Summary of the book "Your Money or Your Life" - By Vicki Robin and Joe Dominguez

Key Concepts in this book:

1. Visualize your earnings and calculate your net worth to make peace with your financial past.
2. Calculate your true hourly wage and keep track of your spending.
3. Make a list of your monthly expenses and categorize them.
4. Examine how much money was spent in each of your subcategories.
5. To keep track of your progress, make a wall chart.
6. Reduce or eliminate your spending consciously.
7. Increase your income to value your life energy.
8. To obtain Financial Independence, you must generate income from your investments.
9. Investigate and select your investing alternatives.

Who can benefit the most from this book:

• Anyone who wants to live intentionally.
• College students seeking positive spending habits.
• Furloughed workers.

What am I getting out of it? To become financially independent and retire early, you must first achieve financial independence.

If you were held at gunpoint and had to pick between handing over your wallet or risking your life, you'd probably choose the latter. However, most of us unintentionally put our money over our lives when it comes to the daily grind. We're trapped in a loop of working to gain money so we can buy things we don't need, and we're sacrificing our actual goals in the process.

You'll discover the steps to Financial Independence - the power to choose how to spend your time without relying on paid work – in this summary. Along the process, you'll gain a better understanding of your financial history, break free from old money attitudes, and build new financial habits that will help you pay off your debt and retire early if you so desire.

• You'll learn which easy tool can help you acquire financial control.
• How to determine the time it will take you to retire.
• And where to put your savings in this summary.

1. Visualize your earnings and calculate your net worth to make peace with your financial past.

If you're like most people, you have no idea how much money has passed through your hands over the years. You must confront your financial history in order to gain control of your finances. As a result, making peace with your financial past is the first step toward transforming your relationship with money and achieving Financial Independence.

Calculating the money that has come into your life will help you develop a better understanding of your financial history and connection with money. Maybe you've always felt financially secure, but that's only because you've been surrounded by individuals who have helped you. Maybe you've always felt that you've never made much money, but you're actually underestimating your previous earnings. In any case, knowing your financial history can help you change your mind about how much money you'll make in the future.

The main point is this: Visualize your earnings and calculate your net worth to make peace with your financial past.

To begin, add up all of your gross earnings over the course of your life. This sum should contain everything you've earned from your first paycheck to the most current pennies.

If you don't know where to begin, you can utilize Social Security documents, bank statements, or even old résumés to help you remember your earnings year by year. Make sure to account for undeclared income, such as presents from family members, cash rewards, or money obtained under the table. The goal is to make the computation as exact and honest as feasible.

After you've estimated your lifetime earnings, the next stage in coming to terms with your financial past is to figure out how much money you have today: your net worth.

Create a personal balance sheet to track your assets and liabilities to determine your net worth. Anything that can be changed into cash is considered a liquid asset. This includes money in your savings and checking accounts, current market-value stocks and bonds, and even spare change in your glove compartment. Everything you own, from large belongings like your car or house to items that could be sold at a garage sale, is included in your fixed assets. Calculate your obligations, which include any outstanding debts, loans, or payments. To calculate your net worth, subtract this sum from the total value of your assets.

2. Calculate your true hourly wage and keep track of your spending.

Each of us has fewer than 9,000 hours in a year, most of which is spent sleeping. Time is, without a doubt, our most valuable resource. As a result, when you get up in the morning and go to work, you're offering more than simply your time in exchange for a wage. You're putting your life's energy into it. To put it another way, when you spend money, you're effectively exchanging your life force.

If you want to change your money relationship, you'll need to question your assumptions about how much you earn and spend. That way, you may focus your life energy on the things that matter most to you. The program's second stage is to get in touch with your current position by determining your real hourly wage and keeping track of your finances.

The main point is this: Calculate your true hourly wage and keep track of your spending.

Calculate your real hourly income by determining the actual amount of time and money that goes into maintaining your employment in order to determine your life-energy-to-earnings ratio.

Begin by creating a three-column table. The first column should be labelled weekly hours, the second column should be earnings, and the third column should be dollars earned per hour. Then, depending on your employment, fill in the information. If you work 40 hours per week and earn $1,000, you make $25 per hour.

It's now time to account for any changes. If you commute to work, factor in the time it takes you to get there as well as any additional costs such as petrol, tolls, or public transit. Calculate how much money you spend on work clothes and how much time you spend purchasing, getting ready, and shaving for work. List any additional time or money spent on meals, such as coffee breaks and takeout when you're too tired or busy to prepare. Include any time or expenses incurred as a result of work-related illnesses, as well as any entertainment you utilize to unwind after work.

Return to your table and add all of the extra time to the weekly hour's column. After that, deduct your expenses from your weekly profits in the second column. Finally, figure out what your true hourly wage is.

You'll have a better notion of how much life energy your expenditure is worth now that you know your true hourly income. Start keeping track of every dime that comes into or out of your life to properly understand your spending habits. You may make spending decisions based on reality rather than what you think you spend if you become aware of your spending habits.

3. Make a list of your monthly expenses and categorize them.

Now that you've gathered information on your financial history and actual hourly salary, it's time to take the first steps toward making some adjustments. But don't worry, you won't be required to create a budget. While a budget might be a valuable planning tool, it does not allow for much complexity.

What else can you do if a budget isn't an option? It's simple: you must be aware of how you spend your money. The third step is to break down your monthly spending into categories. Organize your spending in the most logical method for you.

The main point is this: Make a list of your monthly expenses and categorize them.

Let's say you want to keep track of your food costs. Subcategories such as "meals for guests," "too tired to cook," and "snacking" could be created based on your own lifestyle. You might discover that your occasional restaurant lunch has turned into a full-fledged, pricey habit if you track the specific categories of your spending. Create sections for things like housing, transportation, and entertainment to keep track of your spending.

Create a monthly tabulation that lists your subcategories after you've categorized your spending categories. Include a space at the bottom of the table to detail your income, with individual lines for any paychecks, bonuses, interest, or other earnings that may be relevant. Subtract your total expenditure from your total income to discover your monthly savings once you've put your monthly transactions into each area.

You might be shocked to see how much money was spent on a certain subcategory, such as beauty products. However, by the time you find yourself at another cosmetic store, your amazement will have worn off.

So this is where the program's true magic is revealed. Divide the money you spend on any given subcategory by your real hourly pay established in step two to find out how much of your life energy each subcategory costs. Let's say you spend $80 on publications you don't read, and your hourly pay is $10. The realization that you spent eight hours of your life energy on the purchase may cause you to reconsider your decision the next time you pass a magazine stand!

4. Examine how much money was spent in each of your subcategories.

Take a moment to write in a journal about what you would do if you didn't have to work. What did you want to be when you were a kid? What would you do if you just had one more year on this planet? Have you always wanted to write a book but now make a livelihood copywriting?

Remember, there is no such thing as an impossible dream. And you'll be well on your way to achieving it by making simple changes to your spending. That brings us to the program's fourth step: assessing your spending by asking yourself three questions.

The main point is this: Examine how much money was spent in each of your subcategories.

Examine the monthly tabulation from Step 3 to see if the amount of life energy you put into each of your subcategories corresponds to the level of fulfilment and satisfaction you experienced.

In some subcategories, you may find that you've felt so fulfilled that you're considering raising your life energy expenditure. If this is the case, add a plus sign to the subcategory. Mark a minus sign for the category where you felt little to no fulfilment. Mark the expense as 0 if it feels neutral.

You might discover that you're scrimping on things that bring you value while overpaying on obsessive habits, such as buying shoes you don't wear, by objectively assessing your expenditure.

Second, does your life energy expenditure match your life purpose and values? Let's pretend you squandered 25 hours of your life energy on eating out last month. You may discover that this reflects your value for social time or delectable food; you are happy to spend the money. Perhaps you know that this outlay is the result of a bad habit or peer pressure; it is inconsistent with your principles or life purpose. To indicate your evaluation, mark each subcategory with a plus, minus, or zero once more.

Finally, if you were financially independent and didn't have to work, how would you adjust your spending habits? Would you buy more or fewer clothes if you had the option? Should you spend more or less money on gas? In many circumstances, you may discover that your employment causes you to spend more money than you would otherwise.

5. To keep track of your progress, make a wall chart.

Congratulations! You've reached the halfway point in your journey to financial independence. However, if you've ever followed a program before, you'll know that staying on track is a significant difficulty. You'll need to make sure that your new approach becomes a habit rather than a choice if you want to keep making progress toward your financial goals.

Making oneself accountable to someone else is a terrific method to inculcate a new behaviour. You might try informing a friend or family member about your financial progress.

The most vital technique for continuing success, though, is to keep track of your progress. That leads us to the program's fifth step: graphing your progress with an income and expense graph.

The main point is this: To keep track of your progress, make a wall chart.

Draw a graph to track your monthly income and expenses on a large piece of paper that you can display on your wall. Money is shown on the vertical axis, and time is represented on the horizontal axis in months. Start with 0 and leave enough leeway for your income to double while making vertical axis increases. For five to 10 years, the horizontal axis access should track your progress.

Use two distinct colours to track your monthly expenses and income at the conclusion of each month. Then, make a link between the points and the prior month's entry. You'll be able to spot patterns and track your progress toward your financial goals over the months and years.

While it may be tempting to make a chart on your computer, having one on your wall will act as a continual reminder to stay on track. Consider Elaine H., a computer programmer who was dissatisfied with her current position. Elaine recognized she was spending more than she was earning after participating in the program. So she made a wall chart and determined to go a month without buying clothes or eating out.

Her expenses were, indeed, significantly lower than her income the next month. But it didn't take long for her spending to soar again after she reverted to her former habits. Elaine was motivated to make long-term adjustments after seeing the dip in the chart. She moved to a house with lower rent and was closer to work, which resulted in a 60 per cent reduction in her gas cost. By cooking the majority of the time, she was able to cut her restaurant bill in half. Elaine was debt-free and on her way to Financial Independence in just four months.

6. Reduce or eliminate your spending consciously.

Being thrifty may appear unpleasant or out of date these days. More is more has become ingrained in us as a result of modern consumer society. Being thrifty was regarded as a virtue by everyone from Plato and Socrates to American historical giants like Benjamin Franklin, Robert Frost, and Ralph Waldo Emerson. And you'll need to get used to the term if you want to achieve financial independence.

Frugality is, at its core, about appreciating what you have. If you have ten gowns that you enjoy wearing over the years, it's fantastic! However, if you're a compulsive shopper who is simply addicted to purchasing clothes that remain unused in your wardrobe, it may be time to cut back on your spending. Step six of the method is to intentionally minimize your monthly expenditure after you've developed awareness of your financial past and present.

The main point here is to reduce or eliminate your spending consciously.

Using your life energy wisely means consciously minimizing or eliminating your spending. There are several options for reducing your expenses. The most obvious is to stay away from the stores. You won't be tempted to impulse buy if you don't go inside stores. Unsubscribe from advertising emails, be cautious of marketing on social media, and cultivate a general habit of buying only what you need to decrease the temptation to purchase online.

However, cutting back on your expenditures does not necessitate being a bargain hunter. Instead of going for the lowest choice, consider investing in a more durable item. You'll save $20 over time if you buy a $40 tool that lasts ten years instead of a $30 tool that lasts five. Instead of buying a rice cooker, spaghetti cooker, and Crock-pot, invest in a single heavy-duty pot that can serve numerous functions.

There will be some subcategories that you do not want to remove from your life. Here's where you can let your imagination run wild. Take Harry, who was debating whether or not to discontinue his housecleaning and gardening services in order to save money. Harry was not willing to perform the cleaning on his own. As a result, he made a studio apartment out of his family's mainly underutilized dining room. In exchange for yard and home labour, he sublet the room to a couple. Harry was relieved to have someone else handle the labour, and the couple was able to avoid the hefty housing bills.

7. Increase your income to value your life energy.

The 40-hour workday is a concept that originated in Western culture.

New production processes during the Industrial Revolution created a distinction between workday and leisure time. Working conditions deteriorated to the point where workers lobbied for a shorter workweek. Instead of being viewed as a time to relax, leisure has evolved into a time to learn how to be a more effective worker.

Free time became connected with unemployment during the Great Depression. This Depression-era mentality still pervades Western civilization today. Our society's workaholic culture is so horrible that campaigns like "Take Back Your Time" have gained traction in recent years in addressing our attitude toward work.

The main idea here is to increase your money in order to value your life energy.

Society wants us to believe that in order to be fully contributing members, we need to work 40 hours every week. But, in reality, the primary goal of holding a job is to be paid. Outside of typical employment, benefits like community, growth potential, and recognition can all be obtained. As a result, it's past time for us to reevaluate how we spend our life energy.

The seventh stage to reaching Financial Independence and altering your relationship with money is to value your life energy and increase your income. Consider the following: Is the amount of life energy you're now investing in your career a reasonable trade-off for what you're getting in return?

Getting the best possible salary in accordance with your health and ethics isn't about desiring more money for the sake of it, whether you're saving for grad school, supporting your family, or getting out of debt. It's all about ensuring a long-term future. If you need $2,500 to cover your costs, instead of sticking at your $25-per-hour desk job, you could earn $50 per hour as a contractor and double your income.

Increasing your income may need working longer hours in the short term in some circumstances. Rosemary loved her profession as a senior home director, but her true passions were travelling, writing, and environmental advocacy. Rosemary was well aware that obtaining a higher-paying job would likely result in more stress, diverting her attention away from her objectives. So she took a part-time job in the evenings and on weekends for a small audio distribution company. She stayed motivated despite working more than 40 hours a week because she knew she was getting closer to her goal of Financial Independence.

8. To obtain Financial Independence, you must generate income from your investments.

For many people, the idea of retiring early appears to be a privilege reserved for the top 1% of the population. FIRE, or Financial Independence Retire Early, is a burgeoning movement that proves otherwise. FIRE supporters have gained some simple wisdom: if you invest your savings, your money will ultimately start earning enough on its own for you to retire and focus on what matters most to you. The key is to accumulate sufficient monthly investment income.

Unlike the income you get from your employment, your monthly investment income is the money you make from your money. Any money that you didn't have to labour for, such as interest, dividends, rental payments, or business earnings, falls into this category.

The main point is to generate money from your investments in order to achieve Financial Independence.

Make sure you have enough money in the bank to cover six months' worth of expenses before you begin investing. This liquid cash is both your emergency fund and the money you'll use to cover your monthly expenses.

Consider opening a savings account whenever you have at least six months of liquid cash in your bank account. You can now begin the program's eighth step: investing and tracking your additional funds.

Multiply your capital, or additional savings, by your current long-term interest rate to get the amount you can expect to get from a long-term investment. This amount can be found by looking up the current 30-year yield on US Treasury bonds in the Wall Street Journal.

Divide the result by 12 to get the final result. After you've followed the formula, but the result to your wall chart as a new line beside the lines that measure your income and expenses. Keep in mind that the vertical axis represents your money and the horizontal axis represents time.

When you first start out, your monthly investment income may seem insignificant. However, when your income and expenses grow more stable, you'll be able to estimate how much money you'll need to achieve Financial Independence.

Your money invested will cause the line to curve upward over time. You can follow this trend with a light pencil to find the point where your monthly investment income exceeds your monthly costs. This is referred to as the crossing point. For most people, the point at which their savings equal 25 times their annual costs is when they cross the threshold. If you spend $36,000 per year on average, you'll need $900,000 in assets to achieve Financial Independence.

9. Investigate and select your investing alternatives.

You'll need to become an expert in long-term, income-producing investment now that you've calculated your crossing point and the reality of Financial Independence has become tangible. Financial consultants, shady brokers, and salespeople will try to sway your investment selections while pocketing a large commission. By empowering yourself to make your own investment decisions, you may avoid paying excessive fees to such middlemen.

Rent from real estate or royalties from intellectual property, franchises, or natural resources could be part of your investment income. You could profit from an investment by selling it for a higher price than you paid for it. However, by investing in bonds, mutual funds, or the stock market, you'll most likely be able to earn interest or dividends.

The main point is this: Investigate and select your investing alternatives.

Joe Dominguez, the coauthor, had achieved Financial Independence by investing in US Treasury bonds when he retired at the age of 31 in 1969. Due to high return rates throughout the next few decades, he and the tens of thousands of other people who invested in US Treasury bonds were able to achieve permanent financial independence.

Interest rates, on the other hand, have fallen since the millennium. The majority of FIRE bloggers nowadays recommend investing in low-cost index funds. ETFs, or exchange-traded funds, are index funds. Mutual funds that track the performance of stock or bond market indices are known as index funds. Index funds are a passive strategy to investing that diversifies your investments across a large array of trading activity, rather than beating the market or picking and choosing which stocks to invest in. They have the lowest risk and the lowest costs, making them an excellent choice for anyone pursuing Financial Independence.

Your assets will most likely be managed by large brokerage firms that offer mutual funds or bond funds if you work for a company that offers a retirement plan, such as a 401(k). Consider taking advantage of this opportunity; many firms will match your contributions.

In any event, it's critical to educate yourself on all of your possibilities before committing to a certain investment strategy. You'll ensure that your investments are as long-lasting as your new attitude about how you spend your time and money by making informed decisions. Even before you attain your financial goals, you'll be living more consciously.

The essential message in this summary is to evaluate your financial history as well as your present financial condition before embarking on your journey to Financial Independence. Realizing that the money you earn from your job correlates to your life energy is the first step in changing your relationship with money. To retire early, pay off debt, and achieve your financial goals, cut your expenditure, raise your income, and invest your money.