The Live/Work Ratio

In 2008 I had everything, a great job, nice car, big bachelor pad, full social calendar, the works. I had it all and I was unhappy. My friends and family told me I was “successful”, that I should be grateful to have a good job in a down economy. By their standards I had it made, they kept reminding me of the good pay, career path, benefits and 3 weeks of paid vacation per year. But something was wrong, I was waking up every day dreading going to work. Every day I was tired. Tired of my job, of commuting to the office, paying bills, living for the weekends, and repulsed by the prospect of waiting until retirement to start really living life. So, I decided to make a change, I committed to finding a way out, to living more and working less ASAP. I was possessed to live out my dreams while I was still young and capable, and avoid waiting for retirement to really live. 

It took a bit of experimenting, but after 3 years I found a way to start living and stop working. By focusing on the Live/Work ratio, spending-less and making-more I was able to stop working at 28 and now can afford to take the next 16+ years off while living comfortably and pursuing my dreams.

Step 1: The Live/Work ratio
The most important thing I did was to focus on the Live/Work (L/W) ratio, the amount of time I could Live (without working) for every year that I worked. The goal was to make my L/W ratio as large as possible.  

The formula for the L/W ratio is simple, savings divided by expenses (for a given time).

For example, if your yearly (after tax) income is $50,000, with expenses of $40,000 and savings of $10,000 then your L/W ratio would be 10,000/40,000 or .25. This means you could survive for .25 years for every 1 year you worked. That’s 3 months of living for every 1 year of work.

When I started this project my L/W ratio was 0.37, meaning I could Live for 0.37 of a year (4 months) for every year of Work. I realized there were only 2 ways to improve my ratio, by spending-less and making-more money.
Step 2: Spending-less

By spending-less, my L/W ratio improved from 0.37 to 2.6. This meant that I could now live for 2.6 years for every 1 year working. By spending-less I increased the number of days I could live without working by 6X.  

In 2008 my expenses averaged $3,200/month or $38,400/year. I took a hard look at my lifestyle and with a major downsizing I was able to decrease my expenses to $1,200/month or $14,400/year.
Downsizing isn’t easy. Psychologically we’re trained to associate nice (often expensive) things with success. Before I could downsize I had to ask a very tough question, “Why do you do what you do?” In this case, why was I working? Was it for the big bachelor pad, nice car and fancy dinners? Was any of this stuff making me happier? When I thought about it, the answer was simple, no. Once I realized my expensive lifestyle wasn’t bringing me any additional happiness, downsizing became a whole lot easier.  

Like most Americans I spend the largest portions of my income on housing (42%), transportation (18%) and food (15%). Since these 3 areas represented my largest expenses, they also presented the largest opportunity for savings.  Check out the interactive infographic below for a fascinating breakdown on how most Americans spent their income in 2008.
After realizing how much I was spending on housing I traded my bachelor pad in for a single room in a house with with 4 roommates and dropped my rent by 50%. I traded my nice car in for a bus pas and saved more than $700/month on car payments, rent, maintenance, cleaning, parking, etc. Finally, I limited eating/drinking out at fancy restaurants and instead hosted pot-lucks and drinks at my house.

Step 3: Making-more
Determined to make-more, I joined a start-up and left my safe, well-paying corporate gig. The business was a success and my yearly (after tax) income increased by 5X. This increase in income improved my L/W ratio from 2.6 to 16.4. I could now live for 16.4 years for every 1 year I worked.  

Leaving a stable job for the high risk world of start-ups isn’t for everyone. The good news, there are alternatives. A great source for inspiration & information on how to make more while working less can be found in the book, “The 4 hour work week” by Tim Ferris. In the book he dives into businesses models that require minimal start-up capital and maintenance.

America & the L/W ratio
Wondering how the average Americans’ L/W ratio looks? It’s bad, really bad. Just take a look at the infographic below, adjust income for taxes and you'll quickly realize Americans are spending themselves into a debt situation where they'll need to work indefinitely and never be able to retire.

According to the US Department of Labor, the average American household makes roughly $63,000 per year, that’s about $47,000 after taxes. The average American also spends an average of roughly $50,000 meaning they spend roughly $3,000 more than they make. This puts their L/W ratio at roughly -.06, meaning they can live for -22 days for every year they work. Said another way, the average American collects 22 days of working debt for every year they work, meaning that at the current pace they can’t live or work without accumulating debt. The only way for the average American to change this is to reduce the amount they spend and/or increase they amount they make. Taking a look below at the graph of consumer spending over the past 25 years, notice the largest % of spending is on housing, transportation & food. Because these categories represent such a large portion of total spend they offer the largest opportunity for savings & improving the L/W ratio.
Your Live/Work ratio
Does your life feel a little like this...

Want to live more and work less?  

• Step 1 - Find your live/work ratio.  
• Step 2 - Try spending-less & see what impact it has.
• Step 3 - Explore ways of making-more, here are some of my favorite inspirational books on the topic: "The 4 Hour Work Week", "100 Great Businesses", and Richard Branson's Autobiography