When I looked at the most recent data available, I noticed that something didn’t add up. That $312 per month from the spending survey is lower than even the thrifty “family of 2” plan provided by the USDA, which allocates $374 for a couple with no children. There’s no way the average American unit can beat a “thrifty” shopping plan. It looks like a case of “Lake Wobegon syndrome,” where every family is above average. And I was feeling pretty good about our family’s slightly-above-average grocery spending, so maybe it’s too early to toot my own horn.
I sent an email to Mark Lino, Economist at the USDA to see what gives. Since it’s a holiday weekend, I doubt he’ll get back to me right away. I’ll keep you posted.
Until then, you can see a nifty spreadsheet I made to add up what a family of our size, with our age ranges, should be spending according to the USDA. You can make a similar one by replacing our age/gender groups with the ones for your family. Here’s a screenshot:
Here’s a link to a Google Spreadsheet so you can copy it and play around with the data:
In the last step, we started a Monthly Tabulation, where you figure out how much you spend in various categories.
Now we’re going to add three more columns to the tabulation. Each column represents the answer to one of the following three questions you’ll ask yourself about money/time spent in that category:
Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
Is this expenditure of life energy in alignment with my values and life purpose?
How might this expenditure change if I didn’t have to work for a living?
For shorthand you can use a +/- system. The + sign means spending more in this category would increase fulfillment, would demonstrate greater personal alignment, or would increase after Financial Independence, respectively. Conversely, use the – sign if you didn’t receive fulfillment proportional to the hours of life energy you spent in that category, or if that expenditure was not in alignment with your values and purpose, or if you could see expenses in that category decreasing after Financial Independence, respectively. Leave the box blank if that category is just fine where it is.
For example, every month when I see how much we’re spending on car-related expenses (fuel, parking, insurance, maintenance), I put a – sign in “alignment with my values” since I value exercise and public transit over driving, and another – sign in “change if I didn’t have to work” since if I didn’t have to work I’d have more free time to get places slower. It took a while, but these costs have started to go down, like magic. I’m choosing to walk and/or ride the bus more often when we go on family outings. We’re saving money and also enjoying the ride.
Finally, this is the core of the 9 steps (and not only because we’re half way through). Taking a look at whether or not you’re spending what you want on the items/services you want to spend it on is the single best way to change your spending. Budgets don’t work, they’re like diets. Being honest with yourself about your values and the sense of fulfillment that your dollar buys is the only way to make changes.
This step takes about an hour a month. It also helps you figure out what is enough for you, which we’ll talk more about in a later step.
While it’s important to have goals, it’s even more important to understand why you’ve chosen your goals, out of all the millions of goals in the world.
I found a really simple and effective tip, while reading this great business book, The Personal MBA by Josh Kaufman. It’s called the “Five Whys”. Here’s how it works:
Whenever you set a goal, ask yourself why you want to achieve it. If you want to be a millionaire, ask yourself why you want a million dollars. When you think of an answer, ask “why?” again. Keep asking yourself why until you get into a loop where the answer is “because I want it”, which suggests you’ve gotten to the desire behind the goal.
Here’s Kaufman’s “millionaire” example:
Why do I want a million dollars? Because I don’t want to be stressed about money.
Why don’t I want to be stressed about money? So I don’t feel anxious.
Why don’t I want to feel anxious? So I can feel secure.
Why do I want to feel secure? So I feel free.
Why do I want to feel free? Because I want to feel free!
The answer to each question may seem obvious, but look how we got from a run-of-the-mill money goal to a very deeply rooted human desire, in just five steps!
Once you know why you want to achieve a goal, you can sometimes figure out a more direct way to the desire behind the goal. If becoming a millionaire is really about freedom, look for changes you can make today that will get you there, like quitting a 9-to-5 and starting your own business.
It’s only November, but I’m going to go out on a limb and say that my friend Rose wrote the best blog post of the year. It’s about how she lost almost 50% of her body weight, down from 277 lbs. Imagine shedding half of yourself!
As I read how she did it, I realized that after the background about the weight itself, she wasn’t actually writing about losing weight. Instead, she was providing the perfect template for achieving any difficult goal. Here’s her secret recipe (as I see it):
Keep metrics: you don’t know if you’re getting closer or farther away from your goal unless you identify key metrics. With losing weight, you need to track what you eat and how much you exercise. With personal finance, you need to track how much you make and how much you spend.
Persistance: I’ll let Rose tackle this one in her own words: “I decided early on in this process that there was only one way that I could fail and that was to quit. I took that option off the table and worked on just putting one foot in front of the other.”
Support from loved ones: if your significant other isn’t on the same page as you with losing weight or meeting financial goals, it’s a non-starter. You need 100% unwavering support of the people in your life.
Advice from a domain expert: tread carefully here, because in both weight loss and personal finance there are many false prophets. You need to find an expert that’s right for you, but since you’re keeping metrics you should know pretty quickly. I’m not ready to call myself an expert yet, but hopefully this blog helps someone out there.
You can google “weight loss” or “personal finance” and get literally millions of tips. I’m sure many of them are very helpful. But if you don’t follow the 4 guidelines above, all the tips in the world won’t get you where you want to be.
Why: Because everyone needs healthy, nutritious food. The Emergency Feeding Program’s mission is to provide an emergency response to the nutritional needs of people in crisis hunger situations throughout Seattle and King County.
How: Bring your sweet tooth, along with non-perishable food items or a monetary donation. For a list of the items the Emergency Feeding Program needs most, click here (PDF).
First, a confession: if anyone is even still reading these, I feel like I’ve lead you pretty far off into the weeds. Reading all this it seems like one chore after the next, with no payoff. Unfortunately, we have a bit more groundwork to do before starting to see results. I’m writing about a huge, fundamental change in the way you relate to money, so things might move slowly…
Today we’re going to dive a bit deeper into the spending/income data you’re collecting. You’re tracking every dollar you make and spend, right? Well here’s another homework assignment, but this only needs to be done once a month.
Block off about 30 minutes, and look at the spending/income entries for the past month. Try to group them into categories that make sense for you. Everyone’s will be different, depending on what they spend money on. Not every category will have expenses in it every month. To the left are many of my categories and sub-categories:
The penultimate step is to balance your income and expenses. If they don’t balance, figure out why. Sometimes you’ll be pleasantly surprised to find you have more money than you thought. Sometimes you’ll be bummed to find out you were burned by a service fee, but at least you’ll now be armed with info to maybe ask to have the fee reversed.
The final step is a weird one, but it’s what makes the Your Money or Your Life program so unique and effective. Next to the “dollar amount” column for each category, add one more column, called “hours of life energy.” Using your real hourly wage from Step 2, convert the dollars spent in each category to hours of life energy.
For instance, let’s say I spend $1500 on rent each month. Using the example from Step 2, my real hourly wage is $13.71, which means I trade almost 110 hours of my time for the roof over my head. That’s almost as many hours as I spend in the office each month! You’ll start to see the hours add up, and realize what you’re spending your time on, both literally and in the life energy sense of the word.
Why are we doing this? First off, balancing the books is a fundamental practice for any business, and you are a business. I’m starting to sound like a broken record, but you are in the business of trading the most precious resource in existence: your life energy.
This monthly tabulation will be an accurate portrait of how you are actually living, and it provides a foundation for the subsequent steps of the program.
I’d be interested to see what other people come up with for their categories. I think it’s an interesting lens to peek into the lifestyle of another person. Please share yours if you feel comfortable.
This step is called “Being in the Present” because it helps you visualize how money currently comes into, and goes out of, your life. How much are you trading your life energy (time) for? In other words, how much do you really make per hour?
If you’re salaried, it’s a quick calculation (salary / hours worked each year). Or is it? Did you remember to factor in the time spent commuting? You wouldn’t be commuting if you weren’t working. Same goes for the cost of business lunches, dress clothes, and anything you only buy because you work.
Your real hourly wage is probably somewhat lower than you think, if you factor in everything you do and spend that’s related to work. Here’s how to figure it out:
Deduct from your gross weekly income the costs of commuting and job clothes; the extra cost of at-work meals; amounts spent for decompressing and vacating from work; job-related and job-stress-related illness; and all other expenses associated with maintaining you on the job.
Add to your workweek the hours spent in preparing yourself for work; commuting, decompressing, vacating, job-related shopping, and all the other hours that are linked to maintaining your job.
Divide the new, reduced weekly dollar figure by the new, increased weekly hour figure; this is your real hourly wage.
Here’s an example:
Let’s say I make $25 an hour, or $1000 a week. But I spend some of that money on bus fare, dining out at work, and stress-related doctor bills. The $1000 a week is reduced to $850. I work 40 hours a week, but it takes me a total of 2 hours to get to and from work each week, and I spend time decompressing and surfing the web when I get home because my brain is tired. So my 40 hour work week is really 62 hours of work-related activity. Thus I spend 62 hours a week to earn $850, or a real hourly wage of $13.71. Ouch. Personally, I found my real wage to be less than half of my gross hourly wage.
At a wage of $13.71, every dollar takes about 4 minutes, 20 seconds to earn. So spending a dollar represents 4:20 of life energy gone. Conversely, I trade every minute of work for 23 cents. Makes you think twice about shelling out big bucks for some random purchase, doesn’t it?
You should try this. Be honest with yourself when you deduct from your wage and add to your work time. It’s potentially depressing but certainly eye opening. This number will become a vital ingredient in transforming your relationship with money. (I’ll get to this in subsequent steps)
Yes, you have homework now, in addition to the above. Even worse, this is a homework assignment that you might want to do for the rest of your life!
The last part of Step 2 is to keep track of every dollar that comes into or goes out of your life. You can go high tech with a site like mint.com or low tech with a notepad. Doesn’t matter, as long as you’re thorough, accurate, and consistant. I use mint.com. Every week I take a look at the last week’s transactions and categorize them into basic groups: car, kids, food, entertainment, etc.
The effort is worth it. Keeping close tabs on revenue and expenses is a fundamental practice for any business, and you are a business. In fact, you’re in the business of trading the most precious resource in existence: your time. The least you can do is keep track, in detail, of what you’re trading it for.