The Three Questions Revisited

Your Money or Your Life by Joe Dominguez and Vicki Robin was the book that spurred my financial turnaround. At the very moment when I was realizing I needed to do something drastically different in my life with regards to my finances, this book was the first one that I happened to read from the pile of books that I checked out from the library, and it changed my life. I’ve written about it and referenced it countless times on The Simple Dollar, and several years ago I even wrote a “book club” series covering the book in incredible detail.

There are several pieces of this book that continue to guide and inspire my own financial journey, but one particular part really stands out. I devoted a brief article to it several years back, but I wanted to circle back and examine it again.

So let’s start from the beginning.

Not Money, But Hours of Your Life

The first portion of Your Money or Your Life focuses heavily on the idea that, rather than focusing on the money that you have, you should instead consider the hours of your life devoted to earning that money.

The authors do this by working you through a calculation of your “true hourly wage,” which basically boils down to your income from the last year minus all expenses related to earning that income (taxes, eating lunch out, transportation, clothing, equipment, travel, and so on) divided by the hours you worked plus time outside of work devoted to work-related tasks like commuting, entertaining for work-related purposes, going to work meetings and conventions, working from home, and so on. I’ve written about this concept many times before: Figuring Out Your True Hourly Wage and What It Means, Using Your True Hourly Discretionary Income to Make Smarter Purchases, Wasted Time and Your Real Hourly Wage, and so on.

Let’s say, for example, that Jonas makes $60,000 a year. He has a salaried job where he’s at work about 50 hours a week and gets two weeks of vacation a year, meaning he works 2,500 hours a year. His nominal hourly wage is $24 per hour.

However, he also spends half an hour commuting each way (an extra 250 hours per year), does a couple hours of work at home at least three days a week (an extra 300 hours per year), goes on two weeklong trips per year for work (another 200 hours per year), and spends assorted hours doing things like taking a workplace guest out for dinner or shopping for professional clothing (let’s say another 50 hours per year). He’s also often stressed out after work and sits on the couch in a daze watching sports news for half an hour when he arrives home to “unwind,” adding another 125 hours per year. That’s 925 extra hours on top of the normal 2,500 he works in a year, bringing the total to 3,425 hours.

On the flip side of that, he has a car for commuting that consumes fuel and depreciates in value and will need to be replaced (let’s call it $4,000 a year), he eats out with coworkers a few times a week at $10 per meal ($1,500 per year), he pays income taxes and other associated taxes (let’s call that $12,000 per year), and he has to maintain a good work wardrobe with business casual clothes and occasional dressier items ($300 a year). We’ll tack on another $200 for miscellaneous items, bringing us to a total amount of money lost of $18,000, bringing his actual salary down to $42,000 per year.

When you divide $42,000 per year by 3,425 hours, you get $12.26 per hour. That’s not nearly as good as Jonas might have thought.

In fact, it was this true hourly wage calculation that played heavily into my decision to switch to a full-time writing career. My take-home income wasn’t nearly as high, but I instantly lost the cost of the commute, the cost of a wardrobe, the cost of eating out with coworkers, the cost of work travel – it all instantly vanished. I also lost the time commitment to those things. Thus, even though my salary dropped precipitously, my true hourly wage actually went up a little bit.

Great, but how is this useful?

For me, knowing my true hourly wage is useful because it translates the expense of a purchase easily into the hours of my life I had to work for that item.

For example, let’s say my true hourly wage is $12, like Jonas. I’m thinking about buying a $300 blender. That blender equates to twenty-five hours of my life spent working, twenty-five hours of my life where I’m not doing what I want to be doing. Twenty-five hours spent in front of a computer or doing paperwork or doing … well, all of the professional tasks I don’t really enjoy, instead of twenty-five hours spent going on a hike or reading a fun book or playing a tabletop game or any of the dozens of things I love to do with my time and find deeply personally fulfilling.

Is that worth it? Is that lost time a fair trade for that $300 blender?

Let’s go way down this rabbit hole.

The Three Questions

On page 109 of the paperback edition of Your Money or Your Life, there’s a section about the three questions that will transform your life:

1. Did I receive fulfillment, satisfaction, and value in proportion to the 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?

This is basically an expansion and formalization of the thought process I described a bit earlier, where I was considering buying a $300 blender and wondering whether it was worth the portion of my life that I was trading for it.

The three questions, as listed here, work best when you’re evaluating expenses you’ve already incurred. For example, you might use those questions when going through each line on a credit card statement. You’ll take the cost of that expense, divide it by your true hourly wage to see how much of your life you gave up for that item, and then you ask yourself those three questions about the result.

So, let’s look at these questions one at a time.

Did I receive fulfillment, satisfaction, and value in proportion to the energy spent?

Your Money or Your Life suggests on page 112 that you literally use a simple marking system as you go through your credit card statements or the lines in your budget:

Take a look at each [budget] subcategory with this question in mind. If you received so much fulfillment from this expense of life energy that you’d even like to increase spending in this category, place a + [next to it]. If you received little or no fulfillment from it, place a – [next to it]. If the expense feels okay just as it is, mark [it] with a 0.

This works with budget categories, with credit card statements, with bank statements, with receipts (item by item) – anything where you can see an itemized breakdown of your spending. Just translate each dollar amount into the hours of your life that you spent working in order to buy that item, then ask yourself whether spending that much of your life was a real win or not.

If you’re like me, you’ll find that it’s really hard to justify putting a + down at all. There will be a lot of things that earn a 0, mostly because they’re basic life expenses. There will be quite a few things that it makes sense to put a – next to.

Once you’ve done that, look really carefully at the items you marked with a -. Those are the areas where you’re spending money and it really doesn’t feel worth it. Those, right there, are the things you should be cutting out of your spending going forward.

It’s very worthwhile to actually do this practice for a while. Get in the habit of evaluating your receipts, your credit card statements, and your bank statements with this strategy. Mark everything with a +, 0, or -, and then review those markings when you’re done. Try to pound into your head what things are consistently marked with a -, because those are the things that really aren’t paying off for you.

Is this expenditure of life energy in alignment with my values and life purpose?

You can do this exact same thing by looking at your expenses through your values, goals, and overall life purpose. Is this expense in line with those things?

At first glance, you might think that this is just a rewording of the first one, but think about it again.

For example, let’s say that I have a line on my credit card statement for a $50 meal at a nice restaurant. This might have fulfilled me and been worth the four hours of work I had to put in to earn it, but was it really in line with my values and goals and life purpose?

On the one hand, the meal was delicious, but on the other, it was absurdly unhealthy, which is wildly out of line with health goals I have for myself.

On the one hand, I got to go out to eat with a close friend I hadn’t seen in a long time, which was definitely worthwhile, but could I have had that valuable social experience in another setting? Did I even really talk to my friend before setting up the dinner at the expensive, unhealthy restaurant?

It might have been a really fulfilling experience, but in a number of ways, it wasn’t really in line with my life goals and values. I absolutely got a ton of value out of eating out with an old friend, but I let down my health goals and I also didn’t really give my friend any room for input in this, either. I could have done this better.

That kind of thinking is the reason for this question. Sometimes, you’ll see a particular expense as being fulfilling enough to have been worth it, but at the same time big aspects of that expense actually work in opposition to your life goals.

For a non-financial example, consider that box of doughnuts that my wife brought home as part of an end-of-year celebration at her workplace. It might bring me some immediate fulfillment to eat one … mmmm, doughnut … but it’s not at all in alignment with my life goals. I’m way better off eating an apple if I want a sweet snack.

How might this expenditure change if I didn’t have to work for a living?

This question is insightful because it reveals how much of our spending really is entangled with our jobs. We spend a surprising amount of money simply because we’re employed.

For example, consider a young couple with a baby who have just added child care expenses to their budget. If they didn’t have to work for a living, that child care expense would disappear. It’s an expense wholly brought on by the need to work for a living.

Another good example is food costs. If you no longer have to work for a living, home food preparation becomes much easier and much more straightforward. You can make inexpensive meals at home because you have a little extra time – or, more truthfully, the schedule flexibility – to do so.

Another interesting example is simple home repairs, like a broken faucet. A person who is working might not have time to deal with it, so they just call a repairperson. A person who isn’t working would have the time to just deal with it themselves.

If you take this question seriously, it provides some real feedback with regards to your true hourly wage. If you observe that an expense would go down if you were no longer working, then the portion of that expense that’s due to your work should be accounted for in your true hourly wage.

The ‘Internal Yardstick of Fulfillment’

Over time, if you ask these kinds of questions regularly when reviewing your expenses, you start to develop what Your Money or Your Life calls an “internal yardstick for fulfillment.” As you go through and ask these questions and make those + and 0 and – markings, it all starts to turn into an innate real-time sense of whether expenses are really worth it for you, and you start to have a much higher threshold in terms of the amount of fulfillment you need from something in order to spend your money on it.

This entire exercise is really about building that internal tool for judging whether purchases are worthwhile, both in terms of whether they fulfill you right now and whether they match with what you want out of your life long term.

In fact, the reason many people get into spending trouble is that their internal yardstick of fulfillment is way out of calibration. By default, our internal sense of whether a purchase is actually fulfilling and in line with our life goals gives a ton of false positives because modern life encourages those false positives. The entire marketing industry, for example, exists to give us false positives with regards to those kinds of questions if we don’t consider them too deeply. We are encouraged to buy houses that are much bigger than we need, cars that are much more extravagant than we need, all kinds of consumer goods and electronic goods we don’t need, all because we have this sense that they will fulfill us when they really don’t.

The only way to build a good instinct as to whether a purchase will give you enough fulfillment and enough direction toward your long term goal to be worth the hours of your life you gave up to get the money for that purchase is to get out of the heat of the moment and reflect on lots of your past purchases in a deeply honest way, understanding that you most likely did spend at least some of your money in a way that’s out of alignment with what really works best for you.

In other words, you probably need to recalibrate your internal yardstick, and you need to do it surprisingly often. It’s through things like the process listed here, where you go through and “score” the items on your receipts and on your bank statements after the fact, that you’re able to recalibrate.

Final Thoughts

The three questions that you should ask yourself regarding your purchases is one of the most powerful take-home messages from Your Money or Your Life. That questioning process, and how it recalibrates my internal yardstick of fulfillment in terms of how I use my money (and my time) so that I can make better decisions in the moment, is a key part of how I’m able to (usually) make good financial decisions on the fly, ones that reflect my own sense of fulfillment, my values, and my long term goals.

For me, what really clicks with this system is that it’s constantly nudging me toward financial independence. All of these questions eventually boil down to reaching a state of life where I don’t have to rely on an employer or a paycheck and I’m free from having to do work in exchange for money to have the life I want.

Everyone is going to have different things that fulfill them, different priorities, different values, and different long-term goals. This process helps you to figure out what’s most important to you.

Good luck!

Read more by Trent Hamm:

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.