Perfect for: Introduction to Financial Independence, Relationship with Money, Overall Financial Health
Length: 368 pages
Depth: Easy to understand, but requires dense actions to implement
Our society constantly pushes the message that “more is better”. More money, more possessions, more power. This book teaches you to identify what is “enough” and what truly brings you happiness. Hint: its not more money. This book changes your perspective on money and how you view material goods. Additionally, this book teaches you how to get your finances in order by tracking your income/expenses and visualizing your progress. All of these things are accomplished by following a 9-step program, which is clearly outlined in the book.
All the Feels:
This book is always highly touted in personal finance circles, and now I understand why. I found each of the nine steps to be actionable and very clearly explained. I found the second step of calculating your true hourly wage to be the most eye opening. Viewing future purchases in terms of working hours is a tremendous way to make you think twice before impulse purchases.
My Main Takeaway(s):
9 step program outline
- Make peace with the past: calculate how much money you have made in your life and your current net worth. This will help you understand your consumption and give you a starting point for the rest of the 9- step program.
- Money is life energy: Money is something we trade our time for. Time is a finite resource and how we spend it impacts our level of life enjoyment. Calculate your real hourly wage — subtract work expenses (ex: business clothes, commuting, buying coffee/lunch, etc.) from your income. Divide this net income by the time that your job consumes (ex: working hours, commuting, networking, complaining about work, etc.). Once you know your real hourly wage, you can view every purchase in terms of time. For example, want to buy a new jacket? That will cost 8 hours of your life.
- Track your income AND expenses: Create custom sub-categories: don’t just use the category food. Break it down into sub-categories that are unique to you. For example, “bored at work snacks”, “junk food weekends”, “too tired to make dinner”, etc.
- Review how you spend your life energy: each month, look at the total of each sub-category from step 3 and convert it into life energy (hours of time) by dividing the dollar amount by your real hourly wage (from step 2). For each sub-category ask yourself the following 3 questions:
- 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 didn’t have to work for a living?
Answer each question for each sub-category by using “+, -, 0”. Plus means that the amount of life energy was worth it and you should spend more in this category. Minus means the opposite. Zero means the amount of life energy spent was just right.
- Plot your chart: y-axis is dollars, x-axis is months. Plot wage income, investment income and expenses every month. Look at it often and share it with others to keep you accountable
- Frugality: being frugal means having a high joy to possession ratio. You don’t need 10 jackets, you only need one that you love to wear. Frugality is not about penny pinching, it is about maximizing the enjoyment of each dollar spent. Remember, the dollars you spend are actually hours of your life you are spending. Think repair, not replace and wear things out.
- Value your life energy: paid employment is simply trading your life energy (time) for wages. It can also provide socializing, sense of accomplishment, etc., but these things can be achieved in unpaid activities and jobs as well. You only have X hours remaining in your life, is your job consuming too much of this time? Are you being fairly compensated for your life energy/hours?
- Capital and Calculating Your Crossover Point: capital is money that you can invest and grow. After a few months of plotting your wage income, investment income and expenses you should be able to forecast your crossover point – when your investment income exceeds your expenses. Having this end point in mind will make you more successful in your wage income job. For example, knowing you will only have to work for 8 more years until you reach your cross over point (i.e. Financial Independence) provides the light at the end of the tunnel. You can see your finish line and will start to take actions to bring it even closer. You will work harder and more creatively in your wage-earning job as you know that every pay increase brings you closer to your finish line.
- Managing Your Capital: how you invest your capital will impact the return on your money. You want investments that provide return, while minimizing risk. After reaching Financial Independence, you will be relying on your investment income to cover your living expenses. Therefore, you want investments that are stable and provide consistent returns.