Friday, March 2, 2007

Your Money or Your Life - Steps 1 & 2

Joe Dominquez's book came highly recommended, and since I read books the way most people drink water, I took it all in one lazy afternoon.

Basically, Joe asks the reader to do 9 steps with paper and pencil. I used Excel, one worksheet per question, and that worked splendidly (not to mention made it easier to update when I go back to revise it!)

Step 1: Write down every dollar you've ever made

Boy, was this an eye opener for me. I had a paper route for years as a kid, worked summers, and was always working one or two jobs. I had forgotten that, at age 14, I was working above-the-table (or legally or however you want to put it) for $2 an hour. That's right folks: $2/hour.

Since then, my hourly rate has risen just a bit. :)

The amazing thing is when you take all these jobs, make your best estimate and add up what you've earned so far in your life. For me, the number is a staggering $1,296,607. Now, I still have 30-40 working years left to go. I could conceivably gross over $6 million in my lifetime. Time value of money or not, it's a sobering number and certainly helps to put money worries in perspective.

Step 2: How much are you trading your time for? What's your net worth?

Step 2 has made me look at everything I purchase in terms of working time to obtain that object/service, rather than the dollar cost.

Joe has a little chart he uses to show you that your salary is offset by costs that wouldn't exist if you didn't need a job (e.g. dry cleaning, commuting, meals eaten at work, escape entertainment, & unreimbursed business expenses).

Although I made a strong 6 figure income, I was stunned at how much of my money goes towards unproductive (read: job-enabling) dollars.

My post-tax hourly rate is actually just shy of $30, which is convenient because I look at the price of everything through the lens of $30 = 1 hour of work or $0.50 = 1 minute of work.

I bought a top coat at JcPenney's on sale and paid $105. But in reality, I agreed to work 3 1/2 hours to cover the cost of that coat.

When looked at this way, you start to ask yourself: is a week at the Mouse House worth 100 hours of work time ($3,000)? Is a new car worth 1,000 hours ($30,000) when a perfectly acceptable used one costs only 250 hours ($7,500)?

Steps 3 through 9 are coming in future posts.. stay tuned!

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