Executive Summary – Your Money or Your Life, a book written by Joe Dominguez and Vicki Robin tries to change your relationship with money. It encourages you to maximize earning and minimize spending by focusing attention on how much time, energy and money you spend to earn and if the expense you are making is worth it. It says that by maximizing income, minimizing expenses and a sound long-term investment approach, the investment income should take care of expenses so that you will achieve financial independence and can do what you really want to do in life.
It first talks about how much is enough for you which will make you assess your all your spending. Spending cannot be equated with happiness. The book asks the reader to count all the money earned till now and how much time has been spent in earning it. The time should include the actual hours spent on the job, commute, travel and time spent towards entertainment etc. related to the job. The total money earned should be divided by the total time spent in earning it to get the hourly wage. It basically says a lot of a person's time and energy is being spent in earning money and one should be careful before spending it on the latest whim. The reader should think if that purchase is worth the time, money and energy spent in earning the money required to purchase it? At the same time, it is important to assess if the total amount of time and energy spent on the job fulfilling for you. When a person is calculating the total expenditure, less visible expenses like tax, amount spent because of the job etc. should be taken into account. When a earning v/s expenditure graph is plotted, the spending is very close to the earning indicating you are spending most of what you earn. This graph should also compare the investment income with the expenses which will show the gap between expenses and investment income.
The more money you earn the more you spend. It urges you to think beyond being materialistic which will give you inner peace and at the same time help in conserving resources and contribute in saving the planet.Instead of buying more to find satisfaction in life, one should try to remove excesses in life and spend time with family, friends and pursue self-development.
The next step is to ensure you have long-term investments such that the investment income meets the expenses. This can be achieved with prudent expenditure and sound investing approach. The point where passive investment income takes care of expenses (including a cushion) is referred to as the crossover point. You can truly live your life once you reach the crossover point. You can do whatever you have always wanted – quit the job, work on your own terms, take up work that you always wanted to do even if it is not high paying, travel, be a stay at home dad etc.
One has to be careful after one reaches the crossover point. One has to maintain lifestyle, income and expenses such that there is no financial trouble. The total money that one has should be split into 3 parts -
- Capital – Amount invested which gives the earnings/income
- Cushion – Amount kept in cash/savings account as an emergency fund
- Cache - Amount over and above the capital and cushion which can be used to do what you love or invest in your dreams
The book does not just talk about income, expenditure and frugal living. It encourages the reader to transform his relationship with money and look at income, expense, saving, time and energy spent in earning, satisfaction and fulfillment as a whole. It is a good read which provides advice to help you reach financial independence and encourages you to pursue the real values in life and align life and money to achieve these real values.