Deciding between renting or buying a home is a difficult calculation. How can we balance the quality of life with financial risk? Doug deals with this issue on today’s show when he answers a listener’s question on how much money he should invest in buying an apartment. There are many advantages and disadvantages with renting or buying a home. Find out what all the considerations are, including the common pitfalls of buying a home.
Takeaway: it depends on balancing today’s quality of life against tomorrow’s.
Today’s guest, Vicki Robin, coauthor of Your Money or your Life: Transforming Your Relationship With Money and Achieving Financial Independence, looks at the quality of life and relates this to the pursuit of money. Discover how your life energy can help you gain control of your finances and get started on the path to financial independence.
Follow Vicki and her work at: http://vickirobin.com/
Watch Your Money or Your Life on YouTube.Read the Transcript
Interview with Vicki Robin
Author and speaker Vicki Robin looks at the quality of life and relates this to the pursuit of money. How can your life energy help you gain control of your finances and put you on the path to financial independence?
Douglas Goldstein: Vicki Robin is a writer, a speaker, a prolific social innovator, and she is the co-author of an international bestseller called Your Money or Your Life: Transforming your Relationship with Money and Achieving Financial Independence.
In your book you talked a lot about what you referred to as life energy. Why is that important for achieving financial independence?
Vicki Robin: Life energy is our term for basically using money to alter our lives. The money you spend represents the hours of your life that you invested in getting it so translating money, which is represented by pieces of paper, metal or your credit card or just little electronic blips, is something abstract really, something you can feel. When you think about your life you think “Well, part of my life I’m making money but I’m also a husband or a father or a brother or a mother or son. I am also interested in puppetry, I am interested in art, I’m interested in going to museums, I want to travel the world.” There are lots of aspects to you and the money system tends to have you define yourself by what you do for money. So, thinking of money as life energy you start to think about “Who am I?” You know where do I want to invest the hours of my life and so if I think about money as my life energy I think okay, how can I get the maximal amount of pressure and utility out of the money that I have so that I can liberate my time to do many things that I care about that have nothing to do with money?
Douglas Goldstein: So a lot of the times when people are spending money they are actually trading their life energy for something else which, when you put it in those terms, actually makes it a little bit frightening.
Vicki Robin: You could say it’s frightening or you could say it’s sobering or you could say it’s liberating. It depends on your perspective. But, you know, you are standing there in front of the big screen TV… you’ve already got a TV. It’s just not the upgraded super, duper larger than life TV, and you think, “Oh I want that TV,” because the whole story is designed for you to want that TV. Then you start to think, “Number one I already have a TV. Number two, you know, given that I am trading my hours of my life for money and, I can’t speak in your currency but you know let’s say in the United States, let’s say I’m earning $20 an hour and that’s a $1,000 TV.” That’s a lot of hours in my life I’m going to have to invest in that TV, so I think, “Am I going to get enough pleasure from this TV, from the extra six inches of width, to justify the six days at work I’m going to have to invest in order to get it?” So once you have that thought in mind, it’s not scary; it’s liberating because you think, “I already have a TV and those six inches are not worth a week or two of my life.” So that’s the calculation that starts to happen. Spending money goes from being a reward for your hard work to a representation of your hard work. It goes into being something that helps you to preserve the hours of your life for what’s important.
Can You Track Your Spending and Still Enjoy Life?
Douglas Goldstein: This almost sounds a little bit philosophical. Yet, in the book you seemed very practical and when you talked about the importance of keeping track of every cent that comes into or out of your life, you know budgeting, keeping on top of things, how did the two of them go together? Frankly a lot of people say when you get down to the nitty-gritty like that, you kind of take the fun out of life.
Vicki Robin: Number one – yes it’s philosophical. There’s a philosophical ground. But – it’s a very practical nine-step program that helps you actually translate this idea that my life is more than just being a working slave; I have more to myself than just this. So it helps you translate these sorts of values of simplicity and frugality and personal growth into something very concrete like you know “What piece of meat do I buy? What else can I buy?” It can be a little obsessive in the beginning because you are really paying attention at the level you’ve never paid attention before. But what happens is it becomes habitual. You start to see people who do this approach for six months. They track every penny. They evaluate each month. How much they are spending in each spending category. You do this for six months. The hardest part is to begin any program of change; the hardest part is to begin. The second hardest part is to set up your systems so that you can automatically observe these changes. Within six months, people normally drop about 20% to 25% of their expenses. Very often they don’t even know what they used to spend the money on. In other words, that’s how unconscious we have become about our money.
Douglas Goldstein: You mentioned before there are nine steps. Let’s see if we can get through some of them. But if people want to take concrete step, where should they start? What would you say is the number one step today that people could take towards becoming financially independent?
Vicki Robin: I will go over briefly steps two, three, and four because I think those are the key points in the book. Step two is understanding that money is your life energy. You start to track your money, not as a sort of punishment, but as a question like, “Where is my life going?” So you track the money that you are spending and tracking itself actually brings attention at the moment of spending. So if you have to write down or develop some system for seeing every time money leaves your wallet or every time money leaves your bank account you are going to make a little entry into your record system. That entry, by itself, will eliminate some of your spending because you are actually paying attention – it is serving as an attention tool. You track your money and then at the end of each month you sort your money that you spent into categories. It could be categories like food I eat at home, food I eat in restaurants, the coffee I get on the way to work. You could have categories. You sort out categories because the question is how am I spending my life energy? So you look in each of these categories and you see, “Oh, the most important thing in my life are my kids but actually I spent like three years of my life buying a new car when I already had a car.” So it introduces us into the process, the unconscious process that is really, really aided by advertising. In the whole culture of money, it introduces these questions that are so powerful. So you just ask, “Am I going to get enough pleasure to make it worth my ten, six, fifty hours, or three years to buy that whatever.”
Number two is you track. Number one is getting yourself a baseline, doing a balance sheet, you know, but many people delay that until later. Where they start is they track their money and then they evaluate it according to their own spending categories and they ask themselves is the life energy I spent to get that, you know, a cup of coffee every day on the way to work which ends up being many hours of my life when you calculated out, with that, say, 20 hours, am I happy I spent those hours of work that way, earning enough to buy a coffee? If not, then you should adjust, not as a punishment but as self-preservation. That’s the core.
Douglas Goldstein: Just realizing what you want to do, I think, is important. Without that knowledge you have no ability even to decide whether to change things. You know they talk about dieting when people want to lose weight. If you simply start by writing down what you eat during the day, it makes it much easier to cut down on what you are eating just by keeping track of it.
Vicki Robin: Exactly. Not only is it easier to cut down, you cut down because you don’t want somebody watching you eat that piece of chocolate. You are watching yourself now. So you start to not do it. You’ve introduced something in your mind called “I’m watching you.”
The next step is to evaluate how you are spending by categories. To observe yourself say “How do I spend money?” Keep track for a couple of months and start to sort it out. A lot of people, you know, have a budget book that says groceries or entertainment. If you sort that out it’s better to say I like food I buy and cook at home rather than food I buy and eat in restaurants. Then you can start to see how your food budget is operating. If you take your entertainment budget into my streaming videos, my time going to concerts which I say oh I would love music but actually all I do is stream videos. So you start to break things down according to categories that makes sense for your life, not categories that your financial planner tells you to do. Then you start to become more acquainted with yourself because really the other part of this is not only does it introduce consciousness about how you are spending your money, but it actually introduces the question “What’s really important to me?” A lot of people don’t think about that because every day we are given messages about what was supposed to be important to us. So you say “Well what’s really important to me?” I got a letter recently from a guy who just thanked me up and down. His calling was to be a librarian. He loves books – you know, a children’s librarian. He loves kids but he thought “Oh, I can’t be a librarian for my life. It’s not important enough. I’m not going to make enough money.” Then, he used this approach to basically live happily within the means of a librarian and have a career his whole life that he loves. So that’s one way to use it and another way to use it is I know people who have gotten themselves out of mega debt in three years by making this goal – like, is this you know cup of coffee on the way to work, or would I rather have that or would I rather still be paying off my debt?
Douglas Goldstein: How can people learn more about your newest research, your newest books and what you are thinking these days?
Vicki Robin: At www.vickirobin.com. It’s where I aggregate everything. It’s not like a super up-to-date website but it’s great. So my more recent book is called Blessing the Hands that Feed Us. It’s about my investigation of a certain sort of life energy flow which is called food. It’s really focused on sourcing food closer to home, developing community food systems, relationships with our farmers, having a healthier food lifestyle. It has been out for a year and a half now. I’ve done a lot of different things since the publication of Your Money or your Life. It’s all at www.vickirobin.com.