Like A Random Walk Down Wall Street, YMOYL is not an easy book to summarize. It's packed with different perspectives and ways of thinking about things that lie far outside mainstream thinking. Particularly when you consider that the book was first published in 1992, the authors were way ahead of their time.
Your Money Or Your Life - Key Concepts
- When calculating your salary from work, you should not take your hourly salary at face value. Specifically, you should also factor in your commute time, subtract out the money you spend on clothes, add in the time you spend "recovering" from work on the weekends, subtract out expenses from getting sick because work is exhausting you. When you calculate how much total time work takes and how much extra money you spend, then determine your true dollar per hour income, you may be quite shocked. When I did this calculation many many years ago, I was shocked to discover that my hourly wage was significantly below my "official" salary.
- You then take this overall calculation and figure out how much you make per minute. Then, when you are thinking of purchasing something, you decide if that purchase is worth the amount of life energy you would have to give to work to make the money you need to buy that item. In effect, if your true hourly wage actually works out to say $9 per hour (even if your actual salary is $20 per hour), then a $90 product would require ten hours of your life energy. Is that product worth you spending 10 hours of your life working? This is a profound way to think about money and consumption, and for most of us it would likely reduce the random purchases that we mindlessly make (though there are exceptions).
- The book also encourages you to take a total inventory of your total assets in life, both financial and physical (such as cars, bikes, etc) so that you have a clear idea of your total net worth.
- In addition to calculating how much life energy each purchase really costs you, a second key of YMOYL is tracking your monthly expenses. Writing them down, and then charting the total expenses on a monthly basis. Once you begin to accumulate assets, you also then begin tracking your passive income on a monthly basis.
- The magic moment in YMOYL is when you reach the "crossover point"--when your passive income from investments covers, on a monthly basis, your total expenses. For me, writing down and charting my expenses and passive income was a powerful way to deeply understand my financial life. After reading YMOYL, I followed the entire program intensely for a little over a year. After that, I had a very good sense of my finances and no longer felt the need to spend the time writing down all expenses. The behaviors were ingrained.
Stocks Are More Realistic in the Early Twenty-First Century
I would like to highlight one aspect of the book that has been overtaken by events (OBE). The authors recommend simply parking one's assets in U.S. Treasury bonds. When YMOYL was written, this was a viable investment path. Bonds were yielding around 8-9 percent in those heady days of the early nighties. Indeed, investing in bonds in the 1980s or 1990s proved to be a brilliant investment approach, as interest rates embarked upon a thirty year march lower. However, with interest rates much lower now, only investing in U.S. Treasuries is a much less viable approach. Stock-focused index funds (combined with bonds and other assets depending on your age), though much more volatile, are probably a better approach.
Shift Your Values and Make It Happen
Your Money or Your Life has the potential to radically shift how you think about the funds flowing into and out of your life. Your values may shift away from present, mindless consumption towards accumulating assets and investing so that work becomes optional (or at least less pressing) down the road. In particular, writing down and then charting your expenses and thinking of them in terms of minutes of your life energy shifts the cost benefit calculation dramatically.
Read YMOYL, and never be the same….