The Broke Professional - Optimize Your Financial Life

Why Creating Systems Trumps Motivation

I vividly remember the first time I saw Rocky as a kid.  Just a lowly local fighter, Rocky Balboa had to go through so much to get ready for his big fight with the champ Apollo.  After watching the iconic training scenes of him running up the steps of the Philadelphia Museum of Art, punching giant slabs of meat until his hands bled and doing those grueling one handed pushups, I was so pumped to try to be like him.

So the obvious next step for me was to start running up stairs and punch things day and night.  I would be the best boxer this world has ever seen. After 2 or 3 days of this rigorous training, I slowly fell back into my normal routine and completely forgot about becoming the best boxer in the world.

But I didn’t just forget.  I simply lost my initial burst of motivation.  That little spark that got me off of my couch was great for those first few days. But there was no structure or foundation behind it so it quickly fizzled out.

If I seriously wanted to become a real boxer, I would have done found a coach and schedule boxing sessions at a gym regularly throughout the week.  Since a strong training foundation was never built, my initial burst of motivation was destined to fail.

Motivation is Finite

This same phenomena can be found in the world of personal finance.  We’ll watch an intense movie about stock picking or read an inspiring post about someone who paid off massive amounts of debt.  This will get our juices flowing and we’ll just go out there and do some things for a short while. But it will usually fizzle out in the end.

Relying solely on motivation is not the way to get ahead financially.  In fact, I would say that getting motivated and failing over and over will simply get you so depressed about your financial situation that you might just give up on improving.

But it can get better.  And the way it can is by having a framework or system in place that will keep you financially secure without having to constantly draw from your finite well of motivation.

It’s important to realize that this is THE ONLY way to get ahead financially.  Whether you’re looking to build the next billion dollar company, want to increase your investment contributions or just track your finances, you need a system that will make it easy to reach your goal.

And there are so many financial goals out there.  Setting up a budget, saving for retirement or college, starting a successful freelance business, getting a world class education to increase your income.  These are all worthy financial goals that require a systematic approach in order to find success.

Just Get Started

As mentioned before, setting up a systematic method of attack is the best way to achieve your financial goals.  And it’s not even that hard. It just takes a few upfront steps and some experimenting to get your system right.

In fact, setting up systems is much easier than relying on brute force motivation to achieve your financial goals.  It gives you a path to follow and you just plug along day after day.

Here are some basic systems everyone should have for various aspects of their financial life.  These are easy for almost everyone to implement so give them a try if you haven’t already:

Automatic Bill Pay:  We all have the same bills to pay.  Electricity, water, rent/mortgage, tuition, daycare etc.  Keeping all of these bills in order and remembering to pay them off month after month can be a chore.  Having a stack of papers and writing checks and mailing letters is not a difficult task, but it takes up precious time.  You increase your chance of missing a payment this way which can incur fees and possibly ruin your credit.

Instead, take some time out to set up automatic bill pay.  Most companies allow this by entering your checking account info on their website.  If they don’t have that capability, almost all checking accounts have an online bill pay feature which allows you to send a check to any address at no cost.  

Set these up to occur at regular intervals and you will never have to worry about keeping your routine monthly bills in order.

Saving and Investing:  Whether it’s investing for retirement or starting a rainy day fund, most people’s strategy is to just throw whatever they have leftover at the end of the month towards savings.  And considering that more than 75% of Americans are living paycheck to paycheck, this is not going to amount to much.

A much more effective way to save is to have a certain amount of money deducted from your checking account into your investment or savings accounts at regular intervals.  This allows you to grow money at a constant rate and will create a sort of “scarcity mentality” that will not allow you to spend money you don’t have.

This can be done a number of ways.  Almost all employers will automatically deduct 401(k) contributions before your check even hits your account, so that one’s pretty easy.  But if you have your own personal investment or savings account you are in charge of, you can easily set up a direct deposit from your checking account at any interval you choose.

Personally, this systematic approach to saving and investing has had a major impact in my life.  I know myself, and I would never consistently put money into my investment accounts if I had to do it manually.  Automatic investing is so easy to set up and is such a game changer I would recommend it to every single person.

Even if you can only start with $20 per month to contribute to your savings account on a regular basis, I would still recommend it.  It’s better to start somewhere than not begin at all. You can always increase your contributions later.

Tracking your Spending:  Gone are the days of balancing your checkbook to make sure you have the right amount of money in your checking account.  You can do almost everything personal finance related online nowadays, and tracking what you spend is certainly no exception.

Instead, I recommend leveraging the power of technology to set up a system to track your spending.There are so many websites and apps out there that allow you to track what’s coming in and what’s going out.  All you have to basically do is connect your accounts (checking, savings, credit card etc.) to the website and they will usually display your transactions on a nice little dashboard. You can then see exactly where your money is going.

I personally prefer Personal Capital.  You can not only track your spending, income and debt accounts, but it gives you a nice detailed look at your investment accounts as well.  You can see in which sectors you may need to invest more in and if you’re paying too much in fees. It’s pretty much a one stop shop for your finances and they are always improving their product.

Investing in Yourself:  While no one is going to directly pay you to do some yoga, investing in yourself is essential to being financially successful.  Self investment can come in so many forms such as exercise, taking classes, reading and meditation.  You have to find the areas that are important to you and your finances and work on them consistently.

Again, you can use technology to set up systems towards your self improvement.  And it doesn’t take much. You can simply set reminders on your calendar when you want to do some reading or exercise.  Or you can block out a certain time of the day to perform your self improvement tasks.

It’s especially important to set up systems for this.  Self improvement tasks fall under the “Non-Urgent but Important” group of tasks.  This makes it easy to justify taking care of the latest “emergency” before you get to your self investment time.  Don’t fall into this trap that and make investing in yourself a priority by setting up a solid and executable plan of action.

Conclusion

I would argue that not setting up systems for your finances is the true reason people don’t reach their goals.  Most people rely solely on willpower and motivation to try to make their situation better, but that really is a limited resource.  

Setting up systems of action is how giants like Oprah, Steve Jobs and Kobe Bryant became wildly successful.  They found a system that worked for them and kept at it until they got what they want.

The vast majority of Americans are living a paycheck to paycheck life because they don’t know where their money is going and they are not saving or investing enough.  These two huge problems can be solved by setting up systems that make personal finance as easy as a late round Rocky comeback.



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The Sharp Bite of COBRA Insurance

So I’m self employed now. I made the change about 6 months ago and am winding down from being an employed optometrist. Working for the man can become tiring.

But one thing working for the man did provide was health insurance at an affordable price. Now that I’m not employed full time, we had to fend for ourselves in the glorious US healthcare system.

Most large companies provide some sort of subsidized health insurance for their employees. You sign up for the plan, and the premium is taken out of your paycheck. Employers will usually foot half the premium while you pay the rest. Not a bad deal AT ALL!

In my case, it was a 50/50 split. I paid about $630 per month and my employer paid $630. The plan was a pretty decent HSA eligible plan so it worked well for us.

Once I left the company, I had 3 options:

-Stay on the current health plan aka COBRA

-Find a plan on the marketplace

-Sign up for some other “alternative” types of insurance such as preferred risk plan and health sharing plans.

The marketplace plans were much too expensive and we didn’t qualify for the health sharing plans since you have to be Christian to join them. And I don’t think they accept fresh converts.

So we decided to go with COBRA. And it has been an experience to say the least. Let me first give you an overview of COBRA insurance.

Premium times two

COBRA stands for Consolidated Omnibus Budget Reconciliation Act. Definitely not as scary sounding as the acronym. It’s a federal law that allows for health benefits to continue for someone who has experienced a job loss or other major life changes.

In my case, by signing up for COBRA we could continue on our current insurance plan without any interruption. Sounds pretty easy right? It is, but it comes with a price.

When I was employed full time, I paid $630 a month and my employer paid $630 a month to cover the monthly premium. But on COBRA, I have to pay the entire $1,260 premium on my own.

The law says I can be charged up to 102% of the premium, which I certainly was. Along with dental insurance which I paid very little for with my employer, my grand total came out to be about $1,400 per month.

The sort of good thing is, I knew this going in and factored it into my decision when becoming self employed. But going from $630 a month to $1,400 a month for health insurance is still taking some getting used to.

So while it was nice to continue my health plan and maintain all the deductibles I had already met, the monthly premium was not so nice.

Silver Linings

Health insurance is an issue for the self employed no doubt about that. Any entrepreneur will tell you that. But its not all bad.

While I do have to pay for health insurance directly from my checking account, the premiums will be an above the line tax deduction. This is pretty much the same as having a pre-tax deduction being employed, so it’s not really an advantage. But it’s nice to know I’ll be getting similar tax savings.

Being able to continue my coverage with COBRA also allowed us to keep our deductibles. We had kind of a busy healthcare year early on so we already met our deductible before I left the job. So it’s nice to have a few months of no more deductible to worry about.

Especially since there is another baby on the way! That’s right, number 3 is around the corner so it’s imperative that we keep those deductibles met for all the hospital bills.

So while health insurance can be a drag for the self employed, there are options. And you need to compare and see what the best option is for you and your family.

Even if it is a snake bite from a COBRA. Which I hope is a covered treatment!

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