Friday, January 24, 2014

Your Money or Your Life

I've decided to make a number of changes in 2014 that I'm truly excited about!  Will be sharing more about those in the next few weeks.  One of the small changes related to this blog is to use Friday Posts to share a bit more about my thoughts and things I've found helpful.

January is the time for resolutions and taking stock. Inevitably after the craze of holiday shopping and with April 15th looming, we reflect on our financial goals and getting things in order.  I know we have a hard time in American culture talking about money.  The adjective gauche comes to mind.  Well,  I'd still like to tell you about the book I read in 1994 that completely transformed my relationship with money.

Maybe you remember this original cover - it was on the NY Times Bestseller list for a long time.  Originally written by the late Joe Dominguez and Vicki Robin in 1992,  it's been updated to reflect the realities of today.

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century.  

The book offers 9 steps to change how you view money, with the ultimate goal of financial independence.

One of the key gifts of the book is to get the reader to think that Money = Life Energy   (the time, effort and cost it took you to earn that money)

For the sake of an example, let's say you earn $100 dollars an hour, $800 per day.
But - you don't really earn $100.  After taxes, you're netting $75   (not to mention the money it takes to earn the $75, like commuting costs, etc.)  But let's just stick with $75 an hour.

Now you get a quote for $1,500 to have your yard tidied up, bushes trimmed, mulch, etc.   All your neighbors hire this crew - they seem happy to pay the $1500 for this service every spring.

Your Money or Your Life helps you realize it's not just $1,500.  It's your Life Energy you're trading for this service.

In this case,  $1500 divided by $75 (net hourly) = 20 Hours of your working/life energy

Now the question is, are you willing to work 20 hours (2 1/2 days) to pay for the lawn service?  (*especially if you could do it yourself spread out over a couple of Sunday afternoons)

I used the example of $100 an hour which is a pre-tax annual income of 208,000.
If someone earns $50 an hour, that's $400 a day, pre-tax annual income of $104,000.
After taxes and expenses,  their hourly rate is about $40 an hour.
$1,500 divided by $40 (net hourly) = 37 Hours of working/life energy, approximately.
In that case, the $1,500  means working 37 hours (4 days 5 hours) to pay for the lawn service.

Your Money or Your Life isn't about being cheap.  It's about discernment and realizing that every monetary choice you make (unless you have a trust fund) means that you are trading your Life Energy for what that money procures. You just want to make sure that choice is really worth it to you.
Maybe paying $1500 for a yard service is worth it to you.  But, maybe there's something else that is worth more to you instead.

This is a great book and I can't recommend it highly enough if finances are on your mind.  I'm planning on giving it - along with a very nice present - to all my nieces and nephews when they get married.   Hope you have a great weekend!

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century


Ashley said...

Michele, I can't emphasize how much I'm looking forward to this new series of yours. As a part of the "Millennial" generation, many of us having been forced to take stock of our finances, career objectives and overall approach to work/life balance (which, I think, is part of what the "life energy" idea is all about) to avoid future calamity. I'll definitely look into getting this book from the library!

Thanks so much for the food for thought.

Pigtown*Design said...

Such a good idea. I think that so many people get in trouble with credit cards, buying things because others have them, or shopping makes them feel good...

Thanks for doing this.

René said...

Thank you for sharing this! Adding to my list of must reads. Looking forward to more Friday posts! Happy weekend!

Kerry Steele- Design du Monde said...

That is a great explanation. I sometimes wonder what people are thinking when they spend money on something I have always done myself and then complain that they are broke.

sharon smith said...

I agree. Americans don't talk about money and it's not taught in school. I wish I knew then what I know know. Money is fun, interesting, and rewarding. Own your choices by thinking about them. Looking forward to reading this.

DG said...

As the book points out; it all depends upon how much a person earns/hr at work and how long it would take a person to do something themselves versus paying someone else. My husband likes to point out that "my time" is also worth something. If I can hire someone to do a job that will take them a few hours versus me doing it myself and taking one or two days it might be worth paying someone else to it the job.

My Notting Hill said...

DG - I agree, it all comes down to making sure you're ok with the equation between your OwnTime and the cost and put it into context to the amount of expendable income available.

I also like to think of trade-offs and value. For me, I'd rather spend the $1500 on airline tickets vs. my example of a lawn service. For someone else, having someone provide a service they don't want to do is worth more to them.

Linda {Calling it Home} said...

One of my favorite topics! I have been completely transformed on finances since my 'college and early 20's'. I have stellar credit..that wasn't always the case. Women and money is a taboo topic, but so necessary. I can't tell you how many of my female friends know nothing about their finances. I could go on and on, but living below your means is the only way to be free.

therelishedroost said...

I live that book because of my husband.. otherwise I would be in trouble!! Great post!!

cindy hattersley design said...

I was not familiar with this book but I am going to buy it and share it!! Great post!


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