Your Money or Your Life by Joe Dominguez and Vicki Robin.

This book is one of the classics of modern frugality, and it's been a source of some controversy. At the bottom, though, its message is a simple one: Pay attention. Pay attention to how you spend your money. Pay attention to what you have to do to earn it. Having paid attention, think about whether whether your time and money are going where they ought to.

Pay attention

The book is structured a bit oddly, partly because its roots are in an audiobook and workbook, but also because the authors knew that a lot of people would resist the underlying message and need to be coaxed along the way.

As you follow the steps in the book, you identify where your money comes from and what you have to do to get it. The authors emphasize including all the incidental time and money that goes into your job--commuting, shopping for work clothing, hours spent unwinding after work, etc.

Having analyzed where your money comes from, you next analyze what your money goes to: track your spending down to the penny. Don't neglect to show the less visible expenditures like taxes, and be sure to identify the expenditures (such as for work clothing) that only exist because you have a job.

The next step is simply to make the previous information visible--put the income and expenditures on a big graph. Most people are going to find that the spending line tracks along very close to the earning line--they're spending all they earn. For too many people, it's worse than that--they're spending all they earn and then some.

The next steps are the obvious ones of maximizing your income and minimizing your spending, but the authors have a significant twist on it.

Since you've been paying attention, you know just what you've been doing to do to get the money that you're spending. So, they have you think about it just that way: Before you buy another whatever-it-is-you-want, think about just what you had to do to get that money: so many hours spent working, preparing to work, getting to work, recovering from work, so many dollars spent on gas for commuting and clothes for working in (and those dollars converted into the hours of work it took to earn them). Is the thing worth the hours of your life it took to earn the money? If so, buy it. If not, don't buy it.

Go through the same exercise on the earning side, trying to maximize the dollar return for each hour that you spend on money-making endeavors.

Investment program

The book has a very simple investment program that many people have taken issue with. The authors want you to invest your surplus money (a growing amount, once you make some progress on maximizing income and minimizing expenses) in long-term treasury bonds. More than a few people have criticized the program on the grounds that a diversified stock portfolio would produce higher returns. These people have missed the point: The goal of the investment portfolio is to produce a very secure stream of income. Long-term treasurys are a perfect choice.

Once your investment portfolio is in place, start graphing the interest received on the same big graph that has the lines for earnings and spending. The interest income will grow steadily (as you invest your surplus). Sooner or later--depending on how much you've managed to minimize your spending--your interest income line will cross the spending line. At this point you are financially independent.

The best thing about the book is its nonjudgemental tone. It never tells you how much money to spend or how frugal to be. It just gently urges you to pay attention to how much of your life you have to trade for each purchase, and to decide if whatever you're about to pay is worth the trade.