Make no mistake.
Your Money or Your Life is an amazing book.
It kick-started an awesome transformation in my financial life and my decision making more broadly. I recommend this book in the highest possible terms.
At it’s core, it’s a book about changing the way we look at money and our relationships with money. It encourages us to spend in accordance with our true interests, to reduce our spending in areas which don’t provide us with happiness and to invest the difference.
Essentially it shows us a manageable way to financial independence and early retirement even when income is moderate but also why we should think about trying it in the first place.
The concept of having enough
One of the central themes in Your Money or Your Life is understanding the point of enough.
There have been extraordinary excesses delivered to western nations since the industrial revolution but we have reached a point of competitive and unnecessary consumption that threatens our planet, our relationships with other people, our relationship with work and our mental health.
Vicki Robbins explains in very simple terms how to find what is enough for you, how to reassess your spending so that it’s no bigger than it has to be so that happiness is maximized and spending kept in check. This concept has been particularly useful to me because for a long time I was trapped into the perilous trap of consumerism – Your Money or Your Life helped me understand that the excesses I was used to were actually delivering absolutely no increased level of comfort or happiness and was utterly pointless.
Needless to say, just this one aspect of the book alone has made it a worthwhile purchase many times over.
Money as energy
I was initially skeptical of this concept when I read it being discussed prior to reading Your Money or Your Life – but it makes perfect sense when fully explained.
The book encourages us to look at money not just as a number, but as a unit of our energy, or more broadly, as a unit of our remaining time on earth. It requires us to work out how much money we are truly earning from paid employment which involves going far beyond just deducting tax from our hourly rate.
It must take into account all work related expenses, like travel costs, uniforms, any health care necessary because of work – the lot. Everything you wouldn’t have to pay for if you didn’t do your job should be included.
The hourly rate you arrive at will probably be surprisingly low when all of the associated costs are taken into account.
Let’s assume that your hourly rate is $20, but after all of the appropriate deductions are taken into account, your true rate is $10 per hour.
Now when you face the decision when you’re watching late night television and see an extremely enticing advertisement for the AB DESTROYER 3500 MK5 for the low, low price of $59.95 instead of picking up the phone like a consumer drone. Stop! Think about the purchase in light of the cost in terms of your time or energy. The actual cost of the item is 6 hours of your life that you won’t ever get back.
It’s not to say that the book simply advocates for extreme frugality or that we should always do without. Far from it. It just encourages us to assess our actual priorities in life and to spend in accordance with them.
The natural extension of this idea of money as energy is that if we can accrue enough money and can live very frugal lives, then we can live without work and reach true financial independence. For me, it was an extremely exciting revelation that money represented my time both in terms of the work that went into getting it, but also that it represented a way to avoid working for the rest of my life.
The wall chart - the early retirement financial snapshot
Every month I update my blog with a quick review of my finances and include a graph that has three lines covering my monthly income, expenses and investment income.
The top line (blue) is monthly income
The middle line (red) is monthly expenses
The bottom line (orange) is investment income
The graph is broken down into months and for me goes out to 2020 (not all of it is pictured here)
I keep my actual income and expense numbers hidden because they aren’t really relevant
The purpose of the wall chart is to be accountable and to be able to see long term progress to provide motivation. I have to say it’s been great for both for me. It’s great for seeing the big picture very quickly, for example:
- The gap between the income line and the expense line is the amount of money I’m saving per month.
- The gap between the expense line and the investment income line is how close I am to financial independence – once those lines cross over, I could live on passive investment income alone if I chose to.
The knowledge that there is a definable time left until financial independence is extremely exciting and I have to admit that as I was reading the book and came to this part I was very keen to try it myself and couldn’t wait. It hasn’t disappointed.
I enjoy doing my budget and tracking my expenses so I can enter the data into my graph and see how I’ve done compared to last month.
If you haven’t read this book yet and are interested in personal finance, frugality or early retirement then you really should because it’s become the go to book particularly for financial independence. It’s been around for a while now, but is just as relevant today as it was when it was released in 1992.
It’s full of interesting case studies and anecdotes and isn’t full of financial jargon or complicated investing advice. As always, I recommend trying to get a copy from the library or from a second hand shop before buying but if you decide you need a copy buying from Amazon using any of the links in this article will help support Free in Ten Years.