Yesterday, we calculated the actual cost of our employment over a given year - and were surprised to discover how little it actually is. Once you remove all of the work-related expenses, such as the commute, the wardrobe, the extra meals, and the child care, the actual income you get from your job is ominously low.
Today, we’re going to look at our work from a different angle: time. We need to get an accurate picture of how much time you spend in a year chasing the money you make. At first glance, this seems almost automatic, but let’s look at it a bit more closely.
As usual, take out a sheet of paper. Along the top, make a list of each of your employments and, along the far right, write how many hours you actually spend at work (include your lunch break) in a given year. Don’t include vacation time. If you work overtime some of the time, just estimate what an average day looks like, then calculate how many days you work in a year (total days minus holidays and vacation), then multiply the two numbers together.
Now, underneath your time spent at work, list every other activity you do in relation to your work. The list you made yesterday might help, but give the question some thought. List everything that you do that you wouldn’t otherwise do if it wasn’t for your job. For example, if you travel, you can list almost all of your nonworking waking hours. You can list the time it takes to travel to and from work. You can list the time you have to deal with child care. You can list the time you spend shopping for work clothes, or time you spend going out for business dinners, or time you spend doing "optional" training.
For example, here’s my list:
> Child care
> Commute
> Working outside the office
> Business travel
> Business dinners / parties
If you haven’t already, for each of these activities, list the number of hours you spend on them in a year. Put these in next to each item, but over on the right hand side of the page under the time you spend at work in a year. I find that for many of these items, it’s easier to figure out how much you invest in these things each day (like the commute or the child care connection), then multiply it out by the number of days you work in a year.
Now, total all of the numbers on the right. That’s how many hours you actually spend working in a year. Divide it by 52 to get your weekly total, or by 365 to get your daily total (realize that this daily total does include weekends; if you want to exclude them, divide it by 260 to get only weekdays, or by 250 to exclude ten holidays - you may also want to subtract your vacation days from that total, too). For me, this number was a real eye-opener, as I began to realize how much of my time really is taken up by my chase for more money.
Spend some time thinking about this exercise and what it means. You spend all of this time working your tail off and yet you still find yourself in financial trouble. I spend an average of 70 hours a week working just to keep my job. What things could I do if I didn’t have this time investment? What sort of things could I do if I did a low-wage job just down the block? I leave it up to you to draw your own conclusions, but it is a question worth thinking about.
Tomorrow, we’re going to see how much your time is worth - and what that really means.
Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
Sunday, November 16, 2008
Thursday, November 13, 2008
31 Days to Fix Your Finances - Day 2
Yesterday, we defined five main values that define our life. These values are what we live for; they drive us to work and generally guide us in how we spend our lives.
Yet so often we find ourselves betraying these values (everyone does this at some point), and it is when we choose to betray these values that we find ourselves in financial trouble instead of in financial stability. We either spend money on things that don’t match or even oppose our values, or we spend money on our values but in a misguided fashion.
Why do we do this? The biggest reason that we spend money out of accord with our values is that we don’t sit down and define our goals. Goals are merely the specific embodiment of our values - tangible milestones that are clear indications of lives lived in tune with our values.
You’re probably thinking to yourself, “I have values and goals already - this is a waste of my time.” Before you log off, I want to ask you one simple question: first, do your goals actually match the values in your life? Let me give you an example. One of my major short term goals is buying a house, something many of you can identify with. This is a goal related to one of my primary values, my family. Thus, I’m buying a house for my family. Understanding this connection lets me clearly define what type of house I’m looking for (it doesn’t need to be shiny and new, but it does need to have space for my son and my future children - a large kitchen, a family room, and four bedrooms are what I seek). Thus, every time I think about the home purchase, I realize that I’m working for my family.
If you can honestly match ever single goal in your life with one of your central values, you’re more well-adjusted than almost everyone in the world. The truth is that we all have central values without any associated goals, goals without any associated values, and goal-value pairings that are really unclear and muddled. People that are financially successful find ways to minimize all of these.
How do they do this? They define all of their goals based directly on their personal values, and they live their lives to meet these goals above everything else. If they go to spend money, they ask themselves whether that money directly leads them to one of their goals. If the answer is no, they don’t spend the money. Thus, when they actually spend money, it doesn’t fill them with guilt. They can immediately see how that money is going to realize their goals, which are fundamentally connected to the values that define their life.
How do we get there? Let’s take an hour, sit down, and define ten goals in our life. If you went through yesterday’s exercise, you will already have a list of the five values that are central to your life. Now, we take these values and use them to define ten concrete goals.First, forget what you believe your goals are right now. You might end up coming back to these goals during this process or you might not. The intent is to define your goals in direct harmony with your core values.
For each value on your list, ask yourself where you want to be in terms of that value in twenty five years. I mentioned that one of my main values is my family (specifically my children), so in twenty five years, I would like to have two college-educated children starting stable lives on their own, and perhaps a third in college.
Now, turn that dream into a goal. For my children to be able to start out their own lives on their own, I want to minimize their college debts and set a good example for their lives. So, my goal is to be able to pay for at least part of their education.
You might be tempted to start writing a plan for that goal right now, but don’t. We’ll get to that later. Right now, we just want to make a list of long-term goals that match your values.For those curious, here are my goals for twenty five years down the road:
Yet so often we find ourselves betraying these values (everyone does this at some point), and it is when we choose to betray these values that we find ourselves in financial trouble instead of in financial stability. We either spend money on things that don’t match or even oppose our values, or we spend money on our values but in a misguided fashion.
Why do we do this? The biggest reason that we spend money out of accord with our values is that we don’t sit down and define our goals. Goals are merely the specific embodiment of our values - tangible milestones that are clear indications of lives lived in tune with our values.
You’re probably thinking to yourself, “I have values and goals already - this is a waste of my time.” Before you log off, I want to ask you one simple question: first, do your goals actually match the values in your life? Let me give you an example. One of my major short term goals is buying a house, something many of you can identify with. This is a goal related to one of my primary values, my family. Thus, I’m buying a house for my family. Understanding this connection lets me clearly define what type of house I’m looking for (it doesn’t need to be shiny and new, but it does need to have space for my son and my future children - a large kitchen, a family room, and four bedrooms are what I seek). Thus, every time I think about the home purchase, I realize that I’m working for my family.
If you can honestly match ever single goal in your life with one of your central values, you’re more well-adjusted than almost everyone in the world. The truth is that we all have central values without any associated goals, goals without any associated values, and goal-value pairings that are really unclear and muddled. People that are financially successful find ways to minimize all of these.
How do they do this? They define all of their goals based directly on their personal values, and they live their lives to meet these goals above everything else. If they go to spend money, they ask themselves whether that money directly leads them to one of their goals. If the answer is no, they don’t spend the money. Thus, when they actually spend money, it doesn’t fill them with guilt. They can immediately see how that money is going to realize their goals, which are fundamentally connected to the values that define their life.
How do we get there? Let’s take an hour, sit down, and define ten goals in our life. If you went through yesterday’s exercise, you will already have a list of the five values that are central to your life. Now, we take these values and use them to define ten concrete goals.First, forget what you believe your goals are right now. You might end up coming back to these goals during this process or you might not. The intent is to define your goals in direct harmony with your core values.
For each value on your list, ask yourself where you want to be in terms of that value in twenty five years. I mentioned that one of my main values is my family (specifically my children), so in twenty five years, I would like to have two college-educated children starting stable lives on their own, and perhaps a third in college.
Now, turn that dream into a goal. For my children to be able to start out their own lives on their own, I want to minimize their college debts and set a good example for their lives. So, my goal is to be able to pay for at least part of their education.
You might be tempted to start writing a plan for that goal right now, but don’t. We’ll get to that later. Right now, we just want to make a list of long-term goals that match your values.For those curious, here are my goals for twenty five years down the road:
- I want to be able to pay for a significant part of my child’s college education
- I want to have a fully paid for house big enough for my grandchildren to visit and feel comfortable
- I want to be able to travel the world with my wife
- I want to have three books in print
- I want to be able to live off the interest of my non-retirement investments
Once you’ve made the long term goals, go through your values again and ask yourself where you want to be in terms of that value in one year. Just like before, figure out where you would like to be in relation to that value in one year and don’t worry about defining a plan for that goal.
Again, here are my one year goals:
- I want to double the value of my son’s 529 college savings plan
- I want to buy and move into a house
- I want to select and begin learning a foreign language
- I want to quadruple the readership of The Simple Dollar
- I want to reach $10K in my non-retirement mutual fund account
Now that you have these goals, we’re ready to begin defining some plans … but let’s sleep on it first.
Tuesday, November 11, 2008
31 Days to Fix Your Finances - Welcome
(Editor's Note: Groups of days info are also broken up into Stages as outlined below.)
Stage 1: Figuring Out Your Goals And Values
Day 1: Your Five Main Values
Day 2: Defining Your Goals From Your Values
Day 3: Create A Plan For Each Goal
The underlying challenge that most people have with their finances is that they see money as distinctly separate from the rest of their life. Money is an antagonist, an enemy that keeps you from doing what you want to be doing. The truth is that money is merely a tool, and when you find yourself feeling as though money is an antagonist, it is no different than a person attempting to learn how to use a heavy sword; it’s unwieldy and dangerous.The first step for learning how to integrate money into your life and use it successfully as a tool is to figure out what exactly you wish to build with that tool. Without underlying values, goals, and plans, money is no different than swinging a hammer around without building something. Thus, this first stage is crucial: what exactly is most important to you, and what will it take to adequately support those values?
Stage 2: Evaluating Your Situation
Day 4: How Much Did You Earn Last Year?
Day 5: How Much Did You Work Last Year?
Day 6: Your True Hourly Wage
Once you’ve figured out what is central in your life, it’s time to take a serious look at what you have to work with. How much do you make, and how much time do you spend making it? This seems like an easy question, but it’s not. How much of your income do you spend maintaining your job, via transportation, career development, clothing, and so forth? And how much time do you spend doing things devoted to your job, such as going to work, coming home from work, attending work-related functions, and so on?When you calculate these new numbers, you might be shocked both at how much time you actually spend working in an average week, as well as how little you actually earn. You can drive this point home especially clearly by calculating a number that we’ll use throughout the month, your true hourly wage. How much do you really make for each hour that you spend devoted to your job? It’s not nearly what you might think, and that alone might shock you into considering some different avenues.
Stage 3: Building Your Own Life Budget, Not Following Someone Else’s Prescription
Day 7: Work For Your Dreams, Not Your Money
Day 8: Breaking Down Your Expenses
Day 9: Cleaning Up Your Expenses
Day 10: Fitting Your Expenses Into The Bigger Picture
Day 11: Dividing Up The Rest and Finishing Our Time Budget
Day 12: A Flexible “Budget” That Reflects Your Reality
Once you’ve taken a hard look at what you actually earn, you can begin to set up the basic framework of how to spend that money that is in line with your personal goals. This isn’t about printing out worksheets and trying to jam your life into the pigeonholes that someone else has created for you; instead, this is about defining how you spend money and working from there.It’s almost unfair to refer to this as “budgeting,” because budgeting carries with it some very bad connotations, much like putting on an uncomfortable suit. This process is much more like going to a tailor, who uses you as the basis to construct a custom suit that fits you. This process will create a custom budget that fits your life with your values and goals as a basis. We’re not talking about restricting you to spending $20 a month on “dining expenses,” but instead creating a structure where you can decide what’s appropriate because you can see how it relates directly to your dreams.
Stage 4: Looking At Your Life, Piece By Piece
Day 13: Pay For Your Dreams First
Day 14: Get Rid Of Debts (Slowly But Surely)
Day 15: Coming In Under Budget and An Emergency Fund
Day 16: Evaluating Your Expenses - Home and Auto Insurance
Day 17: Evaluating Your Expenses - Life Insurance
Day 18: Evaluating Your Expenses - Energy
Day 19: Evaluating Your Expenses - Automobiles
Day 20: Evaluating Your Expenses - Food
Day 21: Evaluating Your Expenses - Housing
Day 22: Evaluating Your Expenses - Monthly Services
Day 23: Evaluating Your Expenses - Bank Fees
Day 24: Evaluating Your Expenses - Entertainment and Hobbies
Day 25: Evaluating Your Expenses - Credit Cards
Once you’ve got a basic budget in place, it’s well worth spending some time carefully evaluating those numbers that represent you and see if there are any places where there is excess fat - and simply trimming it away. Is your electricity bill pretty high? Maybe there are a few simple ways to reduce it. Getting tired of paying that life insurance bill? Maybe you don’t need it at all - or can utilize something less expensive. Getting dinged over and over again with bank charges? Look at what they’re charging and do something about it. Credit card finance charges eating you alive? There are some easy ways to reduce them.We’re looking for ways to trim away fat (things that make you uncomfortable when you look at them) so that the meat (your goals, dreams, and values) have room to thrive. You don’t have to eliminate that daily latte if it brings you joy - just look for the many things you can do without or that you can reduce without significant pain and you’ll have the money to chase your dreams.
Stage 5: Setting The Stage For Lifelong Success
Day 26: Refining Your Budget
Day 27: Keeping Good Records
Day 28: Preparing For The Inevitable
Day 29: Paying Cash
Day 30: Live What You Love
Day 31: Keeping It Up
Now that the complete package is coming together, there are some basic methods for keeping the momentum going. What do you do with the fat you’ve trimmed away? How do you keep track of all of your financial information so that it’s not chaotic and incomprehensible? How do you ensure that you’re not ensnared in loan debt over and over again? How do you keep this good thing going?If you follow this plan and keep these principles in mind, you can easily live your dream. It’s all up to you, and it takes just an hour a day for a month to get things going.
Stage 1: Figuring Out Your Goals And Values
Day 1: Your Five Main Values
Day 2: Defining Your Goals From Your Values
Day 3: Create A Plan For Each Goal
The underlying challenge that most people have with their finances is that they see money as distinctly separate from the rest of their life. Money is an antagonist, an enemy that keeps you from doing what you want to be doing. The truth is that money is merely a tool, and when you find yourself feeling as though money is an antagonist, it is no different than a person attempting to learn how to use a heavy sword; it’s unwieldy and dangerous.The first step for learning how to integrate money into your life and use it successfully as a tool is to figure out what exactly you wish to build with that tool. Without underlying values, goals, and plans, money is no different than swinging a hammer around without building something. Thus, this first stage is crucial: what exactly is most important to you, and what will it take to adequately support those values?
Stage 2: Evaluating Your Situation
Day 4: How Much Did You Earn Last Year?
Day 5: How Much Did You Work Last Year?
Day 6: Your True Hourly Wage
Once you’ve figured out what is central in your life, it’s time to take a serious look at what you have to work with. How much do you make, and how much time do you spend making it? This seems like an easy question, but it’s not. How much of your income do you spend maintaining your job, via transportation, career development, clothing, and so forth? And how much time do you spend doing things devoted to your job, such as going to work, coming home from work, attending work-related functions, and so on?When you calculate these new numbers, you might be shocked both at how much time you actually spend working in an average week, as well as how little you actually earn. You can drive this point home especially clearly by calculating a number that we’ll use throughout the month, your true hourly wage. How much do you really make for each hour that you spend devoted to your job? It’s not nearly what you might think, and that alone might shock you into considering some different avenues.
Stage 3: Building Your Own Life Budget, Not Following Someone Else’s Prescription
Day 7: Work For Your Dreams, Not Your Money
Day 8: Breaking Down Your Expenses
Day 9: Cleaning Up Your Expenses
Day 10: Fitting Your Expenses Into The Bigger Picture
Day 11: Dividing Up The Rest and Finishing Our Time Budget
Day 12: A Flexible “Budget” That Reflects Your Reality
Once you’ve taken a hard look at what you actually earn, you can begin to set up the basic framework of how to spend that money that is in line with your personal goals. This isn’t about printing out worksheets and trying to jam your life into the pigeonholes that someone else has created for you; instead, this is about defining how you spend money and working from there.It’s almost unfair to refer to this as “budgeting,” because budgeting carries with it some very bad connotations, much like putting on an uncomfortable suit. This process is much more like going to a tailor, who uses you as the basis to construct a custom suit that fits you. This process will create a custom budget that fits your life with your values and goals as a basis. We’re not talking about restricting you to spending $20 a month on “dining expenses,” but instead creating a structure where you can decide what’s appropriate because you can see how it relates directly to your dreams.
Stage 4: Looking At Your Life, Piece By Piece
Day 13: Pay For Your Dreams First
Day 14: Get Rid Of Debts (Slowly But Surely)
Day 15: Coming In Under Budget and An Emergency Fund
Day 16: Evaluating Your Expenses - Home and Auto Insurance
Day 17: Evaluating Your Expenses - Life Insurance
Day 18: Evaluating Your Expenses - Energy
Day 19: Evaluating Your Expenses - Automobiles
Day 20: Evaluating Your Expenses - Food
Day 21: Evaluating Your Expenses - Housing
Day 22: Evaluating Your Expenses - Monthly Services
Day 23: Evaluating Your Expenses - Bank Fees
Day 24: Evaluating Your Expenses - Entertainment and Hobbies
Day 25: Evaluating Your Expenses - Credit Cards
Once you’ve got a basic budget in place, it’s well worth spending some time carefully evaluating those numbers that represent you and see if there are any places where there is excess fat - and simply trimming it away. Is your electricity bill pretty high? Maybe there are a few simple ways to reduce it. Getting tired of paying that life insurance bill? Maybe you don’t need it at all - or can utilize something less expensive. Getting dinged over and over again with bank charges? Look at what they’re charging and do something about it. Credit card finance charges eating you alive? There are some easy ways to reduce them.We’re looking for ways to trim away fat (things that make you uncomfortable when you look at them) so that the meat (your goals, dreams, and values) have room to thrive. You don’t have to eliminate that daily latte if it brings you joy - just look for the many things you can do without or that you can reduce without significant pain and you’ll have the money to chase your dreams.
Stage 5: Setting The Stage For Lifelong Success
Day 26: Refining Your Budget
Day 27: Keeping Good Records
Day 28: Preparing For The Inevitable
Day 29: Paying Cash
Day 30: Live What You Love
Day 31: Keeping It Up
Now that the complete package is coming together, there are some basic methods for keeping the momentum going. What do you do with the fat you’ve trimmed away? How do you keep track of all of your financial information so that it’s not chaotic and incomprehensible? How do you ensure that you’re not ensnared in loan debt over and over again? How do you keep this good thing going?If you follow this plan and keep these principles in mind, you can easily live your dream. It’s all up to you, and it takes just an hour a day for a month to get things going.
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