New readers: This is an in-depth, chapter by chapter review and analysis of the book Your Money Or Your Life. Join us! You can buy YMOYL here, and you can find the first post in the series here. Finally, if you have any questions or issues about the book you'd like to discuss or debate, share them in the comments!
Chapter 5 gives us yet another easy exercise that backdoors readers into a state of higher financial consciousness: the Wall Chart.
Or the Closet Chart, depending on how much of a financial exhibitionist you are.
The Wall Chart is just a simple, graphical representation of your financial status. And mark my words: if you maintain it religiously, it will be a representation of stunning improvement in your financial status. Just wait a couple of years. You'll see.
The thing is, a weird things happens when you maintain a Wall Chart. Your expenses just... decline. From the book:
Those who get past the three-month hump will find their expenses leveling out at about 20 percent less than where they started--painlessly. These people report no feelings of deprivation, no struggling to keep a budget, just a natural decline. Knowing that you are not getting satisfaction proportional to the expenditure of life energy in a given subcategory of spending generates an automatic, self-protective reversal of your spending habits.
When you consciously consider your spending decisions--and when you know you're going to record them on a chart--all of your pointless, valueless spending simply goes out the window. You may see occasional spikes and month-to-month noise in your spending, but the overall trend of your expenses will be in one direction. Down.
What happens next, though, is far more powerful. All of that saved money can now go towards paying down debt (which lowers your expenses still more, see below) or towards funding income-generating investments (which raises your income, enabling still more savings). We'll cover this in future chapters, but for now, just trust the process and watch it work.
Imagine if you could transport yourself two or three years into the future. Imagine if you could know now what your Wall Chart will look like then. This is why you shouldn't laugh incredulously when our authors make the following statement:
As outrageous as this may sound at the moment, you should probably allow enough space at the top [of your chart] for your income to double.
Yes, it will take time to transform your relationship with money, and it won't be easy. But it will happen. Just keep recording the information on your Wall Chart and stay patient.
Your wall chart as regular reminder, feedback system and source of inspiration: Don't underestimate the value of having your chart visible to you every day. That's why it's an effective tool. It's not like you can cover your eyes and pretend it's not there.
Once again, this is how YMOYL makes ignorance of your now-improving financial situation literally impossible. It gives you consistent feedback so you can make adjustments. You'll see the impact of your actions right there in black and white (or whatever colors you're using on your chart). And it's hard to cheat the process when you're constantly facing such a visible and tangible reminder of your current (and improving) fiscal status.
On unusual expenses: The book gives you the option to take large, one-time expenses and prorate them over the course of a year. We don't do this. When an expense occurs, we pay it and book it. We don't prorate anything. It seems like every month has an unusual expense anyway, so this is the cleanest, simplest process for us. Readers, what are your key unusual expenses and how do you account for them?
Regarding different types of income: We're building our wall chart as I write this post, and we are planning to break out our income into two categories: active income (Laura's paycheck and my writing income) and passive income (our dividend and interest income from investments). We'll go much deeper into the discussion of investment income later in YMOYL.
Revealing your wall chart to others? Readers, would you ever show your personal wall chart to others? Would you leave it on your wall where friends and neighbors could see it? Would you share it as part of a YMOYL support group? The quote from the book about "Ivy" is instructive:
Her income was just her income. She could tell it to someone as easily as she could tell someone the color of her living room couch.
I mean, can you imagine having that wall chart out in your living room the next time you have a dinner party? Laura and I--well, we just couldn't. And this is in spite of the fact that I'm relatively open and candid about money. Part of the problem is when you bring your money situation out into the open, it's not just about the baggage you have about money, it's about the baggage others have about money. Readers, where do you stand on this?
1) On feelings of deprivation: Recall this quote from above:
Those who get past the three-month hump will find their expenses leveling out at about 20 percent less than where they started--painlessly. These people report no feelings of deprivation, no struggling to keep a budget, just a natural decline.
Okay. You can save 20% of your expenses at the pitifully small cost of a minute or two of observation and thought per day--and even better, you won't feel deprived. But just think for a minute. What about those feelings of deprivation you used to feel when you attempted to cut your spending in years past? Why did you experience them then--but not now? What was the basis for those feelings, really?
2) "That gap has a name. It's called savings." This quote, on the middle of page 152, literally made us laugh out loud. We live in a culture where so few people know what it's like to save money--where so few people know what savings actually is--that the authors felt it necessary to define the word for readers.
3) The value of getting out of debt and accumulating savings: One significant source of savings for many readers will be debt costs. The expense reductions you'll achieve simply by embracing YMOYL's process will free up significant cash, and you can use that cash to aggressively pay down all debts. Obviously, paying down your debts drives your costs down still further, and that merely frees up still more excess cash flow.
The critical insight here is that most people just obediently make their payments when they're told, and they have no idea how much their various debts actually cost them. If they did know, they'd instantly recognize that those debts are misaligned with their goals and principles. Do you obediently do what you're told? Or do you do what's aligned with your goals?
4) On rethinking fulfillment: Haven't you always wanted to be less materialistic? Less shallow? Less caught up in owning stuff and advertising your superiority through the things you own? Pages 143-147 contain a ton of insights on these concepts, including this gem of a quote:
Now that the link between spending money and getting fulfillment is in place, a gazingus pin no longer automatically means satisfaction--quite the opposite.
Many of us used to define "giving up your gazingus pins" as denying yourself, being cheap, or as a form of punishment for wayward financial behavior. Now you know differently: there's nothing to give up. You're actually avoiding a waste of time and life energy. After reframing gazingus pin-like purchases, it's a lot easier to realize what they really are: an exchange of future hours of work and life energy for a brief flash of faux-fulfillment now. That's a crappy trade.
Not buying a gazingus pin now becomes a source of fulfillment because you yourself have determined that gazingus pins don't bring you fulfillment.
Now, you can see more clearly how you can both increase your fulfillment and spend less money. Now, you've broken the last of your robotic consumption patterns, and your spending is now in alignment with your true goals. Congratulations.
Next Week: Chapter 6: Valuing Your Life Energy By Minimizing Spending
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