#bookclub: Your Money Or Your Life by Vicki Robin and Joe Dominguez
We had a great evening discussing Your Money Or Your Life on February 20th, 2019! Here is a summary of our conversation by Rachel Misra. Thanks Rachel!
What's more important to you - your money, or your life? Authors Vicki Robin and Joe Dominguez centre their book around this concept: "If someone thrust a gun in your ribs, and said those words, what would you do? Most of us would turn over our wallets". But despite this, on a daily basis many people exchange their "life energy" (a.k.a time) for money, earned from jobs that don't align with their personal values, spent on items that they don't really need.
For some in our book club this concept really hit home. People recognised that they had perhaps been handing over too much of their lives in exchange for money. Others noted that many don't have the luxury of choice, for example if you're a single parent with the pressure to support a large family and save for retirement.
The book took us through 9 steps for "transforming your relationship with money and achieving financial independence".
1. Making peace with your past
The first step coaxes you to confront the reality of your financial past - figuring out how much money you've ever made. Since day one. Not just salary, but tips, monetary gifts and even stolen money?! It's fascinating to take your lifetime earnings and consider what you now have in exchange.
However, it didn't seem like anyone from the book club had done this task, not only because it would be painful to realise how much cash you've burned, but also because, unless you got into excel spreadsheets at an early age, getting this information would take forever.
2. Being in the present - calculating your life energy
Next up is establishing how much life energy you trade for money: your true hourly wage. This goes far beyond the basic calculation of: my salary X the number of hours I work.
How much time do you spend commuting? Do you buy clothes specifically for work? All good considerations. Some suggestions felt a bit less realistic however, such as counting holidays caused by stress as a job expense. Even without a job, we'd probably all still want to jet out for sun and cheap cocktails now and again.
3. Monthly tabulation
A more traditional money management task comes next; noting down everything you spend your money on each month. Breaking down your expenses into very personalised groups e.g. not just 'food', but ‘special occasion food’, ‘guest food’, ‘work lunch food’ and so on, gives you a much clearer guide of how your money is spent.
After a few months, you're able to see how much you regularly spend on each category - and, here's the beauty of the previous step, comparing expenses to your real hourly wage. Seeing how many 'real life hours' you traded to buy your wardrobe of clothes? Argh...
4. How much is enough? The quest for happiness
Now we really started to bring values into the equation, asking three questions of purchases:
"Do I receive fulfilment and value compared to the life energy spent on this?
Is this use of my life energy in line with my values and goals?
How would this expenditure change if I didn’t have to work?"
Up weighting and down weighting expenses against their alignment to your values is an interesting way to understand what expenses are worthwhile to you, and what expenses are out of sync with your purpose in life.
Another excellent idea here was to calculate how much 'enough' is for you - an "internal yardstick" of how much money you actually need to be fulfilled, rather than an external yardstick, which will always lead you to the conclusion you need more.
5. Making life energy visible
...That's a fancy way of saying making a chart with all of the above.
6. Valuing your life energy - minimising spending
Here's where the authors make frugality sexy again. The no. 1 top tip to save money was "Stop trying to impress other people" which a lot of the group agreed with. We discussed whether London enhanced the 'Keeping up with the Joneses' effect, thanks to visible wealth being on constant display, and shopping a thoroughly ingrained part of the culture. Is it even possible to do a commute in London without passing a dozen shops along the way?
7. Valuing your life energy - maximising income
Pretty much everyone will agree that maximising your income = a good idea. Here the book strays into slightly obvious but easier-said-than-done territory, for example outlining that you should strive to earn a high salary, and not blame extraneous factors for your low-pay.
It was interesting however, to consider a job that doesn't align with your values and purpose, isn't worth your life energy.
8. Capital and the crossover point
Doing the steps above, should bring you to the point where you've re-prioritised your expenses, and maximised your income, bringing your expenses below your income. Taking your remaining excess income and putting in into high-interest accounts should drive your savings to become income generating.
The idea is that, if you're able to accurately predict your 'enough-point' expenses and keep increasing your monthly investment income, you should eventually get to a crossover point where your investment income exceeds your expenses, rather than getting stuck in the more money, more stuff trap. This crossover point is when you become financially independent.
Some people in the group found this motivational and a driver for reducing expenses and focusing on building their saving pot. Others voiced scepticism on how realistic passive income is. Does mastering passive income require as much time commitment as a job? Would spending your life energy on creating passive income align with your values and purpose? You'd struggle to find a bank account offering a long-term interest rate of 4% (the given example) for longer than a year.
9. Investing for financial independence
When you've reached your crossover point, you'll be able to ease your head onto a fluffy financial cushion. Your cushion = your six months of living expenses, your capital = investments, and your cache = the excess investment income. The cache is where the fun starts (IF you get there), where you can treat yo' self from a values and purpose perspective; whether that's buying a farm or becoming a hot air balloon pilot.
YMOYL gives a lot of great advice and provides innovative ways to evaluate your finances (if you're willing to put in the work!). Important to realise however is, that the world is a different place to when the book was written in 1992. We're in a time of astronomical house prices and dwindling state pensions. Passive income isn't as effortless as implied and often requires real time commitment comparable to a job to be sustainable. Having a job that isn't necessarily aligned with your purpose, but keeps your family fed and clothed, doesn't mean that you've failed - the authors labelling this 'making a dying' seemed a bit too extreme. However, the general consensus was that the book provided a lot of motivation, useful practical tips, as well as a welcome a push in the right direction to demand more from what we spend our life energy on.
See you at our next book club on April 3rd, we will be discussing Becoming by Michell Obama!