In what I want to become a regular feature on Gen Y Wealth, the following is a book review for one of my favorite personal finance books, Your Money or Your Life by Vicki Robin and Joe Dominguez.
Below is a quick summary of what you can expect in these nine steps:
Step 1 – How Much You’ve Made – The first step sets the pace for the rest of the book. The action is to calculate the money that has come in and out of your life during your lifetime. Not as easy as task as some might think, but it can be achieved.
Step 2 – Calculating Your True Hourly Wage – The second eye-opening statistic is finding out how much you really make on the job. The key here is including all of your work expenses. First, take your after-tax income, subtract ALL work expenses including food, gas, clothing, cars, travel, education, stress relievers…etc. Next, include all hours you spend at work including time you spend getting to work, at work, shopping for work, maintaining you car for work…etc. By dividing your real income by your real hours work, you get your true hourly wage. Chances are the above two numbers scare you a little, which is good.
Step 3 – Creating a Budget - The main thing you can take from this chapter is the necessity to track every penny that comes in and out of your life. The technique to budgeting is a slight outdated because there are a lot more tools you can use to implement a budget today.
Step 4 – Reflecting – Reviewing your past and future purchases by asking yourself these questions…
- What’s the fulfillment and value from the life energy spent?
- Is this use of my life energy congruent with my goals?
- Would I still have this expense if I didn’t have to work?
This step is where the transformation starts to begin. Next time you’re asking yourself if a purchase is “really worth it” you have an exact equation. For example, if you’re truly hourly wage is $15 and you’re wanting to spend $75 on a dinner, you’re able to say, “Is this dinner worth five hours of my life energy?”
Step 6 – Minimizing Spending – This chapter first explains the importance of being thrifty. Followed by a detailed section on how to minimize spending. Not every tip will work for you, but there are a few tips in there that can easily slash your expenses.
Step 7 – Money = Life Energy – It’s here that the authors dig deep into their concept of life energy. The goal is to for you to become congruent between your personal values and what you do for money.
Step 8 – The Crossover Point – Until reading this chapter, I wondered where the book headed for the final two steps. Before, it was just a really good book on frugality. Step 8 is where you begin to see the big picture. A line is added to the chart you made in step 5 that equals your total savings divided by the current long-term interest rate. Once that line passes expenses, you’ve reached the crossover point. Your savings has now outgrown your expenses.
Step 9 – Beyond the Crossover Point - This step describes how to invest and manage your money after reaching the crossover point. Your excess cash will be divided into three categories; an emergency fund, reinvesting, and a category for whatever you wish.
Concepts I liked:
- Money is life energy
- Paying yourself first
- Crossover point
- Attitude that debt is bad
- Track every penny
- Work not only takes up a lot of time but also a lot of your expenses
- Charitable aspect
- Sustainable living aspect
Concepts I disliked
- Very detailed, which I can see puts a lot of people off.
- Investing advice isn’t complete.
What makes this book different?
I never thought I had a relationship with money before reading this book. The routine for me was to earn, spend and invest what was left over. Your Money or Your Life was able to change that.
Setting the goal to reach financial independence seemed like a never-ending task. However, I now had a number to shoot for in my journey. No other book I’ve read has done that.
What problems does this book solve
The book opens up with a familiar set of problems for you to ask yourself:
- Not having enough money
- Having trouble finding time to spend with family or friends
- Coming home from your job with a lack of energy
- Creating a backup plan if you were laid off
- Increasing your contributions to the world
- Not being at peace with money
- Having a job that doesn’t reflect your values
- Creating a congruent life
If you find yourself struggling with just one of the problems or situations above, this book will help.
Actions I took after reading Your Money or Your Life
- Started tracking my journey towards financial independence via their charting system
- Started a budget
- Started paying myself first
Is this book worth reading?
Your Money or Your Life is able to capture the deeper level of personal finance like no other book. The action guide isn’t easy and might take many years to complete. However, the reward is worth it.
There are two books where I believe everyone should read, Your Money or Your Life and The Bogleheads’ Guide to Investing. There is no doubt in my mind that with these two books, anyone can achieve any of their financial goals.
Note – This book has been updated in 2008. The link shows you the updated version. My review is based on the original version.