A while back, I promised a review of this book that I recently bought from the CS. I'd heard about it on YouTube and in the blog world, so was interested to read it and see if it had anything to offer me in terms of improving my financial situation. This post is a long one, so it may not appeal to everyone to read it. If you persevere, however, you might find it useful, as I did this book.
This book was first published in 1992, (the edition I read dated from 1999) and is based on the financial program followed by the author Joe Dominguez in the 1960's, to free himself from 'wage slavery' and achieve financial independence.
The program itself is a 9 step plan to transform your relationship with money and achieve said financial independence. The main premise of the book is that money is time out of your life and the authors pose the question that, if you had a choice between money or your life, what would you choose?
This book suggests that both are possible and that you don't have to be a slave to money for your lifetime. Instead, with a bit of financial planning and frugal living, you can actually free yourself from a job you don't enjoy and get your money working for you, so that you can do the things you want to do in life.
The authors suggest that work dominates our lives and there seems to be no real choice in life, but to work the majority or our waking hours, in pursuit of money we need to live or enjoy the hours outside of work. They suggest that there is another way and by following the nine steps in their program you could be more financially independent and have more choice in how you spend your time whilst here on this planet. Here is a summary of their 9 steps:
Step One - Making Peace with the Past.
This step involves firstly looking back at the amount of money you have earned ever since you first started working. They ask you to include part-time jobs you had as a teenager, fulltime jobs, side hustles, all paid work undertaken and calculate exactly how much you have earned in your lifetime so far.
I must admit that I did question the need for this step, but the authors warn against skipping steps. Although I was reluctant to actually do this step, as I don't have any records and really can't remember what I earned when in the past, I did make some rough calculations although they probably weren't very accurate.This was all I could do really.
The authors also encourage you to create a balance sheet for what you have to show for all the money you have earned. Combined, these two activities are a bit of an eye opener and did help me to comprehend this step, as you get to realise how much money you have completely wasted in your life so far, which in turn helps you to make a commitment not to repeat the same mistakes going forward.
Step Two - Money Ain't What It Used To Be
In this step, the authors ask you to work out exactly how much you currently earn. Your real hourly wage, as opposed to the one you think you're earning.
To do this you have to take into account all the money you spend on work - getting there, dressing the part, keeping up with colleagues, socialising when you're not at work to wind down from it, or shopping to treat yourself at the end of the week or in your lunch hour, etc. This was a really interesting step, because they argue that once you take all of the above into account, your hourly wage plummets to ridiculous levels and this does make you wonder if it is worth all the effort.
In this step, they also encourage you to track every single penny and see where all your money goes, which itself can be very enlightening.
Step Three - Where's It All Going?
This step is all about discerning your unique spending and income categories for each month, in order to ultimately work out your monthly expenses. They ask you to convert the dollars (or pounds) you spend in each category, into hours of life energy, using the real hourly wage computed in the previous step. This helps you to contemplate whether the things you purchase or spend money on, are really worth the life energy you are spending to pay for them.
Step Four - How Much is Enough?
This step asks you to consider what fulfilment you receive as a consequence of the money you spend each month. Was the expenditure in line with your life values and how might your expenditure change if you didn't have to work for a living? In addition, it encourages you to ask how much is enough? Do you really need everything you think you need?
I have to admit that I found the activities you were required to do in this particular step a bit onerous and didn't actually complete them, but I did enjoy reading the chapter, as it does make you consider what the important things in your life are and what is worth spending money on and what is not.
Step Five - Seeing Progress
This step required you to make visible your life energy by making a wall chart to show your income and expenses each month. On the same graph, you plot two different lines, the amount of income you receive each month being one and the expenses you pay out the other. By doing this on a regular basis, paying attention to it and by following their 9 step plan, they argue, you will gradually see your expenses reduce and your earnings increase and the gap between the two lines on the graph will represent money you can save and invest.
In their words, 'financial independence is money in the bank'.
Step Six - The American Dream On a Shoestring
Step six focuses on the pleasures of frugality, minimising spending and basically saving money.
It provides hundreds of examples of ways you can save money in every area of your life. By so doing, you can lower your monthly expenses, increase your consciousness in spending, and thus learn to 'choose quality of life over standard of living'.
Step Seven - For Love or Money: Valuing life energy
This step focuses on work, how to value your life energy and increase your income. In this chapter they consider the purpose of work and how we can redefine it and get our life back. They also consider the implications of such a course of action and suggest new options for paid employment to maximise your income, whilst keeping it consistent with your health and integrity.
Step Eight - The Crossover Point - The Pot of Gold at the End of the Wall Chart
This step was probably my favourite step of them all. It provided a lightbulb moment for me. For this step, they ask you to plot any income you receive from investments or savings onto the same graph as the one with your monthly income and expenses.
By doing so, you can visualise how you are working towards financial independence and how, as this investment income gradually increases, you can gain financial freedom. When your income from investments crosses the point of your monthly expenses on the graph, at this crossover point you have enough investment income to cover your expenses and everything over and above that you earn is your choice, as it is more than you actually need. You have thus 'broken the link between work and money - in your own life' and it is time to celebrate. If you so wish at this point, you can stop working for money and do other things instead, such as volunteering on projects that give you greater satisfaction or spending time with those you love.
Okay, you may say, but how on earth am I ever going to save enough, to earn sufficient income on it, to support myself, especially with the vagaries of the financial markets, inflation, low interest rates, etc. Well, I can't guarantee that you can, but they do give you some options to consider in Step 9.
Step Nine - Managing Your Finances
This step suggests ways of managing your finances in order to achieve your financial independence. As such, it talks about ways of investing your capital to get returns and income, how to make sure you have six months expenses available as a cushion, and how the surplus funds, as a consequence of continuing to practice the nine steps, can be used to compensate for emergencies, inroads of inflation and replacement of high value items or re-invested to produce an endowment fund, etc.
In conclusion, this book was a great read. I have bought myself some graph paper and I have started to plot my progress. It may take a long time, but it will be an interesting journey. Even if I don't reach the ultimate destination, attempting the journey is important to me and definitely worth the effort.
Disclaimer: Please note that I am not a financial expert, nor do I profess to be. This book is written with the American market in mind, but it's ideas can equally be applied to the financial market here in the UK. It is not a get rich quick type of book and I am not suggesting that anyone follows the financial advice it offers, but it might help anyone in other ways who are wanting to achieve more financial freedom.
This review has only briefly summarised this book. There are much more detailed explanations of each step, which make very interesting reading and I would definitely recommend reading it if you are interested in, as the title suggests, 'transforming your relationship with money and achieving financial independence'.
My only regret about reading this book, is that I didn't read and act on it 20 years ago.