Automating your Investments (Cont.)
Now let's get back to the automation system so again, you know when you normally hear about money you hear people saying stuff like, you know, keep a budget and just cut spending on x y z didn't really talk about systems they talk about you as if you just all you need to do is change and try harder and everything will improve life will be, you know, amazing and yes, we do need to improve there's no doubt about that and you know, the fact that you're watching here and you're even in studio here means you're investing in yourself but systems are going to get us through the tough times and they're going to make us so that we don't have to worry about these little things day after day we can focus on the more important things what am I how am I delivering value to my client? So I want to travel it's all the things that are more important to us if I asked you what the top ten challenges in your life not one person would say uh, I need to make sure that my bills are paid off on time it's jus...
t not that important and yet we do need to do it soar system could do it for us they can also it's not just about unimportant things it's about actually saving for the big things in life it's about investing so that at a certain point in our lives will actually be making more money from our investments. Ideally, then we are from our clients or our salary be throwing off so much cash if we start early our savings so that if we want to have a really extravagant wedding or if we want to take that trip, we could do it, and we can actually stay in a really nice hotel guilt free or we can take that extra trip because we already saved for it automatically. So, uh, I'm going to show you how the system works. You can actually get a twelve minute video where I go over this in more detail, I will teach first dot com slash creative live, but we've covered what happens again to refresh you assume for a minute that you make a nine to five salary will cover the uh if you're freelance your money comes here, it automatically goes five percent to four oh, one k. The rest comes to your checking account from here, it's automatically dispersed to a savings account with even sub savings accounts roth ira, another type of retirement account and then you're going to do your credit card is automatically going to reach into your checking account and just pay itself off. Okay all automatic and finally any miscellaneous bills that can't be automated you can actually semi automate them through your bank so this is the system okay? And and so what I'm going to talk about now is kind of why we don't do this and how we can actually go forward and make this happen even if we are paid irregularly a lot of people have been asking me rem eat how much should I spend on x? How much should I spend on why somebody earlier was saying like, how much should I spend on my housing and what's funny is no one really tells you the answer, do they? They're like well, you should be comfortable enough to be affordable like okay, what does that mean? Give me the numbers one thing I noticed I was watching oprah one day because I have the viewing habits of a forty year old woman and I was watching oprah and she she started to like she actually talked about her favorite magazines, her favorite everything, her favorite everything and it really struck me because until that point I had been writing my sight for about three years this's way back and maybe oh seven and I had never never monetized my side I had never run ads I had never even mentioned any specific companies because I was afraid people would think I was just doing it to make money that was never the intention I started this while I was in college, right? I was just a weirdo college kid who happened to learn a lot about money and psychology. So once I saw oprah's audience really I realised like they trust her enough that when she recommends something they know it's going to be the best and that was when I started dipping my toes in the water and recommending the accounts I used and things like that that really changed everything because if you trust someone if you trust that my advice is good if you trust that I've been around for many, many years and, you know, there's over million students have used my stuff, then you actually want to know what accounts I use, right? How I structure things because you're like, look, I could sit around and spend ten years doing this or I could just I read your stuff and you've already done it and you could just tell me and I can get this done and move on to the more important things in life, so I believe that so I'm gonna give you some specific numbers here this is a conscious spending plan remember we talked about where do I want my money to go? This is a very general guideline for someone who's in their twenties or thirties no family where their money potentially could go now let's, talk about the caveats of this and let's talk about what it is fixed. Costs fifty to sixty percent. This is stuff that's. Not really easily changeable. Your rent is a big one. Utilities, perhaps a car payment, etcetera, way have investments ten percent. You won't find that are most twenty five year olds conscious spending plan. Fact, you won't find a conscious spending plan for most twenty five rolls. But here we say. Ok. If I could do in an ideal world, what would it look like? Savings five to ten percent now what's the difference between savings and investments. Anybody? No, very good. Saving that's. Very good. Savings or more liquid. You can pull it out anytime. Investments it's kind of locked away for a little while. Sometimes till retirement. What else? Why would I? If I had a hundred bucks, why would I put fifty here? Fifty there. Twenty five there in seventy five there what's the what's. The difference, different risk factor savings is very stable in general. Your money's gonna be sitting there? Not not making too much interest maybe even losing a little bit compared to inflation. But it's safe it's their investments, meaning it could potentially grow a lot. But in the short term it could potentially go up and down, up and down right but volatilities high but the goal is over time this will actually make a significant amount of money if you invest well and you don't have a lot of fees so the differences in general savings is for money that you need in the next approximately five years what do we need in the next five years? What are some of our big expenses coming up? They happen to be handedly written right here on this slide someone obviously took a lot of time preparing this so why don't we just read off directly from their vacations gets down payment for a house and something that we never think about unexpected expenses who here can tell me an unexpected expense you had in the last six months go ahead. Coming to seattle to creative life I consider that an investment. Okay, very good that's very good. What else? Very good clogged pipe in the house. Any kind of maintenance to your house? Excellent dental procedure. Very good medical excellent. Anybody else have an unexpected expense car repair in my case traffic tickets they'll be unexpected. What else that happened to me yesterday? I never I'm never successfully negotiated I'll tell you this funny story which is it's horrible actually so I was working I was in college and I was an intern in my sophomore year I was working at sun microsystems and I negotiated my salary a lot, so I was like being paid pretty well but I was also I don't know I mean like a college kid, right? Some like I'm addressed like crap I'm driving a minivan a maroon minivan and I'm coming home from work one day and I kind of like coasted through the stop sign this on campus so the on campus cops were like, they're pretty nice they're kind of in cahoots with the administration so they just they wouldn't really come down too hard on you they're pretty friendly and the guy pulls me over I'm like and he goes you know sir, do you know why I pulled you over? I said yes, I do I think I ran that stop sign and he was a clearly this guy is trying to throw me a lifeline, right? He goes, er where you coming home from? I said, oh, you know, I had like, a long day at work I'm just coming back for my internship so it's also already sounding kind of pathetic, right? You got this kid he's coming home from an intern shape is like working hard to pay his way through college and, uh, he goes, oh, you must be working pretty hard, like, literally throwing me a lifeline and he goes up, this ticket would be pretty expensive said, oh, you're trying to earn money or something like that and my response was yeah, you know, my money's all locked up in the martian like, how stupid can you be? How stupid can you be? And anyway, he actually did let me off that was the one and only time I was able to accidentally negotiate out of traffic ticket don't take my advice on that. So so anyway, so how did we talk about that? So you have a couple other people in the internet that are saying, you know, wolf x three dishwasher died. Melissa be moving costs sweet melissa meet death in the family so there are a lot of unexpected expenses. What it turned out his remember I told you that three hundred fifty dollars car car payment was actually a thousand dollars a month. As I ran some calculations, I discovered that actually got traffic tickets on a fairly regular basis. What I thought was unexpected actually was predictable. It may be unexpected, but it was predictable that's very interesting, right? Like you have a clogged pipe that's unexpected, but it's predictable that every year you're going to have let's say, five hundred dollars in house repairs, who here has ever thought like that that we know we can predict unexpected expenses we may not know what we may not know when we can predict a rough amount and over time, as I tracked this over a few years, I was able to actually able to predict it very carefully so I could actually put away money into a sub savings account to go back and show you something uh look at it so as this loads up one thing I have, I have a sub savings account for I call it stupid mistakes it's not on this diagram, but I actually do have one called stupid mistakes and it is for late fees I can't negotiate out of its for mistakes I made what I have to eat, the costs, etcetera, and I used to I think I would put away, you know, fifty bucks a month or one hundred bucks a month and what I would do with the end of the year so let's say I have like, a thousand bucks left over because I didn't do any stupid mistakes anybody know what I would do with that extra money? Exactly? I would take about half of it, I would actually roll it into investments just cause I'm like I don't need this money lock it away, but I would take fifty percent and I would force myself to spend it right away that month I believe in rewarding yourself when you make unexpected uh income I believe that's very important so if I make unexpected income I'm gonna take a massive percentage of that sometimes fifty percent and I'm gonna spend it spend it on things I love and I want pretty different than depriving yourself all the time, isn't it? What does that do? It motivates me to do more of that right? So back to this uh chart and finally twenty to thirty five percent guilt free spending this pretty high you would not see this amount probably for like let's say, a forty six year old mother of three who would probably quite different okay, so I guess I'm being very specific about who this is for you can tweak it as necessary as I mentioned this is someone in their twenties and thirties who single or perhaps in a relationship that doesn't have kids all right, so I don't want you to scoff on twitter oh my god, this guy ramidus so out of touch well, this is created for a specific type of person, that type of person that tends to read my book but you can certainly tweet these numbers to be different anyone have any questions on this so far a question on the sub savings accounts like are those actual separate savings accounts? Yes, you can create them in I n g direct one great reason I like using them so you can create sub savings accounts on guy showed how to do that in my book, and you can actually name them and everything, and you can actually set up direct transfer, so you might say every month I want one hundred fifty dollars, going into my car repair fund because I know it's about to break down or here's a great example christmas gifts. You know, the average americans spend hundreds of dollars a year on christmas gifts. What if you actually just started putting way like thirty bucks a month in january? Wow, it doesn't take that much, but if you started putting it away later would be much more expensive. Give an example. What is an expense? If you're twenty two, what are some expenses you're gonna have in the next ten years? Education you're twenty two. They may not go back to grad school. What else? Marriage let's talk about this for sight. So I love this example because it totally exposes have delusional we are we think we're so different than everyone, but actually we all have very predictable expenses. The vast majority of us will get married at some point, the vast majority of us will have expenses relating to the same things we all do, most of us will get married. Most of us will buy a house most of us will have kids. Most of us will buy a car, etcetera, but we don't want to think about that, right? Did you notice on my sub savings diagram that there was one called wedding? Okay, so I started teaching people about this because you can actually calculate everything relating to a wedding. We know the average age of a woman when she gets married. We know the average age of a man. We know the average cost of a wedding, so you can just plug those numbers in and you find out that if you are, uh, twenty years old, you need to be saving over three hundred dollars a month to pay for your wedding. And if you're twenty five, guess how much you need to be saving a month to pay for a wedding over one thousand dollars a month is totally ridiculous, right? No one's putting away a thousand dollars a month for a wedding. When I went on book tour, I was in portland and I met a young woman. She probably twenty four twenty five and she said, you know, we meet I took your advice, I set up a subsidies account, I have a whole bunch of them, and I started saving for my wedding. I said that's amazing like can I get you on camera I'd love to record a video and she got really uncomfortable no no that'd be weird I said okay out of curiosity, how come you seem so uncomfortable? And she said, well, the thing is I've started saving for it but I'm not even engaged yet I thought to myself how interesting how interesting that in our society it's weird to save for something we know will come and yet how do we feel when we have a wedding it's crazy, right? We all say things like I just want to have a small, simple wedding and yet what happens when we have a wedding? It blows up it's human nature stop denying that we're going to have a big wedding stop denying that your wedding is not really about you it's also about your parents and your in laws and everybody else let's plan for it instead of trying to delusional e deny that's what this whole system is about. You take a couple days of your life, you plan out the basic expenses you're gonna have, you automate it and then you'll have to think about it again. Compare that to what most people do, which is what what most people do let's get the web timing on this is well and let's talk here what most people do instead of what I just said there when it comes up like freak out freak out but they still have to spend a lot so what do they do? They go into debt they're going today. What else? So we talked about weddings what else? Kids when we have kids were they more expensive than you thought? Yes were their expenses that you didn't even think about? Yes, I had no idea diapers cost that much exactly. I love that I knew like diapers is the number one thing. So so it's so crazy, right? We don't like when you're like a young guy young girl, you don't think about this you don't think about all these different things you have to spend on, but they're gonna happen so I haven't had a strategy let's go toe. Yeah, wolf x three is saying most older folks don't save for a funeral either we all die that's, right? Great example quite morbid, but very but it's true. I like this guy. Yeah, what else? Let's see, uh, transportation is another one that people are pointing out like you're always going to be able to transport yourself good. And, uh, you were asking what people are actually doing? And sicily says I think about all the time and I do nothing and eighty five percent solution right there might as well just do a little bit and then stopped feeling guilty about the rest right? Yeah, okay, I don't want you to get overwhelmed with saying I need to plan for every single expense I'm gonna have because that's just gonna be overwhelming we all are gonna have, you know, like five to ten major expenses our lives if we plan for those the rest becomes much easier. Those expenses would include buying a house, getting married, having kids paying off debt, etcetera, etcetera. We're gonna have these things planned for it. Manage it. Don't worry about the rest. Okay, just one quick question from let me get this right, morty mouse, how do you change the strategy for someone who has say over fifty with grown kids? Does it change it all? How do you break that down and said for for the older generation? Yeah that's a great question. Everything I'm talking about can be applied to different areas of life. We're gonna talk about investing in a second all of these things can be changed you just simply tweak some of the numbers. So in general at fifty you're still gonna have predictable expenses et cetera. You will you're not going to be spending, you know, x y z on some of these things, so you will have to adjust the numbers for your own situation now you could do that in a couple ways when you can simply talk to your friends, you can look online. If you have a financial advisor, you can speak to them, and I could talk about financial advisers in a minute. Most people don't need a financial adviser, um, but, yes, you can change it, so I would say, don't let age don't let living abroad, these air common excuses that we use, like, oh, that sounds great if you live in the us, but it just doesn't work in europe. Well, actually, most of it does fact I have a uk edition of my book that shows you exactly how so, uh, don't don't be misled to think that this only works for someone who's, twenty two years old and single, not the case. You simply tweet the numbers and adjust your expectations right. You may not need to be hitting bars five times a week, like some dude in manhattan, but you have other expenses that you're gonna have.