Book Review: Your Money or Your Life

Book Review: Your Money or Your Life

“Your money or your life” sounds like words you typically hear in a robbery. But this book isn’t an action novel as the title suggests. It talks about the relationship with money and how to achieve financial independence (it’s some sort of wealth nirvana, where you have the freedom to stop working and live a nice life). It’s widely regarded as a classic book of personal finance. Unlike other financial books, it’s pleasantly written in simple words and readers can easily relate their everyday lives to it.

This book starts off with common problems faced by common folks, such as feeling sick and tired of being sick and tired at work, getting little or no satisfaction out of money, and being stuck in debt. It stresses the need for a new financial road map in life to get out of these problems and live a better life. A nine-step plan is lay out as important exercise for readers to do to get on the proper financial path. You have to read the book to know what the nine steps are.

One thing I like about this book is how it shifts our perception on money, by converting the money units into “life energy” (actually, it’s working hours). Instead of seeing a stuff valued at 100 bucks, we see it as something worth 12 hours of our working time. This makes us think before we part with our hard earned money and appreciate things better. Just imagine seeing a beautiful, bling-bling bag at shopping center that seems affordable. You might get horrified to learn that you have to pay one whole week of wages to buy this goodie. Not a bad scare tactic to prevent you from over spending huh?

One of the boring important exercises is building monthly cash flow table, where all your spending is recorded in a spread sheet table and in categories such as food, transportation, clothing etc. By the end of the month you can calculate the total money spent (monthly expenses). Your monthly saving is your monthly income minus monthly expenses. You can also add additional data to the table such as money in terms of “life energy” and satisfaction rating on each spending. I think this is a good exercise that trains you to become disciplined and be in complete control of your money.

Later we transfer the monthly data to a graph called “wall chart”, where monthly income and expenses is plotted across many months to monitor our financial health. The saving is the gap between the two edgy lines of monthly income and expenses. The trick to healthy finance is to increase the saving by increasing the income and/or decreasing the expenses. 101 useful tips to cut down spending and save money are given in this book, which help to increase saving.

Note: It’s hard to explain all these stuffs in two paragraphs so it’s best to read about them from the book if you don’t understand what I was saying.

Finally, it says that to achieve financial independence, we need to build passive income stream through investment. Passive income is the money earned without the need to work actively. In another words, the money is self generated, for example monthly rental from your property, interest from fixed deposit, or dividend from your shares. We need to grow this passive income stream for a finite period (it grows exponentially if you reinvest the profit earned back to the investment) and when it grows large enough to cover your monthly expenses, you can live on this passive income and become financially free (since you don’t have to rely on your job for money anymore).

One thing I want to criticise about this book is that it strongly suggests readers to invest in very low risk investment, which means it takes longer time to reach financial independence (or whatever financial goal). It’s like asking us to ride a bike when we can drive a car. I think we should tailor our investment according to our financial goals and the risk level that we can tolerate. You might want to be flexible in this area. Learn more about investing and decide for yourself which investment vehicle suits you best.

Why it’s important to read this book? It’s because personal finance is the crucial knowledge we need, to live a healthily functioning life. If your personal finance gets screwed up, you’ll be struggling in deep water. I suggest you to invest some money in this five star book. The knowledge in it will help you to build a solid foundation for your wealth.

Your money or your life? Take both!

The authors are Joe Dominguez and Vicki Robin.

* * * * * *

Readers‘ contribution:

Philip Brewer says:

A lot of people complain about the “investing” plan that Dominguez and Robin suggest, but I think the complainers have missed the point: Their purpose for the investments is to produce an income stream that matches the expense stream. (That, after all, is what financial independence is.)

If you’re clever or lucky your investments in gold or growth stocks may well produce a higher total return than investing for income. That’s certainly been the perception for the past 20 years or so–but largely due to factors unique to that time period, I think. The problem is that “growth” doesn’t produce money to live on.

You can sell your stocks for cash of course–and if the market is going up fast enough, you can still have a bigger portfolio than you’d had when you’d started. But if you imagine that you’re producing an income stream, you’re just fooling yourself.

Tagged as: book, financial, freedom, life, money, personal finance, wealth