Your Money or Your Life Summary: Chapter 3

Diets don’t work, and neither do budgets.

Diets don’t work well because they are like quick fixes that don’t last. People often go back to their old habits, and the weight comes back. It's better to make small, healthy changes that you can stick with for a long time.

The same advice goes for your spending habits. Instead of making super strict budgets that are hard to follow, it’s better to make small, smart changes in how you spend money that you can stick with for a long time.

Save money without deprivation by spending it on things you truly need or value. Before buying anything, take some time to really think about whether it adds value to your life or not.

After you have tracked your money for a month you can create personalized spending categories as opposed to the generic ones found in most budgets.

This is highly personalized and you can make subcategories based on your unique spending habits. Some people may have ‘Food’ as a single category, but I have it as 3 separate categories: groceries, eating out, and supplements. If you like to entertain, you might have Food for the family and food for dinner parties.

Another example could be for the 'Transportation' category. For example, you might have "Gas," "Public Transportation," "Car Maintenance," and "Ride-Sharing Services." If you travel often, you might even include a subcategory for "Travel-related Transport," like flights or rental cars.

One thing to keep an eye out for is to separate job related and personal expenses. How much of your phone bill is work-related? How much fuel do you actually use for personal reasons?

Also, don’t forget to categorize your income, such as wages, tips, tax returns, dividends, and so on.

There is no right or wrong way to do this and you can perfect your categories over time. In fact, as you go through the rest of the steps, you will probably find that how you spend and earn money will change.

At the end of each month, calculate your total income and expenditure for each category and record it. Now you can see more clearly where your money comes from, and where it is going.

Next, add the totals of your income categories to get your total monthly income. Do the same with your expenses.

Your total income minus your total expenses is your profit (or loss) for the month.

Now look at how much money you actually have. Check your wallet and bank accounts. It should be equal to what you had at the start of the month, plus or minus your profit or loss. If it isn’t, then your record keeping needs some work.

Remember, you need to record every cent!

When you buy something, don’t think of it as spending money. Think of it as spending your life energy.

Divide the cost of the item by your real hourly wage. This is how much life energy you are spending on that item.

So if you buy a $140 pair of shoes, and your real hourly wage is $7, that pair of shoes cost you 20 hours of life energy.

Is it worth the trade-off? Only you can decide.

Now do this for each of your spending categories and record it.

Read the next chapter here.

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