Personal Finance

A Quick Dip Into Your Money or Your Life

your-money-or-your-lifeThe oft-quoted financial independence classic Your Money or Your Life provides 9 steps to assist people become more aware of their relationship with money and consumerist society and further, to change this relationship and work toward financial independence. According to the authors Joe Dominguez and Vicki Robin, Step 1 toward financial independence is  to examine your total life’s earnings vs net worth:

  1. add up your total life’s income earned (e.g. tax return statements, social security records, payslips)
  2. add up your net worth today
  3. calculate how much you’ve managed to retain

Pretty simple. (The authors aptly titled this step, make peace with your past, you’ll see why in a minute).

After reading a summarised version of the book on Mr Money Moustache I became curious and decided to follow through on Step 1.

According to the Australian Tax Office and my own filings between 2005 (first pay cheque) and June 2015 (most recent tax return) I’ve earned…

The better part of two hundred thousand dollars; $197,269 to be exact

Net worth as of November 2015 was $2,842.

Apparently I’ve managed to retain 1.44% of my life’s earnings.

Step 2 involves calculating your real hourly wage by

  1. deducting from your yearly income, expenses related to work (i.e., clothing, commuting, baby-sitter, education etc)  then
  2. adding up time spent at work, commuting, studying out of hours, preparing clothes for work etc. and
  3. dividing the result from 1. by the result from 2

Using an estimate of having ‘worked’ 50hours per week, 48 weeks of the 2015 (it’s most likely higher) and earnings of approx. $37,000 after deducting all work related expenses provides a true hourly rate slightly north of $15.50/hr. 

The idea is to frame future purchases with this figure – is the $2.81 beer I just consumed worth the 11 minutes I had to work for it? (as it turns out, yes it was, particularly in light of Step 1.).

This whole exercise though is a rather interesting reality check. Over the past decade of my income generating life, I’ve spent 98.66% of my income and in the current financial year earned approx. $15.50/hr (actually not too bad for a Grad student). It’s not all doom and gloom though, Vicki suggested that doing step one:

  • Gives a clear picture of how powerful you are at bringing money into your life.
  • Eliminates vagueness or self-delusion in this arena.
  • Instills confidence, facilitates goal-setting.

More good news, based on my pre-tax income of $47,000 my current savings rate is 26% – once I’ve paid of short-term debts (credit!) my goal is to increase this rate to 33% – Road maps are important and YMYL discusses extensively one approach of working out a new, more conscious road map to financial independence.

Co-author Vicki Robin has provided a summary of steps 1-9 of YMYL online that’s worthwhile reviewing. Although I found myself disagreeing on some methods suggested in YMYL (or at least, what I read of it online) and by other proponents who live extremely frugally to increase their savings rate, some of these ideas are quite useful and there is likely a balance that can be achieved that strongly favours mindfully saving, investing and wealthing over mindless consumerism.

2 thoughts on “A Quick Dip Into Your Money or Your Life

  1. I wonder what the result would be if you figured out how much of your free cash flow – money left over after you subtract out things you need to buy each year like housing, clothing, food, etc… and divided your net worth by that. The result would tell you how much of the money you actually could have saved and invested that you piddled away instead. Someone who is making just enough to cover rent and food can’t be expected to be building up net worth, but someone who has a lot of free cash flow should be.

    I like the blog. Keep going and you should get lots of visitors.

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