Your Money or Your Life is a bit unusual in terms of personal finance books that you’ll typically find at your local bookstore. For starters, the book has very little concrete information about increasing your wealth. In a section that typically is loaded with books about becoming a millionaire, this is an unusual approach.
So what does Your Money or Your Life offer instead? Rather than focusing on being rich, the book instead looks deeply at finding the central values in one’s life and realigning your life and money to follow these values. The idea here is that most people’s money problems are actually connected to a lack of fundamental direction in their life: they work just to earn money, not because it’s what they love doing.
The book uses a number of rather unorthodox methods for exposing this truth in your life. Much of the book is spent defining values and placing them in real financial perspective, going so far as to often conclude that you should quit your job. In terms of a get rich quick scheme, this is anathema, but it is also quite enlightening.
The book’s real purpose is to reframe your relationship with money, not to reframe your management with money. If this seems kind of “New Age-y,” that’s because it is. The book makes no qualms about stating that for many people, working a full workweek is not the best way to live life, and that one should seek the best way to live their own life, not live the life others expect or demand.
The book has lots of anecdotes – but it has a lot of detail, too. This is a fairly long book as personal finance books go, but it provides a lot of food for thought even if you don’t buy in to the overall plan. So let’s get started and find out where this yellow brick road leads us.
Walking Through Your Money or Your Life
The plan starts off with a series of psychological sledgehammers that can really change your perspectives on money. These steps are relatively unorthodox, but often bring to light the actual value of money in your life compared to the value you put on money.
Step 1 Right off the bat, Your Money or Your Life goes in an interesting direction. The very first step in their plan focuses on making peace with your past by estimating every single dollar you’ve ever brought in. Yes, going back to your lawnmowing job when you were still wet behind the ears. Once you see this pile of money, then calculate the complete worth of all of your assets, minus what you still owe on them. The result can be startling, and it often reveals many truths about your relationship with money.
Step 2 Once you’ve done this and it’s clear how large of a portion of your income that you’ve wasted (often over 100%… just think about that!), the second step encourages you to figure out your true hourly wage. Basically, just take your current hourly wage and use it to figure up how much you make in a given period (a week works well for this). Then, add in the extra hours you burn traveling to work and doing other work-related events, then subtract out the money you spent on these extra elements, including wear and tear on the car, the cost of eating lunch out with others, and the cost of entertaining. The result is often an amazingly low true hourly wage; each hour at work, this is all you’re really making.
Step 3 The third step is more traditional, at least at first: record every bit of income you make and every single thing you spend money on. Your Money or Your Life encourages doing this for several months to make it routine, but the first month can often illustrate many truths, mostly because of the additional step. Once you’ve listed all of your expenses, then figure out, using your “real” hourly wage in step two, exactly how many hours you had to work in order to afford this expense.
I’ll use myself as an example. Although I believed I was doing really well, I calculated my own true hourly wage as being about $7 an hour. I could literally work at the gas station across the street for that wage! When I started comparing this to some of my regular costs, the amount of time I was working to get various material items was kind of scary. My new laptop would require almost 200 hours of work just to cover the cost of owning it, let alone the electricity and internet bill.
Step 4 The fourth step is actually an evaluation of the expenses in your life through a new filter: the actual cost per hour of your life as you defined for yourself in the second step of the program (your hourly wage, with the extra hours spent added in and the extra expenses subtracted out). For each expense in your life, ask yourself:
Do I receive fulfillment and value compared to the life energy spent on this?
Is this use of my life energy in line with my values and goals?
How would this expenditure change if I didn’t have to work?
The surprising result is that most of the expenditures of time and money in your life are simply enablers in an attempt to keep making money. They don’t really reflect what else is important to you.
Step 5 The fifth step is the creation of a chart that compares your income and your expenses over time. You can do this with a piece of graph paper or with Excel, but each month all you have to do is record the amount of income you made and the amount of money you spent. Once you do this, your goal should be to make those lines as far apart as possible in the long term. How do you do this?
Step 6 The sixth step focuses on minimizing spending and maximizing the value of your time. Basically, this means living thrifty. This rather lengthy section of the book is a great checklist of simple frugal living suggestions, most of which are pretty simple to add to your life. This chapter is perhaps the most similar to other personal finance books, particularly those focusing on reducing debt and living frugally.
Step 7 The seventh step basically instructs you to critically re-evaluate your job and says that if your job doesn’t match up with your values, quit it. The entire chapter does a very good argument for doing this based on the outcome of the first six chapters, but it’s a very scary step for most. The book does encourage you to use your current job as “training wheels” as you get ready to make the leap, but your goal should be to spend your time in a way that’s both personally and professionally fulfilling.
Step 8 The eighth step is finding the crossover point, or that moment in which your investment income can cover your living expenses. Once you’ve switched your priorities around and your living expenses are less than your income, you should start investing that money to maximize your investment income and continue living frugally. Once you’ve reached a point where your income from your investments can cover your living expenses, you’re free to basically do whatever you want with your life. This is a point I can scarcely imagine reaching; at this point, I’d love to be a stay-at-home father who did a few community volunteer projects and continued blogging for some minor additional income (covering some or most of my living expenses while my own investments could build on themselves).
Step 9 The final step is where you’ve reached the point where your investments are still growing even after you remove your living expenses. At this point, you can begin to splurge, but do it carefully. The book basically encourages you to split your money into three parts: capital (the amount that you have invested), cushion (six months of living expenses in a savings account), and cache (overflow). The cushion should stay roughly steady, being filled by the income from your capital at the same rate you spend it, and your cache is the overflow from that. Your cache is what you can spend on your dreams: constructing a non-profit organization, building your own business, giving to charities, or reinvesting for even bigger dreams. At this point, your life is your oyster.
Buy or Don’t Buy?
Right at the start of the prologue of Your Money or Your Life, the authors have a list of questions for you to ask yourself:
- Do you have enough money?
- Are you spending enough time with your family and friends?
- Do you come home from your job full of life?
- Do you have time to participate in things you believe are worthwhile?
- If you were laid off from your job, would you see it as an opportunity?
- Are you satisfied with the contribution you have made to the world?
- Are you at peace with money?
- Does your job reflect your values?
- Do you have enough savings to see you through six months of normal living expenses?
- Is your life whole? Do all the pieces – your job, your expenditures, your relationships, your values – fit together?
If you read through this list and hear a lot of “no” answers in your head, buy this book. Rather than being a guide on what you can do with your money to make more money, this book instead focuses on what you can do with your money to make your life make more sense, and it does a very good job with this. I would especially recommend this book to anyone who has a guilt-filled relationship with their money and really want to fix it.
It’s important to note that this book is not in any way a guide to investing your money. If your goals are leading you to seek strong investment advice or methods of maximizing your net worth, don’t buy this book. There are plenty of books out there for you; this is not one of them.
The book has a lot of New Age-style “get in touch with yourself” sentimentality to it, but the connection to finances gives this perspective a real concrete value that it often doesn’t have in other contexts. This style may drive away a few readers, but it is this very style that makes it feel quite different than other personal finance books on the market.
I thoroughly enjoyed it. In fact, it changed my life. I think you will enjoy it, too.
Your Money or Your Life is the sixth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.