How to achieve financial independence.
BRUCE PANKRATZ MINNEAPOLIS, MN
Even in the country it's hard to escape the need for money. Modern society functions because people work for money and meet their needs by trading the money with other people. Homesteaders often short-circuit this process by applying their life energy to meet their needs directly. From many of the stories appearing in COUNTRYSIDE, it's easy to conclude society is organized in a way that makes it much easier to work for others than to even try to meet many of your own needs. Even if living inside the sidewalks is less fulfilling than living in the country, the cost of land, shelter, health care and transportation can be prohibitive. But there is hope. Joe Dominguez created a program with a series of steps for working towards financial independence. Work the steps and financial independence may be within your reach.
Perhaps we can think of a money spending continuum. On one end of the spectrum are people who pay money to others to meet almost all of their needs. At first you may think of these people as rich, but chances are if you work at a city job and spend money on all of the modern conveniences, you fall on the rich folks' end of the spectrum. On the other end are the hermits who live in caves with no contact with the outside world. They don't need money. Homesteaders must fall someplace in the spectrum towards the hermit's end.
When you work for someone you trade your life energy to other people for money. The late Joe Dominguez, one of the authors of Your Money or Your Life, called money life energy since when you work for others, it is what you trade your life energy for.
Money flows into your life. You trade the money out of your life. In addition to inputs and outputs of your life energy, there is a third aspect of this life energy/money creature. You can sometimes store your life energy/ money as an inventory. It may be money under your mattress or in a bank. Once you put the money in a bank the fourth aspect of money comes into play. You can rent your inventory of money and end up with more of it because of interest. (A pension is similar. You agree to put your life energy into a job and the employers say they will pay you money when you retire.)
Financial independence is where in an average month the amount of money spent equals the money coming in without you having to trade your life energy to an employer. As we will see in one of the steps in Joe's program, the more of your own needs you can meet through self-reliance the closer you are to reaching financial independence.
Although time, skills and energy are in reality all mixed together, the program of financial independence as taught by Joe Dominguez and Vicki Robin narrows the context a little. They talk more about managing the flows of money into your life, the money inventory and the flows of money out of your life than meeting your needs without money.
Vicki Robin, co-author of the book, said in a New Dimensions radio program interview, "Your Money or Your Life presents a nine step program which is an integrated system for personal financial transformation guided by feedback mechanisms that are rooted both in self-interest and higher values."
Feedback mechanisms
People who don't heat with wood in cold climates usually have a thermostat in their home. You set the thermostat to a certain temperature and the thermostat talks with the furnace to heat the house. The thermostat measures the temperature and sends information back to the furnace, known as feedback. When you have a way to monitor your behavior around money, you have the beginning of a feedback loop.
Personal financial transformation
Like the thermostat, you also need a setting to measure against. The setting you measure against is your professed values that you find in your mission statement described in the nine steps of Joe's program. Personal transformation is a fancy way of saying watching your money behavior changes you.
The nine-step program
This section surveys the steps in Joe's program. The source of these steps is in his book, Your Money or Your Life.
Step 1: Making peace with the past
In this step you gather all of the information you have about your prior earnings and current assets. Next, do an inventory of your assets. You have worked and what do you now have to show for it? Create a balance sheet as if you were a business.
Step 2: Tracking your life energy
The first part of this step is to figure out how much you truly get per hour from your paid work. This includes hours spent commuting, the cost of lunches and costumes, and on and on. You truly earn less than what your pay stub says.
The second part of this step is to create your own method to record the flow of money into and out of your life. A little book that you carry around will work, or the back of the envelope you store your cash in will work, too.
Step 3: Monthly tabulation
Each month you create a summary of how much you spend by category. First you need to come up with categories like food, shelter, insurance, etc., depending on what you want to focus on. One category you should probably start with is interest paid.
Step 4: The three questions
This step is the most important in the program. Just like a thermostat, you compare your spending to a standard you set.
The first question is: How much satisfaction did you get from money you spent? How much of your life energy did you trade away?
Second: How does this spending compare with your values ? Before you can answer this question you need to attempt to write a mission statement for your life by spelling out what you think you value. Every month when you compare your spending, ask how it compares to your values, and you'll get a better idea of what you really value. Your initial professed values may not be your true life mission statement.
The third question is: How much would you need to spend if you did not have to work for money? This question appears again when we talk about the crossover point in step eight.
Step 5: The wall chart
Dominiguez described the wall chart as a source of inspiration. You plot three lines on your wall chart. The first line comes from plotting your monthly income. The second line is a plot of all money spent. The third line shows interest income. This interest income is from what you set aside to live off of when you reach financial independence. (Joe calls it your capital.)
Step 6: Minimizing spending
By asking the basic question each month for each of the categories of spending you use, there is a pretty good chance you will start spending less money. This is because people are not conscious of where their money goes. In this step you try to learn to be a better consumer.
Step 7: Maximizing your income
In this step you look at money coming into your life from paid employment to see if there are any ways to make more money without going against your values. The more money coming into your life means more money to add to your capital. More capital means you reach financial independence sooner.
Step 8: The crossover point
As mentioned earlier, capital is money you save with the idea of living off the interest. Each month take your capital from your wall chart and multiply it by the current long-term interest rate and then divide by 12 to see how much interest income you could get from your capital. When your expenses line (which is supposed to be dropping) crosses the interest income per month line, you have reached financial independence. The money going out equals money coming in without working for an employer.
Step 9: Managing your finances
The final step in Joe's program is learning about income-producing investments. The idea here is to put your capital into an investment that pays you a safe, steady flow of money. The types of investments that meet this standard are federal government bonds (treasury bonds but not savings bonds).
This is probably the most controversial part of the program. Financial advisors usually tell you to diversify your holdings, but then many of these same people make their living by selling stocks and bonds so they are hardly neutral advisors. (Joe was a financial advisor in the late '60s while researching his program and working for an investment house in New York City.) There is only one simple answer here. Go back to step Six (minimizing spending). If you can rely on yourself to meet a need instead of trading money for it, you will need less capital to get interest on in the first place.
Self-interest and higher values.
Joe called his followers FIers. FI can mean three things: Financial intelligence, financial independence and financial integrity. The most interesting part of the program is comparing one's actions with money to one's professed values. The monthly comparisons of money spent and your life mission, however you define it, points out how inconsistent we all are when it comes to putting out money where our mouth is. When professed values match how you act, then you have reached financial integrity.
Financial independence and integrity are intertwined with life energy spent in pursuit of homesteading. You grow into all of them. The charting and feedback mechanisms in Joe's program can help you watch your speedometer and discover the right road to take.
For more information
This short article is not sufficient to teach you how to become financially independent. If being FI is for you, track down some of the sources below.
Joe's original seminar, "Transforming Your Relationship with Money and Achieving Financial Independence," is on cassette tape. It's available from Sounds True, PO Box 8010, Boulder, CO 80306. (They also have a catalog.)
The book Getting a Life: Real Lives Transformed by Your Money or Your Life, by Jacqueline Blix and David Heitmiller describe an attempt to adopt Joe's program to the real world.
Finally, Your Money or Your Life in its second edition. Try your local library for these books.
Do you have more plastic than paper?.
According to CardWeb.com, a consultancy that tracks the U.S. credit-card industry, the average American family totes around 14.7 credit cards!
RELATED ARTICLE: "Your money or your life beyond the sidewalks"
The concepts from Joe Dominguez's program extend beyond the sidewalks. You are alive, so time flows into your life. Getting energy requires food, so to remain alive you have to trade your life energy in some form to eat. You can also put your time life energy into an inventory. When you cut firewood it goes into your inventory until you spend it to keep warm. When you grow food you can add the energy from the sun and nutrients from the soil to your own life energy and store the results as inventory.
Your Money or Your Life is aimed at people who work for employers. In addition to the three regular monthly questions, there is an additional monthly question people interested in homesteading can ask.
After asking what it would cost for each of your categories if you were financially independent, you can also ask: How much would I spend in this category if I were truly a homesteader (even if not fully FI)? You can ask this question whether you live in the country or are just wishing you were.
Finally, homesteaders often trade their life energy for something other than money. Keeping track of how much time you spend working in a garden or collecting firewood gives you a way to. see if the work is worth your energy. Monthly question #1: What would food cost in a store if you traded money for it? Monthly question #2: Is the way you spent the time in alignment with a homesteader's life mission statement?
Joe's program has value when you try to value your life energy, regardless of whether you live outside of the sidewalks or not.
Interesting facts about the Joneses The average debt of U.S. families with $75,000-plus annual household income: First mortgage balance: $114,300 Second mortgage: $22,400 Car loan/lease: $15,800 Home-equity credit line: $13,100 Student loans: $17,400 Credit card: $3,700 For a whopping total of $186,700 in debt! Total debt, excluding mortgage, should be less than 15% of your take-home pay. Mortgage lenders generally recommend a total debt payment level -- including your mortgage -- of less than 36%.--From www.Money.com
Bruce is a business systems analyst who currently lives inside the sidewalks. He is about a year away from an early retirement which means the earliest he can reach FI is age 55 (Joe reached FI when he was 31). At retirement Bruce will move to his land in northwest Wisconsin and struggle with the self-reliance vs. spending money questions full-time.
 Printer friendly
 Cite/link
 Email
 Feedback
| |
| Author: | PANKRATZ, BRUCE |
|---|---|
| Publication: | Countryside & Small Stock Journal |
| Date: | Nov 1, 2001 |
| Words: | 2218 |
| Previous Article: | Botulism affects livestock, too. |
| Next Article: | Where does that paycheck go? |