In the previous post, which I gave the oh-so-exciting title “Three Broad Areas for Your Attention,” I mentioned “Cost of Living” as one of the, well, three broad areas. Essentially, “Cost of Living” is your personal budget: income and expenses, how you live your life, what lifestyle choices you make. There are many issues to examine on this topic, of course, and people have been writing personal finance books and websites for a long, long time. One of the best ones I have read is Your Money Or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence by Joe Dominguez and Vicki Robin. (You’ll notice “independence” in the title, and that’s the key to this book: it is about achieving financial independence, not getting “rich” or having enough money to travel and buy all the stuff that the media want you to buy.) I strongly recommend you read the entire book, but in the meantime I want to focus on one exercise as a starting point — what Robin calls “Tracking Your Life Energy.”
What is one consistently true statement we can make about money that will allow us to be clear, masterful and powerful in our relationship with it?
Money is something we choose to trade our life energy for.
Our life energy is our allotment of time here on earth, the hours of precious life available to us. When we go to our jobs we are trading our life energy for money. You could even say that money equals our life energy. So, while money has no intrinsic reality, our life energy does — at least to us. It’s tangible, and it’s finite. It is precious because it is limited and irretrievable and because our choices about how we use it express the meaning and purpose of our time here on earth. Money is something you consider valuable enough to spend easily a quarter of your allotted time here on earth getting, spending, worrying about, fantasizing about or in some other way reacting to.
A: How much are you trading your life energy for? Establish the actual cost in time and money required to maintain your job, and compute your real hourly wage.
- Deduct from your weekly income the costs of getting to and from work; the cost of the clothes you buy to wear at work; the extra cost of at-work meals; the amount spent to relax and wind down after the stress of a work day; job-related illness; and all other expenses associated with maintaining you on the job.
- Add to your work week the hours spent in preparing yourself for work, travel to and from work, the time taken to wind down at home after work, recreation needed after work as a means of winding down, shopping to make you feel better since your job feels lousy, and all other hours linked with maintaining your job.
- Divide the new, reduced weekly dollar figure by the new, increased weekly hour figure;this is your real hourly wage.
Individuals with variable incomes can get creative — take monthly averages, a typical week, whatever works for you.
Most people look at this life-energy/earnings ratio in an unrealistic way: ‘I can earn $440 a week, I work 40 hours a week, so I trade one hour of my life energy for $11.’ It is not likely to be that simple. Think of all the monetary expenses that are directly associated with your job. In other words, if you didn’t need that money-earning job, what time expenditures and monetary expenses would disappear from your life.
- This is a very basic, fundamental practice for any business — and you are a business.
- You are in the business of selling the most precious resource in existence — your life energy. You had better know how much you are selling it for.
- The number that results from this step — your real hourly wage — will become a vital ingredient in transforming your relationship with money.
The book offers examples of the cost and hours we spend that are directly related to having a job:
- Travelling to and from work could cost $50 a week and take you 7.5 hours.
- Annual cost of clothing for work, divided by 50 weeks, $15 a week.
- Time per week dressing and preparing for work, 1.5 hours.
- Cost of work related meals, coffee breaks, lunches, $20 a week.
- Time per week of meals and breaks at work, 5 hours.
- Many people arrive home tired and drained, it takes many people about an hour a day to relax after they get home, so per week, 5 hours.
- In addition, there is the cost of escape entertainment, job related illness as well as vacations to recover from work.
The book offers the following example showing the effect of work related expenses on an ordinary 40 hour / $440 week.
This chart shows how a 40 hour working week can actually take up 70 hours of one’s time. And also how a wage of $440 can be reduced by work related expenses of$160 to leave only $280 for 70 hours of work related time or $4 an hour or $1 every 15 minutes.
So now you can understand that other than work related expenses, every dollar spent can represent 15 minutes of life energy for the person in this example.
[Note: don't forget to include taxes in the adjustments!]
So other than depressing the hell out of you, what purpose does this serve?
Well, one thing it does is give you a clearer idea of the true cost of something you are going to buy — is it worth the amount of time you are going to have to put in at your lousy day job to pay for it? So as you’re thinking about, say, buying that cute pair of shoes that are on sale for $44, you ask yourself is it worth 11 hours of time at work? In other words, it can help you keep your spending down, and that’s great.
But the real issue for you as a creator is time and energy.
When you come home after an eight hour day and an hour-long commute both ways doing a job you don’t like, you’re worn out and weary. Who wouldn’t be? Probably the last thing you want to do is drag yourself out to rehearse all evening, or go to an audition, or sit down at a desk to write a play or novel. You just want to settle down with a glass of wine and Chinese takeout and watch Downton Abbey on cable. And pretty soon you look up and months have passed since you’ve done anything creative. Which, in turn, leads to a crisis — you beat yourself up, calling yourself a slacker and questioning your talent and whether you possess the “desire” that your college teachers told you separated those who “make it” from those who are also-rans.
But actually, the fact is that a human being has only so much energy, and spending 10 hours a week commuting and 40 hours a week doing a job that you dislike sucks up energy like a sponge.
It’s not you, it’s not your “desire,” it’s just a fact of human existence.
That’s why I think the crucial idea in this part of Your Money or Your Life is what I underlined above: “if you didn’t need that money-earning job, what time expenditures and monetary expenses would disappear from your life.”
By looking at how much money you are really making each week, you have a clear idea of how much money you need to make doing your art and ancillary work (I’ll define ancillary work in a later post) to keep your current standard of living. The example above isn’t even complete. If you are grossing $440 a week, I’d estimate that at least $100 of that is taken off the top for federal and state taxes, local taxes (if you live in NYC), and FICA. Also subtract whatever your state’s sales tax is — that’s coming out of your net income, too. So in the above example, once you subtract taxes and the “adjustments” Robin lists, you end up with $180 a week!
Now you have a clear number to shoot for, and can ask yourself a very focused question: what can I do that uses my creative energy that will make $180 a week?
I don’t know about you, but that seems a lot more doable. I could face that question without getting sick to my stomach. If you generated $10,000 a year without all the time and extra expenses of working for someone else at a job that sucks your life energy like a vacuum cleaner, not only would your standard of living be virtually the same, but you’d have time and energy to be creative.
Isn’t that the goal?
So try out Dominguez and Robin’s exercise and get a clear idea of how much you are really making an hour.