Tag Archives: your money or your life

Your Money or Your Life, Step 4: The Three Questions

[This is part 4 of a 9 part series on the book Your Money or Your Life. See my original post about the book.]

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:

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

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.

Your Money or Your Life, Step 3: Where Is It All Going?

[This is part 3 of a 9 part series on the book Your Money or Your Life. See my original post about the book.]

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…

The path to Financial Independence can be scary

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.

Your Money or Your Life, Step 2: Being in the Present

[This is part 2 of a 9ish part series on the book Your Money or Your Life. See my original post about the book.]

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?

Did your morning commute look like this?

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:

  1. 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.
  2. 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.
  3. 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)

Homework

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.

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…