Tuesday, August 2, 2011

"Your Money and Your Life" -- Permaculture for Your Finances

Now that I've covered some of the basics of my gardening and food processing methods, it's time to turn to the subject of home finances.  Financial well-being is just as key to my drive toward self-reliant freedom and community living as gardening is, perhaps even more so.  But with the overwhelming number of financial self-help gurus out there like Dave Ramsey, Suze Orman and Robert Kiyosaki, to name only a few, finding an approach that works can seem daunting.  Now, I'm not going to say that you should definitely go with one method over all others -- the most important thing is to look at as many different sources as possible and find what works best for you, and then stick with it.  For me, though, there is one book on home finances that stands head-and-shoulders above the rest: Your Money or Your Life by Joe Dominguez and Vicki Robin (abbreviated from here on as YMOYL).

YMOYL, like many practical financial self-help manuals out there, emphasizes the elimination of debt as a central concept of financial well-being.  The end goal is something the authors call "Financial Independence," or "FI" for short.  What sets it apart is that it actually affects a wholesale transformation of the way that you view money in your life -- kind of like a form of financial permaculture.   By changing the way that you view money on the most basic and profound level, you free yourself from being controlled by it and instead controlling the way that it affects you.  Central to this transformation is the concept of "life energy".

Life Energy -- the core of YMOYL

Here's how it works.  The "big view" of money -- like looking down on earth from a spaceship many miles above the earth, as Robin and Dominguez describe it -- is that it is just another force in the world that ebbs and flows, much like the tides of the ocean.  You have periods in your life where more money flows in, and others where more flows out.  No matter what, it is always moving, changing hands.  In the realm of personal finance, there is not some finite amount of money that will ever flow into your life.

But you are born with one substance in finite supply: time.  No matter what, each and every one of us is born with a finite amount of time in our life, an account that will never replenish, but instead will just be drawn upon until emptied.  When comparing and contrasting these two resources, which then should have a greater sense of urgency -- the one that can ebb and flow over time, or the one that moves linearly toward a definitive end?  When placed in those terms, the answer should be clear.  Time is the resource that we should treat with more care and concern.

That's all well and good as a philosophical concept, but how do you put it into practice?  We all have bills to pay after all, and time doesn't exactly pay the bills.  Or does it?  Joe Dominguez came up with a way to show that it did -- and it is this simple but profound changing of our vantage point that is the basis to the entire YMOYL program.  When we go to our jobs or engage in paid employment, we are exchanging our time -- our life energy, as it were -- for money.

Let me say that again to re-emphasize the importance of it.  When we go to work for pay, we are exchanging our life energy for money.

Dominguez even came up with a way of measuring this life energy.  You start with the net amount of pay you receive, after all taxes are taken out.  Then, total up the amount of money you spend on things related to your job -- gas and tolls for commuting, work clothes that you wouldn't otherwise get, lunches out at work, dinners out because you're too tired to cook when you come home, entertainment and recreation costs to "decompress" from the work day, etc.  Don't hold anything back, and when you're done, take that number and subtract it from your net pay.  This is your real income.

Then, total up the amount of time you spend directly on your job and also related to your job.  Include your daily commute time, time you spend shopping for work-related clothes and gear, recreation time to relax after work, etc.  This is the real time you spend on your job.  Then, take your real income and divide that by your real time, and the result is your real hourly wage.  If you are honest about this activity, then you will end up with a real hourly wage that is far below what you thought you were being paid.  This represents the amount of money that you actually receive in exchange for your life energy.

As an example, at the time I figured this out last year my hourly rate as an engineer was over $40 per hour.  When I figured out my real hourly wage, after my significant commuting expenses and 3 hour daily round-trip were taken into account, I ended up with a real hourly wage of around $11.50!

So now that we have this figure, what do we do with it?

The Process

Since money is something that we simply exchange our life energy for, and our life energy is our most precious and finite resource, then it stands to reason that we should be very conscious about how we use our money.  Dominguez has another simple approach to maximize our consciousness about money: you track every cent that comes in and out of your life.  Yes, he meant that literally -- every single cent.  Just think about it as running your household finances in the same way that you would manage a business.  If you keep sloppy books and lose track of money regularly chances are that your business won't do too well.  Conversely, if you keep meticulous track of inflows and outflows, you better your chances at success.

Instead of binding yourself to a strict budget, like many other plans (such as Dave Ramsey's) do, YMOYL actually works in a kind of "reverse budget" process.  You take all of those expenses that you have recorded for the month, and divide them into the appropriate budget categories.  Then, you have a clear picture of how much you are really spending and what you're spending it on.  Be prepared for some surprises here -- a daily $5 latte habit that doesn't seem like much day-to-day takes on new significance when you find that it really costs you over $100 per month.  But no matter what, when you go through this exercise don't allow yourself to feel guilty.  The goal is to gain a clear assessment of your finances, not to make emotional judgments about them.

Now we get to the point where the real transformation takes place.  You take your real hourly wage, and divide it into the dollar figure that you arrived at for each spending category.  The number you get as a result is the number of hours of life energy that each one of those categories costs you for the month.  Instead of looking at your expenses in terms of money, you see them in terms of a much more important resource -- the finite amount of time that you have on this earth.  As I have moved along this path, I even found myself judging possible purchases in terms of whether that expenditure is worth the amount of life energy I have to devote toward it.  The impact of this change in perspective is that your spending diminishes naturally.  You don't have to feel like you're confining your spending by a budget straitjacket -- something that often turns out to be as successful as a crash diet.  Instead, you're looking at your expenditures through the lens of whether or not they bring you a measure of fulfillment equal to or greater than the amount of your life energy that you devote toward acquiring it.

Now, you move to the point at which you make judgments on your expenditures -- but it is a value-based judgment, not an emotional one.  YMOYL provides three questions to guide you in this process:

     1. Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
     2. Is this expenditure of life energy in alignment with my values and life purpose?
     3. How might this expenditure change if I didn’t have to work for a living?

Analyze each expense category with each question individually.  If you could receive more fulfillment by spending more in any category according to that question, mark it with a +.  If you are where you want to be, mark it with a 0.  If you could achieve more fulfillment by reducing that expenditure, mark a -.  This exercise is not about guilt, it's about honesty -- honesty in the pursuit of finding that better life, one that brings you personal fulfillment.


This is only an introduction to YMOYL, but I think it's important to focus on the way that it can transform your relationship with money.  Instead of viewing it as a source of stress, you can see it for what it is -- a medium of exchange to be used in ways of your choosing to achieve personal fulfillment and financial freedom.  This is the reason that I call YMOYL "financial permaculture" -- it guides you to work in concert with systems that already exist rather than fighting against them, instead looking for ways to make those systems work more efficiently in your favor.

Specifics on how to get those systems to work in your favor, as well as the remainder of the YMOYL approach, are the topic of other posts to come.  Now at least your have the basic building blocks (as well as the link to the YMOYL website, above) to start on your own journey toward that better life!

As always, I invite you to share your thoughts on this post or approaches toward personal finance and home economics that work for you.  And if you find that you find some value in it, pass it along to your friends.

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