• Matt Morizio

Manage your cash like an All-Star

You make good money. You don’t live an outrageous lifestyle. You feel like you should have plenty of money left to invest at the end of each month, but you never do.


Let's fix that.


In my experience, that's the world most of us live in.



Behavioral economics refers to this phenomenon as the "present bias." We overweight the importance of today and underweight our future. In other words, you are covering your needs today AND THEN trying to invest what’s leftover for the future.


That's an endless negative feedback loop. You will never have any left over. You’re setting yourself up for failure.


So how can we fix it?


We can’t exactly rewire ourselves overnight. Instead, since we know we are wired to spend on today's needs, not tomorrow's, we get out of our own way and eliminate ourselves from the equation altogether.


How?


Set your investments on auto-pay just like your mortgage or utility bill.


That’s it. This one tip will move you from Rookie status to Veteran overnight.


Determine an amount of money every month, choose a recurring day (maybe pay day), and have it automatically pulled from your account. No thinking. No spending what’s left.


By doing that, you’re sidestepping your physiology and planning for success.



The move from Veteran to All-Star, however, takes time.


In the first two examples, Rookie and Veteran, your bank account is the hub of your financial activity. Money comes in and goes out of there.


As you move to All-Star status, however, your investment account becomes your hub. Stay tuned for a podcast on this topic soon.


From there some money can move to a checking account for monthly bills. Some money will go toward large upcoming bills: vacation, home renovation, etc. Some will go toward other investments: businesses, real estate, derivatives….not bonds…etc. Some will stay in the account and continue to grow.


The point of All-Star money management is that your money is ALWAYS working for you.


It’s not in a high-risk, high earning investment account. That would be irresponsible.


But I don't want my money collecting dust in a savings account, either, which will take literally a couple thousand years or so to double at my “Platinum Status” (0.03% per year) savings rate.



Read that again. A couple thousand years for your money to double in a savings account. We can’t afford to have our money sit in a “safe” account.


The move from Rookie to All-Star is simple: get out of your own way and get your money working for you via auto-pay.


But strive for All-Star status: Your money should work as hard as you do by making an investment account your cash flow hub.



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Investment advice offered through Beck Bode, LLC, a fee-only Registered Investment Advisor in the Greater Boston area.