I read a book called Your Money or Your Life last year. This book was written by Joe Dominguez and Vicki Robin. Joe Dominguez was a successful financial analyst on Wall Street before retiring at the age of 31, never again to accept money for any of his work. He and Vicki Robin were founders of the New Road Map Foundation, an all-volunteer, non-profit organization that promotes a human, sustainable future for our world.
This book had a profound effect on me. Below is an extract from the book for your benefit.
The purpose of Your Money or Your Life is to transform your relationship with money. That relationship encompasses more than just your earning, spending, debts and savings; it also includes the time these functions take in your life. In addition, your relationship with money is reflected in the sense of satisfaction and fulfillment that you can get from your connection to your family, your community and the planet.
Once you have changed the nature and function of your interaction with money, through following the steps, your relationship with money will be transformed — you will reach new levels of comfort, competence and consciousness around money.
NINE MAGICAL STEPS TO CREATE A NEW ROAD MAP
Step 1: Making Peace With The Past.
The purpose of this exercise is to increase your awareness. It serves to locate you in time and space and review your earning and spending activity in the past.
A: How much have you earned in your life?
Find out your total lifetime earnings — the sum total of your gross income, from the first cent you ever earned to your most recent pay check. Try and calculate how much you have made in your life up to this point. Dig up your bank statements, NSSF statements, payslips, contracts, appointment letters, etc. I was utterly shocked by the amount of money I had made so far! It was in the billions of shillings!
B: What have you got to show for it?
Find out your net worth by creating a personal balance sheet of assets and liabilities — everything you own and everything you owe.
And remember, No shame, no blame. In creating your balance sheet, many feelings associated with your material universe may arise: sadness, grief, nostalgia, hope, guilt, shame, embarrassment, anger. A dispassionate and compassionate attitude can go a long way toward making this step truly enlightening — and making you able to lighten the physical and emotional loads you’ve been toting around for years.
This step can be quite humbling. For all the work and toiling you have been doing there might not be much to show for it.
Step 2: Being In The Present — Tracking Your Life Energy
Money is something we choose to trade our life energy for.
Our life energy is our allotment of time here on earth, the hours of precious life available to us. When we go to our jobs we are trading our life energy for money. You could even say that money equals our life energy. So, while money has no intrinsic reality, our life energy does — at least to us. It’s tangible, and it’s finite. It is precious because it is limited and irretrievable and because our choices about how we use it express the meaning and purpose of our time here on earth. Money is something you consider valuable enough to spend easily a quarter of your allotted time here on earth getting, spending, worrying about, fantasising about or in some other way reacting to.
A: How much are you trading your life energy for?
Establish the actual cost in time and money required to maintain your job, and compute your real hourly wage. The real hourly wage is obtained by deducting from your monthly net salary all incidental costs involved in doing the job including meals, fuel, medical bills, car maintenance. You then divide this figure by the number of working hours in a month.
B: Keep track of every cent that comes into or out of your life.
So far we have established that money equals life energy, and we have learned to compute just how many hours of life energy we exchange for each shilling. Now we need to become conscious of the movement of that form of energy called money in every moment of our lives — we need to keep track of our income by keeping a Daily Money Log.
Religions, ancient and modern, and the personal growth workshops of the human potential movement all have techniques for training the mind to be here now, ‘in the moment’. These techniques take many forms and include such seemingly diverse techniques as counting breaths, keeping the attention on each incoming or outgoing breath, repeating a phrase over and over again in order to focus the wandering mind.
To this list we add another discipline to sharpen awareness — one that is indispensable to the financial program and perhaps more easily accepted by our grounded, materialistic Western mentality that some of the more ‘esoteric’ practices. Instead of watching your breath, you watch your money.
Personally I use a simple mobile phone app called Expense Manager to track all my money.
Step 3: Where Is It All Going? (The Monthly Tabulation)
This step converts your expenses into hours of your life energy. You get to see how much of your time is being spent on stuff you are buying.
Every month create a table of all income and all expenses within categories generated by your own unique spending pattern. Balance your monthly income and outgo totals. Convert ‘shillings’ spent in each category to ‘hours of life energy,’ using your real hourly wage as computed in step 2.
Step 4: Three Questions That Will Transform Your Life
On your monthly tabulation, ask three questions of each of your category totals expressed as hours of life energy and record your responses:
1. Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
2. Is this expenditure of life energy in alignment with my values and life purpose?
3. How might this expenditure change if I didn’t have to work for a living.
At the bottom of each category, make one of the following marks:
Mark a minus [-] or a down arrow if you did not receive fulfillment proportional to the hours of life energy you spent in acquiring the goods and services in that category, or if that expenditure wasn’t in full alignment with your values and purpose or if you could see expenses in that category diminishing after Financial Independence.
Mark a plus sign [+] or an up arrow if you believe that upping this expenditure would increase fulfillment, would demonstrate greater personal alignment or would increase after Financial Independence.
Mark zero  if that category is just fine on all counts.
This is the core of the program.
These questions will clarify and integrate your earning, your spending, your values, your purpose, your sense of fulfillment and your integrity. This will help you discover what is enough for you.
Asking yourself, month in, month out, whether you actually got fulfillment in proportion to life energy spent in each subcategory awakens the natural sense of knowing when enough is enough.
Just say ‘yes’ to being conscious.
This program is built on consciousness, fulfillment and choice, not on budgeting and deprivation. It’s about identifying, for yourself, what you need as opposed to what you want, what purchases or types of purchases actually bring you fulfillment, what represents ‘enough’ for you and what you actually spend money on.
You learn to make your financial choices independently of what advertising and industry have decided what would be good for their business. You are free of the humiliation of being manipulated into spending your life energy on things that don’t bring you fulfillment. It is a form of Financial Independence to ‘just say no’ to unconscious spending. And the Tao Te Ching, the ancient Chinese book of wisdom, puts it this way: ‘He who knows he has enough is rich.’
Financial Intelligence is knowing that if you spend your life energy on stuff that brings only passing fulfillment and doesn’t support your values, you end up with less life. This step is not about budgeting, not about self-condemnation and not about depriving yourself. It is about honoring and valuing that limited resource called your life energy. It’s about using this high self-esteem to bring about greater fulfillment, greater satisfaction and a greater sense of wholeness, alignment and integrity. You do this by becoming more conscious of your unexamined and unrewarding spending patterns — painlessly.
Step 5: Making Life Energy Visible
Create a large Wall Chart plotting your total monthly income and total monthly expenses from your monthly tabulation. Put it where you will see it every day.
It will show you the trend in your financial situation and will give you a sense of progress over time, and the transformation of your relationship with money will be obvious.
You will see your expense line go down as your fulfillment goes up — the result of ‘instinctive,’ automatic lowering of expenses in those categories you labelled with a minus.
This Wall Chart will become the picture of your progress toward full financial independence, and you will use it for the rest of the program. It will provide inspiration, stimulus, support and gentle chiding.
When you do this step the first month, you have a snapshot — a very revealing one — of your habits around money. But the real learning, and the real fun, comes as you plot the figures month by month, year by year. Your wall chart will take the two dimensional world of your monthly tabulation and add the dynamic dimension of time. It reminds us that transforming our relationship with money takes time and patience. Impatience, denial and greed are actually part of what is being transformed.
Personally I use Google Sheets to plot my income, expenses and investment income.
Step 6: Valuing Your Life Energy — Minimizing Spending
Learn and practice intelligent use of your life energy (money) which will result in lowering your expenses and increasing your savings. This will create greater fulfillment, integrity and alignment in your life.
Personally as I became more conscious of my spending decisions my expenses started gradually reducing without depriving myself of any of the things I valued.
Step 7: Valuing Your Life Energy — Maximizing Income
Respect the life energy you are putting into your job. Money is simply something you trade your life energy for. Trade it with purpose and integrity for increased earnings.
How well are you using your energy both on and off the job? Is your job ‘consuming’ (using up, destroying, wasting) your life? Do you love your life, using each hour — on and off the job — with care?
Our fulfillment as human beings lies not in our jobs but in the whole picture of our lives — in our inner sense of what life is about, our connectedness with others, and our yearning for meaning and purpose.
You may love your paid employment or you may hate it; it doesn’t matter. But you don’t want to recognize that the purpose of your paid employment is getting paid and your real ‘work’ may be far bigger than this one job.
There is nothing in your life that is more valuable than your time.
Step 8: Capital And The Crossover Point
By doing steps 1 through 7, you will move towards Financial Independence – FI. With Step 8 the possibility of Financial Independence opens up. Step 8 shows you how you can perhaps leave paid employment a lot sooner that you would have ever thought possible.
What you should begin to see in your wall chart is a growing gap between income and expenses — that is, savings. Before FI thinking takes over, a ‘normal’ person might regard those savings as earmarked for a splurge. But FI thinking sees those savings in a different light. FI thinking calls that gap ‘capital’.
Capital is money that makes more money. It keeps working for you and produces an income as surely as your job produces income. When you put capital in a bank or other interest-bearing instrument it is an investment. An investment is the conversion of capital into some form of wealth other than cash with the expectation of deriving income.
The income you receive from your capital of a different nature than your job income. It comes in whether or not you go to work. Instead of simply lumping it in with your total monthly income, you will be entering it separately on your wall chart according to the formula given below.
After a number of months on the program, your monthly investment income line will have begun to move up from the lower edge of the chart. (If you have actually been investing this money as outlined in Step 9, the line will be curving upward — the result of the magic of compound interest.) With a light pencil line, project the monthly investment income into the future. At some point in the future it will cross over the total monthly expenses line. That is the Crossover Point.
At the Crossover Point you will be financially independent. The monthly income from your investment capital will be equal to your actual monthly expenses. You will have enough. Your options will be wide open. Celebrate.
Step 9: Managing Your Finances
The final step to financial independence: become knowledgeable and sophisticated about long term income-producing investments. Invest your capital in such a way as to provide an absolutely safe income, sufficient to meet your basic needs for the rest of your life.
Step 9 is about empowering yourself to make wise financial choices, and your first lesson involves educating yourself so as not to fall prey to unscrupulous brokers, financial planners and sales people who want to put you in all manner of investment vehicles that pay handsome commissions.
Whether we are defining ‘financial independence’ as being out of debt, with enough savings to withstand economic downturns, or as a full-fledged ‘early retirement’ that makes it possible to devote yourself full-time to whatever is most meaningful to you, the following criteria developed by Joe Dominguez apply to whatever you do with your capital (though each person will weight each criteria differently)l:
1. Your capital must produce income.
2. Your capital must be absolutely safe.
3. Your capital must be in totally liquid investment. you must be able to convert it into cash at a moment’s notice, to handles emergencies.
4. Your capital must not be diminished at the time of investment by unnecessary commissions, or other expenses.
5. Your income must be absolutely safe.
6. Your income must not fluctuate. You must know exactly what your income will be next month, next year and 20 years from now.
7. Your income must be payable to you, in cash, at regular intervals.
8. Your income must not be diminished by charges, management fees or redemption fees.
9. The investment must produce this regular, fixed known income without any further involvement or expense on your part. It must not require maintenance, management, geographic presence or attention due to ‘acts of God’.
Personally I invest in real estate, unit trusts, Treasury bills/bonds, agriculture and private equity.
For the full book review check out https://yourmoneyoryourlife.com/book-summary/.
This is a powerful book which I would definitely recommend for anyone intent on achieving early Financial Independence.
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