My Learning from "Your Money or Your Life" by Joe Dominguez & Vicki Robin

“Money is something we choose to trade our life energy for…You ‘pay’ for money with your time.”

Your Money or Your Life: 9 steps to transforming your relationship with money and achieving financial independence, was originally published in the year 1992. This is one of the better books on financial freedom I have read. For many, money is a source of stress and a controlling force in people's lives. The book ask questions like how much life are you trading for luxuries?  How much you value your time on earth?  It encourages us to look at money not just as a currency, but as a unit of "Life Energy".  How can you get the maximum amount of pleasure and utility out of the money you have, so that you can liberate your time to do many things that you care about that has nothing to do with money.

This book presents a 9 steps program for personal finance transformations guided by feedback mechanisms. The steps are simple and pragmatic.

1. Make peace with the past: The first step was to find out how much I have earned in my lifetime, and then do my personal balance sheet followed by my net worth. This helped me understand my financial story to date. This sets up the context for the steps ahead.

2. Being in the present- Tracking your Life Energy: The idea here is to calculate the real hourly wage or hourly pay rate after I have accounted for all the associated costs with my job such as work clothes, commuting, office lunches and dinners, etc. and the all the associated time is taken for doing my job. Once I found out my hourly wage, I was able to calculate how much money I am making for the amount of time I work? In this step, I was able to derive my real income. 

3. Where it is all going? I started tracking where am I am spending money on. Once I did this, it was easy for me to figure out how many hours I had to work in order to afford my expense (calculated using my real income derived in Step 2). Example: If the real hourly wage is Rs. 150 per hour, then a new iPhone 256GB costing Rs. 100,000/- would require almost 666 hours of work just to cover the cost of owning it. 4. Three questions that will transform your life:  After computing the data in step 3, the three questions that mattered before any purchase -

• Did I receive fulfillment, satisfaction, and value in proportion to life energy spent?

• Is this expenditure of life energy in alignment with my values and life purpose?

• How might this expenditure change if I did not have to work for a living?

Writing down the answers to the above questions as a + (positive), – (negative) or 0 (neutral) helped me drive conscious spending in my life.

5. Make Life Energy visible: This step was all about plotting my monthly income and expense on a graph. The vertical axis is Rupees and the horizontal axis is months. The idea here is to keep plotting the income and expense for each month on the chart and do this from the time you begin the process until you die.

6. Valuing your Life Energy - Minimizing Spending:  The idea here is to identify and eliminate as many costs as possible.

7. Valuing your Life Energy - Maximizing Income: The idea here is to look at ways I can increase my income.

8. Capital and The Crossover point: I started tracking my living expense on a graph, trying to continuously reduce them. I was taking the difference between income and expenses, and investing that amount. Track the income from investments, watching it rise on the graph until it crosses over the living expense is called the "The Crossover Point". To achieve my financial freedom, my investment income needed to overtook my expenditure (the crossover point as mentioned in the book)

9. Managing your finances: This section covers various ways to invest money to create long term investment income. 

"If you didn’t have to work for a living, what would you do with your time?”

This simple question got me thinking. I started looking at my material priorities differently. It provided me a framework for spending money. It also helped me in resolving my inner conflicts between values and lifestyles. Although I may not agree with everything that is written in the book, it did get me thinking of money in a different way and that was well worth the time spent reading it.

Happy Reading!!!