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We have come to the final step in the journey of transforming your relationship with money from the book, “Your Money or Your Life”. If you have been following my series starting with Part 1, go pat yourself on the back for having the discipline, determination and daring to go the distance with me on this series. If you are reading this as your first post, do check out parts 1 to 8 (links given below).

Step 9: Managing Your Finances

Joe Dominguez and Vicki Robin shares how once you have hit the crossover point, where you monthly income from capital invested is more than your monthly living expenses, you are financially independent. You are able to get out of the rat-race and to determine how you want to spend your life-energy separate from your worrying or thinking about trading time for money. However, reaching that point and making sure your capital stays invested in safe instruments that provide you sufficient income for the rest of your life means you have to find safe and yet decent yielding assets.  They talk about the criteria for your investment capital:

1. Your capital must produce income.
2. Your capital must be absolutely safe.
3. Your capital must be in totally liquid investment. you must be able to convert it into cash at a moment’s notice, to handles emergencies.
4. Your capital must not be diminished at the time of investment by unnecessary commissions, or other expenses.
5. Your income must be absolutely safe.
6. Your income must not fluctuate. You must know exactly what your income will be next month, next year and 20 years from now.
7. Your income must be payable to you, in cash, at regular intervals.
8. Your income must not be diminished by charges, management fees or redemption fees.
9. The investment must produce this regular, fixed known income without any further involvement or expense on your part. It must not require maintenance, management, geographic presence or attention due to ‘acts of God’.

If you are conversant with personal finance principles and have started to manage your own monies, you will realise the above 9 criteria is not easy to meet. The authors suggest 30 year US Treasury Bonds as these satisfy the criteria. Joe and Vicki also share that you need to make sure your cash management allows for you to have capital (to generate your income), have sufficient emergency fund of 6 months expenses and also to provide for a little bit more of a buffer or “cache” to provide even more flexibility and cover for you to stay financially independent:

Capital: The income-producing core of your Financial Independence.

Cushion: Enough ready cash, earning bank interest, to cover six months of expenses.

Cache: The surplus funds resulting from your continued practice of the nine steps. May be used to finance your service work, reinvested to produce an endowment fund, used to replace high cost items, used to compensate for occasional inroads of inflation, given away, etc.

Panzer’s Takeaways

“Your Money or Your Life” is powerful because it brings a distinctly different dimension to how you should approach your personal finance. Most books teach you to maximise income and minimise expenses but the reasons behind it tend to be so that you can have MORE or RETIRE young. “Your Money or Your Life” brings a more human dimension because it features stories of people of varying backgrounds, income levels and lives who have managed to achieve financial independence in their own ways and truly live a life that satisfies them. A life that is truly about “making a living” instead of “making a dying” or working a job to put food on the table but losing your soul in the process.

I realised from this chapter that financial freedom is what we are striving for and even as we get there, we need to manage our finances to keep ourselves financially free. It does not mean to track the markets day by day but to identify safe instruments that provide a decent, regular income with safety in capital protection and continuing income streams. Singapore Government Bonds are the closest thing there is but the returns are nearer to the 3-4% level or near to Central Provident Fund (CPF) special accounts rates of 4% or so.

Financial freedom or financial independence (FI) as “Your Money or Your Life” terms it is achievable for us all IF we apply the 9 step program and are true to ourselves in terms of our values and principles. If our values are not of having “enough” but in “more is good”, then we will never be able to escape from the time-money trade-off that we all start out at some point in our working, adult lives.

After reading this book, I am more convinced now than ever that my dreams of being financially free before the age of 67 are more realistic but I need to re-double my efforts in building up my investible capital and make my life simpler in terms of materialism but richer in terms of relationships and happiness with family, loved ones and with myself.

Getting that extra gadget won’t make me happy. Seeing my daughter’s laughter every day does.

Do you want to be financially independent?

Do you want to know what is “enough” for you?

Do you want to get out of the time-money trade-off running in the rat-race?

Read “Your Money or Your Life” and practice the steps.

Be well and prosper.

Related Articles:

1. Your Money or Your Life - Panzer’s Book Review - Part 1
2. Your Money or Your Life - Panzer’s Book Review - Part 2
3. Your Money or Your Life - Panzer’s Book Review - Part 3
4. Your Money or Your Life - Panzer’s Book Review - Part 4
5. Your Money or Your Life - Panzer’s Book Review - Part 5
6. Your Money or Your Life - Panzer’s Book Review - Part 6
7. Your Money or Your Life - Panzer’s Book Review - Part 7
8. Your Money or Your Life - Panzer’s Book Review - Part 8