Hello bloglings! Welcome back to my blog. I’m back with the second part of Books and Your Money and today we’re going to be talking about a book that will literally change the way you think about money, your income and your plans with life. We’re going to be taking a close look at the book, “Your Money or Your Life” by Vicki Robin and Joe Dominguez.
The book talks about a 9-step plan towards financial freedom and even early retirement for those interested. This is one of those books that feels quite geography agnostic. Whether you’re reading this book in India or Iceland, nearly all of its steps will resonate with you and pump you up to build a better relationship with money.
While I’m not going to be talking about all the nine steps of the plan highlighted in the book, I’m going to talk about some of the key pieces that I’ve picked up from the book.
Money as life energy
The first and most profound aspect that this book focuses on is looking at money as life energy. As the book says, ‘We’re not making a living, we are making a dying’. We trade our time for money. This means that everything we spend our money on, is something we’re spending our time on. Thus, the more we spend, the more of our ‘making a dying’ extends on.
This likening of money as life energy becomes a real focal point of this book. The basic crux that it’s able to provide: “Is what you spend your money on, worth your life energy?” Of course, the book is does not propagate indiscriminate cutting of expenses. Rather it asks you to truly look at your expenses and dive deep into your choices and preferences as a person.
Real Hourly Wage
Another interesting and borderline revolutionary (for me, at least) concept from the book is the distinction between hourly and real hourly wage.
Ordinarily when someone asks us our hourly wage or earnings, we divide our pay by the number of hours we work for. For instance Rs. 1000 a month for 10 hours of work, theoretically, is Rs. 100 per hour. However it’s not that simple.
Since it’s been established that money is worth life energy, it’s worth assessing if you’re truly getting the money you deserve for your life energy and to do this, one must understand what their real hourly wage is.
Real hourly wage is arrived at by deducting from your income, all expenses that you incur to be able to do your job and earn money. This can be confusing to consider because these expenses feel like such a normal outcome of ‘working’ that we never really consider them as something eating into our hourly wage. Expenses like commuting to work, buying clothes specifically for work, decompressing from work over the weekend, etc. are all expenses that can be termed as an outcome of your work. The cumulation of these when deducted from your pay, will help you arrive at your real hourly wage.
For instance, if you’re earning Rs. 1000 per month for 10 hours. However, you’re also spending Rs 250 a month on work clothes, Rs. 50 on commute, Rs. 100 on office lunches and another Rs. 100 every weekend shopping because ‘you deserve it for your hardwork’. This means you’re left with Rs. 500, which brings your real hourly wage to Rs. 50, a far cry from the Rs. 100 you started out with.
The purpose of this exercise is to understand how much do you pay for the priviliege of ‘working’ or as they say, ‘making a dying? Are these expenses really worth it? Or should you be looking at some other way to make money where you have more money for yourself rather than spending it on the privilege of work.
For instance, before the pandemic I was working at a place which was about 35-37 kms from my house. I was spending close to 40% of my income on the commute and another 15-20% trying to give myself dopamine hits to get over the sheer exhaustion I felt. Not to mention the unhealthy and expensive eating habits I picked up. Had I computed my real hourly wage back then, it’d probably be less than 20% of what I was actually making. This means that for 20% I was putting in 100% of my effort. Was it truly worth it?
The 3 Questions for your Expenses
With regards to expenses, the book talks about identifying your unique categories of spending, as opposed to the more traditional ones such as rent, food, clothing. This helps you get a more accurate idea of your spending.
For instance, I spend a fair chunk of money on books. Previously I would chunk them under one tab of ‘discretionary’ expenses along with clothes, craft supplies etc. As a result, I’d see a fairly large sum of money under discretionary expenses and not know the break up of it. Separating out a category on books made me see exactly how much I was spending there and how much I could reduce it.
A great example that the book gives is clothing. Clothing as a category can be divided into sub categories such as clothes for work, clothes for home, clothes for parties, clothes for festivals etc. This also ties back beautifully into the real hourly wage concept.
Once you’ve arrived at your categories, the next step is to ask yourself three questions for each category as well as actions based on your response.
|Question 1: Did I receive value and fulfilment in proportion to the life energy spent?||Question 2: Is this aligned with my views and life purpose?||Question 3: How would this expenditure change if I didn’t have to work for money?|
|If yes and you would like to increase your contribution in this category then put a ‘+’ in front of it.||If yes and you would like to increase your contribution in this category then put a ‘+’ in front of it.||If the amount in the category would increase then put a ‘+’ in front of it.|
|If no and you’d like to decrease your contribution here then put a ‘-‘ infront of the sub category||If no and you’d like to decrease your contribution here then put a ‘-‘ infront of the sub category||If the amount in the category would reduce then put a ‘-‘ in front of it.|
|If yes but you’d like to keep your contribution at this level then put a ‘=’ in front of the sub category||If yes but you’d like to keep your contribution at this level then put a ‘=’ in front of the sub category||If the amount in the category would stay the same then put a ‘=’ in front of it.|
Once you’ve answered these questions, you’d have arrived at a better understanding in terms of what gives you most joy in your expenses and you can work on maximizing the value you get from your money. This will help you identify not just avenues for saving but also places where spending more is likely to give you more joy. The whole purpose of money is to live your life better!
Valuing your life energy
The book places a heavy emphasis on valuing your time and your money. It talks about spending in a fashion that is intentional and planned rather than emotional. This is because money is life energy and every time you spend money, you’re losing life energy which is your time. It asks you very pertinent questions like:
1. Why do you do what you do to earn money?
2. What motivates you to get out of bed to go earn money?
3. What is the purpose of your paid employment?
All of these questions are geared to make you introspect on where you are, where you want to go and how will you get there. Whether in terms of your career, job or financial lives.
The book has a keen focus on the whole trend of FIRE (Financially Independent Retired Early) where it gives you a message to reclaim your life from the process of making a dying. Even if you love your career, a book like this helps you build a safety net for you which can allow you to take more risks with your career and achieve more fulfilment.
This is definitely one of those personal finance books that everyone should read because the takeaways from it are immense and necessary for all of us. It’s the kind of book that’s an investment in yourself and your future.
Do give it a read and share your thoughts in the comments! Until next time!