My thoughts about “Your Money Or Your Life”
Wow. This book is too good. At first glance, you think that it’s just a book about money. It’s much, much more, though. It’s about money, but it’s also about digging deep and figuring out what it is you want for your life – what your purposes are, and how your use of money aligns (or doesn’t) with those purposes.
If we say that we value a set of high and worthy ideas, but our spending shows that we value fast food and cable TV, what does that mean? and how do we get to a place where we’re better aligned? How do we get out of this ridiculous rat race, of “making a dying,” and get somewhere much, much better?
Combine all of these questions with a concrete program (9 steps) for tracking your money and making sure it’s working for you – and you’ve got the type of book that you end up reading over and over again, because it works. Yes, it’s another money book, another self-help book, but do you know what? Sometimes these books sell thousands and thousands of volumes because they really do help. And this is one of them! Absolutely one of the books I wish I could make everyone read.
The 9 steps that will lead to financial freedom
Step 1: Figure out your life earnings, calculate your hourly wage and net worth.
-Life earnings: The idea is to figure out how much money has flowed into and out of your life. Actually I skipped this step, but I’m sure I would be helpful for many. The whole idea is to get you to realize that you have earned much more in your life time than you can imagine, and by doing this task you will be more aware of what you use your money on in the future.
-Net worth: Start tracking your net worth. This will motivate you to pursue your goal. At first I didn’t believe it would help to track this parameter because it is out of my control, but now I do see that this is something that gives motivation in my everyday-life!
-Hourly wage: Figure out your real hourly wage by adding into work hours all the work-related time outside the office (commuting, working from home, cost of meals, etc).
Step 2: Keep track of all the money coming into and out of your life on a monthly basis
-Track every cent that goes into or out of your pocket. You can use apps like Personal Capital, Mint or eg. Spending Tracker (which I use myself). Actually this has been a really valuable lesson for me. By tracking every cent I’ve been much more aware of all the money that flows into and out of my life. This lesson has made me don’t want to buy as much thing as before (which is awesome!). I started track my income and & expenses in november 2018. Check out my tracking progress here:
Income & Expenses for November 2018
Income & Expenses for December 2018
Step 3: Create a table of income and expenses in broad categories
In step 2 you’ve started tracking your income & expenses in categories like:
In step 3 you are going to divide your main categories into subcateories. The category “Food” can be divided into:
-Food you eat at home
-What you eat out (take-away eg.)
-Food you buy for celebrating
In my Income & Expenses section (see below) I’ve divided into 19 subcategories for my expenses:
The main point in step 3 is to let you be aware of where most of your money flows each month, and when you track this over time you will have time to think if this is something you value or not. If you’ve worked overtime and don’t have time to make food, maybe you buy yourself a pizza (take-away). Is it worth the money and the extra calories? Or can you instead start to make bulk meals in advance?
-For every subcategory convert the dollars spent into “hours of life energy” spent. Think of purchases and other expenses in terms of the amount of life given up to earn the needed money.
My hourly wage is 20.45 $ / hour. Last months expenses showed that I spent 147 $ for a christmas table. That means I spent 147 / 20.45 = 7.2 hours of life energy for attending this event. While it was fun, I think it was way too expensive for food and drinks only. It cost me 7.2 hours of “painful” working time!
Step 4: For each spending category, ask the following questions:
-Did I receive fulfillment, satisfaction, and value in proportion to life energy spent?
-Is life energy spending in alignment with my values and purpose?
-How might this expenditure change if I didn’t have to work for a living?
These questions can transform your life and help you set the foundation for your life transformation.
I mentioned the christmas table in step 3, so let’s use that as an example for the three questions above.
-Did I receive fulfilment according to life energy spent? No!
-Is it in alignment with my value and purposes? Yes, but not to spend so much.
-Would the expenditure change if I didn’t have to work for a living? Probably I wouldn’t attend this event without my normal salary.
Here you see why step 3 is important, because it is easier to ask the questions above for a concrete category like “Christmas Table” instead of call it “Dining Out”. Maybe you love dining out, but don’t get value from the yearly Christmas Table. If you put “Christmas Table” under the broader category “Dining Out” you will not be aware of the spending.
Step 5: Create a chart plotting total monthly income and total monthly expenses, and put it somewhere you’ll see it every day
I love this part! It is really motivating to see where you are heading in your FI-journey. In my monthly net worth update you can keep an eye on my chart. Right now my net worth is aprox. 150.000 $, which 130.000 $ of them is placed in index funds tracking MSCI World (70 %) and MSCI Emerging Markets (30 %).
You can see my plot below.
Figure 1: The connection between my earnings (income), spendings and my monthly FI money
In figure 2 you can see the connection between what I earn, what I spend and how much I can safely withdraw every month according to the 4 % rule. 2018 has really been a flat market, but anyway it’s motivating to see that I can safely withdraw 467 $ every month for the rest of my life. And I will do everything I can to raise this dollar amount in the future. As you all know my goal is to save up 600.000 USD. This means my monthly FI money goal is 2000 USD each month. As a result of my saving, I’m aprox. 1/4 to my goal and it feels great!
Since my monthly FI money is 467 $, and my average monthly spending for 2018 was 1701 $, it means that I’m closing in on my goal to become FI!
My portfolio was down 6,72 % in 2018, and I must admit that this has been a though first year for a new investor. But I’m not giving up, I will become FI even if it takes longer time than I wish for. You can read about my goals for 2019 here!
Step 6: Value life energy by minimizing spending
Beyond a certain point on the fulfillment curve, spending more will bring less fulfillment, so you’re not giving up happiness.
This step teached me to value what I have. Because of this step I decided to take 1 year free from shopping. For example, if I’m going to buy something it must be second-hand, and I’m only allowed to buy something if I sell something I already have. If I sell some clothes that I already have for 100 $, I can purchase second-hand clothes for 100 $.
Step 7: Value life energy by maximizing real income
Work and wages aren’t the same; wages are simply the money you trade your life energy for.
In 2018 I changed my job and as a result, I raised my salary 14 % from 67.000 $ to 76.000 $ by doing the exact same work. Who inspired me? The book “Your Money Or Your Life” and using this guide: How To Get A Raise.
Step 8: Post your monthly FI money on the same chart as in step 5
As the monthly investment income curves upward, at some point, it’ll cross over the monthly expenses line. This crossover point represents the time when you can stop working for the MAN.
You only need to work for pay for a finite period of time, therefore focus on that goal and make that period of time as short as possible! When you no longer need to work for that monthly paycheck, you are Financially Independent.
As you can see on my chart below, I will be FI when the red line is crossing the blue one.
Since my monthly FI money is 467 $, and my average monthly spending for 2018 was 1701 $, it means that I’m closing in on my goal to become FI! It’s really exciting to see my FI money grows for each month!
Step 9. Invest your savings to provide safe investment income (forever!) regardless of your employment status
Orginally Joe Dominguez (coauthor in “Your Money Or Your Life”) recommended on buying U.S. Treasuries. At that time (early 1990’s) you could get 5 – 10 % interest rate by following this advice. Today you’ll maximum get 2 – 3 %, and as long as the inflation rate may be around 3 %, you can’t use the 4 % Safe Withdrawal rate rule.
But now it’s 2019. What should you invest in?
-Index Funds – Read why you should invest in index funds here
-Physical Real Estate
-Creating a business
Route 2 FI only invests in index funds, and as of january 2019 my index funds are worth aprox. 130.000 USD $. The reason why I invest in index funds:
-It’s simple. The money is working for me even if I sleep.
-Annual historically return of 7 % ( in the long run)
-The market always goes up (read about why here)
-Extremely low fees
Why my route to FI was reduced from 15 to 8 years
In 2018 I’ve started tracking my:
-Income (I raised my day job salary 14 % from 67.000 $ to 76.000 $ doing the exact same job)
–Expenses (tracking my expenses made me be fully aware that every dollar counts, and this lead me to really think about every purchase I make)
-Savings rate (my goal for 2019 is to have over 60 % savings rate or higher every month)
–Networth (also see my net worth at Rockstar Finance)
-Monthly FI money (currently my monthly FI money is 467 $ USD, which means I get paid 467 $ every month simply to be alive!)
Bonus bulletpoint: I also calculated my hourly wage (try for yourself here), and it showed me that on paper my hourly wage is aprox. 45 $ per hour, but after I did this exercise I found that my hourly wage was only 20.45 $! This really motivated me to retire as fast as possible! It really doesn’t happen that I spend 1000 $ on a new TV now, because it is absolutely not worth 48,9 hours (1000 / 20.45) of valuable life energy!
Comparing my FI journey before and after I read “Your Money Or Your Life” and plotting it into MinaFI’s retirement calculator
-Savings rate raised from 35 % in 2017 to 60 % in 2018: So after I read this book in the end of 2017, my life changed completely. Before 2018 I never tracked my finances, although I know I saved aprox. 30 – 35 % every month. For 2018 as a whole, my average spending was 1701 $ and my average earning was 4313 $. This means that my average savings rate for 2018 was 60,5 %.
-Salary raise from 67.000 $ in 2017 to 76.000 $ in 2018.
-Net worth of investments in index funds: 130.000 $ as of january 2019.
-In the calculator I use 7 % return of investments and 4 % Safe Withdrawal Rate
The year 2017 version of me
-35 % savings rate
-67 k $ salary (51,5k after taxes)
-832,5k needed to FIRE
-130 k invested
Figure 1: MinaFI scenario 1 – Definitely not going to retire at 37 years old! (screenshot from MinaFI.com)
The year 2018 version of me
-60 % savings rate
-76 k $ salary (58,5k after taxes)
-587,5k needed to FIRE
-130 k invested
Figure 2: MinaFI scenario 2 – Retired from normal work in 8 years; now that sounds better! (screenshot from MinaFI.com)
I definitely recommend everybody to check out MinaFI’s calculator here. It’s so advanced and powerful that you just want to play and tweak the numbers all day long!
-The book “Your Money Or Your Life” is not only about money, it’s also about digging deep and figuring out what it is you want for your life – what your purposes are, and how your use of money aligns (or doesn’t) with those purposes.
-Because of the book I started to do the following in 2018:
-Track my income: (I raised my day job salary 14 % from 67.000 $ to 76.000 $ doing the exact same job)
-Track my expenses: (tracking my expenses made me be fully aware that every dollar counts, this lead me to really think about every purchase I make). I reduced my expenses significantly by doing this exercise (29 %, from 33k to 23 k)
-Raised my savings rate from 35 % to 60 % (my goal for 2019 is to have over 60 % savings rate or higher every month)
-Plot my monthly FI money (currently my monthly FI money is 467 $ USD, which means I get paid 467 $ every month simply to be alive!)
-I also calculated my hourly wage (try for yourself here), and it showed me that on paper my hourly wage is aprox. 45 $ per hour, but after I did this exercise I found that my hourly wage was only 20.45 $! This really motivated me to retire as fast as possible!
-I compared my savings rate, income, expenses in 2017 (before I read “Your Money Or Your Life”) and 2018 and it showed that my route to FI was reduced from 15 to 8 years, a HUGE difference! Try MinaFI’s genius calculator here!
I hope you enjoyed today’s post! Please post your comments and suggestions below!
I made this 16-pages FREE workbook with the steps I’ve taken on my path to Financial Independence.
Having a goal written down with a set date for accomplishment gives you something to plan and work for.
It’s 7 lessons and I hope you enjoy it!
After you’ve signed up, you will recieve the book right away.