How much money is Enough?

Lessons from “Your Money or Your Life”

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. People need identity, community, challenge, acknowledgement, love, and joy. To try to fill these needs with material things is to set up an unquenchable appetite for false solutions to real and never-satisfied problems. The resulting psychological emptiness is one of the major forces behind the desire for material growth.

Your Money or Your Life

This book will completely change your relationship with money. Even though it’s portrayed as a personal finance book, it answers to much deeper questions than just “How do I save more?”

Lesson 1

Your job doesn’t have to be your life

We Aren’t Making a Living, We’re Making a Dying For so many working people. What they do for money dominates their waking hours, and life is what can be fit into the scant remaining time.

The book argues that many people spend the majority of their waking hours at work, and that this can lead to a sense of emptiness or dissatisfaction with life. The authors suggest that by focusing on financial independence, individuals can free themselves from the need to work long hours in jobs they don’t enjoy, and instead pursue other interests and passions. The authors introduce the concept of the “life energy” equation, which involves calculating the amount of time you spend working to earn money, and then evaluating whether the money you earn is worth the time and energy you invest in it. This can help you make more intentional choices about how you spend your time and money, and can lead to a greater sense of fulfillment and happiness.

Lesson 2

Achieve Financial Independence:

Financial independence means having enough money saved and invested that you no longer have to work for a living. The book suggests that by reducing your expenses and saving aggressively, you can reach financial independence relatively quickly. Once you have achieved financial independence, you can choose to continue working if you enjoy it, or you can pursue other interests that may be more fulfilling.

The idea that your job doesn’t have to be your life is a powerful one, as it suggests that there is more to life than just work. By pursuing financial independence and focusing on other aspects of life, such as family, friends, hobbies, and passions, individuals can achieve a greater sense of happiness and fulfillment.
It involves following a few key steps:

1. Track your expenses: The first step towards financial independence is to understand where your money is going. Keep track of all your expenses, no matter how small, and categorize them into essential and discretionary spending.
2. Calculate your real hourly wage: Your real hourly wage is the amount of money you earn per hour after accounting for all the expenses associated with your job, such as commuting costs, clothing, and meals. This can help you understand the true value of your time and make more informed spending decisions.
3. Minimize your spending: Now, you can begin to look for ways to reduce your spending. Focus on cutting back on discretionary spending, such as eating out, entertainment, and shopping.
4. Maximize your income: Look for ways to increase your income. This could include negotiating a raise, taking on a side hustle, or starting a business.
5. Invest in assets that generate passive income: To achieve financial independence, you need to have enough passive income to cover your expenses. This means investing in assets that generate income, such as stocks, real estate, or a small business.
6. Calculate your financial independence number: Your financial independence number is the amount of money you need to have invested to generate enough passive income to cover your expenses. Calculate this number and work towards reaching it as quickly as possible. You can calculate your financial independence number using the following formula:
   
   Annual Expenses ÷ Annual Investment Return = Financial Independence Number
   
   For example, if your annual expenses are $50,000 and you expect to earn a 4% return on your investments, your financial independence number would be:
   
   $50,000 ÷ 0.08 = $625,000
   
   This means you would need to have $625,000 invested to generate enough passive income to cover your living expenses. Once you know your financial independence number, you can work towards reaching it by saving aggressively, investing wisely, and minimizing your expenses. Although, you also need to account for Inflation while estimating annual expenses.

By following these steps, you can achieve financial independence and free yourself from the need to work for a living. This can give you the freedom to pursue your passions, spend more time with loved ones, and live a more fulfilling life.

Lesson 3:

 Find your point of “enough”

If you live for having it all, what you have is never enough. In an environment of more is better, “enough” is like the horizon—always receding.

That’s likely the most important takeaway from this book. Once we find our point of “enough”, meaning that less would make us worried about the future and more would only create more clutter, we can live life on our own terms. Not knowing what’s our “enough” is the #1 reason why we hop on the hedonic treadmill trying to upgrade our life and therefore grow our salary to support our new standard of living. Here are a few steps you can take to find your point of “enough”

1. Reflect on your values and priorities: Consider what’s really important to you in life, and what brings you the most happiness and fulfillment. This could be spending time with loved ones, pursuing a hobby, or contributing to a cause you care about. Identify these values and priorities, and use them as a guide when making financial decisions. Ask these 3 questions to yourself:
   1. Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
   2. Is this expenditure of life energy in alignment with my values and life purpose?
   3. How might this expenditure change if I didn’t have to work for money?
2. Track your spending and evaluate your satisfaction: Keep track of your spending over several months, and evaluate how satisfied you are with each purchase. Did the item or experience bring you lasting happiness, or was it short-lived? This can help you identify areas where you may be overspending, and can guide you towards a more fulfilling spending pattern.
3. Experiment with reducing your spending: Try cutting back on your spending in areas that don’t align with your values and priorities, and see how it affects your overall happiness and fulfillment. You may find that you don’t miss certain expenses, and that reducing your spending actually brings you more joy and satisfaction.
4. Set a savings target: Once you’ve identified your point of “enough,” set a savings target that allows you to meet your basic needs and pursue your values and priorities, while also saving for the future. This can help you stay motivated and on track toward financial independence.

By finding your point of “enough,” you can free yourself from the constant pressure to earn more and spend more and instead focus on maximizing your enjoyment of life at a sustainable level of spending.

Lesson 4: 

 Be aware of things that bring fulfilment to your life and of those that do the opposite

The process described in this book (adding +, -, or 0 next to every purchase to show our fulfilment level) can reveal hidden buying patterns that we’ve learnt to tolerate throughout the years. It turns out we buy way more unnecessary crap than it may seem without tracking our spendings. When we eliminate every “-” from our list we’ll arrive at a point of fulfilment – only buying things that add to our lives. Frugality, in the sense of Financial Independence that Vicki presents, means that we won’t buy anything that’s not worth our life energy. It’s about making a decision to not clutter our lives and purchase things that we can add a plus sign next to

“The primary tool for developing this internal yardstick is awareness. The affluence that surrounds us has been called the American Dream, and with good reason: we’ve been asleep. We wake up by questioning the dream. Asking yourself, month in, month out, whether you actually got fulfilment in proportion to life energy spent in each subcategory awakens that natural sense of knowing when enough is enough.”

Lesson 5:

 Don’t seek validation in external sources

A lot of bad purchases are caused by us seeking validation from external sources. The quote below perfectly describes why we buy unnecessary stuff. With things that clutter our lives, it’s always that internal battle to rationalize our own spendings. Once we decode the real reason for these purchases we might find out that

1. We don’t really need them
2. We’re trying to satisfy deeper needs with physical objects

“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. People need identity, community, challenge, acknowledgement, love, and joy. To try to fill these needs with material things is to set up an unquenchable appetite for false solutions to real and never-satisfied problems. The resulting psychological emptiness is one of the major forces behind the desire for material growth.“

“Your Money or Your Life” is a book that promotes the idea of financial independence and encourages readers to rethink their relationship with money and work. Overall, “Your Money or Your Life” is a useful book for anyone who wants to improve their financial situation and live a more meaningful life.

You can check out the book here

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