Your Money or Your Life?

If you buy things you do not need, soon you will have to sell things you need!-Warren Buffet

There were a few books that I enjoyed very much during Malaysian MCO ( movement control order) 2 months ago. One of these was ” Your Money or Your Life” by Vicki Robin and Joe Dominguez.

All of us are chasing money during our lifetime, after working for so many years and spending countless sleepless nights as a doctor, I am wondering is there any way I can balance my life and my money?

Joe Dominguez started to use the word ” Financial independence” when he wrote the book in 1993. It is the term and movement that was popularized by him.

History of Financial Independence

Joe Dominguez apparently grew up in a slum area and later landed a great job in the Wall Street financial sector.

He managed to save about $70,000 by age 30 in 1969 and finally called it a day and retired. He died in 1997 at the age of 58 due to cancer.

He met Vicki Robin along the way and founded the New Roadmap Foundation – a network and group that teaches and motivates people to live frugally and retire young.

Both of them co-wrote the book “Your Money or Your Life”, which became a big seller and influenced thousands of people.

9 Steps to Financial Independence

For those who are too busy to read, I would like to outline these 9 necessary steps for you to reach financial independence.

1) Make peace with your past

It is time to see your report card. Find out how much you have earned so far in your lifetime and find out your net worth by creating a personal balance sheet of assets and liabilities. You need to know where you are standing now! Don’t be surprised that you might be still in debt even though after working hard for 10+ years.

2) Tracking your Life Energy ( your real earning and spending)

Your hourly wage is much lower than you think. Let do a simple calculation. I’ll put in some plausible figures for an above-average working adult in Kuala Lumpur Malaysia who makes MYR180k per year.

You are happy that in 2019, there are a total of 261 working days ( 8 hours each per day = Total 2088 hours), this translates to the hourly wage of MYR86.20.

But you have to consider your income tax of about MYR35000.

And subtracting all work-related expenses. ( commuting, clothes, housekeeping, de-stressing, childcare, lunches in the office, etc)

Remember your Perodua Myvi ( even though you are likely driving a Honda or Toyota if you earn MYR180k per year) that you spend MYR1173.5 per month, your childcare of MYR1000 per month and all others mentioned above. Let put a conservative estimation of (MYR1173.5 +MYR1000) x 12 plus other expenditure of MYR5000 ( others) = Total of MYR31082

You think that you are only working for 261 days x 8 hours ( 2088 hours) but you need other time-consuming preparation before reaching your workplace ( dressing up, cleaning your clothes, commuting etc ).

Let say you spend 2.5 hours for all these every day in order to work and appear nicely in the workplace. You spend extra 652.5 hours per year.

The net result is you are actually taking back far less than you think. You take home income is only MYR180000-35000-31082= MYR113918 every year. And you actually spend more time at work. It is not 2088 hours but 2740.5 hours. So your hourly wage is only MYR41.57 and NOT MYR86.20!

3) Create monthly report for yourself

First step into personal finance is keeping a table of all your income and spending for each month.

Break it into categories, and convert the figures into “hours of life energy spent”. Let say you spend MYR300 each month in restaurant meals, put (MYR 300 divided by MYR41.57 ) 7.2 hours,etc.

4) Ask these three questions

For each of the categories above, ask yourself:

• Did I receive fulfillment, satisfaction, and value in proportion to life energy spent? Do you think hours of life energy spent in each category worth it? Eating in restaurant consumes up to 7.2 hours of your life energy, do you think is it worth your money and life hours?
• 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 money?

5) Keep a graph of income/ expenditure

You need to keep a big and clear graph to track your monthly income and expenditure. This will always remind you how to spend money wisely. Soon this exercise will help you to grow your income and cut down your expenses.

6) Learn to value your Life Energy by Minimizing Spending

Life is a finite resource you have in this world! If you buy things you do not need, soon you will have to sell things you need! Live below your means and minimize your spending.

7) Maximizing your Income

Learn how to earn more while spending less. Be creative in creating multiple sources of income in different currencies. You can do a lot of things in life to make that extra buck- selling an old item in Mudah, giving tuition to students, creating websites for clients, selling ebooks online, investing REITs for dividend, renting out your extra room via Airbnb, etc

8) Watch for the Crossover Point

You achieve financial independence when your passive income from investments equals your expenses. This is the time you are going to tell your boss to fly kite. Remember the 4% rule I wrote in my previous post?

9) Managing your Money

Become knowledgeable about your money. No one is going to give a shit about your money. You have to learn how to manage your own money. After achieving financial independence and retirement, you are only halfway through your life, you need to learn more how to manage your portfolio so that the money can last you forever or at least another 30 years!

We are consuming ourselves everyday!

Malaysians and Singaporeans are just working harder and longer. This is happening everywhere in this world. We are just getting preoccupied with consumerism. We keep working so that can borrow more and buy more.

A small apartment and a tiny car are just not enough anymore for us once we earn more. We grow fatter but less happy because we are living in a blind world that consumes everything on leverage.

We create more rubbish than ever, killing more livestock, catching more fishes from the ocean , buying more things to satisfy our desires and appetite.

Remember that besides consuming all these materials, we are actually consuming our fixed remaining life energy.

Conclusion

Life can be very simple. We should fill up our lives with purpose and not working hours and toys. If buying a bigger house makes me spend another few thousand hours of my life energy in working, I would rather stay in a small apartment and retire younger and live longer!