you spend many hours of your life on each day actually have a purpose that you find valuable?

This is trickier than it seems, especially since jobs that seem to have purpose early on eventually grow to not have that purpose later on. I felt this to some extent with my research job, where I felt a great deal of purpose when I first started, but that feeling waned as my project matured, eventually leaving me still enjoying some aspects quite a bit (the people in particular, and some individual pieces of the work), but being nervous and going through the motions in other respects.

For now, almost all of the work I do earns some money, but perhaps more importantly to me, it has a purpose – I’ve somehow been blessed with the opportunity to write about things that actually help people and this stuff is read by thousands upon thousands of people every day.

2. Intention Do you have the internal motivation to actually make good on your goals? Procrastination and a lack of focus are your enemies. Self-motivation, on the other hand, is a huge ally.

To put it in a more tangible sense, think about the career you dream of having – the high-paying, high-integrity job that you’ve always wanted. That’s your goal.

What are you doing today to get there? If you’re not doing anything at all, you’re not actually motivated to get there. If you know what you need to do but keep putting it off, procrastination is keeping you where you are.

3. Willingness It’s one thing to know what you need to do to make it happen. It’s another thing entirely to put your foot down and actually do it.

For years, I dreamed of being a writer, particularly one who could reach a lot of people with stuff that actually affected and helped them, and made enough from it to at least survive. I held that dream in my head – and I let it flounder.

It wasn’t until I actually started trying to make it happen that it actually happened. And it didn’t happen immediately. It took years of constant effort, eating a lot of my spare time, to make it happen.

The most important step is the first one – and the willingness to follow that step with another one.

4. Consciousness Keep your eyes open. The world around you is full of possibilities. It sounds sort of trite, but it’s true. Our days are loaded with opportunities to stand out from the pack and do something exceptional and interesting.

Look at every interaction you have as a meeting with a potential customer. Look at every experience as a possible source for an article. Look at every shop you visit as a potential retail location. Look at every moment as a source for ideas and opportunities.

The more you step back and look at your daily life through this lens, the more opportunities will bloom into view.

5. Recognition When do you know you’ve been successful? Most of the time, it’s not a clear demarcation.

Your Money or Your Life argues that the only real way to tell if you’re successful comes from inside. You can’t use income or recognition from others as a metric – it comes from you.

Some people feel successful immediately, with only a bit of success. Others never feel successful. The truth, though, is somewhere in the middle – you’re successful when you wake up, realize you’re happy with what you’re doing and what you’re getting paid for it – and you can’t imagine doing anything else.

You can get there. Today is the day to get started.

Vicki Robin is one of the authors of Your Money or Your Life, the personal finance book that, more than any other, influenced how I think about personal finance and how it relates to how people live their lives.

Recently, I had the opportunity to speak with Vicki and ask her a few questions about Your Money or Your Life and other related endeavors. I hope you enjoy her answers!

If someone were to walk away from “Your Money or Your Life” with just one idea in their head, what would you like that idea to be?

If people walk away with one idea I would pick “money is life energy”. We live in a financial, economic and money system that to most of us is incomprehensible, out of our control and unfair – yet vital to our survival. Seeing money this way, we are stuck in the scramble to get some of that thing out there into our wallets so we can get what we want and need. In reaction to that, we develop ideas about what money means – prestige, power, bad, good, a tool of the devil, evidence of God’s blessings, helpful, harmful. our daily transactions with the pieces of paper and metal and plastic in our wallets are distorted by these unconscious – so doubly powerful – emotionally-charged ideas. Plus we live inside a collective delusion that more is always better (more stuff, money, prestige, power, love, etc.) – which drives us to stress, clutter and debt, never having questioned that assumption or discovered how much is enough for us. When you understand money as YOUR life energy, the hours of your life you invest to put dollars in your wallet, you translate it into something knowable… and limited: the hours of your life. This transforms spending because you see everything from a cup of coffee to a new car in terms of “does this merit the hours of my life invested to get it” rather than “I want it, I deserve it, everyone else has one, expense be damned i’ll put it on my credit card.”

What is the biggest change in the overall message of the book since it was first printed?

Our original emphasis was on using the steps of the program to retire early so you can liberate your life energy for your true purpose. The people who’ve done this using the 9-step program have gone on to stellar lives of service and creativity, unleashed from the need to make their dreams make money. Over the years I’ve seen that everyone gets something from doing the steps, even if they don’t retire early. The original title of the seminar was “Transforming your relationship with money and achieving financial independence” and i’ve come to see that there are two parts to this powerful whole systems approach: there’s transformation and there’s independence. The transformation of your thinking and behavior with money doesn’t necessarily lead to exiting paid employment. People change to less lucrative but more fulfilling jobs. People go to half time, take sabbaticals, change professions, move to less expensive areas, engage in barter and even stick with their jobs but do them more boldly. All of this comes from the transformation. For me, the first definition of “financial independence” we give in the book – FI thinking or liberating your mind from the thrall of the consumer culture – is the crucial step that leads wherever the individual chooses to go.

Since the book was first printed, society has changed quite a bit with the advent of the internet, the advent of globalization, and so on. How do you think the big changes in society over the last decade or two have affected the message of “Your Money or Your Life”?

The current economic meltdown only makes FI thinking and practices more important. The distortions in the larger system are becoming daily more apparent, and a proven pathway to a more balanced relationship with money, getting out of debt, having savings and putting values and people (not money) first is crucial. I hope people simply learn to steward all their resources well, to attend to what has true value, to view frugality as freedom, integrity and self-respect. This isn’t an “alternative way of life” – it is a sane way of life and the way humans have lived for millenia… and will again.

One common problem that people have is that their spending tends to closely match their income level – if they earn more, they spend more. This makes reaching the long-term goals of “Your Money or Your Life” very difficult. Do you have any thoughts on avoiding this trap?

Not to be coy, but doing the steps in Your Money or Your Life leads naturally to avoiding the trap of ratcheting up spending in tandem with rising income. In the fifth step people set up a charting system (we suggest posting it on your wall) to see visually the trends of income and expenses over time. When you confront the fact that you are spending more than you earn month in month out it induces a natural desire to save. One practice that can help is delaying impulse buying. Go ahead and want it – the jar of chocolate syrup, the flat screen TV – and then walk out of the store. if you still want it in a week, consider buying it. Another practice would be to ask, “What else could I spend these dollars on.” Often when we impulse buy just because we can, we fail to realize there is a trade off – that some other way of spending resources is sacrificed.

How exactly do you judge the influence of “Your Money or Your Life”? What have you looked for over the years to see that it (and the overall program) has had an impact?

Of course it’s hard to know. Overall book sales (somewhere around 3/4 million in English, and more with translation into 10 languages and with it being for a long time the most requested book in the US library system) is one measure. The fact that everywhere I go I meet people who say the same thing: “Thank you. This book changed my life.” Ranking on Amazon is some evidence of current sales. Upon the reissue shot up to nearly the top 100 and now hovers in the top 1000. Before the reissue it was normally in the top 2000 – and that’s 16 years after initial publication. You could measure the number of other books that cite Your Money or Your Life (according to Amazon it’s 150). I feel very satisfied to have had the privilege of participating in all of this. I feel humbled by it – perhaps it’s Joe’s (Joe Dominguez, author of Your Money or Your Life and architect of the program, who passed away in 1997) program and my way of explaining it, but every person who thanks me is simply acknowledging their own hard work.

The New Road Map Foundation is mentioned in the back of Your Money or Your Life, but I confess to being unfamiliar with what it does. Could you tell me a bit about the NRMF and how it might be useful to someone figuring out their financial and personal future?

Joe, I and others created New Road Map Foundation in 1984 as basket to take in money from our teaching and – without retaining any money for ourselves – give it away to organizations concerned with a sustainable future. The design was to give people practical tools and perspectives to transform and liberate themselves in three areas: money, relationships and health – and to financially support others supporting the sustainability shift. Joe died in 1997, I stepped down from leadership in 2006 and now a new team of people has created several resources to help people do and teach the program. You can find them at http://www.financialintegrity.org/. I am no longer associated with NRM.

What are you currently involved with?

I was diagnosed with cancer 5 years ago which prompted me to reevaluate how I spend my own life energy. I’m well now, and perhaps in part because I dance every week, I’m in a choir, I’ve started an improvizational theater team and I’ve moved to a small town on an island and love so many aspects of community life. One of my main projects has been Transition Whidbey, whose purpose is to ‘catalyze our community to work together towards greater self-sufficiency in food, energy and economics (and everything else) in light of the major climate and resource shifts. ” I think the transition/relocalization process is the FI program writ large as a community. You take stock (map local assets – from food production to businesses), measure flows (understand where food and energy and products come from and go so you can maximize well-being for everything spent), evaluate, adjust, seek well-being and joy and community over isolation and stress and maximizing income production, and then refine all of this over time with greater productivity and conservation and mutuality. It’s a crucial need for a changing world – and working together with others on something challenging and meaningful is the most fun game in town. Also, I just finished the tour for the reissue of YMOYL and enjoyed the speaking so much I hope to do more – some corporate, some non profit and some college campuses. Any takers?

Most of these questions came directly from Twitter followers of The Simple Dollar – thanks for your help!