The single most powerful personal finance book I’ve ever read is Joe Dominguez and Vicki Robin’s Your Money or Your Life. The book powerfully explains the connection between personal happiness and fulfillment and one’s personal finances.
One section of the book that I found particularly powerful begins on page 112 of the most recent paperback version of the book. In that section, the authors discuss the idea of evaluating all of one’s purchases and expenditures through one single lens. Did I receive fulfillment, satisfaction, and value in proportion to life energy spent?
On page 113, the authors dig into answering this question.
Answering this question helps you develop an internal yardstick for fulfillment and in the process kick any unhealthy shopping habits. You may discover that you’ve been measuring your fulfillment, or lack of it, by what those around you have or by what advertising says you should want. Being fulfilled is having just enough. Think about it. Whether it’s food or money or things, if you don’t know, from an internal standard, what is enough, then you will pass directly from “not enough” to “too much,” with “enough” being like a little whistle-stop town. You blink and you’ve missed it. You will rarely have an experience of fulfillment. By diligently working with this question, you will begin to identify, for yourself, an internal yardstick that you can use to measure how much is enough
They start hinting at the most important element for developing this “yardstick” on pages 113 and 114:
The primary tool for developing this internal yardstick is awareness. The affluence that surrounds us has been called the American Dream and with good reason: we’ve been asleep. We wake up by questioning the dream. Asking yourself, month in, month out, whether you actually got fulfillment in proportion to life energy spent in each subcategory awakens that natural sense of knowing when enough is enough.
There is a lot going on in those sections, so let’s break it down a little bit.
What Does “Life Energy Spent” Actually Mean?
The idea of “life energy spent” is tied to the idea that each day we spend time devoted to our jobs and earning money, we sacrifice some small portion of our life. We not only burn hours at work, we burn mental and physical energy, too. It just goes away, never to return. It’s what we trade for our paycheck.
Since it’s really hard to quantify things like “mental energy,” the easiest way to talk about it is to instead rely on the idea of a “true hourly wage.”
A “true hourly wage” refers to the actual money that a person gets to keep for each hour that he or she spends working. It’s a concept I’ve talked about before on The Simple Dollar, but here’s a refresher for those of you who haven’t heard about it.
Most of us view our hourly wage as what our employer seems to pay us for an hour of work. However, that’s not really our true hourly wage.
In reality, we have a lot of additional expenses associated with work. We have to pay for the fuel to commute back and forth, as well as the wear and maintenance on our car. We have to pay income taxes, both state and local. For many jobs, we have to buy professional wardrobes. Sometimes we have extra food expenses, such as eating out with coworkers or out-of-town professional guests. Those expenses subtract directly from our actual salary.
Let’s say, for instance, that I make $40,000 per year. I have to spend $6,000 on income taxes. I also burn $3,000 on fuel and car maintenance for my commute, $500 on my wardrobe, and $1,500 on meals eaten out. That reduces my true salary to $29,000 per year.
We also have a lot of extra draws on our time beyond just work. We have to invest the time for our commute. Sometimes we have to go to meetings and entertain workers. We might have to do things like shop for clothes or go to extra training sessions or take work home in the evenings. It adds up.
Let’s say that I nominally work 40 hours a week, 50 weeks a year, for a total of 2,000 hours. Yet I have to put in five extra hours a week to get extra work done and have to burn a weekend twice a year – 50 hours each time – to go to a conference. I also have to spend two evenings a month entertaining coworkers or out-of-town guests, adding up to another 10 hours a month. That adds up to another 500 hours per year, more or less.
So, my original hourly wage was $40,000 divided by 2,000 hours, or $20 per hour. In truth, though, my wage is more like $29,000 divided by 2,500 hours, or $11.60 per hour. So, for every hour that I sacrifice to my work in this example, I only really get to keep $11.60.
That’s an important number because I can use it to judge how much of my life’s energy (in the form of hours) I’m actually trading for whatever I’m thinking of buying.
The way I like to use that number is to compare it to an enjoyable way to use that time and energy.
Another hypothetical example: I want to spend $50 on a game. I could either have that game and spend four hours of my life working or doing work-related tasks, or I could forego that game, put that money into early retirement savings, and instead enjoy an afternoon at the state park with my wife and kids.
We could spend $5,000 on a Disney World trip. That would add up to four hundred hours of my life – yep, ten work weeks at forty hours per week. On the other hand, we could just go on a simple camping vacation near home and have a ton of fun with a total cost of perhaps $200. The difference? About 380 hours of work.
This is actually a pretty accurate translation of things because I could actually take that money and put it toward early retirement, freeing up time just a few years down the road to essentially do whatever I want. It could also mean that I could have the financial freedom to switch to a much more fulfilling career in the very near future (I actually find what I do to be mostly pretty fulfilling, but you get the idea).
How Do You Figure Out “Enough”?
For me, the idea of “enough” occurs when those kinds of choices become truly tough.
Let’s look at that Disney World trip, for example. Can I possibly make the case that such a trip is worth 380 hours of my life’s energy? That adds up to countless afternoons and evenings just enjoying life with my family and my friends that instead get transformed into work just so that I can spend a week at Disney World with my family.
You might possibly make the case that it’s worth it once, but multiple times? That’s really a stretch. Once, at most, is enough.
What about that board game? Is owning a new board game worth four hours of my life? A picnic and an afternoon walk around a park with my wife? An evening spent with my children gazing at the stars and getting, just for a moment, a nice glimpse of the rings of Saturn? Sure, it might be. I enjoy playing such games and we often host game nights with my friends. However, don’t I already have a lot of games on my shelf? Is this new game really going to add something so different that it’s worth giving up those other things? Maybe someone else in my game group already has the game, or maybe we can just play one of the other games on our game shelf. A new game more frequently than every once in a great while is more than enough.
You can walk through thoughts like this about your own life. If eating out means three or four hours of your life’s energy and time sucked down by work, it doesn’t take too many times eating out for that to be enough when you could just eat at home. The same is true for seeing a movie in a theater or paying for your cell phone’s data plan each month or buying some expensive ingredients at the grocery store or renewing your Netflix plan.
Is this new thing really worth giving up one or two or three or ten hours of your life? Remember, you could instead save that money and retire earlier or switch to a deeply fulfilling job much earlier.
Spend some time thinking about all of your expenses in that kind of light. You’ll end up seeing that some of the things you spend money on are really not worth it. On the other hand, some of those things are obviously worth it.
What about your housing expenses? Of course, you need a place to live, but compare the cost of where you live now to the monthly cost of a minimalist apartment. Is the extra benefit of your current house worth the price difference between the two? Remember, you’re also paying more for energy bills. You’re also paying more for insurance in your larger living space, too. Is it really worth the dozens of hours a month to have this bigger place to live?
What about your car? Could you buy a less expensive model next time? Could you perhaps cut back and use public transportation? How much would that save you, and what does that mean in terms of hours spent working?
Just keep digging through your expenses like this, giving some real thought to each area of your spending. Your energy bill. Your food spending. Your entertainment spending. Are the things you’re buying in each of those categories actually bringing you more fulfillment?
Everyone has a different balance because everyone has different values. My only advice to you is this: if you’re unsure, it almost always means that you have “enough” in that particular part of your life.
If that little voice inside of you is saying something like, “But my current car works just fine,” then you have “enough” and you don’t need another car.
If that voice in your ear says “I have these ten games I haven’t really explored yet,” then you have “enough” and you don’t need another game.
If you think to yourself “I’ve already eaten out twice this week…” then you have “enough” and you don’t need to eat out again for a while.
Here’s the catch: for many of us, that voice doesn’t come naturally, especially in the heat of the moment.
How Do You Make It Natural? In Other Words, How Do You Develop That “Internal Yardstick of Fulfillment”?
The real trick for achieving a strong internal yardstick of fulfillment that we can use to judge our spending is cultivation. You can’t just wake up in the morning after becoming aware of this idea and expect to be perfectly guided by this internal yardstick. It just doesn’t work like that.
It has literally taken me years to build this kind of yardstick and make it strong enough that I pay attention to it and even then I still miss out on what it’s telling me every once in a while. I still overshoot that perfect level of fulfillment on occasion; the key is that this is now a rarity rather than the norm.
So, what do you need to do to cultivate this kind of internal fulfillment yardstick? I do four things.
First, I think about my purchasing decisions during my spare time. When I’m driving to the library or driving home from taking my son to preschool, I’ll think about situations where I recently spent money and ask myself whether that spending was justified. Sometimes, I’ll even think about situations where I didn’t spend and ask myself whether that was the right choice.
Second, I think about whether I’m actually fulfilled in each aspect of my life. I focus on seven different areas: physical (how does my body feel?), intellectual (what subjects would I like to learn about? is my mind sharp?), spiritual (what is the meaning of my life?), social (do I feel connected to other people and have many good relationships?), professional (is my work going well?), financial (are my finances in good shape?), and personal (how is my family doing? am I doing well in terms of personal goals?).
So, why is this so important? Like many people, I tend to spend much more loosely when I’m not feeling fulfilled in areas of my life, almost as though buying things will fill some perceived hole in my life. When I actually feel fulfilled in most areas of my life, I feel much less compelled to spend.
By thinking about how to improve those areas, I usually come up with solutions that don’t involve spending. I’ll realize that I’m feeling out of sorts about an issue with my daughter or that I’m not feeling as physically fit as I would like and I’ll address that problem head on. When I address those problems directly, not only do the solutions rarely cost me much money, they lead to a happier and better balanced life, which leaves me less prone to unnecessary spending.
It’s important to note that I don’t sit at home and spend hours meditating on these things. Instead, these are just things that I use to reflect on during those spare moments of my life.
Third, I involve myself in activities that benefit others. Within one week of today, I’m involved with making and serving a community dinner, volunteering at a food pantry, and organizing and running a meeting of a charity oversight board. Being involved in those activities is a constant reminder of the challenges that other people have in their lives and how, by comparison, I have it quite good.
That feeling does quite a lot to pull me down to earth in terms of material fulfillment. I recognize that it’s quite possible to have a joyous life in my community when you have very little, so what am I actually fulfilling by adding to the material abundance in my life?
Finally, I discuss purchases with my wife. We regularly review bills and talk about purchases together so, over time, I’ve come to think of Sarah’s reaction to a purchase as something of a “litmus test.” She has no problems at all with most of my personal spending, but she’s unhappy when it’s excessive (as am I when she spends excessively). That sense of what she would consider excessive and not excessive, built up over a lot of conversations over the years, forms a pretty powerful standard in my mind.
This isn’t due to the idea that I would somehow be afraid of her anger, but that we have a mutually respectful relationship where neither one of us has any real interest in making the other one upset. There’s a personal cost there in making that happen and it’s one that drastically cuts into any fulfillment I might get from a purchase.
These four tools together build something of an “internal yardstick of fulfillment,” where I have a pretty strong innate sense as to whether or not a given purchase will leave me feeling genuinely fulfilled or not.
How Has This Helped Me In Terms of Dollars and Cents?
Great, I have this “internal yardstick of fulfillment.” How does it actually help me to achieve financial goals?
The first thing worth noting here is that my concern is with achieving a “net positive” of fulfillment when I make a purchase. If I’m going to spend my money, I want to be absolutely sure that I’m going to get more out of it than I would from simply sticking it in the bank and having that money contribute to an earlier retirement and more security.
I’m always going to feel some fulfillment from a potential purchase or else I wouldn’t even consider that purchase. The problem is that every purchase brings a negative along with it. I’m spending money that’s no longer going to help me with my big life goal of early retirement. The bigger the price tag, the bigger the negative in this regard.
The thing is that having an “internal yardstick of fulfillment” helps me to understand pretty precisely exactly how much positive fulfillment a purchase is going to give me. I know how much joy I’m going to get from a new $40 board game. I’m aware that buying more games gives me diminishing returns with each purchase in the near future. I’m also aware that the $40 is a pretty big negative as well.
Before I had a strong internal yardstick, I almost always overestimated the fulfillment I would get from a purchase. I’d recognize that the $40 is a negative, and I might even recognize that buying lots of games reduces the positive impact of each one, but I’d almost always overestimate how much enjoyment that item would give. That would often convince me to make a purchase, one that would leave me feeling pretty unfulfilled later on.
Basically, my purchases became smarter. I find myself today only spending money on things that I’m going to use quite a lot. If it’s something that’s not going to be used very much, I’m just not going to spend money on it. That “internal yardstick” has become a very strong tool for accurately figuring out how much I’ll use something in advance of the purchase, and because of that, it’s kept me from wasting my money on things that might seem cool and fulfilling at the moment, but really isn’t.
I strongly encourage you to spend your time building up an internal yardstick of fulfillment. You can start by using your “true hourly wage” as a tool for figuring out whether you’re getting real value from a purchase, but over time other factors will be involved, such as your fulfillment with the current state of your life.
This is valuable because it makes it incredibly easy to walk away from temptations that don’t bring much lasting fulfillment, which is the source for an awful lot of financial anxiety today.