Category Archives: Financial Independence

Measuring Wealth: UAW, PAW, & AAW

How do you measure wealth?  There are many different approaches.  Do you have $1,000,000 in the bank?  Some would say that makes you wealthy.  It might unless you have excessive spending habits and spend $1,000,000 or more per year.

Another way to measure wealth is based on years of annual living expenses that you have in savings.  I once read that if you have 10 years of living expenses in the bank, you can consider yourself rich.  If you have 25 years of living expenses in the bank, you are financially independent.  Any dollar amount beyond 25 years of living expenses would make you wealthy.  That scale is logical to me.

One of my favorite ways to measure wealth was created by the late Dr. Thomas J. Stanley.  In his book The Millionaire Next Door, he introduced three categories for people to measure how they stack up as creators of wealth.  Dr. Thomas J. Stanley refers to these three different groups as UAWs, PAWs, and AAWs.

Under Accumulator of Wealth (UAW)

An Under Accumulator of Wealth or UAW is a person who has a low net worth in relation to their income.  A person who is 45 years old, earns $200,000, and does not have a net worth of $900,000 would be considered a UAW.  That formula is based on (Age * Income * 10%).

Most Americans fall into this category based on their low savings rate.  Contrary to popular belief, however, many high-earners tend to fall into this category.  Based on Dr. Stanley’s research, many Physicians are not good at building wealth and are classified as Under Accumulators of Wealth.

You might be thinking, that is nonsense, Medical Doctors are rolling in dough.  How could they not be wealthy?  Yes, doctors earn a high salary.  General Practice Physicians earn around $200,000 per year and specialists earn over $400,000 per year.  How could they not be wealthy?

Doctors come out of school with large student loans.  On average, new Doctors come out of medical school with $167,000 in student loans.  I know of one who owes over $300,000 in student loans.  Doctors are faced with social pressures that members of other professions do not face.  They are pressured to look the part.  That requires living in a fancy housing development, driving luxury automobiles, sending their children to private schools, and joining exclusive country clubs.

I am not picking on this noble profession.  Not all Doctors fall victim to those social pressures.  There are many in the financial community who buck those trends including DocG who blogs at diversefi.com.

Average Accumulator of Wealth (AAW)

An Average Accumulator of wealth would be someone who has a net worth equal to the sum described above.  A person who is 55, has a salary of $150,000 plus $50,000 in investment income, would have to have a net worth of $1,100,000 to be considered an Average Accumulator of Wealth (AAW).  If they have a net worth less than that amount, they would fall into the UAW category.

Prodigious Accumulator of Wealth (PAW)

To be considered a Prodigious Accumulator of Wealth (PAW), you would follow the same formula, but multiply it by two.  From the example above, the formula would be (Age 55 * Total Income of $200,000 * 10% * 2).  In order to be considered a PAW, this person would have to have a net worth of $2,200,000.

Age is a Factor

This formula is better suited for people who are more mature in age.  I read The Millionaire Next door when I was age 26.  At that time, I was a student but had a full-time job.  My net worth at that time was $60,000.  Based on this formula, I was an Under Accumulator of Wealth.  In order to be classified as an Average Accumulator of Wealth, I would have had to have a net worth of $78,000.

This aspect of the formula has led it to be criticized.  In its defense, not many people who are in their 20s are focused on building wealth.  Most are in college racking up debt or trying to pay off debt after they enter the workforce.

In my opinion, a person should not focus on these calculations until they are at least 15 years into their career.  It takes time to build wealth as an investor or entrepreneur.  This calculation is more about where you finish the race as opposed to where you start out.

How to Become a (PAW)

There are plenty of steps that you can take to become a Prodigious Accumulator of Wealth (PAW).  Dr. Stanley has provided a complete outline in The Millionaire Next Door.  Below are some suggestions that will help you to reach these financial heights:

–        Spend less than you earn

–        Save 15-20% of your earnings

–        Invest in equities, bonds, real estate, private businesses

–        Don’t speculate on getting rich quick schemes

–        Invest in yourself by getting a good education and keeping your skills current

–        Avoid luxury items

–        Focus on building wealth for your children

Conclusion

I am a fan of the late Dr. Thomas J. Stanley.  I remember reading about him passing away as the result of an unfortunate car accident the day after it occurred.  His research has helped to spread a message that just about anybody can build wealth if they follow some basic principles and practices.

The UAW, PAW, and AAW classifications do receive some criticism.  It takes hard work to become an AAW and very hard work to become a PAW.  As many of my readers know, I am transparent about my income, net worth, and approach to investing.  With that, we are firmly planted in the Average Accumulators of Wealth (AAW) category.  We will not be in the (PAW) category for some time.  Being an Average Accumulator of Wealth (AAW) at this point in our life has allowed us to reach financial independence and one day retire early.

Are you a UAW, PAW, or AAW?  Use this calculator to find out.

What is your opinion of the formula that determines these classifications of wealth?

This post might contain affiliate links.

Please be sure to read the Disclaimer Page.

The Rule of 72

 

Do you want to know how long it will take to double your money?  Most investors do.  Are you interested in the expediential growth of your money?  Have you ever tried to calculate the rule of 72?

When I first started to read personal finance and investing books, I learned about the math behind what makes investing work.  The big driver behind what causes your money to grow is compound interest. While I was studying, the one theory that I kept coming across was the rule of 72.

The rule of 72 is just a basic mathematical formula.  It is used as a tool to help investors determine when they should expect to double the money they currently have invested.  The rule of 72 allows an investor to know when they should expect to double their money based on a forecasted rate of return.

Start by taking the projected rate that you expect your investment to return every year.  Divide that interest rate by 72. That will give you the number of years that it will take for you to double your money.

Example:

72 / 6% expected rate of return = 12 years to double your principal

72 / 8% expected rate of return = 9 years to double your principal

72 / 10% expected rate of return = 7.2 years to double your principal

The rule of 72 is what makes stocks a more attractive option than bonds or other fixed-income investments.  For example, the Vanguard 500 (VFINX) has returned 10.97% per year between the years 1976 and 2016.  Currently, the average interest rate on an FDIC insured savings account is slightly higher than1.15%. What is the difference between these two investments based on the rule of 72:

Vanguard 500 – 72 / 10.97 = 6.56 years to double your principal

Saving account (national average) – 72 / 1.15 = 62 years to double your principal

Over the coming decade, stocks are not expected to return 10% per year.  Currently, stocks are expensive investments and there is not much value to be found.  Jack Bogle who founded Vanguard and the first S&P 500 index fund that was available to individual investors predicts a more modest return of 6 or 7 percent for the coming decade.  Based on that forecast and the rule of 72, how long would it take to double an investment of $3K in the Vanguard S&P 500 fund:

Vanguard 500 – 72 / 6.5% = 11 years to double your principal

Time is on Your Side

When I started investing, I received a brochure from the investment company that provided me with a few charts on compound interest.  The chart showed how the rule of 72 worked with different interest rates. The brochure explained the wealth-building power of stocks vs more conservative investments based on the difference in long-term performance.  It also showed how it benefited an investor who had a few decades to take advantage of this powerful wealth building formula.

For example, a one-time investment of $10K to grow in value to $40K based on different interest rates:

  • If an investor received a return of 3%, it would take 48 years for that $10K to grow to $40K
  • If an investor received a return of 6%, the time would be reduced to 24 years to grow to $40K
  • If an investor received 12%, however, it would only take 12 years to grow $10K to $40K

What to do Now

What can investors do now to follow the rule of 72?  What are some alternatives since the S&P 500 is projected to underperform its historical average?  Is it possible to try to reduce the time it takes to double your money without taking on too much risk?  Here are some options that might help in doubling your money quicker:

Save more money.  By increasing your savings, you will double your money at a faster pace.  Try to increase your savings by 2-3% per year.

Go beyond the S&P 500.  Add a small-cap blend or extended market index fund that includes mid-cap stocks to your asset allocation.  Small-cap stocks have historically outperformed large-cap stocks. If you go with a 4:1 Ratio, you will emulate the total stock market.

Go beyond the United States for investing opportunities.  Add some international stocks to your portfolio. Add both developed nations and emerging markets for their growth potential.

Remember to keep some bonds in your portfolio.  Many experts are telling investors to stay away from bonds because of their current low yield and the raising interest rates.  Bonds have an opposite correlation than stocks. When stocks go down in value, bonds go up. By owning some bonds, you can buy stocks at a lower price when there is a stock market correction.

Conclusion  

As an investor, you should keep the rule of 72 in the front of your mind.  You do not need to know the exact date as to when you will double your money.  From time-to-time, look at how your portfolio performed over the past 5 or 10 years to identify what your average rate of return is.  Apply the rule of 72 to know where you stand. If you are not satisfied with how long it is taking, look for ways to increase your returns that are within your risk tolerance.   

This post might contain affiliate links.

Please be sure to read the Disclaimer Page.

Be Intentional

I recently attended a leadership training seminar at a local college.  This seminar was about managing the multi-generational workforce.  The facilitator covered many topics and I am not going to get into any of those details in this post.  He said many interesting things, but the one statement that made me think was that he said that we should always be intentional.

Everything we do should be with intent.  Our actions should have an intended outcome.  Our words should have an intended message.  Even our thoughts should be focused and have a purpose.

The purpose of this training was meant for workforce development.  The message can easily be applied into everyday life.  It is ideal for managing money.

Too many people just coast in life.  They walk around making noise and bumping into things.  By not having a plan, they will just land at a random destination.  What could possibly go wrong with that approach?

To be successful in all your affairs, practice being more intentional.  A great place to start is with how you manage your personal finances.  You should know the why behind everything that you do.

Savings

Do you know what your savings rate is?  You should be able to answer this question without giving it any thought.  Is it 10%, 20%, or more than 30%?  Your savings rate is the most important factor that will determine if you will reach financial independence or not.  It is also one of the rare aspects that you have control over.  Nobody can control what the S&P 500 will return this year, what direction interest rates are headed, or if there will be a spike inflation.  Everyone, however, can control what their saving rate is.

Spending

Your savings rate is directly impacted by your spending.  Do you just spend money without thinking?  Do you go to the mall, outlets, or online and buy things that you do not need?  If you want to change this trend, become intentional with your spending.  Before you buy something, ask yourself if you need it or truly want it?  If you must spend the money, did you shop around for the best price?  Is there a low-cost alternative to making the purchase?  Even if there isn’t a better alternative, at least you did your due diligence and gave thought to the purchase.

Debt

Does your credit card bill arrive, and you cringe when you look at your balance due?  Do you make late payments or just pay the minimum balance on your credit cards?  Do you know what your credit score is?  Do you know what your debt-to-income ratio is and what a healthy ratio should be?  Do you know how to calculate your debt-to-income ratio?  If you want to improve how you manage debt, take a more intentional approach.  Learn what your credit score is, identify if you have too much debt for what your income is, and ultimately establish a plan to get out of debt.

Earnings

I bet you know what your annual salary or hourly wage is?  You get a paycheck every week or bi-weekly, so you are reminded frequently about that rate.  Do you feel that you are underpaid?  Doesn’t everyone?  Maybe you are underpaid or maybe you are overpaid.  Before you ask for a meeting with your supervisor demanding a raise, you should do your homework.  Be intentional and research what the market rate for your position is based on your location and level of experience.  If you are under market rate, you might have a case.  If you are over market rate, but not satisfied, you might need to develop more skills or ask for a more challenging assignment.

Investing

If someone asked you what type of investor you are, could you answer them?  Are you a market timer?  Do you buy and hold equities?  Are you a passive investor who invests in a few different mutual funds?  Do you simply try to capture what the market returns with a total stock market fund?  Do you use value tilts?  Do you buy dividend stocks?  Are you trying to get rich by investing in Bitcoin?  You are free to decide how you invest your money, but you should know the why behind your plan.  Your approach to investing should be intentional.  Nobody knows what the future market returns will be, but you should at least know what you are intending to accomplish with your asset allocation.

Financial Independence

Do you know how much money you need to have in savings to reach financial independence?  To declare financial independence, the general rule is to have 25 years worth of living expenses in savings.  That is based on a 4% withdrawal rate that most financial professionals consider to be acceptable.  Do you know if you have obtained this milestone or how close you are?  Most people who reach financial independence do not get there by accident.  They live intentionally for many years.

Early Retirement

Do you have a target-date as to when you want to retire?  It might be next week, or it might be in 10 years.  If you have an established early retirement date, what are you doing to make that goal a reality?  Are you doing everything you can to maximize your salary and taking on side gigs?  Are you saving until it hurts?  Do you have the right mix of investments to both reach your goal and sleep comfortably at night?  If you do, you are acting in an intentional way.

Conclusion

The nice thing about being intentional is that you can start this process now.  Start by reviewing your current financial situation.  Can you answer why for all your financial decisions?

If you have a financial plan, use it as a guide.  If you do not have a written plan, write one.  That is a good starting point if you want to become intentional.  Review your plan for areas of your financial situation that might need to be amended.

Some fixes are quick, and others require time to implement change.  Moving forward, wherever money is concerned, ask yourself why before you make a final decision.  If you cannot answer why you are doing something, give it some thought and find out what your true intentions are.

This is just another example of how to improve your financial situation.  It provides a pause before you act.  Sometimes giving a decision an additional few seconds of thought can turn a bad decision into a good decision or a good decision into a better decision.

This post might contain affiliate links.

Please be sure to read the Disclaimer Page.

 

Money & Happiness

Money can do many things.  If you have money, you can live life to the fullest.  Money enables people to cover all their necessities including food, shelter, and healthcare.  Having money is a key requirement to get the best education in the classroom and by way of traveling the world.  Money is also required if you want to add convenience and have some luxury in your life.  Money is tied to almost every aspect of life, but can money buy happiness?

In 2010, a study was conducted to determine if happiness can be increased when income is increased.  These researchers found out that it can.  There were limits though.  The researchers discovered that happiness increased with income, but only up to the amount of $75,000 per year.  People who earned over $75,000 were not happier than those who earned $75,000.

That sounded reasonable to me.  $75,000 would be enough to live a reasonably comfortable life in most parts of the country excluding New York City, San Francisco, or some of the other major coastal cities.  Even in smaller markets, $75,000 will not be enough to afford a first-class lifestyle.  It should be enough, however, to cover your needs, some wants, and have enough left to save for retirement.

A more recent study was conducted by Researchers from Harvard Business School.  This survey was given to 400 millionaires.  They were asked to rate their happiness based on a scale of 1 to 10.  This study found that the people who had at least $8,000,000 were happier than those with less than that amount.  Many agreed that they would be happier with even a little more wealth.  Most felt that they needed much more than what they currently have.  To score a perfect 10 on this happiness survey, the results stated that the millionaires who took this survey would need to have a 1,000% increase in their net worth.

In my opinion, money can buy many things, but I do not know if it can buy true happiness.  There have been times in my life when I had very little money.  Based on my current lifestyle and expenses, I have enough money to live for a couple of decades without having to work.  I feel blessed, but I do not think I am happier today compared to when I was just starting out.

Obviously, life is better with money compared to being broke, but I do not know if there is much of a difference on the happiness scale.  I view having money as the means to more options in life.  That makes me happy.  In my opinion, money equals freedom to live a life on my own terms.  That also makes me happy.

I just don’t think that money itself makes me happy.  Money pays the bills and allows me to buy things.  I am not overly materialist and don’t want for much.  Material possessions generally do not make me happy.

Accomplishment

There are a few things in life that make me truly happy.  The first is when I accomplish a goal.  Even though I am focused on early retirement, I do get a great feeling when I accomplish a goal at work.  It is not based on the praise from others.  It comes from that internal sense of accomplishment.  The same feeling of satisfaction can be found when I accomplish a home improvement project, complete a workout, finish a book, or make an improvement to my blog.  For example, I am happy that you took the time to read this post.

Laughter

I also find joy in the simple things in life.  Laughter makes me happy.  I take my work and my goals seriously, however, I do not take myself seriously.  I have been humbled enough times to say that my ego is right-sized.  A therapist friend of mine recently told me that a good sign of emotional intelligence is to have a good sense of humor and the ability to laugh.  I find it therapeutic to laugh at myself as well as to laugh at the absurdities of life.  I am also happy when other people laugh.

Nature

Spending time in the outdoors makes me happy.  I love going to the local park with my wife and our dog.  It feels great to breathe in the fresh air while hiking the trails and to take in the wildlife.  One of my favorite hobbies is spending an afternoon in my kayak bass fishing.  There are few things more exciting than catching a bass on a topwater lure.

Service

The closest that I have ever come to experiencing true happiness is when I am being of service to others.  In my experience, if you want to find pure joy, go and volunteer at your local soup kitchen.  The fear of stock market volatility quickly vanishes when you tune into the needs of those who truly have nothing.

Helping people who are less fortunate than myself gives me gratitude that lasts for weeks.  It puts my problems into perspective.  These people are not thinking about finding investments with the lowest expense ratios or finding ways to pay fewer taxes on capital gains.  These folks are literally wondering where their next meal is coming from.

My wife and I try to volunteer a few times per year.  We try to not tell anyone about it.  We Just simply show up at the food kitchen on a Saturday morning and volunteer for a few hours.  Nobody needs to know how wonderful we are.  I feel that if I talk about it, it becomes more about me than about the act of giving back.  That just reduces the degree of happiness that I find in this type of volunteering.

If you are intimidated by the thought of helping the homeless, don’t get discouraged.  There are many ways to volunteer.  It does not have to be a formal process.  Take a ride to your nearest park and bring a trash bag and gardening gloves with you.  Spend one-hour walking around the park and picking up litter.

I have found that many people in the financial independence community have discovered the joy of helping others.  A good example of this occurs at the Chautauqua Financial Independence Conference.  I have read that it is common for a day of community service to be added to these events to go along with the lectures and discussions about financial independence.

Conclusion

Can money buy happiness? I honestly don’t know for sure.  The research shows that it can up to a point for some people.  For others, it seems like happiness is based on having more.  I also don’t know if people should be basing their happiness on how much money they have.  I have found that having money is better than not having money if the rest of your life is in order.  If you have enough of it, you have more options as to how you choose to live.  That will afford you the ability to focus your time and energy on what you are passionate about.  If the concept of being free makes you happy, money is a means to that end.

 

Dumping Stocks at Retirement

Have you ever considered selling all your stocks or stock mutual funds when you retire?  Who wants to have to deal with the ups and downs of the markets when you are no longer dollar-cost-averaging?  Are you afraid of a major market crash when you are drawing down your portfolio?

The market is near its all-time high.  With retirement right around the corner, are you tempted to sell all your stock holdings and call it a day?  It might sound tempting.  This market cannot keep going up, can it?

Every investor has the right to feel exactly how they feel about all of the scary things that are going on in the world.  Don’t lose your head.  The world has always been a volatile place and unfortunately, it always will be.  If it is not one thing, it is something else.

Yes, it might be tempting to pull the trigger and sell high.  You would walk away as a winner.  Before you do that.  Let’s look at how an all-bond portfolio might serve you in retirement.

For this exercise, let us assume that you are now sitting on $1,000,000 in your 401K.  At retirement, you want to draw down 4% per year.  How would an asset allocation of 100% in bonds hold up over the course of 30 years?  To find out, I am going to run this test based on the Monte Carlo method by using the Vanguard Retirement Nest Egg Calculator.

There is a 69% chance that your savings will last 30 years.  I do not like those odds.  I especially do not like them for a person who retires early.

What about if a person wants that $1,000,000 to last 40 years?  The percentages are getting much worse.  There is now only a 36% chance that money will last 40 years.

Could you imagine going broke after being retired for 40 years?  What would you do?  Would you go back to work?  Who would hire you at such an advanced age?  Sure, employers cannot discriminate, but let’s be honest about the opportunities for someone who has been unemployed for that long.

What could an investor do to improve the chances of their savings lasting 30 years or even 40 years for those who enter early retirement?  In Benjamin Graham’s book The Intelligent Investor, he gave a few suggestions for defensive investors.  He suggests that a balanced portfolio made up of 50 in equities and 50% in bonds is a good place to start.  He also suggested that an investor should never exceed an asset allocation of 75/25.  In other words, an investor should never have more than 75% or less than 25% in equities or bonds.

I know that you are seriously considering selling your equity holdings and exchanging them for bonds.  You have told yourself that you are finished with the market.  Volatility is no longer for you.  You want to enjoy your retirement without having to worry about how stocks are performing.  If you do that, the odds are still not in your favor of not running out of money.

How would your $1,000,000 fair if you followed what the late Benjamin Graham suggested in his classic investment book?  How would keeping only 25% in equities change the projected outcome?  Would adding a more volatile asset class help or hurt the likely hood of running out of money?

By keeping 25% in equities, the percentages have dramatically improved.  There is now a 78% chance that your money will not run out over the course of 30 years with a 4% drawdown rate.  Over the course of 40 years, there is 57% chance that your money will last.  By keeping 25% of the portfolio in stocks, there was an improvement of 9% over the course of 30 years and an improvement of 21% for 40 years.

Holding a small allocation of equities sure goes a long way.  What about if you took it a step further and went with a mix of 50% in stocks and 50% in bonds?  I know, I know. You are finished with stocks.  Keeping 25% of your money in stocks is one thing, but going to 50% is just too aggressive for your retirement account.

I understand how you feel.  You do not want to own stocks when the next recession occurs.  A long stock market correction can be scary.

During a drawdown period, how does having 100% in bonds compare to an asset allocation of 50% in stocks and 50% in bonds?  Over the course of 30 years, the 50/50 mix has an 85% chance of success.  Over the course of 40 years, the 50/50 mix has a projected success rate of 74%.  Compared to the portfolio made up of 100% in bonds, the 50/50 mix has a 16% better chance to not run out of money over the course of 30 years.  For the period of 40 years, the 50/50 mix has a 38% better chance of not running out of money.

There are many factors to consider when selecting the asset allocation that is right for your retirement.  How old will you be at the time of retirement?  How long does your money have to last?  How will RMDs impact your drawdown?  What type of lifestyle do you want to live during retirement?  Are you planning on leaving a legacy?

I am not trying to convince you on how you should allocate your portfolio during retirement.  That is ultimately your decision.  Everyone has a unique financial situation.  The purpose of this post was to examine how different conservative portfolios might perform during the drawdown period.  I am just trying to convince you to do your due diligence before you rush to any financial decisions that will impact your quality of life down the road.

After reviewing these results, it shows that diversification is still important during the drawdown period.  Just as holding 100% in stocks is too aggressive for most investors during their working years, holding 100% in bonds might be too conservative for investors during the drawdown period.  When an investor is working on building their wealth, holding a percentage of bonds helps to reduce the impact of how stock market volatility impacts a portfolio.  During the drawdown period, holding a small percentage of equities greatly improves the likelihood of not running out of money in retirement.

This post might contain affiliate links.

Please be sure to read the Disclaimer page.

Financial Unmanageability Transcends Money

When it comes to finding ways to better manage your finances, there are unlimited resources.  There are many great books, blogs, forums, websites, and apps.  There is not a shortage of information, tools, or even professional services.  If a person wants to make improvements when it comes to spending less, paying down debt, saving more of their earnings, or learning to invest, they could find out how to do it in a matter of minutes by doing a few simple online searches.

If the solution to finding ways to improve your financial situation is so readily available, why are so many people struggling?  Yes, we can blame the marketers for always trying to sell the newest gadget.  That excuse, however, only carries so much weight.  Consumers are more educated than ever and many tune ads out.

What if the problem is more pervasive?  What if the problem is beyond simple behavior modification? What if the problem is based on unmanageability?  Yes, the inability to have mastery over your life.

If the problem is based in unmanageability, there is not a blog or app to solve the problem.  If your life is truly unmanageable, trying to get a better handle on your financial shortcomings is just treating a symptom.  To gain control of your life, it will take a little more than spending less and saving more.

Denial

Nobody truly wants to admit their life is unmanageable.  Just like nobody wants to admit they drink, spend, eat, or gamble too much.  It is natural for many people to think, I don’t have an issue with my finances and then go spend more money.  It is common behavior for people who have addiction problems or a spiritual malady to deny what the problem is.  The thought process is like a broken record that skips the same verse over and over.  I do not have a problem with my finances – go spend more money.

Resentment

To resent is to keep going back to a negative feeling.  Instead of feeling and processing those bad or negative feelings, you spend money.  Resentment is not always based on harboring ill feeling towards someone who you believe wronged you in some way.  Resentment can also be rooted in harboring ill feelings towards someone who did exactly what you expected them to do.  The problem was that you were still not satisfied.  They were unable to fill that void that exists within you.  To find temporary relief, you continue to spend and try to fill that void with an external fix.  Unfortunately, it does not last.  After you exhale out and feel relief, you almost immediately inhale the resentment back in.

It is All About You

When you live an unmanageable life, there will always be a conflict with self.  It is all about you.  You cannot be of real use to others.  Sure, you might be physically present in their life, but are you truly living in the moment?  Or are you just physically there, but mentally bound to your troubles?  When your self-centered thoughts and feelings are the focus of your existence, it is difficult to make meaningful connections with others.

Anxiety 

You are not a bad person.  You might even do nice things for others.  You believe that you are thoughtful and caring.  You spend money on the people you care about and on those who you want to care about you. Externally that all might be true, but aren’t you just doing all those things to find more relief and to feel better about your current state of unmanageability?

Do you live in fear?  Do you spend more than you earn and panic when the bills arrive?  Do you lay awake at night and worry that you will never be able to get out from under all the debt you are in?  Do you see retirement as a possible option for others, but something that you would never be able to afford?  Do you obsess over your finances in one thought, but follow it up with more spending that pushes you further away from having healthy finances?  Do you feel hopeless?

Is this fear leading to other health concerns?  Is it leading to weight gain or panic attacks?  Have you gone to see your doctor because you feel overwhelmed?  Did your doctor put you on meds to take the edge off and to help you cope?

There is a Solution

Yes, getting your finances in order is great, but you first need to get your mind right.  I am not a therapist.  I am just a guy with a personal finance blog.  If you are honesty suffering from the symptoms that I listed above, you should seek outside help.  Find out if your health insurance covers visits to a psychologist without a referral from your primary care doctor.  If not, ask your doctor for a referral to one that they recommend.  You might have to pay a low co-pay, but it will be worth it.

There are also 12-step programs.  As I stated earlier, your spending might be just a symptom of a larger issue.  There are 12-step programs for spending, gambling, drinking, and just about any other type of obsessive disease.  It is up to you to dig deeper and decide if you think a 12-step solution would be a good fit for you.

Conclusion

Don’t beat yourself up.  Don’t wallow in guilt, shame, remorse, or any other negative feeling.  The past is the past.  It is time to move on.  Pick up the pieces.  You are not a bad person.  You might have made poor decisions and you might suffer from the disease of addiction.  After you put your own house back in order, you can make amends to those you feel you might have harmed including yourself.

There is hope.  There is also help available.  It is now up to you to find the right help that will be a catalyst for positive change.

Once you get your mind right, great things will start to happen in your life.  Not only will your financial situation improve, but every area of your life will get better.  How could it not, you will be moving away from the problem and in the solution.

You will be able to better accept people and situations as they are.  You will be able to let go of the past. You will better assimilate into the mainstream of life.  You will become more useful to the people around you.  You will finally find the peace that you have been searching for all along.

As a bonus, you should be able to better budget and save money.  Your whole life will become more manageable.  Having a few more bucks in the bank will just make life more enjoyable.

This post might contain affiliate links.

Please be sure to read the Disclaimer page.

The House We Did Not Buy

Buying a house is a major decision.  For most people, it is the largest major financial decision that they will ever make.  There are many aspects to consider when deciding on a house.  Do you want to live in a city, the suburbs, or in a rural area?  Finding your dream house and neighborhood can be a major undertaking.

My wife and I have lived in our current house since we were married.  She bought the house from a relative before I was in her life.  It is nice house and we live close to many of her relatives.

The house did need some upgrades when I moved in.  It was built in 1964 and much of the house was outdated.  After I moved in, we remodeled the kitchen, bathroom, added a deck, as well as many other upgrades.

The house was about 1,200 square feet and we wanted a little more room.  We added a nice 320 square foot addition.  That addition is our sitting room and we spend most of our time in there.

The house is almost paid for.  We only owe about $30,000 on the mortgage.  The house was appraised for $226,000 in 2012, so we have a nice amount of equity in the house.

By staying in this house, my wife and I have avoided lifestyle creep.  Having a small mortgage and low taxes enabled us to have a high savings rate.  If we upgraded to a $500,000 house, we would not have been able to save 50% of our gross earnings over the past 10 years.

We are not planning on retiring until 2028.  After we retire, we are planning on buying a house on a lake because we enjoy kayaking, boating, and fishing.  We are planning on staying in Pennsylvania for 9 months per year.  For the winter months, we plan on becoming snowbirds and head south for the winter.

A major life event caused us to rethink our plan.  A close family member recently passed away following a four-year battle with cancer and other major health issues.  Watching him suffer made us think about living more in the present and not focusing on what our life will be like in retirement.

We decided to look at some houses that were for sale on the lakes that are close to where we currently live.  The nice thing about living in the Pocono Mountains is that there are many nice lakefront homes.  The region is also known for private gated communities that attract people from New York City, Philadelphia, and Boston who buy weekend homes in these developments.

We started by looking online.  What I found did not surprise me.  Most of the lakefront houses were very expensive.  Older houses that were lakefront cost $400,000 and needed upgrades.  The newer houses are much more expensive.

Our next move was to look for a house that was not lakefront but had lake rights.  This was a more modest priced market.  Houses that were only 5-years old were less than $350,000.  That was more in our price range because we would be putting about 60% down on the house.

We found a few that we really liked and decided to spend a Sunday looking at these houses.  The first few were nice but way too big.  We do not need or want 4,000 square feet of living space.

After looking at 5 houses we were starting to get tired.  It is fun to look at these houses, but also overwhelming.  Before we called it quits for the afternoon, I wanted to look at one last house.

The last house was a little less expensive.  It was listed at $258,000.  This house was in a private community that is only 8 miles from where we currently live.  It also comes with lake rights to a private 150-acre lake.  It is a serene lake that does not allow outboard motors.  Only sailboats, kayaks, or boats with electric motors are allowed.  It is also a catch-and-release lake that is stocked with bass, trout, catfish, and walleye.

For me, it was love at first sight.  For my wife, she really liked the house, but more legwork was needed before we decided.  We both agreed that we needed to do our due diligence and not buy a house after our first visit.

The next day, I called the realtor to set-up an appointment to tour the house.  The realtor was nice as well as transparent.  She gave me some interesting details about the house.  In 2010, the house sold for $389,000 and is now listed for $259,000.  I did not want to admit it, but that was the first red flag.

I asked why there was such a deep discount on a 10-year old house?  She said that the taxes doubled because of a county reassessment.  There is also a homeowners association (HOA) that charges $2,500 per year.  The total annual cost of the taxes and home owner’s association fees would be $8,200.  We now pay $2,700.

I was not happy about the major jump in taxes and fees.  It was, however, not a deal breaker.  I was smitten with the privately stocked lake.

The next evening, my wife and I decided to take a ride over to see our potential new house.  We were excited.  Our excitement, however, did not last.

We pulled into the driveway and got out to walk around the house.  It was not currently occupied by the owners.  We only took about two or three steps and we saw the neighbors Doberman Pincher as he came barreling towards us.  Luckily, the dog’s owner was in his yard and called the dog back.

The Doberman caused me great concern.  I am not afraid of big dogs, but my wife and I have a little dog.  His safety trumps everything.

I was happy that the neighbor was outside.  He came over and spoke with us.  He seemed like a nice guy.  He was young.  I would guess in his early 30’s.  We spoke about the house and of course what the fishing was like at the lake.  I asked him about the homeowners association.  He said they are not too bad to deal with, but he gets in trouble with them often.  He said that he gets in trouble with the homeowners association for driving his ATV and snowmobile at night.

On our drive home, I was still thinking about fishing on a private lake every evening after work.  At this point, my wife decided that she did not want to buy the house.  She did not say anything to me on our drive home because she did not want to bust my bubble.

That evening, I could not sleep.  My anxiety was out of control.  I did not fall asleep until after midnight.  The house was very nice, and I loved the lake.  Deep down, I knew that it was not a good fit.  All those red flags would not go away.  They kept running around in my mind.  I could not justify all of these issues.

As a member of the financial independence community, I do not like to pay taxes.  I love fishing but hate taxes.  Having my taxes go up almost 200% did not sit well with me.

The second source of anxiety was our dog.  We don’t have children, so our dog is our baby.  He currently has his own two-acre field to enjoy without worrying about being eaten by a Doberman.  I would never do anything to put him in an unsafe situation.

The third warning sign was the neighbor.  He did seem like a nice young man.  However, I am not willing to put up with him driving his ATV at night.

When I awoke, my wife said that she wanted to talk.  She told me that she loved me and wanted me to have a lake house.  I worked and saved for over two decades and she wanted me to be happy.  She just felt that this house was not for us.

I told her that I agreed with her.  There are many reasons why my wife and I have a happy and successful marriage.  We love each other, communicate well, and think alike.  If a situation is not right, it is wrong.  The house was not the right fit for us.

We could have afforded the house.  It might have caused our saving rate to go from over 50% to 40%.  That does not sound like a big deal, but I am more interested in saving and reaching early retirement than owning a lake house at this point in my life.

We have not since looked at any other houses.  It was too emotional of a process for me.  At this point, I think that we are going to stay in our current house until we retire.  I have said this before, once you become a saver, you will never be a spender.  As a saver, I will have to settle for fishing at our local state parks and public lakes instead of a private lake until we retire.  Life can be much worse.

This post might contain affiliate links.

Please be sure to read the Disclaimer page.

What Stage of Financial Change Are You In?

If you choose to pursue financial independence and an early retirement, you will need to reject many of the popular, preconceived mindsets and behaviors that you’ve been taught about your relationship with money.

Over the past two decades, the average age at retirement has been increasing. Studies predict the average age of retirement for Millennials may reach 75 due to the growing costs of rent and prevalence of student loan debt.

The good news?

You don’t need to follow the same financial path as your peers (no matter what generation you were born in).

The “bad” news?

To reach retirement earlier than your peers, you will need to handle your money in a different way as well.

Pursuing financial independence will require self-education, practice, and persistence. You may or may not have the support of your friends, co-workers, and even family members… but you will need to make financial changes in your own life regardless of their own money habits.

In this post, you’ll learn more about the five stages behind every major life change, how these stages apply to your personal finances, and how you can use this model to stay committed on your journey toward financial independence.

The 5 Stages of Financial Change

In the academic world, the stages of change are more formally recognized as the “transtheoretical model of behavior change.”

This model was first proposed by psychology professors in 1977. The model is often applied to health-related changes, such as quitting smoking, starting a new exercise or diet plan, and managing anxiety and depression.

Here are the five stages:

    1. Precontemplation (not ready to change)
    2. Contemplation (considering change)
    3. Preparation (getting ready for the change)
    4. Action (making the change)
    5. Maintenance (reinforcing the change)

While you typically progress sequentially through the first four stages, it’s possible to “backslide” and revert to an earlier stage if maintenance is unsuccessful (breaking your diet during the holidays, for example).

This model not only applies to physical behavior changes but can also be applied to belief changes or decision-making as well.

Let’s take at how you may journey throughout these stages as you make significant changes in your financial habits.

Precontemplation

During the precontemplation stage, an individual is not seriously considering making a change. In fact, they may not realize that a change is necessary at all.

In the context of a health-related issue, a person in the precontemplation stage may assume they are totally healthy – perhaps unaware that their high cholesterol or blood sugar may already have them on a trajectory for a heart attack or diabetes down the road.

If you have just started your professional career, you may find yourself in the precontemplation stage of your retirement planning.

Perhaps you are contributing a small percentage of your 401k toward retirement each month. What you may not realize is that contributing just 5% of your salary is going to place you squarely in the “retire at 75” club.

To move out of the precontemplation stage may require a “financial epiphany.” This could be saving up to buy a house, preparing to have a child, or earning a salary for the first time. At this point, you’ll realize it’s time to make peace with your financial past so you can reach your goals.

Contemplation

The same year that psychology professors created the “model of behavior change,” film director Woody Allen was attributed in the New York Times for his popular quote, “Showing up is 80 percent of life.”

Just by “showing up” to read this post, you may have already progressed out of precontemplation into the next stage of behavior change: contemplation (surprise!).

During the contemplation stage, an individual is aware of their problematic behavior but are still weighing the pros and cons of change: Can I make time to exercise without hurting my career? Will my friends support me in my decision to quit smoking or drinking?

In a stage of financial contemplation, an individual may be considering their financial goals and the associated trade-offs.

  • Should we be focused on saving up a down payment for a home or paying down student loans instead?
  • Is it worth the inconvenience of downsizing our home or moving in with roommates to save additional money?
  • Can we commit to meal prepping for a few hours each Sunday night to reduce spending on lunch during the work week?

Preparation

An individual in the preparation stage has determined the pros of change outweigh the cons. At this stage, they may start performing research, creating a plan, or making small steps toward their improved for behavior.

If you are someone who wants to lose weight, your preparation might be purchasing a healthy cookbook, grocery shopping for nutritious foods, or signing up for a gym membership.

Many times, it’s tempting to skip from the contemplation stage directly into action (which we’ll discuss below). It’s important to spend time in the preparation stage to lay a framework for success.

You may have to remove barriers from your financial goals as well. This could involve learning more about debt payoff strategies, calculating your net worth to understand your current situation, or building a solid budget that organizes your finances.

Action

In this stage, individuals begin to actively change their behavior. This decision is often one of the shortest stages of change – most of the effort is either exerted in (1) building motivation during the contemplation the stage, or (2) maintaining and reinforcing change.

If quitting smoking is your health-related behavioral change, then the action stage would be the first few weeks of cessation. The behavior change requires consistent, active effort to make. You may be using aggressive strategies like substituting a new behavior in its place, rewarding yourself for the proper behavior, and avoiding any scenarios that trigger the old behavior.

There are many ways to take action and improve your personal finances. You may start scheduling recurring payments on your debt, setting aside an additional portion of your income with direct deposit, or creating a budget to keep yourself living within your means.

Maintenance

In a successful behavioral change, the maintenance stage will have the longest duration. The goal of the maintenance stage is to reinforce the new behavior to minimize the chances of a relapse. With time, the new behavior will become second nature.

It is not uncommon for individuals to relapse back to a previous stage. A successful behavior change will depend on how an individual responds to this situation:

Do you prepare yourself to eat healthily by going grocery shopping and planning your upcoming meals – or do you tell yourself that you’ll try again next New Year’s?

Financial independence is a long-term objective that requires maintenance as well. You may have to dip into your emergency fund to cover an unexpected expense. You might splurge and make an impulse purchase that falls outside your budget.

It’s important to avoid letting one setback justify additional bad behavior. Even if you aren’t perfect with your money, you can find ways to improve your finances each and every day.

How can you maintain your positive personal finance habits to minimize the impact of a setback?

  • Continue learning new financial principles with personal finance blogs and books
  • Surround yourself with like-minded individuals who share your goals and values
  • Be publicly accountable for your goals by sharing them with family and friends
  • Automate your behaviors with recurring transfers, payments, and direct deposits

Conclusion

To do something spectacular with your personal finances, you will need to adopt different beliefs and behaviors about money that may be different than your peers.

You can make this financial change easier by understanding the how the “stages of change” model applies to you and your personal finances, assessing your current status in the model, and finding ways to reinforce the right behaviors until our reach your goal.

No matter how long you’ve been focused on your personal finances – whether you’re just contemplating your goals or maintaining your progress – there are strategies you can use to make good financial behavior easier.

How do you stay committed to maintaining the positive financial changes in your life? 

Author Bio:

Aaron is a lifelong entrepreneur and internet marketer who started Personal Finance for Beginners to share experiences and insights from his own financial journey as he pays down student loan debt, sticks to a deliberate budget, and saves and invests for the future. You can find him at Personal Finance for Beginners or on Twitter @PFforBeginners.

Should Millennials Contribute to a 401K?

No, that is not a rhetorical question.  I was having lunch the other day with my co-worker Jill.  Jill is an exceptional young woman.  Jill’s parents divorced when she was young, so she grew up in a broken home.  That did not stand in the way of her excelling in school.  She went on to earn a BA in Psychology from one of the best state universities in the country.  She is also considering going back to graduate school for a Master’s Degree in Public Administration.

Jill and I have worked together for almost one year.  Jill was lucky because she was hired just a few months after she graduated from college.  She is a great employee, person, and is highly ambitious.

She told me that she developed her work ethic as a young teenager.  She said that growing up without a dad around, she had to work to help her mom pay the bills.  Jill started working at age 14 and has always had a job during high school and while in college.

When we were talking, she told me that when her parents divorced they had an agreement to give each child $40,000 towards their college education.  Her brother went to Notre Dame and the money he received from his parents covered about one year of his education.  Jill opted for a state university that was only a 2-hour drive away from her Mother.

Jill’s education cost her parents $30,000.  Her parents tried to be fair about the dollar amount.  After graduating college, her parents also bought her a used car for $10,000.  Even though she did not get to watch the Fighting Irish play football in South Bend, she still made out well.

During our lunch, she told me that she feels bad for her current roommates.  Most come from families that are more affluent than her family. However, they all have student loan payments that cost $700 or more every month.

She asked me my opinion about her situation.  Should she feel bad?  What should she do with the extra money she has compared to what her roommates have?  She said that she did not grow up with much and does not want to waste it.

I told her that she is in a fortunate situation.  She has a unique opportunity to save a great amount of money since she does not have any debt and her only large bill is her monthly rent.  I suggested that she pretends that she has as much student loan debt as her roommates and to contribute $700 per month to our employer’s retirement plan.

She asked me “Should Millennials contribute to a 401K”?

I told her that millennials should absolutely contribute to a 401K.  I said that she especially should because she does not have any debt to pay back or major bills.  These are the reasons why she should start contributing:

  • She is 22 years old and by starting at that age, she can be well on her way toward financial independence (FI) in 15 years or less
  • Our plan offers low-cost index funds
  • Our employer matches 100% up to the first 5% an employee contributes
  • The contributions lower her taxable income
  • The money grows tax-free and is not taxed until she withdraws it at retirement
  • She can take advantage of dollar-cost-averaging
  • She can enjoy the benefit of compound interest
  • If she gets a different job, she can take the money with her and roll it over into an IRA
  • Even though I would advise against it, she can borrow against her account if need be

I explained to her that time goes by very quickly and she has a golden opportunity to build some serious wealth for herself.  Unless she lands a government job, she will not have a pension.  She will need this money to support herself in the future.

Jill has a unique situation.  She is a young millennial without any debt.  What makes her even more unique is that she is a new college graduate without any student loan debt.

If you have student loans, you should still contribute to your employers 401K account.  Even if it is just enough to get the match.  After you pay down your debt, take the dollar amount that you were paying towards your loans and direct it to your 401K.

You might not get to Financial Independence as quickly as Jill does.  You will, however, get there if you take a few steps.  If you have debt, pay off your debt and don’t create new debt.  Save as much as possible.  Sign up for your employers 401K plan as soon as you are eligible.

This post might contain affiliate links.

Please be sure to read the Disclaimer page.

Note: This post was originally published as a guest post.  The post was moved here because it was not available to be read on dollardiligence.com. That site is no longer active.

Your Money or Your Life: Chapter 2 Review

Your Money or Your Life is a classic personal finance book.  Vicki Robin and the late Joe Dominguez wrote this book in 1992.  Your Money or Your Life is not the first personal finance book.  It was, however, one of the first personal finance books that started to explore the topic of Financial Independence.  It is a book that introduced the concept of examining and ultimately transforming your relationship with money.

This post is part 3 in a series of posts by a group of popular personal finance bloggers who are reviewing each chapter of the completely revised and updated edition of Your Money or Your Life.  The introduction to this series was launched on Rockstar Finance.  The review of Chapter 1 was written by Aaron at Personal Finance for Beginners.  That leads us up to this post.  Below is my review of Chapter 2.

Previous Reviews:

Rockstar Finance – Introduction

Personal Finance for Beginners – Chapter 1

Chapter 2 – MONEY AIN’t What It USED TO BE – AND NEVER WAS

As with many books, chapter 2 is where the author starts to get into the thick of things.  The narrative of Chapter 2 follows that natural flow.  In chapter 2, the reader is introduced to money.  What does money mean to you?  Do you have money problems?  How do you earn it?  How do you spend it?  Do you save money?  How should money be invested?  Do you love money, or do you resent it?  Is money good or evil?  To better understand what money is, Vicki and Joe suggest that it needs to be looked at on the material level as well as the nonmaterial level.

THE FOUR PERSPECTIVES OF MONEY

In the first edition, there was a major section of chapter 2 that broke down the four perspectives of money.  That was not included in the updated edition.  The updated edition is more streamlined.  It is rumored that Joe would get animated when presenting the four perspectives at their original seminars.  I feel the four perspectives of money are still relevant and will break them down in case you have not read the original edition.

The Street-Level Perspective of Money – The Practical, Physical Realm

The street-level is where the day-to-day transactions occur.  This is where people are introduced to money in their youth.  The street-level is why people work to earn money and advance their education to earn more money.  This is the level where the masses learn how to earn money, spend money, and hopefully save money.

The street level is also where many people get into trouble with money.  This is the level where people fall victim to the concept of more.  To buy more stuff, people go into debt.  To pay off debt, more work is required.  To make more money, more risk is taken.  The street-level is where most people get off on the wrong footing.

The Neighborhood Perspective of Money – The Emotional/Psychological Realm

The neighborhood perspective is an examination of the emotional perspective of money.  Were you born on the wrong side of the tracks?  Did you grow up rich, poor, or somewhere in the middle?  Do you base your security on money?  Should you?  Do you see money as power?  Does having money enable you to get what you want from others?  Does money truly make people more socially acceptable?  Is money evil or does it just bring out shortcomings in people?

The Citywide Perspective of Money – The cultural Realm

The citywide perspective is a view from above.  This is where individuals blend together.  It is where different neighborhoods are connected by streets that flow from the rich to the poor part of town.  The citywide perspective is the view where the individual and their own relationship with money is lost.  General norms and assumptions are made on this level.  This is the big picture perspective of money.  It is rooted in history, economics, and sociology.  This is the level where financial fear is distributed to the masses.

The Jet Plane Perspective of Money – Personal Responsibility and Transformation

The jet plane perspective is where the transformation occurs.  This is where you let go of your old ideas about money.  The jet plane view is where people become honest with themselves and start to accept the truth about money.  This is where money and spirituality converge.

Money is life energy.  We trade energy for money.  People work for money, worry about money, spend money, and plan their whole life around money.  Most people will not admit it, but money truly is the center of their universe.  Once a person can accept that fact, they can decide how to better channel their energy and break away from the bondage that money has over them.  The jet plane level is where people start to think about how they truly want to live when money is not the motivation.

A Simple Summary of What is – and is Not

The updated edition replaces the four perspectives of money with a simple summary of what money is and is not.  Vicki briefly touches on the four perspectives and reflects on Joe’s past performances.  In this edition, Vicki gets to the point quicker than Joe did in the previous editions.

Money = life energy, but having money is not a magic wand that changes your past relationship with money.  Money flows in and out of our lives.  Our relationship with money needs to be examined.  Where does it improve our lives and where do we get the most pleasure or use from it?

Money is simply a reflection of who we are.  Do we use it to buy things to display status?  Do we spend it in an environmentally conscious way?  Do we pay our bills on time?  Do we have a healthy or unhealthy relationship with money?

There are people who want to take your money.  Marketers have a job to market their products.  Marketers are paid to make people believe whatever it takes to sell a product or service.  I used to work in Marketing.  That is 100% true.

To prevent them from taking your energy, just don’t buy what they are selling.  To do that, a person needs to act.  Chapter 2 breaks down a course of action to follow.

Your Life Energy 

Vicki asks the reader “what does money = life energy mean to them”?  The reader is free to decide how they want to spend their time.  Do you want to spend your limited amount of time living or do you want to spend that time working to spend more on things that do not add meaning or happiness to your life?

Financial Independence 

The second half of chapter 2 is where the concept of financial independence is broken down.  Vicki does not deviate much from the original edition but just freshens it up.  The focus is still based on having limited time on this planet.  Should we spend our energy making money or living and enjoying life?  If a person decides that they want to live more and work less, they need to achieve financial independence.

Financial independence simply means that a person has enough.  Enough does not mean that you are rich.  Enough must be defined by the individual.

Financial and Psychological Freedom

Once an individual determines what enough is for them, they can change their relationship with money.  This is where the bondage from your past relationship with money is broken.  This is the level where you break free from the lies that surround your relationship with money.

Being in the Present – Tracking your Life Energy

To be successful, an inventory is needed.  It is important to track your life energy.  To better practice the art of living in the present, it is vital to take a deep dive into where all your energy is being exerted.

In this section of both editions, the authors get into actual costs.  How much energy is spent on commuting, clothing, and meals?  As the result of expending energy, a person needs to recharge.  As people attempt to recharge, they just spend more energy trying to decompress with substances, spend money on entertainment, and take expensive vacations or buy toys.  As the result of wasting energy on trying to gain energy people get ill and must spend more energy on getting well.

At this point, people start to realize that they are spending more energy than they are being compensated for.  Their salary ends up being much lower than they ever realized.  They are exerting far more in the untracked exertion of energy than they could ever be compensated for.  Their real hourly wage is much lower than they ever could imagine.

The authors understand that this process is life changing.  When people are faced with a change they tend to balk and not want to escape their emotional comfort zone.  This is purely a spiritual process.  There is no need or room for shame.  There is no reason to look for someone to blame.

The next step is to take positive action.  It will require some work.  The final step requires a simple writing exercise.  It is suggested to track energy spent vs salary earned.  It is a writing exercise to gain perspective on what you are truly earning from your employment.  In this step, the number of hours of energy that is put out is measured against actual earnings.  I did it.  It is an eye-opening exercise.

The authors also suggest that you track all of the money that comes into your life as well as the money that goes out of your life.  They refer to it a spiritual discipline.  This is much easier today with tools like Personal Capital.  You no longer need to write down with pencil and paper like most people who followed this approach did back in 1992.

Conclusion

It was fun to read the updated edition of Your Money or Your Life.  A few decades have passed since the first edition was published.  It was nice to catch up on how she views money today compared to the early 1990’s.  The updated edition of chapter 2 had a fresh feel to the narrative.  Even though it was revised, it still contained the same spiritual principles of honesty, vigilance, and willingness to change that was in the original edition.

If you were a fan of the original edition, you are sure to enjoy the updated edition of Your Money or Your Life and the new website yourmoneyoryourlife.com.

This post might contain affiliate links.

Please be sure to read the Disclaimer page.