Your Money Or Your Life: Key Concept

http://www.fatwallet.com/forums/finance/996937/

There is a book called "Your Money or Your Life" that falls within the Dave Ramsey category of finance/investing books. There is one great concept that I have internalized that I would like to share with FWF folk who would otherwise not read this book. I am not recommending the book, but this single concept is interesting. I am also going to add a few personal ideas not described in the book to further enhance the point.

Anytime you make any financial transaction, you are trading your "life" energy. If you go to work, and earn money, and then use that money to purchase something, you are effectively and inefficiently trading your life energy for the item or service you purchased.

Additionally, many jobs are stressful. Working 1 hour in a high stress environment may reduce your life span by 1 hour. Thus you may be trading 2 hours of your life for every hour worked. I have many deceased friends who were firefighters/police officers who died in their 50s. That 20-year-retirement sounds great until you realize you are shortening your lifespan by 20 years.

Your life energy is precious. If you estimated your lifespan based on actuarial tables you will see a finite number of hours left in your life. Once you use those hours, they are gone and are not coming back. Next time you consider purchasing something, don't look at it in the cost of dollars, look at it in the cost of life energy. Specifically your life energy later in life. Ever see the extremely depressed looking seniors working at Wal Mart? If they knew they would be forced to work at Wal Mart at age 65, I imagine they would think twice about every purchase at age 40.

My plan is early retirement in my 40s. I look at my sneakers and think, I could buy new sneakers but it would cost three days more of work in my 40s. Before you laugh about how it shouldn't take someone with a graduate degree 3 days of work to buy sneakers, consider the opportunity cost of investing the $100 now compounding for 20 years. Effectively, I have to think in terms of future value of the life energy I am spending. For one pair of sneakers it may seem trivial and petty to walk around in old sneakers unneccesarily. But what if over the next 20 years, I simply delay purchasing new sneakers from once every year to once every 1.5 years. That might let me retire 2 weeks early. Again seems trivial, because what's 2 weeks more work in your 40s?

How about a new sweater? Add another day's work. How about a new car? Just 6 months more work! Eating out instead of cooking cheaper meals and bagging your lunch — might shave off 1 or 2 years of work over a 20 year period of savings.

The reason why transactions are inefficient is due to taxation. If you earn $100 per hour gross then you may only net $50 per hour after taxes and non-deductible expenses associated with work. If you hire someone to clean your house at a rate of $50 per hour, it may seem like are getting a good deal compared to your wage, but if you compare it to your net-wage then it is a wash. Then the issue becomes, would you rather work 1 hour at your day job or work 1 hour at cleaning your house. You must consider the true net value of your time.

In summary, one should consider the post-tax, stress-adjusted, future-earnings-compounded net value of your time energy for all purchases made. At a certain point, it will be ingrained and become second nature and you won't have to keep making conscious efforts at it.


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This is like a posting on a twenty-something's blog site. Not sure why it got so much green here, unless the well-known and logical concept it describes is earth-shattering for folks here, which would be surprising.

Your Money or Your Life by Dominguez and Robin is a pretty interesting book. I remember reading it when it was published 18 years ago. I didn't follow all of its exercises or agree that I wanted my life to go they way the authors were advocating, but I got some good out of it.

By the time I read it, I had already decided that my time was precious, which is why I took risks, travelled, studied what I wanted to, and had adventures when I was young and healthy, because you can't ever get back being young, free, and in your 20s, no matter how much money and time you have after you retire (and you can't predict how your health and relationships will go in the future, and no matter how parsimoniously you live your life, you can't always be sure that the pennies you hoard so carefully will still be there for your use when you get older.) Real life doesn't always support the sort of "inching your way up one fixed ladder that will never alter and that will always lead where you think it will" type of plan.

I've gladly paid/am still paying the opportunity costs from my youthful choices, which actually worked out much better than some naysayers had expected, and I know that made the right decision for me. I must say that a lot of my high school classmates got back in touch with me around the time we turned 40, saying that they wished they hadn't played things so safely after our high school days. That's a regret that I'll never have.