31 Days to Fix Your Finances - Day 7

During this past week, we identified our primary values and used these to create clear goals and plans that derive from these values. Then, we spent some time discovering what our work time is actually worth. Today, we’re going to combine these two together.

If you’ve been following the plan, you’re probably working on the numbers for your plans right now. We won’t evaluate them yet (after all, you’ve got a few days to go before you have some real numbers), but you should realize that you’re going to have to save some money to meet these goals.

The big secret, though, is the realization that you can in fact work for your dreams instead of working just to get by. Yesterday, we calculated our true hourly wage, so you know how much you’re making for each hour you’re involved with work-related tasks. Let’s transform this hourly wage into something that has more meaning.

Take out a new sheet of paper and list your ten goals on it. Today, we’re going to make a framework that will enable you to go to work with renewed vigor, because you’ll see the connection directly between your time at work and your dreams.

Under these goals, make a list of each of your debts as well. Part of the journey to your dreams is paying off these debts, so we want to put them each on the list, too.

Under that, add one last item: living expenses. Obviously, even as you work towards your dreams, you’ll still need to cover your daily expenses, such as electricity, food, water, and whatever else is fundamentally important to you.

At the very bottom, write TOTAL and then over on the far right, write the total amount of hours you work in a week that you calculated the day before yesterday.

What we’re going to do is see how many hours we can spend at work each week on each of these items. Once we have this first draft written, you can use it as a life baseline until we refine it later on in the month.

So let’s get started! First thing, until you’re sure how your life will be rebalanced, include 60% of the total hours under the item “living expenses.” For example, let’s say your total hours for a week is 80. You should then include 48 hours next to the living expenses. This may need to be more; we’ll evaluate it more carefully in the next few days.

Now, let’s handle the debts. If you have debts, you should spend 25% of your hours on paying off the debts. For example, if you have 80 hours, you should figure that 20 of them should be used on paying off debts. Note that this is extra debt payments; your basic minimum debt payments are included in the living expenses. When (or if) you have no debts, all of the time going into your debts can go straight to your dreams.

The remaining 15% should be assigned in equal pieces to your dreams. I had 12 hours left, so I gave 1.2 hours to each of my dreams.

So, what’s the point? There are two points. First, if you multiply your hourly rate by the amount assigned to each element, that’s how much you can spend each week on that element. If you’re thinking that this is something like a budget, you’re right in a way, but rather than a list of month-to-month expenses that demand things of you, this is a “dream budget” - a device that lets you follow your goals to achieve your dreams.

Second, it lets you find real goals in your work. This is the truly powerful part of this. So often, we wake up in the morning and trudge into work wishing we were doing anything else. If you realize that some portion of your day is spent working specifically for your dream, it becomes easier. For me, the hardest part of a day is getting ready in the morning; I’d much rather sit down with a cup of joe and check my email than take a shower, get dressed, and take my son to daycare. So for me, the first hour of a given day is an hour I’m working towards one of my goals. While I’m showering or out in the truck on the way to daycare, I remind myself over and over that I’m working solely for the purpose of one of my dreams. I imagine that dream and somehow I feel better about it.

There are two vital lessons that this exercise teaches. First, the various aspects of your life are all connected: your work, your pay, your dreams, and your goals. They’re all tied together in one big picture. Many people often compartmentalize these things and fail to see how they all relate to one another.

Second, it reveals that you can directly connect the work you do every day to your dreams. This is the real power of the exercise, I think. Every single day you go into work, you can tie some of your least favorite tasks directly towards achieving a life goal. It can be the parts that you like the least, or it can be the commute. Just pick a portion of it and, while you’re doing it, remind yourself that you’re doing this action so that you can live in that beautiful house or so that you can travel to Italy with your wife.

Tomorrow, we’ll start breaking this picture down piece by piece, starting with the living expenses. The goal is to create a picture of your life, with the living expenses as merely the frame around a beautiful picture of your dreams.

31 Days to Fix Your Finances - Day 6

Two days ago, we determined your true annual salary. Yesterday, we determined the number of hours you truly work in a year. Today, we combine the two numbers - and consider what exactly that means about you, your employment, and your time usage.

Are you ready for the big calculation? Take the total salary you calculated two days ago and divide it by the total hours you calculated yesterday. You’re going to be left with a number that you’re going to have to ponder quite a bit.

This number is how much you actually bring home each hour you do something for your employment. For some of you, this number is going to be shockingly low. There are many seemingly decent-paying jobs that wind up with an hourly wage below minimum wage when looked at in this fashion. For example, if you come up with an hourly wage below minimum wage and you spend 60 hours a week involved in work activities, you might actually be better off working at Home Depot with a much lower responsibility and stress threshold.

Many of you might balk at the Home Depot idea, but hear me out. A relative (and friend) of mine walked away from a situation where she was making between $40,000 and $50,000 a year to take a job working the floor at a local Home Depot for $9 an hour. She worked forty hours a week, rode public transportation to and from work, and came home from her job without the baggage of additional stress. What happened? She was reinvigorated to follow her passions. What about her finances? Without all of the extra costs of her job, she was only slightly worse off than before, plus with the extra energy to follow her interests, she actually wound up doing better than before within six months.

Spend some time considering what this number actually means. There are a lot of truths about our lives that are revealed by this number.

If you buy a frivolous item for $X, consider how many hours you had to work to have the money to buy it. Let’s say you calculated that you are actually earning $5 for each hour of your time invested in work. When you go to buy a new pair of shoes that cost $80, look at them and ask yourself whether or not they’re worth 16 hours of your time spent working. When you go to buy a new electronic gadget for $300, look at it and ask yourself whether or not it’s worth 60 hours of your time spent doing things you don’t want to do.

When you pay a loan bill, figure out how many hours you have to work just to pay for the finance charges or interest. I find this one to be a real eye-opener. Whenever you pay a bill, look at the amount you’re paying in finance charges or interest that month, then convert it to hours of your life spent at work. With the example above, a $100 finance charge amounts to twenty hours of work just so you could have some frivolous item before you could actually pay for it.

Some people consider this exercise frightening; others find it incredibly uplifting. The maxim that time is money is painfully true; by translating the things you spend money on directly into hours of your life spent toiling in labor, you often discover that maybe you don’t need a lot of things after all. When you start doing that… well, that’s tomorrow’s exercise.

31 Days to Fix Your Finances - Day 5

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.