Your Money or Your Life : Original Mustachian Joe Dominguez
Want to hear something really weird? All this time, I’ve been writing this blog about financial independence, a term and movement that is often credited to the 1993 book “Your Money or Your Life”. I had been assuming that Mr. Money Mustache himself was at least partly motivated by a long-ago reading of that book as well, and I’ve been recommending it to people for years.
The only thing is: it turned out I had never read it.
I recently got my hands on a copy of this old classic, and read it in detail, expecting a nice refresher course. Absolutely none of it was even remotely familiar. Most of it aligned perfectly with my own philosophy known as Mustachianism, but surprisingly, not all of it. Many things have changed in the 20 years since that book was written (including the birth of the Internet, the death of Interest rates, and great changes in consumer products and housing). And on top of that, the authors had different tastes in lifestyle and investment, allowing us to come up with the same basic idea from different directions.
So I came out of it more convinced than ever that we’re on to something great here, and with a few new tricks scooped from authors Joe Dominguez and Vicki Robin. Today I’d like to share them with you, in case you too are unfamiliar with the book.
Background:
As the Original Early Retiree, Joe Dominguez apparently grew up in the ghetto, made it out to land a great job in the Wall Street financial sector, saved about $70,000 by age 30 in 1969 ($423k inflation-adjusted to today), and never accepted money for any of his work for the rest of his life. Along the way, he met Vicki Robin, and together they founded an oldschool grassroots movement called the New Roadmap Foundation – a huge network of volunteer teachers complete with seminars and even cassette tapes. Without the benefit of the Internet, they educated thousands of people, freeing them from the chains of their spending addictions. Eventually, the efforts coalesced into the book called Your Money or Your Life, which became a big seller and really helped the word start spreading.
Today, there are a number of financial independence blogs and the concept even has its own category on reddit. Many of the terms that get thrown about (like “FI”) are based on things first invented in this book. But while the book itself has changed the lives of millions of people and I agreed with its methods and message, I found it decidedly quirky and antiquated in parts. And while I know it is considered effective by many and I consider its authors to be god-like in their accomplishments, it was clunky reading at times and it took me over a month to get through it.
Thus, I figured that not everyone has read the book in detail, and many of us could benefit from a quick look at the Nine Step Program it presents, contrasting it where appropriate to what we’ve been learning here on MMM:
Step 1: Make Peace with your Past
Add up all the money you’ve earned in your life, then add up your net worth today. How much have you managed to hold onto? How much did you spend? For most people, this yields an unpleasant surprise.. but it’s okay, for there is no sense beating yourself up over past mistakes.
Step 2: Figure out your Real Earnings and Spending
The idea here is that your real hourly wage is much lower than you think. You can figure it out as follows, and I’ll even put in some plausible figures for a person with a $50,000 annual salary:
Take your total monthly income after federal and state taxes: ($3500)
Then subtract all work-related expenses (commuting, clothes, restaurant lunches, housekeepers, daycare,de-stressing activities etc) ($1500)
Divide this by your total work time (including commuting, dressing up, clothes cleaning, unwinding time, etc.) (248 hours)
The net result is that you take home a lot less than you think, and spend a lot more time doing it. In the example above, the $50k earner ends up bringing home only $8.06 for each hour spent in activities directly related to the job. Thus, when you decide to buy yourself an 8 dollar treat at Starbucks or at the pub, you’ve really just burned off an entire hour of “life energy” which you’ll never get back – you have to add that hour to the end of your work career to achieve financial independence.
Tracking your spending is the easy part – the book recommends you use a notebook to handle everything, whereas I just do all of my spending by credit card, allowing it to be tracked automatically. The key, however, is you should know exactly what you buy each day, and why you decide to buy it. No more unconscious impulse shopping.
3: Create Monthly Reports for Yourself
Keep a table of all income and all spending for each month, break it into categories, and convert the figures into “hours of life energy spent”. Restaurant meals: 20 hours., etc. I find that the “Mint” financial tool does an acceptable job of this for me, but the book recommends you do it in more detail.
4: Three Questions that will Supposedly Transform your Life:
For each of the categories above, ask yourself:
Did I receive fulfillment in proportion to the hours of life energy spent?
Is this expenditure in alignment with my goals and life purpose?
How might this expenditure change if I didn’t have to work for a living? (more, less, same)
5: Keep a prominent (i.e. right on your kitchen wall) graph of income and expenses
You keep doing this for multiple months which will grow into multiple years. The authors report that most people start to see their income grow even as their expenses shrink, since they are now learning to spend more consciously. Although I don’t have anything on my kitchen wall, we do maintain a history of spreadsheet versions and graphs of savings that dates back several years. But if you are a beginner who still wrangles with optional luxury purchases while still in debt, the kitchen wall is a good idea.
6: Learn to Value your Life Energy by Minimizing Spending
This is the meat of anyone’s financial independence – learning to spend your money efficiently on the things you do get true fulfillment from, and not spend it all on the things you don’t. The book presents 101 tips, most of which have been covered here on this blog at various times.
7: Maximize your Earnings
Adopt a positive attitude about your work and appreciate the earnings as a tool which gets you to financial independence.. rather than feeling like a victim of outside forces like the economy or a recession. Seek to earn more, and don’t be limited to work only in your current field – after all, you’ll be retiring soon anyway, meaning every activity will soon be open to you whether paid or unpaid.
8: Watch for the Crossover Point
This is when your passive income from investments equals your expenses. When you reach that point – DingDing! – you are Financially Independent. However, the authors define this as “Monthly Income = Capital x Current long-term interest rate/12 months”, since they like government bonds as their retirement income vehicle, which currently pay approximately zero after adjusting for inflation. But Mustachians of course have other options, discussed below.
9: Managing your Money
“Become knowledgeable and invest your capital in such a way as to provide an absolutely safe income sufficient to meet your basic needs for life”
Here’s where one of the most significant differences pops up between YMOYL and MMM (and other modern takes on financial independence). In the early 1980s, you could buy 30-year government bonds with a nominal yield of over 12%. Even in the surrounding time periods, yields were well over 7%. The YM authors liked the guaranteed return and decided to use these bonds as a complete income source*.
Due to our continued hangover from the financial crisis, the latest figure for the 30-year bonds is about 2.9%. While it is still possible to retire on bonds, I consider an over-50% reduction in investment returns in exchange for “safety” to be too high a price to pay. Safety is just an expensive illusion anyway. So instead of bonds, we focus here on stocks, dividends, owning rental real estate (or its passive cousin REITs), and even a bit of wacky new higher risk/return stuff like peer-to-peer lending. And on top of that, I don’t consider “retirement” to mean “never accepting money for things you do”, so I allow you to do fun things that happen to generate money in retirement as well.
Your Money or Your Life is a wise book, and the authors were clearly motivated by what they saw was a pointless death march of society. Workworkwork, Buybuybuy, TrashDestroyWaste, Die. Even 20 years ago, when the first clunky SUVs were coming to market and trailblazing a path to widespread stupidity, this pattern was already obvious. And Joe and Vicki were wise to it, trying to guide society away from its wasteful ways and vividly aware that our consumption is an ongoing trainwreck of environmental destruction.
The bad news is that we went through some pretty shitty decades since then, when measured by the spread of the very consumer disease the book was fighting against. Cars turned into personal trucks, commutes grew, suburbs sprawled, and China joined the party, building a communist copy of the Great American Smokestack, flooding their own country with asphalt and ours with cheap manufactured goods. Americans kept working more so they could borrow more and buy more, we grew much fatter and less happy, and generally continue to live our lives in the most blind and inefficient way possible on average.
The good news is, the Internet happened. Of course, it spawned an acceleration of technological progress, giving us things like remote working and energy-efficient products. But technology can’t save the world by itself – in the wrong hands, it just allows us to consume more efficiently, which means consuming more. It’s a good tool, but it’s not enough.
The good news comes from the free exchange of ideas. Only now can the ideas of the non-wealthy majority compete equally with the billion-dollar budgets of crusty old companies seeking to prolong over-consumption. Nowadays, even an untrained individual can sit on the couch and type some shit into the computer, and it can reach a wider audience than a successful book might have in the past. So imagine what a big group of people could accomplish, some of them with influence over companies and governments, if they all started grooving on the right message.
The bottom line: I am thankful to Joe Dominguez and Vicki Robin for getting so much of this started, as are countless thousands of other people who are now more free than they could have otherwise been.
*Like me, they were not overly worried about inflation – that measures changes in the Consumer Price Index, which is an approximation of the blind spending patterns of Sucka Consumers rather than flexible and conscious purchasers.
Want to hear something really weird? All this time, I’ve been writing this blog about financial independence, a term and movement that is often credited to the 1993 book “Your Money or Your Life”. I had been assuming that Mr. Money Mustache himself was at least partly motivated by a long-ago reading of that book as well, and I’ve been recommending it to people for years.
The only thing is: it turned out I had never read it.
I recently got my hands on a copy of this old classic, and read it in detail, expecting a nice refresher course. Absolutely none of it was even remotely familiar. Most of it aligned perfectly with my own philosophy known as Mustachianism, but surprisingly, not all of it. Many things have changed in the 20 years since that book was written (including the birth of the Internet, the death of Interest rates, and great changes in consumer products and housing). And on top of that, the authors had different tastes in lifestyle and investment, allowing us to come up with the same basic idea from different directions.
So I came out of it more convinced than ever that we’re on to something great here, and with a few new tricks scooped from authors Joe Dominguez and Vicki Robin. Today I’d like to share them with you, in case you too are unfamiliar with the book.
Background:
As the Original Early Retiree, Joe Dominguez apparently grew up in the ghetto, made it out to land a great job in the Wall Street financial sector, saved about $70,000 by age 30 in 1969 ($423k inflation-adjusted to today), and never accepted money for any of his work for the rest of his life. Along the way, he met Vicki Robin, and together they founded an oldschool grassroots movement called the New Roadmap Foundation – a huge network of volunteer teachers complete with seminars and even cassette tapes. Without the benefit of the Internet, they educated thousands of people, freeing them from the chains of their spending addictions. Eventually, the efforts coalesced into the book called Your Money or Your Life, which became a big seller and really helped the word start spreading.
Today, there are a number of financial independence blogs and the concept even has its own category on reddit. Many of the terms that get thrown about (like “FI”) are based on things first invented in this book. But while the book itself has changed the lives of millions of people and I agreed with its methods and message, I found it decidedly quirky and antiquated in parts. And while I know it is considered effective by many and I consider its authors to be god-like in their accomplishments, it was clunky reading at times and it took me over a month to get through it.
Thus, I figured that not everyone has read the book in detail, and many of us could benefit from a quick look at the Nine Step Program it presents, contrasting it where appropriate to what we’ve been learning here on MMM:
Step 1: Make Peace with your Past
Add up all the money you’ve earned in your life, then add up your net worth today. How much have you managed to hold onto? How much did you spend? For most people, this yields an unpleasant surprise.. but it’s okay, for there is no sense beating yourself up over past mistakes.
Step 2: Figure out your Real Earnings and Spending
The idea here is that your real hourly wage is much lower than you think. You can figure it out as follows, and I’ll even put in some plausible figures for a person with a $50,000 annual salary:
Take your total monthly income after federal and state taxes: ($3500)
Then subtract all work-related expenses (commuting, clothes, restaurant lunches, housekeepers, daycare,de-stressing activities etc) ($1500)
Divide this by your total work time (including commuting, dressing up, clothes cleaning, unwinding time, etc.) (248 hours)
The net result is that you take home a lot less than you think, and spend a lot more time doing it. In the example above, the $50k earner ends up bringing home only $8.06 for each hour spent in activities directly related to the job. Thus, when you decide to buy yourself an 8 dollar treat at Starbucks or at the pub, you’ve really just burned off an entire hour of “life energy” which you’ll never get back – you have to add that hour to the end of your work career to achieve financial independence.
Tracking your spending is the easy part – the book recommends you use a notebook to handle everything, whereas I just do all of my spending by credit card, allowing it to be tracked automatically. The key, however, is you should know exactly what you buy each day, and why you decide to buy it. No more unconscious impulse shopping.
3: Create Monthly Reports for Yourself
Keep a table of all income and all spending for each month, break it into categories, and convert the figures into “hours of life energy spent”. Restaurant meals: 20 hours., etc. I find that the “Mint” financial tool does an acceptable job of this for me, but the book recommends you do it in more detail.
4: Three Questions that will Supposedly Transform your Life:
For each of the categories above, ask yourself:
Did I receive fulfillment in proportion to the hours of life energy spent?
Is this expenditure in alignment with my goals and life purpose?
How might this expenditure change if I didn’t have to work for a living? (more, less, same)
5: Keep a prominent (i.e. right on your kitchen wall) graph of income and expenses
You keep doing this for multiple months which will grow into multiple years. The authors report that most people start to see their income grow even as their expenses shrink, since they are now learning to spend more consciously. Although I don’t have anything on my kitchen wall, we do maintain a history of spreadsheet versions and graphs of savings that dates back several years. But if you are a beginner who still wrangles with optional luxury purchases while still in debt, the kitchen wall is a good idea.
6: Learn to Value your Life Energy by Minimizing Spending
This is the meat of anyone’s financial independence – learning to spend your money efficiently on the things you do get true fulfillment from, and not spend it all on the things you don’t. The book presents 101 tips, most of which have been covered here on this blog at various times.
7: Maximize your Earnings
Adopt a positive attitude about your work and appreciate the earnings as a tool which gets you to financial independence.. rather than feeling like a victim of outside forces like the economy or a recession. Seek to earn more, and don’t be limited to work only in your current field – after all, you’ll be retiring soon anyway, meaning every activity will soon be open to you whether paid or unpaid.
8: Watch for the Crossover Point
This is when your passive income from investments equals your expenses. When you reach that point – DingDing! – you are Financially Independent. However, the authors define this as “Monthly Income = Capital x Current long-term interest rate/12 months”, since they like government bonds as their retirement income vehicle, which currently pay approximately zero after adjusting for inflation. But Mustachians of course have other options, discussed below.
9: Managing your Money
“Become knowledgeable and invest your capital in such a way as to provide an absolutely safe income sufficient to meet your basic needs for life”
Here’s where one of the most significant differences pops up between YMOYL and MMM (and other modern takes on financial independence). In the early 1980s, you could buy 30-year government bonds with a nominal yield of over 12%. Even in the surrounding time periods, yields were well over 7%. The YM authors liked the guaranteed return and decided to use these bonds as a complete income source*.
Due to our continued hangover from the financial crisis, the latest figure for the 30-year bonds is about 2.9%. While it is still possible to retire on bonds, I consider an over-50% reduction in investment returns in exchange for “safety” to be too high a price to pay. Safety is just an expensive illusion anyway. So instead of bonds, we focus here on stocks, dividends, owning rental real estate (or its passive cousin REITs), and even a bit of wacky new higher risk/return stuff like peer-to-peer lending. And on top of that, I don’t consider “retirement” to mean “never accepting money for things you do”, so I allow you to do fun things that happen to generate money in retirement as well.
Your Money or Your Life is a wise book, and the authors were clearly motivated by what they saw was a pointless death march of society. Workworkwork, Buybuybuy, TrashDestroyWaste, Die. Even 20 years ago, when the first clunky SUVs were coming to market and trailblazing a path to widespread stupidity, this pattern was already obvious. And Joe and Vicki were wise to it, trying to guide society away from its wasteful ways and vividly aware that our consumption is an ongoing trainwreck of environmental destruction.
The bad news is that we went through some pretty shitty decades since then, when measured by the spread of the very consumer disease the book was fighting against. Cars turned into personal trucks, commutes grew, suburbs sprawled, and China joined the party, building a communist copy of the Great American Smokestack, flooding their own country with asphalt and ours with cheap manufactured goods. Americans kept working more so they could borrow more and buy more, we grew much fatter and less happy, and generally continue to live our lives in the most blind and inefficient way possible on average.
The good news is, the Internet happened. Of course, it spawned an acceleration of technological progress, giving us things like remote working and energy-efficient products. But technology can’t save the world by itself – in the wrong hands, it just allows us to consume more efficiently, which means consuming more. It’s a good tool, but it’s not enough.
The good news comes from the free exchange of ideas. Only now can the ideas of the non-wealthy majority compete equally with the billion-dollar budgets of crusty old companies seeking to prolong over-consumption. Nowadays, even an untrained individual can sit on the couch and type some shit into the computer, and it can reach a wider audience than a successful book might have in the past. So imagine what a big group of people could accomplish, some of them with influence over companies and governments, if they all started grooving on the right message.
The bottom line: I am thankful to Joe Dominguez and Vicki Robin for getting so much of this started, as are countless thousands of other people who are now more free than they could have otherwise been.
*Like me, they were not overly worried about inflation – that measures changes in the Consumer Price Index, which is an approximation of the blind spending patterns of Sucka Consumers rather than flexible and conscious purchasers.
