Your Money or Your Life

Track Your Spending: Start by keeping a detailed record of every penny you spend for at least a month. This will help you identify where your money is going and highlight areas where you can cut back.

Define Your Values and Align Your Spending: Reflect on what truly brings you joy and fulfillment. Then, examine your spending to see if it aligns with these values. Redirect funds from less meaningful areas to those that contribute to your happiness and well-being.

Create a Financial Independence Plan: Calculate your desired annual living expenses in retirement and aim to build an investment portfolio that can generate this amount in passive income. Use the 4% rule as a guideline, which suggests you can safely withdraw 4% of your portfolio annually without depleting it.

Invest in Low-Cost Index Funds: Start investing in a diversified portfolio of low-cost index funds. These funds typically have lower fees and outperform actively managed funds over the long term, making them a wise choice for building wealth.

Minimize Expenses: Look for ways to reduce your monthly expenses. This could involve downsizing your home, cutting unnecessary subscriptions, or finding cheaper alternatives for services and goods.

Increase Your Income: Explore ways to boost your income, whether through advancing in your current career, starting a side hustle, or investing in assets that generate passive income.

After tracking her spending for a month, Maria realized she was spending an excessive amount on dining out. She decided to allocate a portion of this budget to cooking classes, aligning her spending with her passion for cooking and saving money in the process.

John calculated that he needs a $1 million portfolio to cover his annual living expenses through passive income. He started investing a fixed amount monthly into a diversified set of low-cost index funds, aiming to build his portfolio over time while keeping investment costs low.

Track Your Expenses Related to Work: Start by keeping a detailed record of all your work-related expenses for a month. This includes commuting costs, work attire, lunches bought out, and any other expenses directly tied to your job.

Calculate the Time Spent on Work-Related Activities: Don't just count the hours you're at the office. Include commuting time, any extra hours spent working at home, and the time needed to unwind from work stress.

Determine Your Actual Annual Income: Take your gross income and subtract all work-related expenses. This will give you a clearer picture of what you're truly earning.

Divide to Find Your Real Hourly Wage: Using the adjusted annual income and the total number of work-related hours, calculate your real hourly wage. This figure represents what you actually earn per hour of work-related time.

Assess Your Spending in Terms of Time: Before making a purchase, consider how many hours of work it represents based on your real hourly wage. This perspective can help you decide if something is worth the cost in terms of your time and effort.

If someone earns $50,000 a year but spends $5,000 on work-related expenses and works 2,500 hours (including all work-related activities), their real hourly wage is ($50,000 - $5,000) / 2,500 = $18 per hour, not the $20 per hour they might have thought.

Consider a person contemplating a $100 purchase. If their real hourly wage is $18, they would need to work about 5.5 hours to afford this item. Knowing this, they might decide it's not worth the time and choose not to buy it.

Start a Spending Journal: Dedicate a notebook or a digital app to record every purchase you make, no matter how small. This could be as simple as jotting down the amount spent on a coffee or as significant as a monthly mortgage payment.

Review Your Expenses Regularly: Set aside time each week to go over your spending journal. Look for patterns or categories where you might be overspending. This could be dining out, online shopping, or entertainment expenses.

Set Spending Goals Based on Your Review: Once you've identified areas where you can cut back, set realistic budget goals for those categories. For example, if you're spending too much on eating out, allocate a specific budget for dining expenses and stick to it.

Track Your Progress: Keep monitoring your spending against the goals you've set. Adjust your spending habits as needed to ensure you're staying on track with your financial objectives.

If you notice you're spending $100 a week on coffee, consider reducing your coffee shop visits and brewing at home instead. This small change can save you a significant amount over time.

After tracking your expenses, you might find that you're spending a lot on streaming services. Evaluate which services you actually use and consider canceling subscriptions that you don't need, reallocating those funds towards your savings or debt repayment.

Track Your Spending for a Month: Start by keeping a detailed record of every penny you spend for at least one month. This will give you a clear picture of where your money is going and help you identify areas where you might be spending on things that don't truly add value to your life.

Calculate Your Real Hourly Wage: Instead of just considering your hourly wage as it appears on your paycheck, factor in the time spent on work-related activities outside of your official working hours, commuting, and any expenses related to your job. This will give you a better understanding of how much of your life energy each dollar actually costs you.

Ask Yourself Before Every Purchase: Before making any purchase, big or small, ask yourself, 'Is this worth my life energy?' Consider if this item or service truly adds value to your life or if it's something you can do without. This practice encourages mindfulness and intentional spending.

Set Up a Value-Based Budget: Create a budget that reflects your values and priorities. Allocate more resources to things that bring you genuine happiness and fulfillment, and cut back on expenses that don't align with your personal values or long-term goals.

Regularly Review Your Expenses: Make it a habit to regularly review your expenses and evaluate whether they were worth the life energy spent. This ongoing process will help you refine your spending habits and make more conscious choices over time.

If you earn $20 an hour and are considering buying a $60 video game, calculate the real cost in terms of life energy. If your real hourly wage, after accounting for taxes, commute, and other job-related expenses, is closer to $15, then the game actually costs you four hours of your life. Ask yourself if the enjoyment you'll get from the game is worth those four hours.

Imagine you're eyeing a $5 daily coffee from your favorite café. Over a month, this habit amounts to about $150. If your adjusted hourly wage is $15 after considering all work-related costs, you're spending 10 hours of your life energy each month on coffee. Reflect on whether the pleasure and convenience from these coffee runs are worth 10 hours of your work life, or if there might be a more fulfilling way to spend that time and money.

Track Your Spending: For one month, write down every penny you spend. This will help you identify where your money is going and where you can cut back.

Create a Budget: Based on your spending habits, create a budget that allocates funds for necessities, savings, and a few wants. Stick to this budget to control your spending.

Eliminate Unnecessary Expenses: Review your monthly subscriptions and recurring expenses. Cancel anything you don't use regularly or find less expensive alternatives.

Start an Emergency Fund: Aim to save at least three to six months' worth of living expenses. This fund will protect you from unexpected costs without derailing your financial goals.

Invest in Low-Cost Index Funds: Begin investing a portion of your savings into low-cost index funds. These funds are a great way to diversify your investments and have historically provided solid returns over the long term.

Learn About Real Estate Investing: If you're interested in real estate, start by educating yourself on the basics. Consider investing in a rental property or a real estate investment trust (REIT) as a way to generate passive income.

After tracking her spending, Emily realized she was spending $200 a month on coffee and lunches out. By preparing coffee and meals at home, she was able to save $150 a month, which she then directed into her emergency fund.

John discovered he was paying for several streaming services he rarely used. After canceling two subscriptions, he saved $30 a month, which he started investing in a low-cost index fund.

Gather Your Financial Data: Start by collecting all your financial information. This includes your monthly income (from all sources), your monthly expenses (categorize them for better clarity), and any investments or savings you have.

Create Your Wall Chart: Use a large piece of paper or a whiteboard. Draw a horizontal line for your monthly income and plot your expenses below this line. Above the line, plot your investment income or any additional income you're working towards. Update this chart monthly.

Set Clear Financial Goals: Identify what financial independence means to you. It could be having enough investment income to cover your living expenses, being debt-free, or something else. Use these goals to guide how you plot your progress on the chart.

Review and Adjust Regularly: At the end of each month, take time to review your chart. Celebrate any progress towards your goals, no matter how small. If you notice any setbacks, adjust your spending or saving strategies accordingly.

Example 1: If your monthly income is $3,000 and your expenses are $2,500, you would plot $3,000 at the top of your chart and then list your expenses below, totaling up to $2,500. If you have $200 coming in from investments, plot this above the $3,000 line, showing your total income as $3,200.

Example 2: For someone aiming to reduce their debt, they might plot their current debt as a separate line or bar on the chart. Each month, as they pay down their debt, they can visually see the debt bar decrease, which can be a powerful motivator to continue.