Your Money Or Your Life, Step 1

[This is part 1 of a 9ish part series on the book Your Money or Your Life. See my original post about the book.]

Step one in Your Money or Your Life is to figure out how much money you’ve ever made, including income and gifts. This gives you a picture of how powerful you are in bringing money into your life, which eliminates vagueness and self-delusion.

Here are some tips to help you figure out your life’s earnings:

If you’ve ever worked a job before, you have a file with Social Security and you probably get statements from them.  If you don’t have your most recent Statement of Earnings form, you can request the information online.  The SSA website changed recently but it looks like you can do that here, or call them 1-800-772-1213.

That should give you employment earnings. Here are other forms of income to consider (listed roughly chronologically). Some involve the WAG valuation method, which stands for Wild-Ass Guess. However you figure this out, be thorough and non-judgmental of yourself.

• Under the table jobs or tips, that won’t show up on your Social Security statement. A popular one is…
• Babysitting. Estimate your average pay per gig, number of gigs per month, and number of months you were a babysitter.
• Allowance. Try to remember how much you received per week for the different phases of your life. (Or call your mother, I’m sure she’d love to hear from you).
• College stipend. Were you lucky enough to get one of these?
• Bar Mitzvah, or other life milestones where gifts are given?
• Birthday Gifts. How much have you gotten every year, on average?
• High school and college graduation gifts?
• Other monetary gifts from family members. My folks liked to buy savings bonds in my name, every so often.
• Wedding gifts, if you’re married.
• Gifts you got at the birth of a child. (this is starting to sound like The Game of Life)
• Lottery or gambling winnings

One side effect of completing this exercise is that I realized how generous the people in my life have been to me, and how lucky I’ve been to have had a financial safety net until I was old enough to make it on my own.

Once I added it all up, I found that I’d almost be a millionaire if I’d somehow been able to keep all the income I’ve ever received. Of course that’s not possible, but it’s still amazing to see how much money has come into my life. Next we’ll see what I have to show for it…

An amazing new service that will change your life!

I just found out about this amazing new service. It’s like Netflix but it also has books and music. It also compels you to get exercise and to meet your neighbors. And best of all, it’s totally free!

Ok, I lied about it being new and about just discovering it. The service is called the Seattle Public Library and it’s one of the most amazing parts of living in this city. Even if our neighborhood branch looks a little silly:

Like a colonialist with a robotic arm

Making the switch from being a media buyer/renter, to a patron of the library isn’t going to save you huge bucks (when we canceled our netflix subscription, it was like $7 a month). The biggest change is accepting the idea that one need not own something to get full enjoyment out of it. Borrowing it for a few weeks is good enough.

In other words, you no longer need to stockpile media in your home. Our CD collection fits in a few CD booklets. Our movie collection fits in a drawer, with room to spare:

And it’s mostly Lord of the Rings

Our bookshelf is tucked in the corner of the bedroom, and mostly contains books that fall under the category of “stuff I’d like the kids to read when they’re a little older,” starting with The Hobbit, and working up to Cryptonomicon.

The exercise part comes from the fact that the library has no parking so I usually walk or ride my bike there. And getting to know your neighbors is just an effortless side-effect of being in a public place every so often.

You’re already paying for your local public library through taxes, so you might as well enjoy the benefits!

A quote

I have three precious things which I hold fast and prize. The first is gentleness; the second is frugality; the third is humility, which keeps me from putting myself before others. Be gentle and you can be bold; be frugal and you can be liberal; avoid putting yourself before others and you can become a leader among men.

–Lao-Tzu, the founder of Taoism.

A short post tonight. I have a library book due soon, so I’m going to read.

DIY Halloween Crafts

Americans plan to spend an estimated $6.9 billion this year on Halloween decorations, costumes, and candy. To put that into perspective, the Titanic was built for about the same price (in 1910 dollars).

DIY candy is out of my league, but here’s a cute DIY decorations craft project: egg carton bats.

Just take an egg carton, cut it into 3-egg sections, and trim it into the approximate shape of a bat. Paint it black, then add eyes with white paint or stickers. Spooky!

DIY costumes are left as an exercise for the reader…

Are you afraid of the right things?

As Halloween rolls around again, I’m reminded of the poisoned candy urban legend

There has been exactly one documented case of a child being directly poisoned by Halloween candy, Carroll said. In 1974, an 8-year-old died after sucking on a Pixy Stix laced with cyanide. But the poisoner was not some mysterious Grim Reaper posing as a harmless neighbor. Nope, it was good ol’ Dad.

Even knowing it was a myth, it still gave me pause when a friend and neighbor gave my children apples one year for Trick-or-Treating. How dare they endanger my child’s health with their fresh produce!

The other threat to children that misguides parents is child kidnapping, or “stranger danger.” We spend our energy worrying about our children playing outside alone and getting abducted, but if your child is actually kidnapped, there’s an over 90% chance that the abductor is a friend or family member.

The list goes on and on. Don’t even get me started on driving vs flying.

Fear works in interesting ways on our minds. I believe there’s a limit to how many different things we can be afraid of at once, while still functioning as human beings. So it’s important to choose your fears carefully! Not fearing anything is a recipe for being unprepared for the bumps in life, but fearing everything is paralyzing, so there’s a balance.

The conspiracy theorist in me wants to say that the media and marketers try to influence our fears, which is probably part of the story. The bottom line is that you can always turn off the TV and get the facts with a quick google search, so there’s no excuse for misplaced fears these days.

My secret about jackets

Speaking of jackets, I have a little secret that I’ll let you in on:

My ski jacket is as waterproof and as clean as the day I bought it. That’s a pretty bold statement considering I live in rainy, outdoorsy Seattle, and the jacket is 10 years old.

The secret is a product called Nikwax. It’s really two products purchased together. The first preps the jacket by cleaning it. The second is the actual waterproofing agent.

A kit costs $20 and is good for about 5 jackets. I figure for that price (plus the negligible cost of running the washing machine twice and the dryer once) I’ve extended the life of our family’s jackets by at least 10 years. (The kids get cheapo thrift store ski jackets that they lose or grow out of in a year anyway.)

Frugality doesn’t mean not buying nice things. But it does mean taking care of the things you have so you can get the most use out of them.

Not caring what other people think. It’s hard.

The hardest part about being frugal is not caring what other people think.

I bought a coat at Value Village for $5. I assume it was priced low because it had a rip in the back, since it’s an otherwise amazing jacket that packs down small.  I’m not good with sewing but I’m really good at duct taping things.  So I taped the hole closed with waterproof duct tape.  That was 2 years ago and it’s still going strong.

Since the hole is in the back, I usually forget about it anyway.  I probably saved myself $50 – $75 compared to buying a comprable coat new.

Your Money or Your Life

I mentioned the book Your Money or Your Life in my previous post. It’s such a foundation of the life I’m trying to espouse on this blog, that I think I need to write more about it before I can move on to anything else.

My boss suggested it to me, so I was figuring it was going to be some sort of “how to invest in bonds and get rich!” type of book. And while older editions do include a section on investing in bonds, the book is so much more than that. In fact, it provides a completely new way of thinking about money. A more healthy, practical, and productive way.

The book is simple enough that I can summarize it here: money is something for which you trade your life energy (time). What we commonly call “work” is really “paid employment”. You only need paid employment until you’re Financially Independent (which everyone gets to eventually, and if you follow the book, it can happen sooner).

Before you can be Financially Independent (“FI”), you need two other FIs first:

Financial Intelligence
Figure out how much you’ve ever made, from the first penny of your first allowance or babysitting gig, to your most recent paycheck. Now figure out your current net worth (including money in the bank, debts, and the value of your material possessions). This helps you realize the power you have to bring in money, and how your money has been allocated.¹

Figure out your real hourly wage, after taking into account every work related expense (in either time or money) such as commuting, dress clothes, time/money spent “decompressing” or “vacating”.

Chart your income vs spending. The difference between the two is your savings.

Financial Integrity

Keep track of your spending, but with a twist: instead of keeping track of the $ amounts in each category, use your real hourly wage to track the amount of life energy you spend.  Are you spending your life energy in line with your life values? Minimize spending by putting it in line with your life values. Cut down on things that go against your purpose in life, and spend more on things that bring real happiness.

Maximize your earnings, to the extent that you’re working in line with your values and health

Financial Independence
Invest the savings wisely in a way that earns predictable income.

When investment income surpasses spending, you’re financially independent.

Conclusion

Sounds easy, right? I’m simplifying a lot, so you should read the whole thing. It’s worth your life energy. I mean time.

In future posts, I’ll break down how I accomplished each step.  Some steps are one-time exercises, others are activities I perform each month. All of them are enjoyable and introspective.

Step 1 – Making Peace With The Past (also see the follow-up post, Step 1.5): we figure out how much you’ve ever earned, and what you have to show for it.

Step 2 – Being In The Present – we figure out how much you really make per hour, and start tracking every dollar we make and spend.

Step 3 – Where Is It All Going? – we tabulate an accurate portrait of what you are spending your money on, and how you are actually living.

Step 4 – Three Questions to Transform Your Life – align your earning and spending with your life values and purpose. Discover what is “enough” for you.

Step 5 – Making Life Energy Visible – arts & crafts project! we’ll make a wall-chart showing your income and spending.

Step 6 – Valuing Your Life Energy by Minimizing Spending – ways to minimize spending and better align spending with your life values.

Step 7 – Valuing Your Life Energy by Maximizing Income – how to trade your time with purpose and integrity for increased earnings.

Step 8 – Capital and the Crossover Point – we’ll discuss how to put your savings to work and how to track your journey to Financial Independence

Step 9 – Managing Your Finances – how to become knowledgeable about income-producing investments, so they provide a safe income for the rest of your life.

¹ If you run a business, this exercise will look familiar. Keeping track of your inputs and outputs is an essential part of business bookkeeping...and you are a business!

Definition of the word “Frugal”

I hate the sound of the word “frugal” but maybe that’s just what society has done to me. When you look at the Latin root of the word, it’s actually rather pretty:

“Frugal” shares a Latin root with frug (meaning virtue), frux (meaning fruit or value) and frui (meaning to enjoy or have the use of). In other words, “frugality” is enjoying the virtue of getting good value for every minute of your life and from everything you have the use of.

I read this in the book Your Money or Your Life which is awesome enough to deserve its own post.

The voice that says “no”

It was July of this year. I was contemplating starting a blog about simple living, frugality, and other money/lifestyle topics. I floated the idea by my friend Mike (whose blog and lifestyle I admire), and he essentially wrote back “go for it!”

Fast forward to yesterday. I hung out with Mike and thought to myself, “I still haven’t started the blog. What’s holding me back?” My inner voice answered, “everything’s already been written before, we’re all reading the same books & blogs, and you can’t go head-to-head with the established Big Guys, so what value can you add to the discussion?”

Hold on a second. If I’m going to let The Voice that says “no” overrule me on the insignificant decision of whether or not to start a blog, what power will that voice have over my important decisions!?

The moral here is that even if you have no argument that will overrule the The Voice in a debate, that voice is just a little gnat and you’re a big person, so stop listening to it and start doing the things you want to do.

So even if I have nothing to add and nobody ever reads this, starting this blog is a my personal “up yours” to the voice that says “no”.