Each Friday, Money360 reviews a personal finance book.
I’ve been anxious to read this book for a while, mostly because it’s been recommented to me by a lot of people that I trust. For example, J.D. over at Get Rich Slowly has often said, in some form or another, “ is the best personal finance book out there!” while I just roll my eyes gently and clutch my well-worn and loved copy of Your Money or Your Life.
The first thing I noticed about is the brevity: weighing in at only 88 pages, it’s a very thin volume. It’s mostly because the author, Michael Mihalik, has focused intently on trimming away every possible little bit of fat from the bone. This book is lean and mean – it doesn’t mince many words at all. For some, that’s good – I like concise factual writings. For others, it’s not – Mihalik is often blunt with some very hard advice for some people to swallow.
Let’s take a deeper look.
A Peek Inside
How to Choose a Teacher
The introduction to the book contains a brief section entitled “How to Choose a Teacher” that really stuck with me. Mihalik says to ask two questions: have they done what they are teaching, and do they have your best interests at heart? Those are two profound questions to ask about anyone you’re attempting to learn from, and it’s that logic that has pushed me more and more to start following and trusting individual writers, not specific publications. I have a greater tendency nowadays to trust, for example, an individual writer of a blog than I do a large conglomerate like CNN with different people pushing different agendas and ideas.
Chapter 1 – Debt is Slavery
Mihalik opens the book with what I’ve started to call the “Dave Ramsey argument.” makes the case that all debt is bad because it restricts your freedom. Even if you’re borrowing to put yourself in a better position long term, you’re still restricted by having that debt load hanging over you – the monthly debt payments and so on. Mihalik’s solution? No debt of any kind, not even debt that you could pay off if you wanted to.
Chapter 2 – Time May Not Be Money, But Money Definitely Is Time
From there, the book moves on to the concept of the true hourly wage, where you actually sit down and figure out how much money you’re really putting into your pocket in exchange for an hour of your life. It’s usually surprisingly low, and Mihalik’s point is that your time is more valuable than that. In other words, you’re better off earning $20 an hour for 20 hours a work than $10 an hour for 45 hours of work even if the second job pays more. Why? Because if both options are available to you, that extra 25 hours at the $10 an hour job is really only paying you $50 – or $2 an hour.
Remember, what you’re really working for is time – time to enjoy the aspects of your life that bring you happiness and pleasure.
Chapter 3 – Possessions Are a Prison
The third chapter brings another stern point – that the most valuable parts of your life aren’t things, but experiences. Thus, the stuff you buy is effectively paid for by lost experiences. Let’s say, for example, that you spend $2,000 on a flat panel television. That same $2,000 could be used to go to Disney World with your six year old kid. Which one will stick with you emotionally for the rest of your life?
I’m slowly starting to come around to this perspective. My best memories of my life as a husband and a parent are about experiences, not about stuff. Shouldn’t I be devoting my financial resources to more of these experiences instead of accumulating more things?
Chapter 4 – Be Aware of the Ongoing Campaign to Separate You from Your Money
The title of the chapter is intentionally done to send up “kook” flags, but it actually makes a serious point. Marketing is everywhere, and it’s constantly trying to convince you to spend money. There’s the obvious – television ads, etc. – and the less obvious, like giving “trendy” clothing to teenagers who are influencers of their peers.
It takes practice to get used to really identifying the marketing and really figuring out what you want as opposed to what marketing is suggesting to you (or to your peers) that you want. When it really clicks, it becomes much easier to cut down on your possessions in life.
Chapter 5 – Money Buys Freedom
Of course, once you begin to break free from all of this, you begin to spend less and less money. What does that reduced spending really mean? It means that you now have the money to buy freedom. Mihalik uses a great explanation here. If you can get by with only spending 50% of your income each month, then you only have to work half the time – or if you can get by with only spending 25% of your income, you only have to work three quarters of the time. It becomes easier to do things like take a leave of absence from your job to follow up on a dream (like writing a book). Or, in my case, it becomes easier to just walk away from a job to follow something you’ve dreamed about your whole life.
Chapter 6 – Don’t Sell Your Soul For A Salary
Mihalik continues that thought, expounding on the idea that being in control of your spending and free from debt means you don’t have to sell your soul at a job that you detest simply because of the pay.
That, in a nutshell, is what financial freedom is. It’s the freedom to make choices in your life without having to worry about the day to day financial implications. If you hate your job, you can just go find something else to do – the money isn’t going to kill you. Plus, when you do find a career that you’re passionate about, you’ll truly enjoy what you’re doing and the money will follow.
Chapter 7 – Own
The remainder of the book is more along the lines of the “nuts and bolts” of managing your finances. First of all, Mihalik urges people to own the things they use, then use them until they’re truly unusable. Take a car, for example. If you just stick to a cycle of leasing cars because you like the “new car” feel and smell, you’re costing yourself a lot of money – $2,400 a year, post tax, on a $200 monthly lease? That’s a difference of $3,000-4,000 a year in salary. The same is true for housing – once you own a house, you’re not dumping out thousands a month on a mortgage or rent any more. Own the stuff and your monthly financial footprint gets smaller and smaller, giving you more and more freedom.
Chapter 8 – Spend Less Than You Earn By Controlling Your Expenses
Here, Mihalik encourages good ol’ frugality, mostly in the form of minimizing your monthly bills. His advice is pretty general, but it basically adds up to looking through all of your regular expenses for places to cut fat. Do you need extra cable channels? Do you need Netflix? Do you need web access on your cell phone? Do you need a brand new car with the requisite payments? Probably not, and those things are keeping you from acquiring freedom.
Chapter 9 – Save 50 Percent of Your Salary
He’s pretty blunt on this one, too. Save 50% of your salary, period. Make that your goal. In 2007, if you figure money spent on overpayment of debts as “saving,” we did exactly this – and it made us feel a lot more freedom in our lives. In 2008, we hope to be able to do the same.
Chapter 10 – Control Your Money or Your Money Will Control You
Mihalik introduces a very simple form of budgeting here. Basically, he shows a method where you take all of your monthly bills and match them up with each of your paychecks. Then, you essentially make other expenses – like food and entertainment – bills as well and match them up with paychecks. The goal is to set things up so there’s some left over after each paycheck, and that left over can be the amount that you automatically start saving for the future.
Chapter 11 – A Bonus
You’re never as young again as you are right now, so why not get started?
Buy or Don’t Buy?
In a lot of ways, came off as a condensed and very blunt version of Your Money or Your Life. That’s really the highest compliment that I could pay – it’s got a lot of similarity to my single favorite personal finance book of all.
Mihalik does a great job of really nailing home a handful of few key points: stop spending money needlessly, avoid debt, be frugal, move towards extreme savings, ignore the marketing. Because the book is so brief, Mihalik is really blunt and straightforward with the points – there’s not much fluff.
As useful as that bluntness is – and in terms of just pure advice, it’s very useful – the brevity of the book means that the pieces that were cut were the human pieces. The best part of Your Money or Your Life was the humanity of it – Dominguez and Robin and some of the people they talked about really came off as three dimensional humans. Mihalik’s book dispenses with most of that and goes straight to the advice.
Which one is better? It really depends on what you value. For me, I’ll stick with Your Money or Your Life, but if direct and clear advice is what you’re really looking for, you couldn’t do much better than .