Your Money or Your Life Summary: Chapter 5

In step 5 of the “Your Money or Your Life” program you will create a line graph of your finances.

This visual representation of the flow of your money is a powerful motivator.

You can do this digitally or manually.

If doing it manually, get a large sheet of graph paper, the largest you can find with the smallest squares. 10 squares to the centimeter is good.

The left-hand vertical axis is for charting your income and expenses. Start with zero dollars at the bottom. Halfway up the graph put in either your total income or expense for the month, whichever is higher.

Why halfway? You’re leaving room for growth.

Now calculate even increments for each square on the graph and fill them in.

The horizontal axis is for time in months. Allow at least five years. You want to be able to see large scale trends over time.

At the end of each month mark your total monthly income in one color and your total monthly expenses in a different color. Connect the points to form two different colored lines on your graph, one for income and one for expenses.

That’s it!

By asking the three questions and plotting your graph each month you will naturally start to see positive changes in your money habits.

Every now and again your expenses line will take a steep turn upward. Tax payments, house repairs, emergency doctor’s bills, family vacation, school fees, and so on.

You may even find that every month is an unusual month, and that these ‘random’ expenses come up all the time.

Don’t worry. Over time these expenses tend to balance out.

For known ‘unusual expenses’ such as yearly insurance, you could prorate them across the 12 months of the year.

Financial independence, according to “Your Money or Your Life,” is having enough money for your basic needs and then some from an income source other than paid work.

First, you need to get out of debt. From personal experience I can say that there is nothing more liberating than being debt-free.

Next, save money and pay yourself first. That means that the first thing you do when you get your paycheck is put money in your savings account and don’t touch it.

The final step is then to invest your money so that you can live off the dividends, but this comes in the later chapters.

Read the next chapter here.

Buy “Your Money or Your Life” here: https://amzn.to/4gqQj94