Book Review: Your Money Made Simple by Russ Crosson
Your Money Made Simple
With so many things pulling at our time and dollars, it can feel chaotic and overwhelming to not know where it all goes - and if it is truly going to the places that bring us lasting satisfaction. It can be easy for us to give up and just spend, save, and accumulate debt arbitrarily, hoping that all the cards will fall into place somehow. But true freedom is about having options. And when you do not have control, you do not have options, and that sense of freedom is lost. Russ Crosson, the author of Your Money Made Simple, seeks to bring readers to a place of financial freedom through a more informed, organized, and personalized approach to money.
Throughout the chapters, Crosson brings you into his living room, describing real dilemmas and conversations that he and his wife have had in financial planning meetings. Within these conversations, Crosson helps us see the bigger picture and drill down into those areas of our lives that need evaluating - one step at a time.
Crosson promotes a balance to life and money that fosters a sense of peace. As you read the book you feel that it is attainable if you are willing to put in the work. Whether you are single or married, here are five key practices you can walk away with.
Know Your Five Boxes
Crosson emphasizes the importance of knowing where every dollar is going. He starts each meeting with a drawing of six (I know - not five!) boxes. At the top is income, and below that are five other boxes:
Giving,
Taxes,
Debt,
Living Expenses, and
Savings
If you want to answer specific questions about your finances, you first need to see the big picture and know where your money is really going.
As an example, if you do not know how much you pay in taxes, what your charitable contributions are, or what you spend on living expenses, then how will you know what is available to put into a 401(k) or what kind of car makes sense to buy or what kind of vacations to go on each year? These decisions can only be made well with proper context.
From Page 19 of "Your Money Made Simple."
Control What You Can
While most people are inclined to track their living expenses first, Crosson begins the process with the non-discretionary spending categories: giving, taxes, and debt. He claims (and I would agree) that giving is a non-discretionary line item, as he cites the many benefits to giving in his book. In addition, taxes and debt payments are not discretionary outflows either. Those must be paid!
People often have the tendency to start with Box #4, and then cross their fingers with the rest. While the max they spend should be represented by the following formula:
Gross Income – (Giving + Taxes + Debt) = MAX LIVING EXPENSES
Take care of what must be done first – then figure out what kind of lifestyle you can afford to have. It is a natural human tendency to cling to a lifestyle and try to make the numbers work out to fit that standard of living. I like the way Crosson puts it here, “As Julie and I meet people, we find that they have a certain lifestyle (pre-determined living expenses) that they are trying to maintain, and they spend accordingly, hoping that it all works out.” But often, it does not just work out, and as you become less able to pay taxes, alleviate debt and give generously, you find yourself losing your freedom.
Box #5 – And What You Get to Do
If you have taken care of Boxes #1-4 and have money left over, you are in an exciting position! It is exciting because it means you have the freedom to decide what to do with the excess. Positive savings gives you the opportunity to invest, whether that be into people through giving and spending more, or into your short and long-term goals through a 401(k) or paying down debt.
You should be striving to get the savings box positive and keep it there for a long time so that you can invest in the ways that bring you flexibility and purpose. What you invest in may change throughout your life, but it is a blessing and life-giving thing to have the liberty to choose as your life changes and adapts.
Don’t Cut Corners
When we talk with younger investors and show them their projected compounded returns, their eyes light up. Something clicks in their head as they get a taste of the potential of deferred gratification. While this is a good realization for investors, it is easy to grow so eager at the thought of having an abundance at retirement that we lose sight of the foundation that needs to be built now.
That foundation typically includes having a proper emergency fund, aggressively cutting out debt (especially consumer debt), and taking it to $0, controlling your expenses, and saving for major purchases that will come in the nearer future. Overfunding retirement may be stealing from your “investments” now.
More broadly, being successful with personal finances is less predicated on hitting a home run with an investment or maxing out your 401(k) every year and more predicated on doing the right things in the right balance over time. It is about building good habits and sticking to a well-designed process.
This Big World – Our Small World
Crosson ends the book with a humbling reminder: “I am reminded that only a few people will ever see my material possessions, so there is no need to get my finances out of balance to impress this limited number of people. It is wiser to live within my income and not long for something bigger, better, or newer.”
He argues that when we let go of that desire to impress, it can help produce contentment in our lives. In turn, that contentment can instill the courage to build the proper financial foundation and make the “unglamorous” decisions that will produce real financial freedom.
Conclusion
Finding balance is often a difficult thing. On the surface, it sounds so simple but within many areas of life, it can be very elusive.
If you feel that way about your personal finances, give Your Money Made Simple a quick read and take some time to think about how you can take those next steps to find contentment, confidence, and financial freedom with the resources under your care.
