How to use each $ you earn to build your dream life

August 1, 2023

I'm going to let you in on a not-so-secret secret: humans are bad with money.

Don't believe me?

  • 57% of US adults can't handle a $1,000 emergency.
  • 51% of people who make six-figures still live paycheck to paycheck.
  • 65% of US adults say money is a significant source of stress for them.

Morgan Housel, the author of, "The Psychology of Money" argues that we aren't simply "bad" with money, we are brand new to it:

"We all do crazy stuff with money, because we're all relatively new to this game and what looks crazy to you might make sense to me."

The idea of retirement is at most, two generations old. The 401(k) did not exist until 1978. And the Roth IRA was created in 1998.

So I'm with Morgan Housel, yes we are bad with money and no, that is not surprising at all. We're still in our training wheels phase of retirement planning.

But in my early 20's I thought I was the exception. I thought I was a personal finance pro.

During my first job I had not just one spreadsheet dedicated to tracking income, spending, and saving but SEVERAL spreadsheets.

All tracking the same general idea but at different levels of detail.

It was complete overkill.

But the hours I spent on my spreadsheets isn't even the saddest part of this story.

It was that I was spending hours in my spreadsheets and STILL not hitting my savings goals.

I knew I needed a better solution and while I was contemplating adding yet another spreadsheet (more spreadsheets are always the solution, right?), I had picked up the book "I Will Teach You To Be Rich" by Ramit Sethi.

I had heard about this book a million times, but never thought it could help me. I had my degree in Finance, worked at a prestigious financial firm, and plus, I had all those spreadsheets..

Still, I decided to finally read it.

That's when Chapter 5, page 177, and this specific chart changed everything for me:

This chapter on the power of automation and this specific flow chart made me realize I was committing two large (money) cardinal sins:

1) I was doing everything manually.

2) I was playing defense with my money when I should've been playing offense.

This system gives every $ you earn a job. And this system is successful if you:

1) Set it up to run automatically.

2) Send your money off to do its job before you can spend it.

Creating a plan for every $ is not just Beginner Money 101. It's critical for any stage of life you're in.

I've seen tech entrepreneurs sitting on millions of dollars because they never took the time to ask themselves, "How do I want my money to work for me?"

The above flowchart is simple and it's what mine looked like at my first job.

As things get more complicated, you can get more detailed like Tom referenced in Ramit's tweet (his flowchart is BEAUTIFUL).

Tom's chart:

My flowchart has money being sent to: business accounts, taxes, self-employed retirement plan, brokerage accounts, business emergency fund, etc.

But money is also sent to accounts for: vacation, gifts, and down payment for house.

Each account has a purpose and a "use by" date because if you aren't intentional with how your money serves you and your dream life, it will be spent on things you don't care about.

Take the time to determine what role money serves in your dream life and make sure it is sent over every month to achieve these goals.

Also I still have one spreadsheet to track spending (I enjoy time with money), but my investments and savings are now all on auto-pilot, which gives me more time to hike, read, and write these blogs :)