The New Rules Of Personal Finance (For High Earners)

Your Next Dollar: Money Management for High Earners - NerdWallet Wealth Partners

High earners often struggle with outdated financial advice like strict budgeting. This episode redefines personal finance through automation, spending as a skill, simplicity, and money psychology. Experts emphasize wealt

Key takeaways

• Automate savings first to eliminate friction

Transcript preview

So I don't know about you, but the personal finance advice that I grew up hearing is just outdated for today's day and age, especially for high earners, things like a budget every single dollar, or make sure you have this safe balanced portfolio, or ensuring that you have life insurance products that have cash value, or thinking through stuff like parking your money in the safest place possible. And for high earners, this stuff is not really moving the needle. And so in this episode we're going to throw out the old rulebook and we're going to be writing through some of the biggest mistakes that high earners make with their money every single month. We're going to talk about the financial skills that almost nobody has actually mastered and the silent killer of high-earner wealth. And so today's episode I have CEO of Nerd Wallet Wealth Partners and Financial Advisor Ryan Sterling joining me today. Ryan, welcome to the show. Good to see Andrew. Good to be back. some of these things that we're going to be talking about today because I think for most people they may have not thought through this process or thought through some of these topics so the first one I want to talk through is high earners don't need to budget what are your thoughts on high earners and budgeting I mean I can tell you from personal experience it is really hard to budget and that's what I hear for most people that look like you people have busy jobs they have young families the idea of sitting down and tracking your expenses even using a lot of the apps you can maybe to two months, but it's really hard to do it on a sustained basis. So again, I know for me I've tried almost everything and I've stuck with it again for a month or so and I just kind of decided you know what I'm just gonna abandon a budget altogether. Now that doesn't mean that I'm not trying to intentionally save, it just means I'm not tracking expenses. So I looked at it through a different lens, almost kind of the anti-budget where I looked at it through the lens of like what do I need to save a month. I'm that as a constraint. And constraints work really well. We have an amazing ability as human beings to operate inside constraints. And I knew that about myself. So I said, okay, if I need to save X amount of money a month, let me just automate that and let me just do it as fast as possible. So similar to your 401k, so when people get paid and their money goes to their 401k plan, it's going into that investment vehicle before it's hitting their bank account. So that's one constraint built in. So, so I said. So I said, outside of my 401k, outside of my 401k, outside of my 401k, outside of my 401k, Let me have some other constraints built in. And it was amazing to see once I put those constraints in place. I then made my spending fit the available cash I had. And this is one of the classic example of kind of removing friction from the equation. The more friction you have with your finances, the harder it is to manage your dollar. So like Ryan is saying, if you save off the top and then spend what is left over, this is the classic pay yourself first. And when you think about it in this way, one of the easiest, one one of the easiest ways, one of the easiest ways, one of the easiest ways, one of the easiest ways to do this, one of the easiest ways to do this, is to look at this in an automation. So I like to automate my finances when it comes to my investments. So I'll automate just like you said with your 401k and sending it over there every single month to my Roth IRA to any other investment accounts like my taxable brokerage. But then I also like to do this where I'm automatically paying my bills so I don't have to think through that process and automatically saving into my high-yield savings account for any big savings goals like vacations or saving up for a car or a down payment on a house or any of those other things. Once. Once. Once you're it makes it so much easier and it's the same outcome as if you were going to be budgeting but you don't have to spend time in spreadsheets or going line by line instead you have this really powerful thing that is your income that allows you to avoid being able to do that now if you're living paycheck to paycheck to paycheck and you're on a very fine line I can see why you would budget but even for that I think it's a seasonal thing where you're just trying to get yourself out of the paycheck to paycheck to pay check time. And the best thing to do is when you get raises over time, increase that constraints. Because it's so easy when you get that raise, it's an invitation to spend more money. So if you can increase that constraint, that just means your financial independence goal is going to get hit much faster. What I like to do is look at the checking account, almost like as a pass-through, where money hits that account. And if you keep it in that check-in account, it's going to disappear. So a lot of times I like you actually want to move it to which is the second thing I want to talk through which is spending is a skill and I think most people are bad at it so Ryan can you talk about why spending is a skill and maybe some of your thoughts behind how people can improve this skill yeah I mean we see both extremes I mean we see the people that are super savers to the point where they're depriving themselves today and then we see the opposite side where people are spending with reckless abandoned today and and there's a middle ground ground and I think like just a back real fast to the constraints. The constraints make this very easy. And you know it's funny like I was talking to someone who once said gosh I spend a lot of money in my gym membership like I know that's stupid and I was like are you operating inside the constraints and she said yes I'm like it's not stupid at all like we all have different set of values so I would say it doesn't make sense if you're overspending on something that you're not using or you're not getting a lot of value from and that's where's where sometimes like using an app or you're over is good for a month or so because it does bring awareness in terms of where you're spending your money but I would say that really like you should think of your spending as a reflection of your values and you and I are gonna value things are gonna spend money in a very different way and I would say again it's one of those where do not overspend on things that are not bringing value to your life but then don't deprive yourself because you know we talked about time value of money as relates to building wealth and wealth management there's also something I like to call and they're like you don't get time back so if you're depriving yourself of living your life today again like you might regret that in the future when I was in my 20s I was the type of person who I read this blog called Mr. Money mustache right I know I've never seen Mr. Money mustache but it was a blog about this guy who was super frugal and was able to retire very early and so I became someone who was very frugal and I even called my wife and I said hey I'm gonna start to start to bike to work so I don't have to spend money on gas or spend money on gas or maintenance or maintenance or to get to work, I don't think you're going to be doing that. And so I was the type of person that early on, before I had kids, this frugality was kind of all I thought about. It was like every single dollar I spent. I was like, well, what's the time value of money? How could this compound over time? And it was the wrong way to think about this. In fact, I didn't understand the skill early on in my life because of this. And so as I got older, when I got older and when I got married when I got married when I got married when I got married when I got married when I got married when I got married when I got married when I got married when I got married when I got married when I had And so what I did was I took out and sat down with my wife and we kind of took out a piece of paper and said what are some of the things that we wouldn't accomplish in this life? What are some of the things that we really want to do? Some of the high priorities were things like travel, being able to spend more time with our family, being able to have flexibility. And so once I started to list out these things all of a sudden it created clarity on how I wanted to spend my dollars. In fact one of the things that I love spending more on convenience that allows me to get my time back. And so once you identify these things, this allows you to develop that skill of spending where you can cut out the stuff you don't care about. Some stuff I would cut out, for example, would be I would go to the store and take random trips and I'd walk out of Walmart or Target or wherever else I'm shopping and end up just spending a ton of money on random things that I never planned for. But instead, when I've developed this skill of spending. But instead, but I've had, and I've too frugal, you rob yourself of the experience. So I'll just give a quick example. I'm a big sports fan. And I used to be like, okay, I'm going to buy the cheapest ticket possible. I don't care if I'm like the top row, again, I don't want to overspend on tickets. And I realize it's like when I'm in the top row at a basketball game, it's like I can't really see what's going on. It's actually not that fun. I'd almost rather be at home. It's actually not that's actually not that's actually not that's actually not that fun. It's actually not that fun. It's actually not that fun. It's actually not that fun. It's actually not that fun. It's actually not that fun. It's actually not that fun. It's actually not that but when I go I'll pay more of