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.