MONEY/LIFE BALANCE: The Crossover Point [Step 8][box type=”note” icon=”none”]

[Read Step 7 of the Simple Living Guide or go to Step 1]

In the last step we looked at valuing your life energy and now in this step we’ll see how the effect of that surplus energy frees us from ever having to work for money again. We’re not dreaming of some hazy notion of “retirement” in the distant future. Instead, we’ll estimate when we’ll reach that point (usually much sooner than we’d guess!), and start envisioning our lives of Financial Independence.

When I first read Your Money or Your Life, this is the point where my eyes lit up and I broke into a big grin. It’s exciting! We will never have to work for money again, and best of all, we’re estimating when that time will come, and it’s sooner than we had thought!

The wall chart takes on new meaning

The core concept of Step 8 is to fundamentally change how we think of our savings. Rather than money we’re putting aside for the future, this is money we’re investing to generate an income. It becomes “capital,” not “savings.” We stop thinking in terms of how much we’ve saved, and begin looking at how much income we can generate by investing it.

In the book, we’re shown how to project our investment income line on the wall chart into the future, enabling us to estimate a date at which point our investment income exceeds our monthly expenses. At first, this date appears to be a long time in the future (though usually much sooner than we had guessed). However, as time goes by and our income grows while our expenses remain about the same, this projected date grows closer and closer. The first estimate generally turns out to be conservative. Through increasing monthly savings combined with compound interest on our invested capital, we find ourselves becoming Financially Independent far sooner that we would have imagined.

The task of Step 8 is to create a new line on our Wall Chart. This line shows the amount of income generated by our invested capital. For example, at 4.8% interest, every $1,000 we invest will give us $4.00/month ($1,000 * 4.8% / 12 months = $4.00) forever. Admittedly, that $4.00/month may not sound like much income. But think of it this way: back at one point in my life, I could comfortably save $1,000/month. Back then, I thought of it as savings, and eventually spent it. Now looking back, I see that if I had invested that money and grown my capital, I would have been generating $48.00/month of investment income after just one year. Within ten years, that would have been $480.00/month. Now we’re talking! But that wasn’t realistic. The reality was far better: my salary increased substantially over those ten years, while my cost of living actually dropped. By the end of those ten years, my monthly savings would have been closer to $2,000/month. If I had begun following this 9-step program earlier in life, I would have reached Financial Independence even sooner! Clearly, the time to begin is now.

Another thing to keep in mind is that the important factor in achieving Financial Independence isn’t how much money we stockpile. The more significant factor is how our expenses drop as we become comfortable with “enough.” Using my example of 4.8% interest, if my monthly expenses were $4.00/month lower, that would be $1,000 less capital I would need to support my lifestyle of Financial Independence. That’s why Step 6 is so important.

Tackling fears

Any discussion of Step 8 wouldn’t be complete without bringing up the two major reasons people sometimes say it won’t work. These two reasons are:

  • Interest rates are lower now
  • Inflation

First off, people point out that the book was written in an era when long-term interest rates were higher than they are now. For this reason, people sometimes claim that this program is unrealistic. But what’s the alternative, to work for money forever? Sure, because interest rates are lower, the resulting investment income will be lower (for those of us investing in bonds). That means our crossover point to Financial Independence will be further in the future. It will still be much sooner than the alternative.

Second, people may be unwilling to believe that inflation can be safely ignored. While some of us have experienced a comfortable life on about the same level of expense for many years, others have seen their expenses increase. One option to consider is to project not only investment income, but also the expense line on the Wall Chart. This gives a sort of “personal rate of inflation” based on the trend of our expenses over a period of time. Also, keep in mind that the definition of Financial Independence includes enough investment income to meet expenses, and then some.

We can try to address our fears mathematically, but we also need to think through what it is that we’re so afraid of. What’s the worst thing that could possibly happen? We’d have to get a job! In the meantime, we would have been living without working for money for many years, enjoying the prime of our lives without a pay cheque. It’s also good to keep in mind that many of the things we find ourselves doing for free are things others would gladly pay us to do. It’s a natural progression to find ourselves continuing to receive an income we hadn’t planned for. To quote President Roosevelt, “The only thing we have to fear is fear itself.”

A finite period of time, and then what?

As the truth hits us, we realize that we’re only going to be working for money for a finite period of time. Rather than thinking of work as what we’ll be doing until we retire, we may begin thinking of our paid work as a life stage. We’re creating our future of freedom, enjoying this stage much as we enjoy the other stages of life. Moreover, our future after paid work probably won’t be “retirement.” When we become Financially Independent, we will likely still want to actively participate in constructive activities in society. As such, we need to envision our lives beyond paid work. What’s the plan?

Shifting gears

Looking around in society, I’ve noticed the wide variety of people who work for the greater good of people and the planet, without taking money for their efforts. My mother received Meals on Wheels for many years. Every day, a volunteer would come to her home with a hot meal, taking a moment to check in and chat with her each morning. It’s heart-warming to see these people who care, helping those around them whose health is failing. Moreover, these people do this work in the middle of the day, when most people are at work.

Near my home, a local group of people includes a fellow named Ray, better known as “the bread guy.” Ray picks up unsold bread from stores and bakeries all over town each day, delivering it to homeless shelters and food banks. Ray’s a kind, outgoing person who’s always happy to pass along a wonderful ciabatta to anyone with an appetite for good bread.

All around us are people who work at what’s important to them, rather than for money. In following Your Money Or Your Life, how will you shift gears? Take some time during this life stage (working for money) to plan the next one. Most of us get pretty bored if we try sitting on the couch!


We’ve reached the point where we can see our future selves. In Step 8, we came to see our savings as invested capital, generating income to eventually meet our expenses, and then some. We will be free, not in some far-off dream, but for real, in a finite period of time.

In the final step, we’ll discuss managing your finances. While many readers think of that step as simply investing in bonds, that’s not the case at all. We’ll look at the need to become knowledgeable investors, and consider ways of managing our cash flow for a lifetime of easily handing all our expenses without working for money. Until then, think about paid work as just one stage of life, and what that means for you.

Fred Ecks was the volunteer Newsletter Editor for The Simple Living Network. He’s a dedicated follower of the 9-step program detailed in Your Money Or Your Life. He uses the time freed up in his life for writing, volunteering, sailing, and trail running. He maintains a Web Log