Personal Finance Book Review #1: Your Money or Your Life

I read the first edition of Your Money or Your Life a couple of years back and recently purchased & re-read the updated second edition. This is the book that for most people turns on the light bulb in their mind that the consumer-economic treadmill has an off-switch. For me, that book was Robert Kiyosaki’s Rich Dad Poor Dad (my next review) which I had read a few years before this book. Both books advocate living below your means to generate positive cashflow which can then be put into income generating assets … and thus, with time and steady investing, can free oneself from the wage-slave world.

Your Money or Your Life is unique in that it has you align your spending with your inner moral compass … and prompts you to reflect on your money choices and to determine what is “enough” for you (not anyone else) and recognize what parts of your lifestyle gives you the most joy – and how to think of ways to enjoy that lifestyle rather than to consume that lifestyle (my third review on Killing Sacred Cows goes into more detail on the consumption of things, such as “leisure”).

There are no complicated formulas in Your Money or Your Life, but there is a lot of tracking of your spending, working to align your spending to your morals, and tracking the passive income generated from assets. The authors use 30-yr treasury notes as their example of an ideal passive income vehicle due to its stability and tax advantages, although at the time of the first addition interest rate return was significantly higher than today. After careful reflection of what is truly important to you, they recommend spending freely (almost) on some aspects of your life, but downscaling your life (perhaps radically) in other aspects.

Where your income comes from is examined against the true cost of employment, with fewer “life hours per dollar” being the goal (for example, does your job require lots of expensive clothes, a long commute, or therapeutic treatments or vacations to “de-stress” – these should all be considered in the “life hours per dollar” exchange). Once passive income exceeds your expenses (which over time expenses have been minimized and tailored to maximize your specific happiness or satisfaction ideals) you are then free to spend time how you determine – on social goals, with your children or grandchildren, or using a skill that you love but wouldn’t be able to make a living at – and do these long before being of “retirement” age.

I have not asked an aunt and uncle if this is the exact path they followed … but while everyone else in my family was climbing the socio-economic ladder, they were paying off their modest house, driving used (and paid for) cars, and living simply in general. Scoffed at in the roaring 2000’s, during the recent economic downturn on they’ve started to look pretty smart and still enjoying “early” retirement which includes family and travel.

My only complaint about this book is that it does not put as much focus on how to align your income with your morals as it does your spending. Be warned: Once you align your spending to what is really important to you, it becomes harder and harder to accept money from a job that does not support those same morals (and that likely means a reduction in income!).