First, I want to stress that this isn't my book club, it's our club. I'm making the format up as I go along, so if you have any suggestions, please speak up! Now that the housekeeping items are out of the way, let's start, shall we?
When I went back and really studied chapter one, The Money Trap: The Old Road Map for Money, in preparation for writing this post I realized just how much wisdom is packed into the first chapter of Your Money or Your Life alone. We could easily spend a few weeks discussing just this chapter, but since nine weeks is already a lot of time to ask of you, I'm not going to do that.
What do you want to get out of this book and book club?
I so identify with Penny Y's comments at the beginning of chapter one, her feelings of wondering is this really it? I played the game as instructed. I got good grades, went to college and got a good job. But just like Penny, since graduation I've been plagued by feelings of "is this really it?" You work and work until you retire? It's not that I hate everything about my job, I just want to work on my own terms. I don't want to be forced to make work the primary thing in my life and squeeze the rest of my life in the time that's left. To me, financial independence equals freedom and that's what I'm hoping to find through the YMOYL program. What about you, what do you want to get out of this?
Wisdom from Chapter One
What are your favorite parts of chapter one? What did you find most enlightening? Some of mine include:
When I went back and really studied chapter one, The Money Trap: The Old Road Map for Money, in preparation for writing this post I realized just how much wisdom is packed into the first chapter of Your Money or Your Life alone. We could easily spend a few weeks discussing just this chapter, but since nine weeks is already a lot of time to ask of you, I'm not going to do that.
What do you want to get out of this book and book club?
I so identify with Penny Y's comments at the beginning of chapter one, her feelings of wondering is this really it? I played the game as instructed. I got good grades, went to college and got a good job. But just like Penny, since graduation I've been plagued by feelings of "is this really it?" You work and work until you retire? It's not that I hate everything about my job, I just want to work on my own terms. I don't want to be forced to make work the primary thing in my life and squeeze the rest of my life in the time that's left. To me, financial independence equals freedom and that's what I'm hoping to find through the YMOYL program. What about you, what do you want to get out of this?
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| The fulfillment curve. Source: Financial Integrity program guide |
Wisdom from Chapter One
What are your favorite parts of chapter one? What did you find most enlightening? Some of mine include:
- We aren't making a living, we're making a dying: "What they do for money dominates their waking hours, and life is what can be fit into the scant remaining time."
- As we work more, our saving rates have actually decreased: "According to the U.S. Department of Commerce, the U.S. personal savings rate has hovered between 0 and 1 percent over the past three years. By comparison, a quarter century earlier in 1981, Americans saved and average of 10.9 percent.
- The daily grind isn't making us happy: "It is becoming increasingly clear that beyond a certain minimum of comfort, money is not buying us the happiness we seek."
- Once you have enough, more isn't better. "If you live for having it all, what you have is never enough."
- Materialism creates clutter. "What creates clutter? It comes from the disease of materialism, of looking for inner fulfillment in outer possessions."
Week 1 Activity - Step 1: Making Peace with the Past
The first step of the YMOYL program is to "examine the past so you can understand and take responsibility for the present." There are actually two parts of this step:
A. Calculate how much money you have earned in your lifetime.
B. Find out your net worth.
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| Source: Financial Integrity program guide |
A. How much money have you earned in your life?
At first this task seems almost impossible, but you likely have records that will make this easier to do than it may seem at first. If you have your Social Security Administration Statement of Earnings, you can quickly find your income earnings in one spot. Other retirement plan annual statements may offer the same information. If not, you can always turn to your old income tax returns.
Once you have your reported income earnings, you need to add any unreported earnings you received as well as cash gifts, rent received, earnings from selling your clutter, etc. I found going through my old check registers helpful for getting some of this information. Obviously unless you are a record-keeping fiend your number is going to be somewhat of an estimate, but even so seeing that total can be a powerful surprise.
As the book says, the value of this step is that it shows you just how much money has entered your life in the past and how much could enter in the future. It can also help eradicate false beliefs about your earning potential or your financial past.
B. What have you got to show for it?
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| Source: Financial Integrity program guide |
Now that you know how much money you've earned, you will calculate your networth to see how much you have to show for it. To calculate your networth, you need to add up all your assets (savings, retirement accounts, cash, house, car, personal belongings, etc.) and subtract your liabilities (any money you owe including unpaid bills, loans, mortgage balance, etc.). See the book for complete details as needed or the Financial Integrity Program Guide (starting on page 31).
In this step it is also suggested that you go through and inventory all your possessions and "itemize everything worth more than a dollar." I'm really curious how many people did, or would like to go to that amount of detail? I've been calculating my networth regular for several years now and I've never bothered to add in the value of my possessions. I could easily become mired for days if I even attempted it. Before I decided to start the online book club, I did try to start taking an inventory of my home. I didn't even make it through the entire kitchen and living room and I was already up to 192 items and only $1200 in value. Did you take an inventory and if so, did you find it valuable?
No Shame, No Blame!
YMOYL reminds us often to take it easy on ourselves as we complete this step. The point is not to be critical of your past behavior, but simply to examine it and see the truth for what it is.
Now that we've examined our money past, we'll be ready to move to the present next week.
Discussion
Once you complete step 1, let us know what you learned in the comments! What part of chapter one resonated the most with you? Which part of step one did you find most valuable? Most difficult? Please feel free to post any and all reactions in the comments, or on your own blog and just share the link below.
No Shame, No Blame!
YMOYL reminds us often to take it easy on ourselves as we complete this step. The point is not to be critical of your past behavior, but simply to examine it and see the truth for what it is.
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| Source: icanhascheezburger.com |
Discussion
Once you complete step 1, let us know what you learned in the comments! What part of chapter one resonated the most with you? Which part of step one did you find most valuable? Most difficult? Please feel free to post any and all reactions in the comments, or on your own blog and just share the link below.
I'm amazed at how much this chapter contains. It's really all over the place from culture-wide phenomena to the stuff we can control ourselves.
ReplyDeleteOne thing that really struck me the first time I read this book is how we used to be called citizens, and now we are called consumers. That's pretty sick.
What struck me this time is how he called all that extra stuff beyond necessities, niceties, and luxuries "clutter." That's a good way for me to think of clutter, because I'm focusing on clutter this year. It's a whole different perspective on stuff I might need and stuff I used to use a lot.
The work stress descriptions are things I learned on my own. I've always accepted less pay to work at jobs with lower stress and fewer hours than the kinds of jobs most of my friends have. (Actually, that was accidental, because I couldn't get the kind of good job I wanted, but then I grew to see the advantages.) But I still wish I didn't have to work at all.
I love his thorough approach to calculating the money you've earned and your current net worth. If nothing else, it makes the ordinary ways of calculating these things look much less onerous.
I really love the no shame, no blame philosophy. I definitely had to remind myself to use the same strategy when I finally measured how far I'd been jogging lately and calculated just how slow my running pace was. But hey, you've got to start where you are, and when you measure it again later, the new numbers will be a lot more impressive if you know how bad the numbers used to be.
I'll post on the steps in a later comment.
Thanks for kicking things off Debbie!
DeleteThis definition of clutter was something new for me as well and is an interesting way to look at things.
Well, I have to confess that I didn't actually get my hands on a copy yet... so I'm sort of relying on my memory as well as the stuff from the web.
ReplyDeleteBut I did the exercises and was pleasantly surprised to find that my net worth is right about at 50% of my total lifetime income. I'm also really psyched that I'm on track to have the mortgage paid off next year.
A few things stuck me as I ran the numbers. The first was how much my income shot up after I quit my job! Maybe that's to be expected when your "job" is running a folk music school, but I found it very interesting nonetheless. It's down quite a bit from then because I've finally learned how to slow down... but it still covers my expenses nicely, and it's actually going up again since one of my new websites is gaining steam. It's fun to be able to add to your savings when you don't even have a job!
Another thing that struck me was how generous my family has been with me... and the most interesting part is that the most generous family members are the frugal ones with the smallest incomes!
And doing the exercises also made me see how incredibly lucky I am to never really have fallen into the traps of debt and spending that so many people get mired in. I think my little "nervous hoe down" in college, and my subsequent "outsmart the system" and "rebel against all conformity" attitudes have really served me well in this regard. I never really felt the urge to "keep up with the Joneses" because the Joneses always seemed like total dickwads from my perspective!
But even though I managed to escape the whole work/spend paradigm, I still felt that sense of "this is it?" that you describe. For me, it was just the incredible resentment I felt about being required to work for other people. It's funny in a way, because I was running a little non-profit hippie music school... not exactly corporate America, but I was still working my ass off, not feeling appreciated, being motivated by a great sense of guilt and self-righteousness indignation, and just generally feeling like there was no room for me in the equation.
I guess what I'm saying is that for me, working wasn't all that much about making money since I basically jumped without a net right out of college in that department. But my job definitely made me feel like I was important and that I had some status, even if it was only status within the incestuous folk music community.
But here's the thing... I think the fulfillment curve works pretty much the same with status and importance as it does with money. The rewards level off pretty quickly, but the responsibilities and demands on your life energy just keep going up and up, making you less and less fulfilled.
Hmmmmm.... that's a pretty interesting revelation!
Cat - Lots of good stuff here, thanks for sharing.
Delete"But here's the thing... I think the fulfillment curve works pretty much the same with status and importance as it does with money. The rewards level off pretty quickly, but the responsibilities and demands on your life energy just keep going up and up, making you less and less fulfilled."
This is a *very* interesting revelation!
It's also amazing your income went up after you stopped working. Do you attribute this to losing all those work-related expenses we'll be hearing about in the next step, or something else?
Well, I think it was a number of things actually. First, there was some savings with not having to commute or buy clothes or anything, but I think that was more than offset by having to pay for my own health insurance.
DeleteI think it was more that I finally was in a position to benefit from my hard work. Running the music school was strikingly similar to being self employed. There wasn't really a manual for what you were supposed to do, it was really an entrepreneurial endeavor, which meant that I spent a lot of time trying to figure out how to attract students, and make the classes more profitable etc.
But the organization wasn't really set up or managed well, because the school was only half of the business. The other half was producing concerts, which lost money at an incredible rate. Sooooo the result was that I'd work myself into the ground, and every year I'd make the school more and more successful, but all the money would just get sucked into the black hole of the concert department.
Soooo... I think that when I was finally out on my own, I was able to focus on making money and didn't have to have this albatross around my neck anymore. At the time I only had one web page, but it was pretty well established by the time I left the music school, so when I was able to focus my energies it really took off.
I also discovered that when you're on the web your audience is really the whole world... and it was much easier to market things when you've got a huge audience as opposed to trying to find the 3 people in the Denver area who might be interested in frailing banjo technique or something equally obscure.
But all that being said... I really worked too hard those first years after quitting my job. It was partly because I was worried about "making it" on my own, but it was also that I just didn't know how to NOT work hard. I always sort of had this picture of myself as this harried martyr when I was running the music school... but once I quit I discovered that I while my boss may have been a jerk, the majority of the overworked and under appreciated problem was something I brought on myself.
Anyhow, it took me a while to learn how to slow down and simply be.
Very interesting Cat, thanks for sharing!
Deletep.s. I totally LOVE the "Innocent Cat" graphic... he's sooooo cute!
ReplyDeleteOh... and the whole idea of itemizing everything worth more than a dollar made me laugh out loud. As I look around at my late 20th century garage sale decorating motif, I have to wonder whether most of it would even be worth a dollar, or if I'd have to pay someone to come haul it off! Suffice it to say I painted with a fairly broad brush in that department!
ReplyDeleteHi Candi,
ReplyDeleteI haven't had a chance to re-read the first chapter, but I'm going to link to your blog this week as my "blog inspiration" and work through the first chapter over the course of the week. I'll try to post some comments over here, too.
Delona
http://recoveringdabbler.wordpress.com
Hi Delona!
DeleteThanks for picking minhus as your inspiration this week, I look forward to reading your posts!
Okay, I'm getting depressed. I guess that's why I skipped step one when I read the book the first time.
DeleteI've decided to include real numbers instead of just percentages or just my thoughts.
ReplyDeleteTo calculate my earnings, in the past I have just gone with the Social Security summary. The most interesting thing is how my salary made these huge jumps from one decade to the next:
1980 - 1989 - $31,409 total (range $579 - $6,005/year)
1990 - 1999 - $189,404 total (range $14,888 - $24,430/year; can you tell I got out of school and got real jobs?)
2000 - 2009 - $346,443 total (range $30,299 - 41,760/year; can you tell I got jobs that required a degree?)
That's not happening again in the current decade. (I guess I should be getting leadership jobs this decade, but instead I'm winding down.) Total earned = ~$669,592 (not even counting all my babysitting, gifts, found money, etc.).
But this time I'm also going to include capital gains. I was afraid that doing that was going to double my number or something. Like the authors suspected, I do have feelings associated with this number. Unlike what they say, seeing that this number is so big does not make me feel powerful. (Note: I'm middle-aged and still think that a million dollars is a huge amount of money. So is 2/3 of a million.) Quite the opposite--if I've had this many piles of money in my hands, and if I think I'm so frugal, why do I still have to work?
So, let's see the damage. I bought my house for $61,500 (in 1996), and the city says it's now worth $161,216. Zillow estimates it's worth $129,800. (Weird--usually Zillow's number is higher, so I've just been using the city's number for my so-called conservative estimate of my net worth each month.) Okay, averaging out those numbers shows an increase in value of $84,008. I've been earning 5% on my pension and have all my statements for that--through 2011, I've earned $23,891 in interest. I've been contributing the maximum to Roth IRAs since they were invented. That's $49,000 through 2011 plus another 416.66 before I quit my job. It's now worth $92,330.36, so that's a gain of 42,913.70. I also started a couple of other small retirement funds, but those are more trouble to calculate, so I'm not going to bother.
So the total for all that interest and capital gain is $150,812.70, increasing my "what I've earned" number to $820,404.70. Somehow it's a relief that it's less than a million dollars.
Hmm, another calculation: about 18.4% of my income came from interest and capital gains. That does seem kind of huge for a regular working stiff. That's 10.2% from buying a house, 2.9% from my pension, and 5.2% from my IRA.
I have an idea for one more calculation I might like that would get me a tiny bit closer to the homework in the book. I could take a small subset of my belongings, weed out the clutter, and calculate the value of that clutter. Or actually try to sell the clutter (thus finding that actual value of it). I'd probably pick clothes (and a resale shop) or a bookshelf (and online booksellers).
I'll put my thoughts on part B of step one in a separate comment.
It never occurred to me before reading this book the first time that you could have a higher net worth than the money you earned from income alone (by using it to earn interest, dividends, and capital gains). So that was eye-opening.
ReplyDeleteThe first time I calculated my net worth, I was very excited to learn that it was positive! Now I recalculate it monthly, but in the same slipshod way I just calculated my lifetime earnings. I include all financial accounts other than my checking account and then I add estimated house and car values. I also assume I have no debt even though I do: I use a credit card that I pay off monthly and, since property taxes are paid for the previous year, I do also owe property taxes. I do own a lot of other stuff, but I am assuming it is mostly stuff that would have to be sold at garage sale prices if it could be sold at all. Whenever I get excited about making money by selling my clutter, it's always so disappointing. Either it's so much trouble I don't even bother, or I get very little money selling to a used bookstore. I usually end up donating the usable things and taking a tax deduction, so for me that's 15% of thrift store prices.
So what do I have to show for that $820,404.70 in income? My net worth comes to about $356,372. That's 43.4% of my lifetime income, so EcoCatLady has me beat there. Because this is a contest. :-)
At one point, I decided that my ideal net worth would be 1/3 real estate (my house), 1/3 pension, and 1/3 other retirement. Even though I got the cheapest house I could like, for a very long time it was over 1/2 my net worth. Nowadays it's 41% (44% if you ignore the Zillow estimate).
My pension started out higher than my other retirement funds because it was required, so I started contributing earlier. I caught up to it, then passed it, then the stock market dropped and the pension was ahead, but now my other retirement money is ahead again. My pension is now 20% of my net worth, my IRA is 26%, and my other retirement funds add up to 3%. I've also very recently started investing in dividend growth stocks outside of retirement vehicles and that's already 1.5% of my net worth. Wow.
There's also my car. And a reasonable amount in emergency-type savings, like for house and car maintenance, for buying my next car, for future expensive purchases like vacations and electronics, and future health costs (a shockingly new addition in my savings repertoire). I feel weird including these savings in my net worth because I feel like it's sort of already spent--I'm using up my car and my house and my body even if I don't happen to have had to pay for any repairs this month.
Finally, some of my net worth is early retirement/sabbatical savings. I'd like to have six years of expenses saved, enough to hold me until my pension kicks in. If I keep expenses minimal, and inflation is 3%, that comes to $116,664. The amount I have is $9,435. Adding the $49,000 in Roth contributions (which you can withdraw penalty free at any time), that's still only $58,435. So, just like the authors say, I feel that more would make me happier.
Meanwhile, I really can't complain. Things are basically going according to plan (and since when does that happen?) except for the part where I started hating my job three years too soon.
Doh, that was me again.
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DeleteThis comment has been removed by the author.
DeleteInteresting.
DeleteYep, the pension was forced. And the idea of tax-free retirement money (the Roth IRA) was too good to pass up. Because it was obvious that taxes were going nowhere but up--I was still in the 15% tax bracket, and taxes were at historic lows.
Of course, so far I have been wrong about taxes going up--I'm still in the 15% tax bracket and taxes have actually gone down a little! Still, it feels like a nice kind of insurance.
Very brave of you to include actual numbers Debbie, bravo!
DeleteIt is so interesting to read other's take on this and results. It never would have occurred to me to include capital gains. I still left it out since until you cash things out those gains are an estimate at best, but it's reading different approaches that is so valuable.
Thanks for sharing!
Thanks.
DeleteI wouldn't have thought of capital gains either except that they are #8 on the checklist. I didn't include them last time I did this step because I didn't think they would be very big and I couldn't think of an easy way to calculate them. This time I thought they might be big and I did think of easy ways to find most of them.
I thought I commented earlier but I was trying to do so via smartphone, not the best choice. What I took away from the first chapter was the "no blame" concept, which I feel really helps it reach a broader audience and is unlike other finance books out there. I haven't tallied up my lifetime earnings but I think I finally found my earnings per hour...Don't want to jump ahead though!
ReplyDeleteHi OG. Your first comment ended up on the original intro post about the book club. Thanks for double-checking and posting here too though. Now I'm looking forward to next week's discussion!
DeleteI'm still working on the hard assets part, but it will be a very rough estimate and only include larger items. Maybe at some point I'll go back and be more precise. Guess I'm already a little behind here, but at least I'm doing something!
ReplyDeleteThe timing is also good, as we're considering both short- and long-term life path options: one us not working or one or both of us working part time; moving from a 1-br apartment to a 2-br apartment; buying a house; moving to the country and farming. Anyway, kind of crazy, but it will be good to know where we are now as we continue.
Melissa, you're not behind. The next step won't be posted until Saturday. That's eons away, or so it feels.
DeleteIt sounds like you have some pretty cool possibilities on the horizon and that this is great timing to check the finances.
It's so great to see so many people chiming in already! Way to go guys!
ReplyDeleteI was surprised that my lifetime income number is as high as it is and am pleased that my networth comes to 40% of my lifetime income. There is definitely room to improve though!
I've always been a saver, but I have also been rather carefree with spending, my only rule being no spending on credit except for the big ticket items (one car, one house).
Although I'm pleased with my numbers, it occurred to me today that unless things change drastically, there is no way I'll have the giant retirement account I thought I'd have in my youth. I don't see any way I'll hit the $1M mark. I just hope my pension, which I help fund, doesn't disappear the way so many others are doing.
I read this book a few years ago and it did change my life. However I changed in my usual big picture ignore the small details way. I didn’t complete the exercises or write down all my spending. What I did do was to just stop buying stuff and (along with other readings/inspirations) I tweaked my life to be more frugal. I was not a big spender any way and the main draw card for me was the realisation that there was nothing wrong with me for not wanting to go to work. I wasn’t a bad person or lazy or mentally ill. Reading about how other peoples despair with this helped me normalise what I was feeling and it gave me a life line- a way out. I hadn’t even realised before that I could earn enough to leave my job and live off my savings (I now know that this is harder to acheive but at the time it kept me sane). This led to an ongoing journey of reducing my need for money. I am still working 3 days a week and this keeps me connected to the grid, connected to the main stream and therefore more at risk of losing sight of my goal and lapsing back into consumerism. I hate having to leave my home and commute to a small uncomfortable space that I have to share with a bunch of people, some of whom I didn’t even like or connect with any way. Don’t get me wrong the job itself is great (and I do have some great buddies there!) and it is a very ethical line of work but it is out of home and very demanding on my emotional reservoirs and it comes with all the trappings of costuming and working for the man etc.
ReplyDeleteAny how! What I got from reading the chapter again- the discussion about ‘money equalling fulfilment’ believed by the masses and how this leaves them/me desperate for more as they/I never feel full. This resonated with me again and helped me recognise lapses in my current life style, thinking and spending habits. I loved the sentence ‘Enough is a wide and stable plateau. It is a place of alertness, creativity and freedom’. This is so so true : ).
The discussion about clutter and looking for inner fulfilment in outer possessions again made me recognise lapses. I agree with this idea and while I’m not a hoarder frugal living can invite me to ‘keep things for a rainy day’ and free stuff from freecycle can sometimes be sooooooooo enticing : ) It was good to refresh ideas about how clutter is suffocating.
In terms of making peace with the past I think I’ve worked out in my big picture way a general idea of what I’ve earnt. I’m sorry but I just aint gonna go find out all that stuff : ( Being a migrant I threw most of my stuff away years ago including old pay slips and tax returns so have no paper work from UK anyway. My assets and liabilities are quite easy and straight forward; we have the house which is joint owned with partner. I counted my portion rather than the whole. I have my savings and an old well used and paid for car. Everything else, in today’s market where people have to give things away because they can’t sell it, (illustrating the rampant consumerism of our culture whereby we all have mountains of useless stuff that has been shipped around the world and back again) I don’t think my other possessions would be worth much. It did make me think though about having another go at trying to work out how to sell on EBay, I have lots of books and the odd corporate designer clothing left over from a previous life.
The conclusion I came to is that compared to what I have earnt in a life time (yes I acknowledge that without the objective figures my life time earnings could be wildly out either way) I have 1/3 of that to show in assets. 99.9999% of which is in the house and my savings that are in low risk term deposits in the bank.
I cant wait till next chapter : )
PS I have also enjoyed reading other peoples journeys and am really interested in how you all go about chapter 8 x
Ruth in Western Australia
I had to look up chapter 8! I'm a fan of re-reading books as an inoculation. I mostly do it with _The Tightwad Gazette_, though.
DeleteThat was me again. I am not too old to learn new tricks, though. I can learn not to be anonymous half the time.
DeleteDebbie M your funny haha : ) : )
ReplyDeleteoops PS thats me too!!!
ReplyDeleteRuth WA
Oh, no, it's catching!
DeleteHi Candi,
ReplyDeleteSorry I'm late to the YMOYL book club!
I first read this book a little over two years ago. It was one of the major catalysts that convinced me I need to get rid of my consumer debt.
The first chapter introduces a completely different way of thinking for those coming from a consumerist culture (which I was at the time). This book was one of the resources that planted the seeds of financial change for me.
Two years ago when I calculated my lifetime earnings, I wasn't terribly surprised. But when I calculated my net worth in relationship to my lifetime earnings, I was disgusted. I had only managed to hold on to about 15% of what I had earned over my 12 years in the workforce. To say I was literally giving my life energy away is an understatement.
Needless to say, I've made some fairly drastic changes over the past couple of years and have formulated a plan that will allow me to work less sooner.