Book review: Your Money or Your Life

By Philip Brewer on 27 July 2007 (Updated 3 December 2008) 7 comments

Your Money or Your Life cover

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.

ARTICLE CONTINUES BELOW

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.

5
Average: 5 (2 votes)
Your rating: None
ShareThis

comments

7 discussions

Add New Comment

CAPTCHA
This test helps prevent automated spam submissions.
Myscha Theriault's picture

We make a fair amount of our monthly income from this strategy. It's really powerful. Once you realize there are investments out there you don't have to wait to be 80 to enjoy, it really motivates you to save and start receiving dividends and interest payments early. Sure beats any toy you could buy to have the ability to "row your own boat" so to speak.

I'll have to check this title out.

Guest's picture
sunkistsoda

The title is from the song "Last Night" by The Traveling Wilbury's.

Philip Brewer's picture

I've always been inclined toward investing for income rather than growth. A growth strategy has probably been the winning strategy more often than not for the past 70 or 80 years, but I trust income in a way that I don't trust growth.

The book made an impression on me when I read it, even though I didn't follow its advice in any direct way. As I say, the investment strategy aligns with my own natural inclinations, as does the underlying principle of considering whether the way you live your life matches your values.

The authors chose to live an incredibly frugal lifestyle--living on just a few thousand dollars a year--because that let them do what they wanted to do with their lives. But they're careful not to advocate that strategy too strongly. You get the sense reading it that they suspect most people would make similar choices if only they thought it through. They limit themselves, though, to urging their readers to do the thinking, without presupposing any particular result.

Guest's picture

I disagree with the authors in this book when it comes to investments solely in bonds. What the authors have failed to mention is that stocks pay dividends, which are taxed more favorably than interest from fixed income. In addition to that, stocks protect investors from inflation. If you buy stocks for the dividends, you would be able to have an income stream that has the ability to grow over time as companies increase their dividends.
I would say that a 50/50 investment in fixed income and stocks would be a better alternative.

Philip Brewer's picture

Even Vicki Robin, one of the authors of the book, came to agree with you, or so I've heard.  The investment advice in the book was appropriate to a particular time and place.

Still, I rather like investing for income, and I even like government bonds (although I haven't been buying any in the current market).

The point is not to produce maximum return.  The point is to create an income stream that matches an outgo stream.  That's not a very modern idea--modern portfolio theory would hold that you simply need a total return that covers your expenses--but it's one that appeals to me.  One big benefit it offers is simplicity--it's easy to explain, easy to understand, easy to implement, and easy to monitor.  To my mind, it takes a considerable amount of extra return to justify giving up those advantages.

The tax advantages for dividends, of course are new since the book was published, and are currently set to expire next year.

Guest's picture
Relax

nice. I wrote a detailed book review on it yesterday. You might want to comment on my version. :P

Guest's picture

Just wanted to say that I love this site and find it an invaluable resource to my studies! I have read this book "Your Money or Your Life." You have summarized it very well. Some of the lessons that I have learned from this book are following:-

1. This book brings you to an interesting journey of your past and encourages you to calculate how much money you have earned in the your life till now.

2. Then you need to calculate your actual net worth. Your net worth is equal to your total assets minus your total liabilities.

3. I think this simple exercise can open eyes of many people and bring them back on the road to financial freedom.

4. Calculate how much money you are earning per hour.

5. Write down all the expenses you make each day for a few months.This simple exercise will work magically to reduce your expenses.

6. you need to ask yourself this question before making any acquisition decisions that – Does this acquisition will bring the true fulfillment and satisfaction in my life in proportion to the life energy spent on the work?

I highly recommend this book to all. Thank you so much for this book review. This article was very helpful.