(Part 2) Set up Automatic Savings – Your Future Self with Thank You

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Welcome to the terribly named real financial planning broadcast on Wk, Excel and available wherever you get your podcasts, I met Robeson, your host with our regular guest. I don't know we're co hosts here. I think I just promoted you. Mike Morton is the proprietor of important financial advice. He has just received a promotion, very happy. He also hosts the mike Wharton podcast, which is called financial planning for entrepreneurs, you can find these shows in that podcast. And of course, in the capital close up podcast feed, not sure where you're hearing this in one of those feeds Wk Excel. But what we're doing in this episode is we are picking up on a conversation that we just started, it could be separated into two podcasts by the time you hear this, or you might have just heard it a few minutes ago on Wk Excel. In the first part of the show, we were talking about automatic savings, and how great a mechanism this is just for your financial life. But just for taking decisions off your plate for taking stress off your plate for being a budgeting tool. If you do the savings part up front, this is like a fantastic life hack that Mike offered in the previous episode on budgeting, just take the savings off the top, then you don't need to worry about budgeting, anything that's left over is what you can spend during that month. And so we're talking about all the benefits of that. But Mike, I wanted to pick up on where you just left off when we had to take that break a moment ago, which is you're saying, Hey, you can automate the savings, you can put it into different places, it could be long term savings, like an IRA, it could be short term, like just a savings account. It could be a medium term thing, like I bonds that vest over a few years, you were also just being to say I just wanted to hit this, that what you can do is you can put money into a brokerage account. And then you can automatically have it go from there into different types of investments. So I was wondering if you could just pick up on that for a second. I know it's a little bit in the weeds. But this is actually I was just saying before that what's so great is that once you set these things up, it's a little upfront investment, but then messing with them and how much goes where and when is really easy. And I've done this myself, I have a brokerage account. And I have it go into a long term, a long term fund, and I set up anytime money comes in, it goes out and it does that on a regular schedule into this long term investment. But I could have that be a number of things within the same financial firm. And I could split it up and I could adjust those levels. So what do you have anything more you want to say about managing through a brokerage account? Yeah, first, I'm super excited that I'm now the co host of the show. Thanks so much for my promotion. I have a whole speech ready, but I'll save that for another another time. Listen, titles are free, man. There's no buddy, but you don't care about that. What you care about. All you care about is love. Yeah. And being the co host. Ah, man, I feel awesome. Yeah. Matt, let me ask you a question. I'm gonna answer your question. But let me ask you a question first. So you said you have some money that automatically goes into the market? Once a month? Is that right? And how tell me just the specifics. Not you don't tell us the names of the brokerages. You know, you could do some fidelity and Vanguard and TD and wherever but how do you Where does it go? Does it go to like mutual fund into? Alright, I have good news and bad news.

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I know how to answer this question. No, I know how to answer this question. But it's bad news for me. For the rest of our listeners, it may or may not be bad news. So the way I set this up, because I didn't have time travel device. And I couldn't foresee the episode where you explained ETFs versus mutual funds. Right when I have an automatic transfer that goes from my checking account to this firm that shall not be named, we'll call it Voldemort trade since it shall not be named. So will the trade takes this into a brokerage account. But then I don't want it sitting there because it's not invested in anything. So I have it set up so that the exact same monthly amount that comes in then goes into what turns out to be a mutual fund. Now it is a very low fee ultra low fee index fund. Is it a target date fund or it is a target date fund cool, but it has a mutual fund wrapper and the reason that's bad news for any of our listeners to that episode, which I know is down in the weeds but turns out could have saved a lot of us a lot of money is that if I had known to set that up as an ETF, I wouldn't have gotten clobbered by taxes this year when the IRS made that change to the way they treat mutual funds.

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And then there's not much more you got to do after that. But here's the problem. Here's the problem.

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A lot of our listeners may be thinking to themselves, this is great if you're Jane and you're suddenly you're making 200k. And you've got gobs of money because you're single and you don't have kids. If you have kids, you don't have any extra money. So don't worry. This is what what if you are one of those people? What if you've got kids and you have no extra money? Or you just you don't have a lot of income? What if it feels like you don't have any extra money? What do you do that? Yeah. And I can really understand that a lot of people just, like we were saying, before, we're an attention deficit times, things are crazy. And the same with money, it's like money's just coming in money's going out. It's crazy these days. So I would suggest that there's always a little bit extra that you might have. Okay, so that's where I would start, I understand, okay, cool. Um, maybe saving a little bit like, I can have my 401k, I've got 5% going in there, and saving a little bit in my IRA, but I just don't have more than that, you know, kids, summer camps and everything else to pay mortgage payments for my house, etc. So I would recommend trying to start super small, go ahead and do it anyway, say, Look, I'm gonna save 25 bucks a month, 25 bucks a month into, you know, automatically swept out of my everyday account into something, and then maybe it is for your kids, or maybe it's for gifts at the end of the year, hey, I'm gonna set up a little gift Fund started here in the spring, and 25 bucks a month. So by the time we get towards the end of the year, I've got a few $100 in there that I didn't expect to have. And it's going to be sitting there. So I would always suggest that you could start small, set up the habit, see how it feels to you both from Do you have the money he wasn't available? And also, how does it feel to save does, how does that make you feel? So it's always just starting there. But the other benefit of that approach, it's, it seems to me is that if you are setting aside funds into a separate account, even if you're only getting a small amount of interest, even if you're not getting interest at all, and it is just building up, it's like you're functionally putting it under the mattress. I love that idea of let's identify spending that isn't in 20 years, but isn't like right now, that spending that's in three months, six months a year, we all have that we all have known expenses that are going to come up and we say, Alright, I'm going to put money aside. And it's to cover this. Because what you could always find is let's say it's a gift fund, maybe you don't spend as much on gifts as you thought or maybe something else intervenes, maybe it's a gift fund, maybe your kids get a huge gift from grandma, and you're like, I don't need to use this this year, then all of a sudden, you've got the money sitting there, and then it it goes somewhere else. So again, it's an option value thing. Yeah. The other thing is that by starting small, depending on where you are in life, it's a habit that you're going to build on. And you mentioned that earlier, Matt, like once you set these things up, it's so much easier to adjust them. Once you're doing 25 a month, I suspect in three months, you'll bump that to 50, you just doubled the amount that you can do. So just by starting small, it's the same with anything, any recommendation that anybody ever made, lifting weights, losing weight, getting stronger, trying to run farther or faster learning a new language, just start small, just go for like, you know, something small, you feel good, you've made progress. So you start feeling better, and you just gonna start building momentum. So I'd always recommend with just starting and as small as it needs to be just get the habit going. That's also super true, just from a pure financial standpoint, when you think about the power of compounding that you've talked about that like compound interest, we covered this in the episode on fees, and you gave this astounding statistic. It was like $150,000, from a difference of 1%. And fees over 20 years, it was just some immense number. And the thing is that it doesn't take there, the internet is actually rife with examples of this, you could do a quick Google out if you're driving unless you're driving.

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This is a such a fast Google of examples. The numbers are so easy, you save an astonishingly small amount each month. And let's say it turns out, you don't end up using it, you tuck it away. You get even a little bit of interest on that in 20 years. It's it's a big number. And then what you've done is you've made that upfront investment of time in all of the mechanisms that you need to do. That's the hard part. And the rest is easy. And as time goes by, you're gonna turn into January you're gonna get a better job, whatever it is, and it doesn't make people feel better because we can't live in like the years long timeframe. We live in the hours and maybe the days that's all

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Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I'd love to get your feedback. If you have a comment or question, please email me at financial planning . Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice. Opinions expressed as of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.