All of us work hard for a reason. We go into work and come out of work because we want money, right? Money buys us things and allows us to live in this modern world. But what do we mean by ‘live’? What exactly is this ‘living’ that we are focused on?

The real truth is that we live according to a set of values. We continually perform actions based on values: our values mixed with the values of others. For example, my top value is my family. I want a good, fulfilling life for my wife and my son so that they can easily define and follow their own values.

Every person has a set of between four and six primary values that underline their life (we may have other values, but those values are secondary to the primary ones). Financial problems occur through distortions of those values: we come to believe that some things are vital to these values when they really don’t matter. Generally, this is what advertising seeks to do: it tries to express a core value that some people have and make their product seem essential to achieving that value.

So, our first step is to define exactly what our values are. We are not defining goals here! Goals are specific actions, like “retiring at age fifty five” or “paying for my son’s graduate school. What we are looking for are values. Friends. Love. Freedom. Truth. What are the fundamental items that make you tick? At the end of this post is a list of thirty potential values that one might list; you can look at these if you’re an example-oriented person.

At first, this seems pretty difficult, so here’s a procedure that will help you get in the right mindset.

First, get calm and relaxed. For me, this usually comes after a nice meal with a glass of wine or a great craft beer. I can clear my mind and think about my life. Do whatever gets you relaxed: have a massage, lay down in bed, or anything that increases your calmness.

Second, be honest. No one has to see this list, so write down what really comes from inside of you. You might write down things like “power” or “excitement” that you might not want to show other people, or you might be tempted to write down “family” because your significant other would expect it – but it’s not really important to you.

Third, close your eyes and ask yourself what is really important in your life. If nothing comes immediately, don’t worry about it. Think about the moments where you feel most whole and fulfilled and that feeling stays with you, not a temporary, passing feeling.

As you discover values, write them down. Just make a list on a sheet of paper. It doesn’t have to be ranked in any way. Once you’ve discovered a value that’s important to you, just add it at the bottom of the list. You’ll know when you are done; don’t worry too much about how many you’ve written down.

If you have more than six values, ask yourself if any of them are actually the same value. Quite often, if you get above six values on our list, you’ll realize that two of the values are actually the same thing. If they are, just combine them, or cross off one of them.

If you have fewer than four values, think about them some more. Most people have at least four central values in their lives, so spend some more time to make sure you’re not missing anything.

Once you have this list, save it. We’ll not only refer to it in later steps, but it will probably be valuable to you. See you tomorrow!

If you need some help getting started, here is a list of thirty values that you might have in your life. Note that this isn’t a list of all possible values, just a selection of some values to help you get started.

Adventure
Balance
Beauty
Cleanliness
Confidence
Control
Creativity (music, film, food, etc.)
Education
Excitement
Family
Friends
Freedom
Fulfillment
Fun
Growth
Happiness
Health
Independence
Leadership
Love
Making a difference
Marriage
Peace of mind
Power
Security
Service
Sharing
Spirituality
The environment
Truth

Yet so often we find ourselves betraying these values (everyone does this at some point), and it is when we choose to betray these values that we find ourselves in financial trouble instead of in financial stability. We either spend money on things that don’t match or even oppose our values, or we spend money on our values but in a misguided fashion.

Why do we do this? The biggest reason that we spend money out of accord with our values is that we don’t sit down and define our goals. Goals are merely the specific embodiment of our values – tangible milestones that are clear indications of lives lived in tune with our values.

You’re probably thinking to yourself, I have values and goals already – this is a waste of my time. Before you log off, I want to ask you one simple question: first, do your goals actually match the values in your life? Let me give you an example. One of my major short term goals is buying a house, something many of you can identify with. This is a goal related to one of my primary values, my family. Thus, I’m buying a house for my family. Understanding this connection lets me clearly define what type of house I’m looking for (it doesn’t need to be shiny and new, but it does need to have space for my son and my future children – a large kitchen, a family room, and four bedrooms are what I seek). Thus, every time I think about the home purchase, I realize that I’m working for my family.

If you can honestly match ever single goal in your life with one of your central values, you’re more well-adjusted than almost everyone in the world. The truth is that we all have central values without any associated goals, goals without any associated values, and goal-value pairings that are really unclear and muddled. People that are financially successful find ways to minimize all of these.

How do they do this? They define all of their goals based directly on their personal values, and they live their lives to meet these goals above everything else. If they go to spend money, they ask themselves whether that money directly leads them to one of their goals. If the answer is no, they don’t spend the money. Thus, when they actually spend money, it doesn’t fill them with guilt. They can immediately see how that money is going to realize their goals, which are fundamentally connected to the values that define their life.

How do we get there? Let’s take an hour, sit down, and define ten goals in our life. If you went through yesterday’s exercise, you will already have a list of the five values that are central to your life. Now, we take these values and use them to define ten concrete goals.

First, forget what you believe your goals are right now. You might end up coming back to these goals during this process or you might not. The intent is to define your goals in direct harmony with your core values.

For each value on your list, ask yourself where you want to be in terms of that value in twenty five years. I mentioned that one of my main values is my family (specifically my children), so in twenty five years, I would like to have two college-educated children starting stable lives on their own, and perhaps a third in college.

Now, turn that dream into a goal. For my children to be able to start out their own lives on their own, I want to minimize their college debts and set a good example for their lives. So, my goal is to be able to pay for at least part of their education.

You might be tempted to start writing a plan for that goal right now, but don’t. We’ll get to that later. Right now, we just want to make a list of long-term goals that match your values.

For those curious, here are some sample goals for twenty five years down the road:
+ I want to be able to pay for a significant part of my child’s college education
+ I want to have a fully paid for house big enough for my grandchildren to visit and feel comfortable
+ I want to be able to travel the world with my wife
+ I want to have three books in print
+ I want to be able to live off the interest of my non-retirement investments

Once you’ve made the long term goals, go through your values again and ask yourself where you want to be in terms of that value in one year. Just like before, figure out where you would like to be in relation to that value in one year and don’t worry about defining a plan for that goal.

Again, here are some sample one year goals:
+ I want to double the value of my son’s 529 college savings plan
+ I want to buy and move into a house
+ I want to select and begin learning a foreign language
+ I want to quadruple the readership of The Simple Dollar
+ I want to reach $10K in my non-retirement mutual fund account

Now that you have these goals, we’re ready to begin defining some plans, but let’s sleep on it first.

For each of the short term goals, I want you to define five specific actions:

I will do this in the next three days.
I will do this in the next week.
I will do this every week.
I will do this in the next month.
I will do this in the next six months.

Some of these will be information gathering and have no cost. Others will actually require some investment, usually the one that happens every week.

For example, yesterday I mentioned that one of my short term goals is doubling the value of my son’s 529 college savings plan in the next year. Here’s what my five specific actions look like:

In the next three days, I will get the balance of my son’s 529 account, along with the data on the annual returns of each of the investment options in the plan. In the next week, I will determine how much I need to invest in the coming year
to double the account balance and also estimate what the return for the coming year might be.

Every week, I will invest 2% of what I calculate is needed to double the balance in the coming year.

In the next month, I will evaluate all of the different funds available for my son’s 529 and choose a fund that I feel is the best match for him.

In six months, I will check in on the account and see how he’s doing for the year, see how the various funds are doing for the year, and reconsider my investment choices.

Generally, the model outlined above works well: gather information in the next three days, plan a baseline amount you’ll need in the next week, save an appropriate amount every week, investigate the details in the next month, and review things in six months. If you do this, you’ll almost always meet your annual goal.

Now, for each of the long term goals, I want you to define five specific actions:

I will do this in the next week.
I will do this in the next month.
I will do this every month.
I will do this in the next year.
I will do this in three years.

Some of these will be information gathering and have no cost. Others will actually require some investment, usually the one that happens every month.

For example, yesterday I mentioned that one of my long term goals is completely owning a wonderful house in twenty five years. Here’s what my five specific actions look like:

In the next week, I will gather information a selection of potential houses that reflect what I plan to buy immediately and what I plan to buy in fifteen years.

In the next month, I will calculate how much I will have to spend per month on mortgage, insurance, and taxes on the lower-end house, and also calculate how much the nice house will cost in fifteen years.

Each month, I will save 25% of a mortgage payment for helping me get ahead on payments when I purchase the first home. This will enable me to ‘trade up’ more effectively when the time comes.

In the next year, I will buy a home that is in the lower house bracket and switch the extra 25% from a savings account to a direct payment on the mortgage.

In three years, I will sit down and re-evaluate what my ‘dream home’ is like and refactor my plan accordingly.

By doing this, I break down something that seems far-off (a beautiful big house to retire in and for my children and grandchildren to enjoy) into smaller pieces that I can do right now. I also find it useful to find an image that captures a long-term goal and place it in a place that I’ll see regularly. This way, the end goal is always in sight; it’s a constant visual reminder of where I need to go.

Now that you’ve defined these plans, you have specific things that you’re saving for and spending your money on that are in line with your values and goals. Whenever you go to spend money, pause for a second and think about your values, goals, and plans, and ask yourself if that money expenditure is really helping you reach your goals or is really reflecting your values.

You should strongly consider making up a schedule that combine all of your plans together. What will you do in the next week? What will you do every week? What will you do in the next month? What will you do every month?

A schedule that keeps you following your plans will help with this.

One week from now, you should have some numbers that will show you what you need to be doing to reach your goals. The amounts might trouble you, but don’t worry. In one week, we’ll take these numbers and use some techniques to carefully evaluate what they really mean – and how you can make them count for more than you think.

Before I did this exercise, I often found that, even though I often realized it wasn’t a good idea to spend, I would still spend money anyway. Why? I didn’t have any sort of concrete plan for what to do with my money, especially not one that was larger than saving for a new gadget or toy. Now, whenever I’m tempted to spend money in a frivolous way, I think about what’s important to me, and it directly connects to a plan for spending my money.

Tomorrow, we’ll start looking at your money.

Now that we have these plans in place, we need to dig into our finances a bit. The first step is to see what income you actually have with which to chase your dreams. This will provide a baseline with which to figure out how we can rebuild our finances.

As before, take out a sheet of paper. Along the top, make a list of each of your employments. For me, I just listed one job (right now, The Simple Dollar is a very involved hobby, not what I would call a “job”). On the right hand side of the paper, write how much you make per year at your job (minus only income taxes – include all benefits, including any employer matching for retirement).

Now, underneath that, make a list of every single extra cost you have specifically because of your job. What does the commute cost? How much does lunch cost if you don’t bring your own lunch from home? What does your work wardrobe cost? What do you spend on going out with coworkers? On small professional gifts for others? On a nicer car or jewelry or other items for work image? What about child care? Each of these are expenses related to your job.

Just make a list of them; don’t worry about amounts yet.

Here’s a sample list, if you’d like something to compare it to: child care, driving to work (gas and extra maintenance), wardrobe, meals, gifts, and office supplies.

Now, for each item on your list, figure out how much it costs you per year.

First, figure out how many days a year you work (this is useful for the automotive calculations), then figure out how long your daily commute is. Multiply the two together and you get an estimate of the mileage you put on the car. I drive about 5,500 miles a year for work, so that amounts to roughly 400 gallons of gasoline, at $2.50 a pop (on average), which comes out to $1,000. I also figure that I’ll have to spend about half that much on other maintenance (oil changes, filter changes, and increased risk of major problems): $500. Then I look at child care: $5,800. I usually buy about $300-$350 a year worth of extra clothes for work, and I eat out probably once a week with coworkers, so tack on another $780 ($15 a meal, estimated). I also buy gifts for our gift exchanges at work and some of my office supplies, adding up to nearly $100 a year. Obviously, your calculations will be far different.

When you’ve determined annual amounts for each entry, subtract them from your salary. This will be sort of painful, particularly if you work in an office at the $12-$15 an hour range. The amount you’re left with is your true take-home salary for your job for a year. We used the post-tax number because you’re paying for this extra stuff after taxes.

I know some people who claim to be making $35,000 a year, but when they take their post-tax number and subtract out their job expenses, the number left makes them feel rather worried. It should. Some people even realize that this number takes them down to near the poverty line, and they get quite sick when looking at this number in comparison to other things.

Over the next few days, we’ll take a deeper look at this number and figure out what it really means in terms of your life values.

Today, we’re going to look at our work from a different angle: time. We need to get an accurate picture of how much time you spend in a year chasing the money you make. At first glance, this seems almost automatic, but let’s look at it a bit more closely.

As usual, take out a sheet of paper. Along the top, make a list of each of your employments and, along the far right, write how many hours you actually spend at work (include your lunch break) in a given year. Don’t include vacation time. If you work overtime some of the time, just estimate what an average day looks like, then calculate how many days you work in a year (total days minus holidays and vacation), then multiply the two numbers together.

Now, underneath your time spent at work, list every other activity you do in relation to your work. The list you made yesterday might help, but give the question some thought. List everything that you do that you wouldn’t otherwise do if it wasn’t for your job. For example, if you travel, you can list almost all of your nonworking waking hours. You can list the time it takes to travel to and from work. You can list the time you have to deal with child care. You can list the time you spend shopping for work clothes, or time you spend going out for business dinners, or time you spend doing optional training.

For example:
Child care
Commute
Working outside the office
Business travel
Business dinners / parties

If you haven’t already, for each of these activities, list the number of hours you spend on them in a year. Put these in next to each item, but over on the right hand side of the page under the time you spend at work in a year. I find that for many of these items, it’s easier to figure out how much you invest in these things each day (like the commute or the child care connection), then multiply it out by the number of days you work in a year.

Now, total all of the numbers on the right. That’s how many hours you actually spend working in a year. Divide it by 52 to get your weekly total, or by 365 to get your daily total (realize that this daily total does include weekends; if you want to exclude them, divide it by 260 to get only weekdays, or by 250 to exclude ten holidays – you may also want to subtract your vacation days from that total, too). For me, this number was a real eye-opener, as I began to realize how much of my time really is taken up by my chase for more money.

Spend some time thinking about this exercise and what it means. You spend all of this time working your tail off and yet you still find yourself in financial trouble. I spend an average of 70 hours a week working just to keep my job. What things could I do if I didn’t have this time investment? What sort of things could I do if I did a low-wage job just down the block? I leave it up to you to draw your own conclusions, but it is a question worth thinking about.

Tomorrow, we’re going to see how much your time is worth – and what that really means.

Are you ready for the big calculation? Take the total salary you calculated two days ago and divide it by the total hours you calculated yesterday. You’re going to be left with a number that you’re going to have to ponder quite a bit.

This number is how much you actually bring home each hour you do something for your employment. For some of you, this number is going to be shockingly low. There are many seemingly decent-paying jobs that wind up
with an hourly wage below minimum wage when looked at in this fashion. For example, if you come up with an hourly wage below minimum wage and you spend 60 hours a week involved in work activities, you might actually be better off working at Home Depot with a much lower responsibility and stress threshold.

Many of you might balk at the Home Depot idea, but hear me out. A relative (and friend) of mine walked away from a situation where she was making between $40,000 and $50,000 a year to take a job working the floor at a local Home Depot for $9 an hour. She worked forty hours a week, rode public transportation to and from work, and came home from her job without the baggage of additional stress. What happened? She was reinvigorated to follow her passions. What about her finances? Without all of the extra costs of her job, she was only slightly worse off than before, plus with the extra energy to follow her interests, she actually wound up doing better than before within six months.

Spend some time considering what this number actually means. There are a lot of truths about our lives that are revealed by this number.

If you buy a frivolous item for $X, consider how many hours you had to work to have the money to buy it. Let’s say you calculated that you are actually earning $5 for each hour of your time invested in work. When you go to buy a new pair of shoes that cost $80, look at them and ask yourself whether or not they’re worth 16 hours of your time spent working. When you go to buy a new electronic gadget for $300, look at it and ask yourself whether or not it’s worth 60 hours of your time spent doing things you don’t want to do.

When you pay a loan bill, figure out how many hours you have to work just to pay for the finance charges or interest. I find this one to be a real eye-opener. Whenever you pay a bill, look at the amount you’re paying in finance charges or interest that month, then convert it to hours of your life spent at work. With the example above, a $100 finance charge amounts to twenty hours of work just so you could have some frivolous item before you could actually pay for it.

Some people consider this exercise frightening; others find it incredibly uplifting. The maxim that time is money is painfully true; by translating the things you spend money on directly into hours of your life spent toiling in labor, you often discover that maybe you don’t need a lot of things after all. When you start doing that well, that’s tomorrow’s exercise.

If you’ve been following the plan, you’re probably working on the numbers for your plans right now. We won’t evaluate them yet (after all, you’ve got a few days to go before you have some real numbers), but you should realize that you’re going to have to save some money to meet these goals.

The big secret, though, is the realization that you can in fact work for your dreams instead of working just to get by. Yesterday, we calculated our true hourly wage, so you know how much you’re making for each hour you’re involved with work-related tasks. Let’s transform this hourly wage into something that has more meaning.

Take out a new sheet of paper and list your ten goals on it. Today, we’re going to make a framework that will enable you to go to work with renewed vigor, because you’ll see the connection directly between your time at work and your dreams.

Under these goals, make a list of each of your debts as well. Part of the journey to your dreams is paying off these debts, so we want to put them each on the list, too.

Under that, add one last item: living expenses. Obviously, even as you work towards your dreams, you’ll still need to cover your daily expenses, such as electricity, food, water, and whatever else is fundamentally important to you.

At the very bottom, write TOTAL and then over on the far right, write the total amount of hours you work in a week that you calculated the day before yesterday.

What we’re going to do is see how many hours we can spend at work each week on each of these items. Once we have this first draft written, you can use it as a life baseline until we refine it later on in the month.

So let’s get started! First thing, until you’re sure how your life will be rebalanced, include 60% of the total hours under the item living expenses. For example, let’s say your total hours for a week is 80. You should then include 48 hours next to the living expenses. This may need to be more; we’ll evaluate it more carefully in the next few days.

Now, let’s handle the debts. If you have debts, you should spend 25% of your hours on paying off the debts. For example, if you have 80 hours, you should figure that 20 of them should be used on paying off debts. Note that this is extra debt payments; your basic minimum debt payments are included in the living expenses. When (or if) you have no debts, all of the time going into your debts can go straight to your dreams.

The remaining 15% should be assigned in equal pieces to your dreams.

I had 12 hours left, so I gave 1.2 hours to each of my dreams.

So, what’s the point? There are two points. First, if you multiply your hourly rate by the amount assigned to each element, that’s how much you can spend each week on that element. If you’re thinking that this is something like a budget, you’re right in a way, but rather than a list of month-to-month expenses that demand things of you, this is a dream budget – a device that lets you follow your goals to achieve your dreams.

Second, it lets you find real goals in your work. This is the truly powerful part of this. So often, we wake up in the morning and trudge into work wishing we were doing anything else. If you realize that some portion of your day is spent working specifically for your dream, it becomes easier. For me, the hardest part of a day is getting ready in the morning; I’d much rather sit down with a cup of joe and check my email than take a shower, get dressed, and take my son to daycare. So for me, the first hour of a given day is an hour I’m working towards one of my goals. While I’m showering or out in the truck on the way to daycare, I remind myself over and over that I’m working solely for the purpose of one of my dreams.

I imagine that dream and somehow I feel better about it.

There are two vital lessons that this exercise teaches. First, the various aspects of your life are all connected: your work, your pay, your dreams, and your goals. They’re all tied together in one big picture. Many people often compartmentalize these things and fail to see how they all relate to one another.

Second, it reveals that you can directly connect the work you do every day to your dreams. This is the real power of the exercise, I think. Every single day you go into work, you can tie some of your least favorite tasks directly towards achieving a life goal. It can be the parts that you like the least, or it can be the commute. Just pick a portion of it and, while you’re doing it, remind yourself that you’re doing this action so that you can live in that beautiful house or so that you can travel to Italy with your wife.

Tomorrow, we’ll start breaking this picture down piece by piece, starting with the living expenses. The goal is to create a picture of your life, with the living expenses as merely the frame around a beautiful picture of your dreams.

Let1s get started. Take out a sheet of paper and start another list. This time, we1re listing every expense you have in a given year that do not directly
relate to your employment. We1re not going to worry about amounts yet, just a
list of all of the things that we spend money on in a given month. Here1s a
sampling of the expenses that I listed when I did this exercise:

Rent
Electricity
Telephone
Cable
Student loans – minimum payment
Health Insurance
Car Insurance
Clothing
Food
Entertainment – Books
Entertainment – Music

Spend some time thinking about this. What do you spend money on each year?
House insurance? Christmas gifts? Household items? Car repair? Home decor?
Toiletries? Just keep listing things as you think of them. It might be useful to
leave this list out somewhere you can see it and add things as you think of them.
Don1t worry about amounts yet; we1ll worry about those in a bit.

Now, let1s figure how much you spend on each item in a given year. For
the amounts you know on a shorter timeframe, multiply them out. For amounts
you don1t know, use some estimation over a shorter timeframe (and estimate on
the high side) and multiply it out. The point is to get a rough thumbnail sketch of
what you spend in a year on various things. Note that we1re not making any
value judgements yet; we1re merely trying to see what1s there.

This will take some time, and during that time, think about each of these
expenses a little. Do they bring you joy when you look at them now? Do they
really feel essential to your life, or when you think about them, do you feel like
you1d be better off if you spent money on the list of goals you created earlier this
month?

When you1re done with this list, total up everything. Then calculate 10% of that
and add it to the bottom, labeled incidentals. Add that into the total. That
number is roughly what you spend on your living expenses in a given year. You
can divide it by 12 to see how much it is a month, then divide it by 52 to see how
much it is in a week.

Now, let1s see how many hours you work in a week just to meet these expenses.
Take the weekly amount you just calculated and divide it by your true
hourly wage. A typical American usually winds up with a rather large number
here.

Spend some time meditating on this – you spend that many hours a week at work
just for the expenses you listed. What does that mean? What could you do with
your life – with your future – if you trimmed away some of the extra fat? Your debt
could be gone – and you could be working towards a better and brighter future for
yourself.

Instead, you should evaluate the areas where you feel comfortable
cutting down. In some ways, it is like a diet: if you diet too strongly, it won’t be
long before you’re laying prostrate on the couch, Sara Lee poundcake in one hand
and a 20 ounce bottle of Mountain Dew in the other. Instead, dieting works when
you make little choices throughout the day, like not super sizing a meal or
choosing to take the stairs.

Let’s get started. Take out that list of expenses that you made yesterday
along with a blank sheet of paper. What you’re going to do is go through the
entire list and think about each item a little bit, then note how much you think
you can save per week on that item.

Here’s what you do. Copy the first item to the new piece of paper, then
close your eyes for one minute and think about that item. Do you spend
too much on it? Is there a way you could easily cut down on that expense without
really feeling the crunch? Could you eliminate or drastically reduce that expense
without feeling too bad about it? Keep in mind why you’re doing this – you’re
trying to find money with which you can chase your dreams.

Here are ten quick suggestions about how to cut various kinds of expenses with
minimal impact:
• Conserve energy by installing energy efficient items like CFLs (compact
fluorescent lights), programmable thermostats, and intelligent power
strips.
• Buy fewer books by spending more time at your local library. Whenever
I have a bad desire to go to the bookstore, I just consciously go to the
library instead almost all of the time.
• Buy less music by listening to music in your collection that you’e never
spent the time to appreciate. Instead of buying a new CD, find an older one
that you only listened to once or twice and put away.
• Buy fewer clothes by selecting items that go well with much of the rest
of your wardrobe. A modular wardrobe creates the appearance of a lot of
clothes without the need for a large clothing bill.
• Eat out less by buying a good cookbook that starts out at a beginner’s
level (try Mark Bittman’s “How To Cook Everything”) and stocking your
kitchen well.
• Reduce insurance by calling your insurance carrier and looking at
raising your deductible.
• Reduce your credit card payments by calling your credit card
company and requesting a reduction in your interest rate.
• Reduce your bank fees by looking into no-fee or low-fee options at your
bank – or at other banks.
• Reduce your cable bill by eliminating unwatched premium channels or
looking at other basic package options – or even consider eliminating it
altogether.
• Reduce your car payments by ending the leasing cycle and buying late
model used cars instead.

For each item that you decide you can effectively reduce the cost of, estimate
realistically how much you might save in a year doing this. Estimate
your savings low; you’re always better off with flexibility.

Once you’e done these estimates, rewrite your overall cost list with the
spending reductions calculated in, then divide each element by 52 to see
how much that is per week. You should see a decent reduction in your living
expenses. What will that translate into? More money that you can spend on your
dreams – and fewer years until you get there.

Tomorrow, we’ll see how much time we’e saved – and what that means for the
bigger picture.

Today, we want to see how this revised personal expense balance fits within our
overall life plan. Pull out the overall plan you built a few days ago along
with the estimates you calculated yesterday. You’ll notice that your older
plan is calculated in terms of hours, which is a great way to see what your
expenses are really costing you, so let’s do the same conversion for your expenses.

Take out a fresh sheet of paper and make three columns on it, with the
left one taking up about half of the page and the two on the right taking up about
a quarter of the page each. In the first column, write each expense down from
your sheet from yesterday, then in the second column, write the amount per
week that you calculated yesterday. If you skipped that part, just take your annual
estimate for each item and divide it by 52.

Got that? Now, in the third column, divide each second column number
by the true hourly wage that you calculated earlier. This is the number of
hours that you spend working each week to pay for that expense.

For me, this exercise really opened my eyes. I found lots of places where I
felt almost guilty for what I was doing – things such as working eleven hours a
week just for my entertainment expenses. I was working a lot every week just for
silly little things, when that time could be spent working for something bigger,
something that reaffirms my life.

Once you’ve converted all of these dollar amounts to hours, total them up.
Unless you have some major spending problems, this total should be less than
your total hours you spend working in a given week (which you figured up earlier
in the week). Ideally, it’s around 60% of the total hours in a week (mine is about
55% right now, but when I first did this, it was at about 92%), but you don’t really
need to worry unless it’s pushing 95% or so. If it’s over 100%, you need to make
some cuts in your spending or you will never get ahead, as your spending will
grow as your income grows.

At this point, it might be useful to start a “real balance sheet. Take the overall
plan and recopy it with the same items as before, but don’t move the
numbers over. Instead, just put in the total number of hours in a week and the
total number of hours you spend on living expenses. The difference between the
two is what you will use to begin building your future.

What if I’m left with only a 10% sliver? How can I “build my dreams
with that? First of all, even a small amount of money can get you started and,
with the power of compound interest, can build up quite well over time. Second,
this process of evaluation is not a one-time process. It’s useful to go through this
on an annual basis, just to re-evaluate where you’re at and where you’re headed.
Once you get started and watch things begin to build to fulfill your dreams, the
feeling is often so powerful that you find new places to trim your spending – you
pay off debts, cut down on your nonessential purchases, and so on.

Tomorrow, we’ll look at what to do with that remaining fraction.