Get To The Crossover Point!

Joe Dominguez hit upon a fantastic idea.  Focus on money and how it affects your life.  Know  where every cent is going and follow it.  Then, understand how much effort it takes to get the money.  After all, money is such a big part of our life.   It's such a big part of our lives that we tend to forget its impact and just deal with it in "real-time".  That is, we think about money only when we have to.   We have "ideas" of where our money goes and what we need it for but do we definitively know where every cent comes and goes?  I would venture to guess that the majority of us do not know exactly, down to the penny,  where all of our money goes.

Stop doing that. 

In Your Money Or Your Life Vicki Robin and Joe Dominguez lay out "nine steps to transforming your relationship with money and achieving financial independence".  Get this book.  If you want set a monthly budget, start a savings plan, lower your debt, quit your job, retire, start your own business, then the first step is to begin looking at money differently than you may be used to. 

I will confess that I have attempted on many occasion to start and stick to a budget.  Budgets are easy to set up but near impossible to keep up.  They are limiting.  And once you reach a limit without any true consequences, or extreme levels of self-control, you will blow right through those limits like a holiday shopper on Black Friday. 

Instead, try tracking all expenditures for one month.  Everything going out.  Write down every cent you spend for an entire month.  Get to know where your money is going and begin to truly understand your spending habits.  This could be very surprising.  This is a crucial first step to gaining focus on money and how it affects your life. 

Once you have an idea of where the money is going take a look at your purchases.  Develop categories and place each expenditure in at least one category.  You don't have to stick to old  budgetary categories like healthcare or entertainment.  The problem with traditional budget categories is they can be too broad.  Create your own categories that help you correctly identify  and remember expenditures.  

Now comes the fun part.  Determining the necessity of your expenses.  This is where the "focus" comes into play where you look at things like, values,fulfillment, satisfaction and they relate to your purchases.  From this, an equation can be formulated:  how much energy went into making money and compared to the satisfaction received from spending.   This needs to analyzed in-depth by you.  And, it could get pretty crazy.  Are your purchases worth the energy expended at work?  Could that energy be put to better use by doing something that brings greater satisfaction like a hobby,or volunteer work?

Now armed with your monthly list of expenditures you can begin to track three things:

  1. Your monthly income
  2. Your monthly expenditures (debt)
  3. A second stream of income (investments)

This analysis leads to the building of a chart.  This chart pinpoints a crossover point.  A crossover point depicts the moment a second stream of income, say from investments, crosses up and over your monthly debt amount.  At this point, your crossover point, your are technically financially independent.  Free to pursue a life of endless joy and satisfaction not reliant on corporate America or any other countries stifling corporate structure. 

In order to get to the crossover point we need to make a decision about understanding money.  Then we can start making other decisions such as savings plans, debt reduction plans, investment strategies, and the like.