AAR63 - The Bottom Hits - What Most People Miss in Their Finances

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2:10Good day, everyone, and welcome back to At Any Rate. My name is Evan Rate, and we're here to help you make sustainable financial changes without breaking a sweat. And I'd like to welcome back again, the one and only investor to the stars or of the stars. I truly don't know which way that saying goes. Andrew Sather, how are you doing? I get like a song that plays in my head after you say that. Like, I believe I can fly. I don't know why. It's inspirational. It's just, it's an inspirational introduction. Appreciate it. It's good to see you. Yeah, it's good to see you too, Andrew. How you been? I'm sometimes sleeping, sometimes not.

2:49Okay, okay. I'm usually sleeping, but that's unfortunate. What has been the average number of hours of sleep for you lately? I haven't been tracking. That would be probably depressing. Okay. No, I actually get pretty good sleep. My wife's the one who's the trooper. She's nursing and everything. Yeah, you can't split it really right now. Too bad, right? Too bad. too bad you poor thing I feel so sorry for you are you the kind of person how many hours of sleep do you aim for like seven and a half to eight seven and a half to eight okay which is like a very privileged idea I know I almost feel guilty saying it out loud a lot of people out there definitely hate you a little bit more right now I feel like I and this maybe is also a very privileged thing to say but I feel like I feel worse when I get eight or more than if I get just like seven.

3:45Like I'm not the kind of person that thinks that four or five or something is the goal, but like seven, I feel like feels good. And when I go eight or nine, for some reason, I just feel more tired. I don't know if you ever have that or not. No, that has never been a problem for me. Okay. Confident, very confident in this high number of sleep. Okay. So today we're going to be looking to cover some financial topics that we feel that, maybe not most, but a lot of people out there struggle with. I would say that most people struggle with at least one of these. So some of just, again, we're calling them bottom hits, things that things are easy to accidentally fall into and can be problematic for a lot of people.

4:24So if you don't fall into any of these, then congratulations. Fantastic. Go you. If you do, no hard feelings whatsoever. All we want to do as always is cover it, understand it, and just learn how to resolve it or avoid it or fix it or whatever. The goal isn't to shame anybody for anything. But yeah, with that, we all good to get started, Andrew? Yeah, let's tackle them. So the first topic here that came to mind for me is not adjusting over time. And what I mean by this is, you know, say you set up a budget at one point, say you decide on how much you're willing to spend or save at one point, or how often you can travel or how often you can eat out.

5:03We all kind of set, even if we don't write down a budget, like is a good idea to do. But even if you don't, we all have like rules of thumbs in our heads of like well i've already eaten out twice this week i feel like a third is usually too much or something and we set these kinds of rules of thumbs and then we don't update them over time so like say in your case you know you have a kid or you get a house or you move or you know your expenses change for one reason or another or you get a different job whatever it is and you don't adjust to those changes and update your rules of thumb. For me, the biggest way out of this is usually having a written down budget, because even though a written down budget or a typed out budget or whatever, it feels so set in stone, it's also so much easier to change than like your intuition, because your intuition kind of gets set initially, and then it's really hard to kind of get yourself out of that usual rut.

5:52But if it's something typed up or written out, it's so much easier for me to just go into like a few numbers and now that's the new rule of thumb. Much easier to change. What do you think about it? Yeah, I mean, I feel like it's a necessity. I'm curious, do you just kind of know in the back of your head, like, okay, it's probably time for me to update this or do you have a routine or schedule that kind of keeps you doing this automatically? That's a good question. I don't have a set routine that I go in to adjust it. And that's partially because I'm not the kind of person that budgets everything down to a dollar.

6:30If I budgeted it very, very precisely down to one or$10 or something like that, then I would have to adjust it constantly because little things, you know, shift very easily. But for me, it's more so I will go in and tweak it if there's some puzzle piece that doesn't seem to be fitting quite right or if I want to prioritize something else. like for example uh if if i decide that i want to save up for something save up for some big purchase then i will go in and say okay i want to tweak this where the savings are going and then go in and tweak the accounts and that's what what kind of the impetus for it um or i'll actually uh discuss this in a in a couple points but uh recently had um had my checking account which is kind of my landing account for everything uh start trending downwards and i or at least maybe not trending downwards but had landed downwards further than usual and and i didn't understand why and so it took some digging to understand why and that led me to again tweak a couple things to account for that um so usually it's because i notice that something is going on or i decide to change something um and that leads me to do it but but how about you when do you go back and touch it.

7:43Yeah, I mean, I don't have... I guess if being a small business owner, self-employed, however you want to describe it, and having those budgets kind of change pretty frequently, that can kind of trigger me to be like, alright, now I need to update and make sure everything still looks solid. I like to use Google Sheets for this, which might surprise you how much I love Excel, but I do use sheets for my budget. I do. What's wrong with that? Nothing wrong with that. I do too. I have version 2023 and version 2024. My Google Drive is just filled with all these. For whatever reason, I don't want to delete my old budget.

8:30I don't know why I do that. It makes no sense at all. I have so many trailing budgets, but So definitely now saying it out loud, I probably adjust at least once or twice a year. And if I think back, I have a 13-year-old daughter and those expenses change as you do extracurricular activities. And then I know back in the past, I'll have more money allocated to fund stuff, less money allocated to fund stuff. Again, just kind of going with the flow of whatever is happening at that time. And one of the things too, which I'm sure we all relate with, is higher grocery budgets. That's had to be kicked up with all the inflation happening lately.

9:19So people, I understand thinking budgeting feels so restrictive and just brings all these negative emotions. but like the whole point of it is so you can adjust your life because we all know the world's changing anyway so if you're not adjusting with the changing world you're just going to get surprised by it and it's not going to be feeling great but if you can adjust as it's adjusting then yeah maybe you're spending a little bit less for half a year or whatever and then you get a raise or a bonus and now you're spending more so you just kind of try to go with the flow that's how I've tried to approach it.

9:59Yeah, no, I think that's a really good way to look at it. Um, cause like I had mentioned, your intuition is not going to shift properly. It's, it's just not, you get, you, you know, you graduate from college, you graduate from high school and you kind of go out into the real world and you expect your groceries to cost a certain amount. And if within the next five years, that's going up by 10%, you're just not going to, you're not going to realize that. I mean, well, you'll realize that they're going up by 10%, but you're not going to be able to shift your intuition that sort of precisely in your head to properly account for it.

10:31At some point in the future, it's almost just going to be like you're guessing at what is going to fit where and what's going to be okay in your budget and what's not. But again, if you go into a spreadsheet or something you've written down and just tally everything up, then you can be completely confident that, okay, things have increased, but I'd slightly decrease what goes into my Roth IRA. And now I know that I can afford groceries because of that boom, set, done there's no questions was that something you guys did buying the house like hiring down the investments for a little bit yeah there was there was a massive amount of not a massive amount of reduction but a massive amount of shuffling and you know kind of making sure everything was nailed down and understood as much as possible things have definitely shifted since then but trying to do our best to understand at the time but yeah for us it was it was being being able to save less for sure however the the good kind of counterbalance for us in our situation was pretty much everything that we are sorry pretty much as far as we had to reduce our savings was made up for by the equity being built in the home you know based on the amortization rate so even though so we kind of look at it as just being saved in a different way than it was before so at least that shift for us was more or less equal but it did still require us going to other accounts and adjusting how much is being moved where to to account for that but again if we didn't have the budget then we probably would have just had to guess at it and probably been either overly conservative or not conservative enough and just you'd just be kind of ping-ponging back and forth around the right answer but but yeah we we did go back and use that to to rebalance everything that's that's what i hate about like when you look up like how do i set a budget or like what should I be budgeting for this or that?

12:19People will give percentages, which I understand, but like those percentages mean nothing if you're saving for a house or something. And to your point about like having these rules of thumb, the rules of thumb need to change. And if you don't do that, you're just going to feel overwhelmed. Like I'm not doing this finance thing right, which is not true. Yeah, yeah, it's definitely, I mean, I should honestly be on this list, just following those kinds of rules of thumb too closely. from some frankly random person online, which is the same people as us. We're also random people online. If you just take, you know, if we tell you groceries shouldn't be more than 7 % of your budget and they are or they aren't, that doesn't mean that you're wrong.

12:59It's just a number that was by other people who are in different situations than you. And it does or it doesn't apply to you. And the whole point of writing down a budget is you figure out what numbers actually apply to you and then you shift them a little bit over time. Yeah, totally. Perfect. Why don't you go ahead and take the next one? The next bottom hit we are going to talk about, which is an easy one to improve, if you're paying attention. Keeping it all in one place, especially if it's stagnant. So we're talking about your money, your savings, the money in your checking account. for a long time, and I'm surprised even today, these banks have gotten away with just paying nothing on some of their accounts, some of these banks.

13:43Like, how do they keep getting away with this? But you don't have to stay there, and it doesn't take much time or research to find one of these places where you can earn more on your money. And I know that's one of your passion points is high-yield savings accounts and all that. Yeah, high-yield savings accounts, I think, are the kind of solve-all to this. just having your money in some other account that is still going to be. It's just as liquid as any other checking or savings account. It's just as secure. It's all FDIC insured, so it's all backed by the government exactly the same as your normal bank account would be.

14:17And all it does is it gives you a higher rate because long story short, the business behind it is cutting down their own margins to entice you to come over to their business. That's kind of how the business is making it work on their end. The fact is that your normal bank is also making that much money off of you It's just that much more because they're paying, like Andrew was saying, so little to you. I mean, like 0.03 % less than a tenth of a percent sometimes. Absolutely useless, meaningless numbers. But they get away with it because people are used to it and people stay there. And there are so many people out there that will keep all their money in their usual checking or savings account.

14:55that, you know, I actually know a lot of people that when they graduate college, now they have a bit of a credit history or something like that, and they just go open a checking savings account for themselves at some bank that's nearby. And then just by habit, they just leave that account open and that becomes their default account for everything. And that is where all of their savings goes and all of their spending money goes. And that money is, not only is it not a good idea to keep it all in one place because at some point you'll go over an FDIC insured limit For a lot of people, that may not be an issue for a long time, but also you're just not going to be taking advantage of different pros and cons of different accounts.

15:32A high-hold savings account is great, but you also don't want to keep everything in just a high-hold savings account because there's going to be money that you won't need to touch for a longer time. And so you'd be willing to either make it less accessible to you or give it the opportunity to grow more quickly. But while having more risk in the short term, there's a lot of pros and cons to having different accounts. and if you put all your eggs in one basket, put all your money in one place, then you're only getting the pros and cons of that one account. And the worst case scenario, if it's just a normal checking and savings account because the pros are basically nothing except for the fact it's liquid and there's no risk for that money.

16:13Everything else is just downsides for that account. So you want to be making sure that wherever your money is, it isn't stagnant. And if, like, for example, the one place where my money is stagnant is my checking account that's kind of my landing place for everything. Checking accounts don't really have that many opportunities to earn a meaningful interest rate, even at places like SoFi, for example, other accounts where high-hold savings accounts are available. Checking accounts still don't earn very much. And so I still use the same checking account that's linked everywhere, but that's just my landing spot where money waits to be spent soon on bills.

16:49I'm not expecting it to sit there for a long time and grow. any meaningful amount of time. Have you ever fallen victim to this and kind of kept everything in one place by habit? Or have you been really good about that forever, about having things split up in different places? Yeah, my stuff's split up, not because I'm doing things the right way, but because it can't get stagnant because I find ways to move it around. So for me, having places where I know it's going kind of like protects me from myself. And, you know, you pay yourself first. And so you're always making progress on your investments and things like that.

17:30Because if it's stagnant, I heard a saying one time is like, if you smoke them, if you got them, when it comes to my checking account, that tends to happen. So there's more than one benefit to not keeping it in one place. Yeah, that is another good point. Because if anybody is keeping their money mostly or all in one place, it's either going to be a checking account or cash. That's just what most people, if they're going to accumulate their money somewhere, it's going to be one of those places. And that is very burnable places for your money to be sitting in just one of those accounts. And having it split up, even if it's split up in different liquid accounts, like maybe you have a high yield savings account in like Roth IRA, which you can pull your contributions out of.

18:15And then you have a checking account or savings account or whatever. All of that money is reachable to you, but if it's in three different places, you're a lot less likely to pull it out from all of them to go buy a Seedoo. Just a lot less likely. And so I also think that that is a very good point, that it does a good job for you mentally of looking at your money and it's like, well, you still have$10 ,000, but that's in four different accounts. You're not gonna wanna go pull out$2 ,500 from each account just to go do something. So it's definitely a good way to restrict yourself in some way. do you have any tips for because i know you use automations to make this all seamless um any tips for like getting that started in an easy way without feeling overwhelmed of like i don't know how much to put here and all that um i would say that a held savings account is probably the best easiest place to start with that if you want to start splitting up your money um i mean we've kind of gone through the the order of priority for different investments or places to save your money in the past.

19:15So I think that the highest lever would be a 401k and then potentially a Roth IRA and kind of trickle it down that direction. But if you're somebody who's never really split up their money before, then a high-held savings account is a great place to start, not only because you're splitting your money up in some way, but also because it's a relatively easy account to open. There's no risk. It's still totally liquid to you. So it's just very easy to access. The only thing I would say for a high-held savings account is just make sure that whatever account you're opening is FDIC insured. Pretty much all the big ones that I'm aware of are.

19:45But just to cover yourself, make sure that it's completely legit and FDIC insured. And if it is, just try to get a decent interest rate on it, like 3 % to 3.5 % minimum. Anything above that is great, but it's not going to be life-changing for you. And something else that I've really loved, and I'm sure other accounts have this, I'm just speaking from my experience of using SoFi for my high-hold savings account, is that they have vaults, and I've mentioned that in the past before, where vaults were basically split up. You have one savings account, but within that savings account, you can have multiple smaller split up segments of that account.

20:19And so I can have 10 grand in savings, but two grand of it is for house savings, two grand of it is for emergency fund, whatever. You can split up the money how you want. And that's another great way of, well, the money's all in one account really, but visibly to you, you are not only saving towards different goals, but also splitting up the money and making it a little bit harder to access for you. but if you want to automate into any of this, like Andrew was mentioning, then for pretty much every kind of account, it could be an investment account, it could be a savings account, you just kind of go to your profile info and look for either automatic investments or autopilot or some automatic something or recurring something, and then from there, it's very easy to just select a dollar amount to go into that account or purchase some specific investment or something along those lines.

21:07Oh, yeah, that's perfect. Pretty straightforward. Uh, what is the next hit? August is national wellness month, but most health trends equal things like buying random gadgets and guessing at what actually works based on whatever's trendy at the time. And I wanted to stop guessing at things like that and actually look at the data behind my body. I've mentioned it before, but lately I've been taking time in the gym much more seriously, not just to build a bunch of, you know, aesthetic muscles, but to build a good, sustainable, long-term health plan for my future. Your daily resilience leaves a clear data trail in your body and function tracks the exact markers behind your energy and immunity.

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23:38And this is something that I have recently been victim to. I alluded to this a bit before, but it's very easy to let your money, especially, I mean, it's kind of pros and cons for everything. If you're constantly, if you don't have a budget and you're constantly, you know, looking at accounts to make decisions, then you're probably a lot less likely to miss something. And that is one of the few, I would say, upsides to not having a budget and kind of just flying by the seat of your pants is you're, it's going to necessitate that you're constantly looking at things to make decisions. And so you're less likely to miss things.

24:08The one downside to having a budget is the opposite of that. You are less likely to go hunting around your accounts because you've already set up everything ahead of time. You've automated things. You know how much can go where and you know how much you can spend on different things. and so you're just not you're not looking at individual accounts quite as often um and so what happened to me was very recently um again i have a since i use my checking account as my landing my landing account for everything it ebbs and flows you know as i get paid it goes up and then you know have some spending and then i get paid again and have some spending and then you know mortgage comes due and all the bills come at the beginning of the month and takes a big dip or whatever and then it starts building back up um and i i have kind of a frame of reference for for where that what the what the top of that flow should be and what the bottom of that flow should be approximately not not exact by any means but approximately where it should reach and where it should land and this month it landed lower than it had before and i was confused as to why because any additional spending we had had had been pulled from a savings account like for example we'd had the home inspection done and like a couple other things that were home related.

25:17And so I knew that I had pulled money out of the home account to pay for those things. So I didn't understand why this month would have been any different. And it wasn't until I was scrolling through it that I realized that there had been a quarterly tax, like prepaying taxes, quarterly withdrawal that had happened. And the stupid IRS never sends you a notification to say they're doing that because, you know, you agreed to it at some point in the past. It's not like there's, you know, they're doing it without you knowing. Um, but if you don't set a reminder or anything like that, then you have no clue that it's happening.

25:48And so I just missed that in the account history. And so that, that kind of knocked me down a notch and led me to land lower than usual. And so I had to kind of scramble a bit to pull, um, from, I had been building up a savings account for those quarterly tax payments, but again, since I didn't know it was coming, I hadn't pulled out of it. And so I had to quickly pull out of it and move it over to, to make sure, that I'd be fine going forward. But if you're just not constantly checking up on things, maybe not constantly, but consistently checking up on things, then these are the kinds of things you can miss.

26:21And if it's a large enough dollar amount, then that can hit you. And even just a moderate hit can put you in a bad situation if you're in a rhythm like that, like I am with my checking account. Everything's flowing up and down. If I get hit at the wrong point in that up and down, in that flow, then that can knock me a lot lower than, than I ever expect to and put me in a bad situation. So I would say that the fix for me would have just been more diligent about not every single week or anything, but at least every single month being more diligent about just looking through the account and making sure everything is first off legitimate and there's no like mischarges or anything, but also making sure that there's not something that you have purchased or is a recurring payment that you have forgotten about.

27:07And the other fix for me in this specific case is now I have a reminder going forward that'll pop up every time beforehand. I don't know why I didn't do that in the first place, but I didn't. I just trusted myself and you never trust yourself when it comes to your finances. And that almost screwed me over. That's super interesting. I know we talk about using credit cards and paying them down. at the end of the month. And I do that too. And I feel like I do that pretty well. One of the downsides to that potentially is exactly what you're talking about, where if you have it paying automatically at the end of the month or whenever the credit card takes the money out of your checking account.

27:51If you had something go through on the credit card and it's easy to not pay attention to that, it can really, again, give you a landing place that's a lot lower than you usually are. And then if you don't, Like if you're keeping it really, really lean where there's not a lot of margin in your checking account, that could become an issue as well. So one of the potential downsides of using credit cards is exactly what you're talking about. Yeah. How do you go about trying to pay attention to that kind of stuff? Do you move money right when the purchase is going to happen or do you kind of scan those accounts ahead of time before the payments or how do you kind of keep an eye on it?