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Your Money or Your Life

by Ouida on November 3, 2010


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Several years ago a colleague mentioned a book to me, Your Money or Your Life, by Robin and Dominguez.  This duo created a book and a course over 20 years ago that provides financial literacy and helps anyone discover the true place and purpose of money in their lives.   The root cause of the current financial crisis is not globalism.  It is not the shift from a manufacturing-based economy to a service one.  The root cause is quite simply lack of financial literacy and the belief that a home is an asset whose value will always increase.  Yes, we have other problems.  Stagnant wages in the middle class over the past decade is one of them, but at the end of it all the widespread lack of financial literacy is the main culprit.

Many years ago I used to volunteer for and contribute money to Habitat for Humanity I traveled to other places in New Mexico and to towns in Southern Colorado to help build.  A local contractor and his wife opened a Habitat chapter in my small town.  As part of their orientation, they partnered with a group out of Albuquerque. The year was 2003.  The Albuquerque group revealed a small problem among the Albuquerque Habitat recipients.  They were mortgaging their homes to predatory lenders in exchange for lump sums of cash.  See when Habitat builds a home, it issues a mortgage to the recipient of the home.    The recipient must work, cannot be on public assistance and must fulfill the sweat equity requirement for getting a Habitat Home.  The mortgage is over 25 years and is a principal-only.  But the year was 2003 and home values were rising.  Taking out a second was just too tempting for some.  Because I was a Habitat Donor, I approached the regional office in Denver and the main office in Americus, Georgia to find out whether or not courses in financial literacy were required before a recipient got a Habitat Home.  I did not like the answers I got.  What I learned through Habitat was a home could function like a loaded gun in the wrong hands.

What does this have to do with Robin and Dominguez’ work?  They allow anyone to develop a formula for what money actually costs.  What it costs to earn it.  And by extension what things cost.  Understanding this is the essential concept of financial literacy.  This lesson, something that they call the life force of money, has caused me to be frugal and yet enjoy spending money on the things and experiences I truly care about.  Robert H Frank, economist, wrote a recent editorial in the Times about the shrinking middle class.  His argument is really odd, though, he asserts that the middle class is having trouble getting by, because the rich consume so much and turn luxuries into perceived necessities.  Perceived necessities that the middle class will borrow to obtain.

Robin and Dominquez, though, provide a better way out for the middle class.  They ask their readers to determine how much they have earned over their working lives.  For W2 wage earners, that calculation is easy.  The Social Security Administration tracks your income and will provide you a year-by-year breakdown of your earnings.  The information is yours for the asking.  They then ask their readers to do another calculation:  calculate the hourly wage.  Finally they ask their readers to look at, really look at, what is takes to earn a given wage in an hour or over a day or a week.  $200 dollars becomes more than $200 dollars.  $200 dollars comes to represent the hours spent in meetings, on sales calls, on a long commute, on call, etc.  When you go to exchange that $200 dollars for something you end up asking yourself is that X that I am about to buy worth all the effort I went through to obtain the means to buy it?  With that mental equation you have instant frugality.  I find that because of that equation I don’t take on debt lightly, I pay off my credit cards monthly, I have less clutter in my home all because I want my work product to support the things I truly enjoy and I don’t want to be a slave.  Financially, I’ve been there, done that and still have the T-shirt as a momento.  My nightmare was a $87,000 home on $28,000 of income.  I was leveraged 3 dollars for every dollar I earned. Today many leveraged themselves into homes at a rate of 4, 5 or 6 times what they earn.

When it comes to home ownership, it is okay for me to spend a fraction of my time, energy and effort to put a roof over my head but it is not okay for me to spend all of my time doing so.  It might even be okay for me to spend up to 10 days per month of my time and energy putting a roof over my head, but more than that and something is wrong.  I become a slave to my house and that is not acceptable.  Is financial literacy a panacea?  It is a heckuva good start.  It is hard for me to believe that we would be in the mess we currently are in if Main Street understood the basics. Yes, just as the Israelites wanted to go back to Egypt after a miraculous liberation some of us will consciously choose slavery over freedom even after reading Your Money or Your Life, but we have to start somewhere.

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