Which is more important? Our money or our life? So why do we trade away so much of our life? Vicki Robin's classic book takes an in-depth look at how we can have a better relationship with money.
Here are some of my highlights, though there's so much more great value in the book. I found it so inspirational after reading the foreword and the first chapter.
While the backbone of the book is a 9-step plan, there are two concepts that really stand out - even if you never start the plan. One is the idea of "life energy" and our "real hourly wage". The other is the point of enough.
Life Energy
What is money? Vicki Robin comes to the conclusion that it is a form of life energy. It might sound a bit new-age, but it's like the old business saying "time is money".
We exchange our time, and our physical and mental energy to get this thing called money. So when we use it we are effectively spending our life.
The exchange rate
Spending money is almost like spending a foreign currency. We need to work out the "real" price.
To convert from dollars (or your home currency) into our real currency (hours of our life) we need to know our real hourly wage. It might shock you.
Real hourly wage
It's not just pay divided by hours worked. That gives a falsely high figure.
First take your after-tax pay. Then subtract every work expense: takeaway coffees at work, takeaway lunches, work clothes, petrol for commuting, the cost of a car (if you wouldn't have it except for getting to work), the cost of drinks (if you drink to unwind from work). Everything that's a cost related to being at work. Then you have your real pay.
Divide this real pay by the real number of hours that work takes from you. That's work hours plus commuting, plus lunch break, plus 'voluntary' overtime, plus getting ready time at home, plus de-stressing/unwinding time etc.
The answer may be quite a surprise. You may have thought that even after tax your wage was $25/hour ($1000 divided by 40 hours) but find out that it's more like $16/hour ($800 divided by 50 hours).
But now you know. Each time you're spending $16, you're giving up an hour of your life to work.
The steps
Once you've calculated your real hourly wage, the remaining steps include
- a month of tracking every cent that comes in or out of your life,
- assessing whether each spend is worth the life energy it cost,
- reducing expenses that aren't worth it, and
- charting your income, expenses, and investment income.
As investment income increases, it will cover expenses by itself and you no longer have to sell your life for dollars.
The fulfilment curve and the point of enough
Vicki draws a hill-shaped curve as a graph. The vertical axis is the amount of fulfilment gained and the horizontal axis is the amount of money (or life energy) spent.
Going up the 'hill' you can spend a small amount of money/energy for a basic item, a bit more cash or effort gets you a slightly better version. The peak of the hill is the version of the item that gives you the most joy. That's the point of enough.
After that, the fulfilment we get from an item actually decreases.
But often we keep purchasing past that point. Why is that?
Filling the hole
Quoting another author, Vicki says that people are trying to fill psychological needs with material items. The material items obviously quench the need for "identity, community, challenge, acknowledgment, love, joy" so people keep buying.
"People don't need enormous cars, they need respect. They don't need closets full of clothes; they need to feel attractive and they need excitement and variety and beauty. People don't need electronic equipment; they need something worthwhile to do with their lives."
The battle against against words
Why are people so often referred to as consumers? Consume means to use up, waste, squander or destroy.
"Disposable income" is another phrase we hear often. It almost implies that we're meant to get rid of our money.
Once we realise that money represents our life energy, words like waste, squander, destroy and disposable should be the opposite of our intentions.
A better word than frugal
"To be frugal means to have a high joy-to-stuff ratio. If you get one unit of joy for each material possession, that's frugal. But if you need ten possessions to even begin registering on the joy meter, you're missing the point of being alive."
Frugal often has such a negative connotation. Vicki talks about the Spanish word approvechar - to use something wisely. "It's getting full value from life, enjoying all the good that each moment and each thing has to offer. You can approvecha a simple meal, a bowl of ripe strawberries, or a cruise in the Bahamas. There's nothing miserly about approvechar; it's a succulent word, full of sunlight and flavor. If only frugal sounded so sweet."
Financial Integrity
Vicki has a great phrase called financial integrity. "You learn to make your financial choices independent of what advertising and industry have decided would be good for their business."
There is so much advertising these days and we can often be led down a path of buying things because ads tell us that we want the items. It leads many people to financial poverty, but also emotional poverty as we have to spend so much of our life energy re-earning that money back.
Stats: 47 and 42 percent
Numbers have an amazing way of illustrating a situation. In this book we discover that 47% of Americans can't access $400 in case of an emergency.
In the workplace, 61% of workers liked their job (in 1987). By 2010 that number had sunk to 42.6%.
So most of us are working a job we don't like, and yet still so many of us have not much to show for it.
Work
Vicki has some fascinating perspectives on work. She lists 8 reasons people work - money, security, tradition, service, learning, power, socializing and time-structuring. Her view is that seven of the eight can be found outside of paid work. Obviously money is the exception.
Therefore her perspective is to optimise your hourly pay (within your ethical boundaries). At first it sounds greedy, but Vicki points out that being rich doesn't make people happier.
It's not about being rich. It's about wisely using your life energy so that you don't work your life away when you don't have to. It's about spending less hours working and more hours living.
In short
Despite all I've written there is still so much more in the book - including stories of people Vicki has met since the original version of her book. It's a constant river of insight about money, life and the connection between them.
If I had to sum up the message it would be that money is what we sell part of our life to get. Only spend on things that are worth the time that money represents. One day you may find you can stop trading away your life for money. That day may be sooner than you think.
Other books
While this book is amazing, I have also reviewed others. See the reviews, or subscribe to my monthly email for future reviews.
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