(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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So it wasn't the IRS. Oh, geez. Yeah, as the fund flows, how it works for mutual funds, so just for those that are confused, in your taxable brokerage account favor using ETFs exchange traded funds ETFs over mutual funds. So don't get a name for this episode is don't be like Matt, is ETFs. And mutual funds. Reverse like Gatorade commercial. Yeah, so it works. But I could it's a target date fund, the question to you is, I could set up any number of different styles of accounts there, some of which are long time horizon, some of which are short time horizon at Voldemort trade. And I could do those automatic flows any number of ways. That's right, so you can set up so we're talking about automatic savings, which is where we left off, and you've got direct deposit from your paycheck coming in each month, or a couple times a month. And you realize, like, I'm already maxing 401, k's and my IRAs maybe, and you've got a little bit of extra that you'd like to spend in the future. So let's set up automatic 500, a month, 1000 a month, whatever it is to sweep it out of your everyday account and save it for future spending. And there's a number of ways of doing that. So you're asking what is the way that you might want to get that directly invested into the market or into safe funds could be a bond, you know, mutual fund or a money market fund or something like that. So there's a number of different opportunities, one that I would highlight, a couple of one is the one you're doing, you can get it into these brokerage accounts and then automatically invest it into a mutual fund and ETF, multiple funds and set that up. The other way you can do there's some pretty cool technologies out there now, where you can create your own little mini portfolios. And money that is transferred into those accounts is automatically spread into that portfolio. So I know, Motif Investing is one m one finance, I've mentioned on the podcast before I like them, I've used them myself in the past. And what you do at say m one finance and there's other places that do this is you can create your own portfolio. So you can say I'd like some US large cap, some US small cap, some international, some bonds, whatever, or I love Amazon and Microsoft, I'm going all tack I want the Spotify and Amazon and Microsoft and these. And so you can say I want 20% of each of these things. And every time you add money into that account, $300 a month, it will automatically flow into your own customized portfolio that you set up. And that's a pretty cool opportunity not to get into, you know, necessarily individual stock picking and stuff that can be people's cup of tea, that's great. That's not something I often promote. But just having a diversified portfolio. And let me give you an example, how I personally use this, I have the money that I'm saving for my kids future. Now, this might be to just help them out with a you know down payment for a house, or for first purchase of a car or high school graduation, my kids are young is a high school graduation gift to you know, get them started something like that. So instead of having to come up with that $1,000 at high school graduation, I'm going to stick $50 a month, I'm just going to save 50. But I'm not going to miss 50 bucks a month. So I've set up a long term portfolio for my kids and $50 a month can go into that account and get automatically invested into that account for long term savings for my kids. So there's one example, like you mentioned, the five nines or your own future spending or whatever it is, there's multiple examples that you can use the same kind of automatic savings to patent to have less decision making. It's already there. It makes it feel great. I see it coming out. That's great for my kids makes me feel good. And it's all automated. And this is the kind of thing that this is very real world stuff. You were mentioning the story in the part one of this or your client, Jane, who apparently is on the dating market, there's quite a catch, one of the things you did is that she's got a little bit more income. You helped her set this up. Where is the automatic savings? How are you setting it up? What are the logistics of that? Where's it going, and then you could follow through with something like that you ever people work with. And if it's an M one motif, whatever it is, you can set that up. And you can take the approach I've taken with Voldemort trader, I want to be in an index fund, I don't want to do it myself. That's fine, that's plenty diversified. Or you could do it your own way. Or you could split it into long term, short term. All those options are open to you. And the key point here is yes, there's an upfront investment of time and effort, but also it becomes so much easier after that and there are people out there who can help you with all of this. It's really not that and by the way, all these firms that you mentioned a TDS Vanguard's all those they get someone on the phone like they will be happy to help you to set this up for you

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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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We can see in front of us, but trust me think back 10 years ago, what if you had started at $25 a month? Have you gotten, you know, pay raises. In the meantime, as your income gone up a little bit, maybe your expenses have gone up as well. But my point is, if you start small, and then when you do get a pay increase, or a raise or a new job, it's so much easier to immediately add to that, versus having to start it all right. And that's why we always recommend starting. Look, I know we were gonna do a whole episode on this. And we will we can put a pin on it. But I'll just tease it that I started. When I worked on Capitol Hill, my first job, I don't know, I don't think it was quite $30,000 A year it was low. That's low now. And it was low then. And I set aside a very small amount into the federal Thrift Savings Plan. And over time, yes, my salary rose. But because I set up that mechanism, and I never even thought about it. There is a that fun, I'm not going to put numbers on this is a little embarrassing, but like that fun is a substantial part of our retirement savings now, almost 20 years later, and I haven't touched it. I haven't touched it in 10 years, I haven't worked on Capitol Hill, I've been added to it. It's just been sitting there. It's just what I added during a relatively low income portion of my career. And it has ballooned, just because like day one when I was setting things up inside you you want to put 3% There's a little matches, yes, I well. 3% of nothing is nothing but 3% of a little is little it builds up Hey, as we round the the corner toward the end of this the second part of this episode, let's talk like action steps. If people are like, Hey, Matt, Mike, you've convinced me I get it. I'm there. What do I do now? What are like three steps that people could take right now this week to get this done? Yeah, perfect. My first we've said this already, go ahead and just set up automatic savings. So wherever your everyday checking account, the direct deposit is coming in from your paycheck, log into that account, and figure out how to save every month, 50 bucks, 100 bucks, 1000 bucks into a longer term savings account, it might be pushing it from that account and pulling it from the other however, you need to set it up. Just go ahead and spend 2030 minutes and get that set up today. So that's number one. And you're going to feel so good about that. And you could stop after number one, okay. But two other things you can work on is just getting making sure that set up, look at maybe how you want to get it invested. So if you're like, hey, this is for my IRA or for my five to nines or for my future spending and five or 10 years, maybe you want to get that into the market so you can consider where exactly it goes and what it's going to be used for. And then thirdly, give yourself a pat on the back. feel great about doing that it's not these things are, you know, we say Oh, it's so easy. It's so easy to do this stuff. It's not always easy. All right, we should celebrate every time that you do something for yourself that makes you feel great or setting yourself up for success or helping someone else do a great job. Just take a moment and say like, Alright, man, I just I spent that 2030 minutes. This was great. I'm so excited about it. One job at a time. Every job is success. And if you take a moment to recognize that it does feel awesome, and it does pay off down the road. All right, Mike Morton, thanks so much for running down all of this great info with us. Thanks, Matt.

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