Your Money or Your Life

Sharing my learnings from the book, Your Money or Your Life by Vicki Robin & Joe Dominguez

Your Money or Your Life by Vicki Robin & Joe Dominguez

For more than twenty-five years, Your Money or Your Life has been considered the go-to book fortaking back your life by changing your relationship with money. Hundreds of thousands of people have followed this nine-step program, learning to live more deliberately and meaningfully with Vicki Robin’s guidance. This fully revised and updated edition ensures its time-tested wisdom applies to people of all ages and covers modern topics like investing in index funds, managing revenue streams like side hustles and freelancing, tracking your finances online, and having difficult conversations about money.

• If you were held at gunpoint and had to choose between handing over your money or risking your life, chances are, you’d hand over your wallet. But when it comes to the daily grind, most of us unconsciously prioritize our money over our lives. We’re stuck in a cycle of earning money from our jobs in order to buy things we don’t need, and sacrifice our true priorities in the process.
• In order to get a grip on your finances, you need to come to terms with your financial history. That’s why the first step in transforming your relationship with money and reaching Financial Independence is to make peace with your financial past.
  • calculate the sum total of your gross income across your lifetime. This amount should include everything from your first paycheck to the most recent penny you earned. Make sure you adjust the amount to reflect unreported earnings like gifts from family members, cash prizes, or money earned under the table.
  • determine the amount of money left in your life today: your net worth. 
    • Calculate your net worth by creating a personal balance sheet which tracks your assets and liabilities. Your liquid assets are anything that can be converted into cash. Your fixed assets are everything you own, from major possessions like your car or house to items that could be sold at a garage sale.
    • Next, calculate your liabilities, which are any debts, loans, or outstanding bills. Subtract this amount from the combined value of your assets to determine your net worth.
• when you get up and go to work in the morning, you’re giving more than just your time in exchange for a paycheck. You’re giving your life energy. In other words, when you spend money, you’re essentially trading your life energy.
• If you want to transform your relationship with money, you’ll need to challenge your assumptions about what you earn and spend. So step two of the program is to get in touch with your present situation by calculating your real hourly wage and tracking your money.
  • In order to identify your life-energy-to-earnings ratio, calculate your real hourly wage by determining the actual amount of time and money that goes into maintaining your job.
  • Start by making a table with three columns. Label the first column weekly hours, the second column earnings, and the third column dollars earned per hour.
  • Next, add in the details based on your job. For example, if 40 hours per week nets you $1,000, then you earn $25 per hour. 
  • Now it’s time to account for any adjustments. If you commute to work, include the time your journey takes as well as related expenses. Calculate the money you put into buying clothes for your job and the time you spend shopping, getting dressed, or shaving for work. List the extra time and funds put into meal. You should also include time or expenses incurred from job-related illnesses or even entertainment you use to decompress after work. 
  • add all the additional time to your weekly hours column. Next, subtract your expenses from your weekly earnings listed in the second column. Finally, calculate your real hourly wage. 
  • By becoming aware of your spending habits, you can make decisions about spending based on reality rather than what you think you spend. 
• you need to understand exactly how you spend your money. Step three is to categorize your monthly spending. Group your expenses in ways that make the most sense to you.
  • Say you want to track your food expenses. Depending on your unique lifestyle, you could create subcategories such as “meals for guests,” “too tired to cook,” or “snacking.” By tracking the precise categories of your spending, you might realize that your occasional restaurant meal has developed into a full-blown, expensive habit. Also create subcategories to track your spending for things like housing, transportation, and entertainment.
  • create a monthly tabulation that lists your subcategories. At the bottom of the table, include a section to list your income – with individual lines for any paychecks, bonuses, interest, or other earnings that might factor in.
  • After you’ve entered your monthly transactions into each category, subtract your total spending from your total income to find out your monthly savings.
  • In order to find out how much of your life energy each subcategory costs, divide the money you spend on any given subcategory by your real hourly wage calculated in step two.
  • Say you spend $80 on magazines that you tend not to read, and your real hourly wage is $10. The discovery that you spent eight hours of your life energy to make the purchase might make you reconsider the next time you pass a magazine stand!
• the fourth step in the program: evaluating your spending by asking yourself three questions.
  • does the life energy you spent on each of your subcategories correspond to the fulfillment and satisfaction you received?
    • In some subcategories, you might find that you experienced so much fulfillment that you’d even consider increasing the expenditure of life energy. If that’s the case, mark the subcategory with a plus sign. For subcategories in which you experienced little to no fulfillment, mark a minus sign. If the expense feels neutral, mark it zero. 
  • does your expenditure of life energy align with your life purpose and values?
  • how would you change your spending habits if you had Financial Independence and didn’t have to earn a living?
• To guarantee continued progress toward your financial goals, you’ll need to ensure that your new system is a habit rather than a choice.
  • A great way to instill a new habit is to make yourself accountable to someone else.
  • the most important trick for continued success is to track your progress.
• step five in the program: charting your progress with a graph of your income and expenses.
• These days, the notion of being frugal might seem unappealing or dated. Modern consumer culture has conditioned us to believe that more is more. But from the ancient writings of Plato and Socrates to American historical figures such as Benjamin Franklin, Robert Frost, and Ralph Waldo Emerson, being frugal was considered a virtue.
  • frugality is about enjoying what you have.
  • Consciously lowering or eliminating your spending is about intelligently using your life energy.
  • Instead of buying the cheapest available option, you might opt for an item that’s more durable.
  • Invest in single items that can serve multiple purposes
  • Sometimes, there will be subcategories you don’t want to eliminate from your life. Here’s where you can get creative.
• Our society’s workaholic lifestyle is so bad that in recent years, efforts like the “Take Back Your Time” campaign have gained momentum in challenging our view toward work.
  • Society wants us to believe that we need to work 40 hours each week to be fully contributing members. But, in truth, the fundamental purpose of having a job is to get paid.
  • Benefits such as community, growth potential, or recognition can all be achieved outside of traditional employment.
• The seventh step to transforming your relationship with money and achieving Financial Independence is about valuing your life energy and increasing your income.
  • seeking the highest possible pay in line with your health and integrity isn’t about wanting more money just for the sake of it. It’s about working toward a sustainable future.
  • In some cases, increasing your income might mean working more hours in the short term.
• For many people, the thought of retiring early seems like a privilege reserved for the 1 percent. But a growing movement called FIRE, or Financial Independence Retire Early, reveals otherwise. Supporters of the FIRE movement have gleaned some simple wisdom: if you invest your savings, your money will eventually start earning enough on its own for you to retire and focus on what you truly care about. The trick is to accrue enough monthly investment income. eighth step in the program: investing and tracking your additional savings.
  • make sure you have enough money in the bank to cover six months of expenses. This liquid cash is your emergency fund
  • To calculate your monthly investment income, multiply your capital, or your additional savings, by your current long-term interest rate – that’s the amount you can expect to acquire from a long-term investment. Next, divide the result by 12.
  • Your monthly investment income may seem inconsequential when you’re starting off. But as your income and expenses become more consistent, you’ll eventually be able to predict how much money it will take to reach Financial Independence. 
  • Over time, your invested money will mean that the line begins curving upward. Using a light pencil, you can follow this pattern to identify the point at which your monthly investment income exceeds your monthly expenses. This is called your crossover point.
• Now that you’ve calculated your crossover point and the reality of reaching Financial Independence has become tangible, you’ll need to become an expert in long-term, income-producing investing.
  • Avoid spending unnecessary fees with middlemen (financial planners, brokers, etc) by empowering yourself to make your own investment decisions!
  • Your investment income might include receiving rent from real estate or royalties from intellectual property, franchises, or natural resources. You could gain capital from selling an investment for an amount more than what you initially invested. But you’ll most likely want to focus on earning interest or dividends by investing in bonds, mutual funds, or the stock market.
• it’s crucial to learn about all your options before embarking on an investment path. By making educated choices, you’ll ensure that your investments are as sustainable as your new attitude toward how you spend your time and money. You’ll be living more intentionally – even before you reach your financial goals.