Transcription
If this hourglass is your money, the top is your bank account. And every grain falling to the bottom is leaking into a trap you never agreed to. That's the scary part.
Like, you probably have no idea it's happening because money problems don't feel dramatic at first. The tap to pay, the car payment, the $28 Door Dash delivery, they all feel normal. But then when you check your account after what seems like a decent paycheck and it's still draining away, that's something else.
In fact, there are five traps draining your bank account right now and also draining your business if you have one. You need to stop every one of those. So, I'm going to walk you through them one at a time, showing you exactly how each one is draining you. And I'm going to hand you the way to flip it. And this last one, if you don't fix it, will drain over $100,000 over the course of your life.
Trap one, payments over price. The first leak starts when a seller gets you to stop asking, "What does this cost?" and instead starts asking, "Can I handle that payment?" That tiny language, that's a really expensive shift. A $45,000 car becomes only $745 bucks a month. A couch even becomes $58 a month, which is crazy now. And a phone becomes $0 down.
But let's look at this hourglass for a second. The trap works because the pain arrives in these tiny little small doses. And there's actually a bunch of research on this. There's this thing called the pain of pain. So when payment feels distant, delayed, or split apart from the big purchase, you actually feel less pain in the moment. So you'll spend, spend, spend more easily.
Experian actually found that the average new car payment is 7.45 a month. What is that? That's 8,940 bucks a year before insurance, gas, maintenance, registration, and you know, the small spiritual tax of pretending the car was a financial decision and makes you money. And that's why these payments are a trap because they make you feel smart for affording a slice while the seller quietly sells you the whole pie.
You're going to stop it with what we call the three number test. Number one, the sticker price. That's the real cost, not the monthly. I want you to write it down before anything else because every trick from here on basically exists to make you forget this number. Then we're going to go with number two. That's the total interest. This is what you pay for the privilege of not paying immediately. The math is pretty simple. Monthly payment times number of months minus sticker price. That equals your total interest. So when you subtract out the 45,000 sticker, you've just handed the lender $8,000 plus dollars for the favor of giving you more time. And that's like the leak that you're never going to see on the window sticker. And also why they always want you to finance everything.
Number three, the opportunity cost. This one's really hard because it's the money the purchase quietly costs your future self. Let's say you like take the sticker price and ask what if it becomes something you had invested in instead. The formula for that is what's called future value. This is maybe the only useful thing you'll learn in college from economics. You basically take the amount times 1 year plus the return multiplied by the number of years. And so if you're thinking about like a 7% return, which would be very reasonable in the stock market, that 45K turns into roughly in 10 years about $88,000. In 20 years, about $174,000. In 30 years, about 342K. So the real price of the car isn't 45,000. It's 45,000 plus the interest plus $342,000 over the course of the car. And that's where the monthly payment is kind of hiding in here.
And this doesn't just apply to your personal finances. It happens all the time with business owners that I see in our contrarian thinking communities. An overpriced vendor gives them a favor by giving them a payment plan. They need money quickly and accept a high interest loan without thinking about the payback. So I want you to run those three numbers before any payment plan. If the full number sort of embarrasses you, the monthly number is hiding something.
>> I am very very sneaky, sir. >>
Trap number two, convenience disguised as necessity. This one feels innocent. It's like the ride you booked because walking just was too hot that day or the same day shipping you paid extra for on something you didn't need today. The coffee that you didn't plan for. We call this the convenience fee. And it's the privilege of giving someone your money so that you get something quickly. And the little lie at checkout is often it's just this one time. And sometimes it is, but convenience is rarely a one-time thing.
Convenience becomes a trap when you buy it at your weakest moment. Anytime you swipe your credit card when you're tired, late, stressed, or overstimulated, your brain is not actually thinking. You're not running a personal finance seminar at 8:47 p.m. when you're watching a TV show and you had a really hard day at work and you just like want one problem in your life to disappear or to take one action. And I think food is one example of this. There's actually wild statistics. Look at this where they found the average American household spent $3,933 on food away from home in 2023. Those numbers are old. I would guess it is double that now. That's that's an emergency fund for most people and we spend it on Uber Eats. But it's not really about the food. It's about every moment you paid a premium to skip a little effort. And and I know that seems normal now. Each one feels small, but stacked up there a second rent payment you didn't even realize you have.
And the psychology is kind of nasty on this. Default options will shape your behavior because they basically remove effort from one path and add it to the other. So these two guys, Johnson and Goldstein, showed this in an organ donation system, which is kind of a way to take this all away, where default enrollment changed participation rates dramatically across countries. So if anything becomes a default, we don't even question it, which is a little silly because yes, uh your organs save lives, but they also make hospitals a lot of money. So why are you not getting some of that? Money works the same way in your daily life. If the convenient option is the easy default and the cheaper option requires planning, decisions, willpower, then convenience is going to beat you up every time. And so I like to remember that this system is designed to keep you comfy cozy, not rich.
I'm not going to tell you guys how to run your life and what to eat and that you should always prep your meals. I I I'm not a chef. I'm here running a business and I talk a lot about finance. But the flip is really just simply this. Don't let your weakest moment design your budget. So, make the cheap choice the easy choice before the expensive one becomes the only one you can stomach. That might mean that you buy your groceries super early. That might mean that you get actually somebody to help you cook and they send you meals for multiple days per week and that's actually cheaper than Uber Eats. But the thing you can't do is just let this solely drain without paying any attention to it.
Trap three, lifestyle creep. This is the one that gets rich and ambitious people, myself included. You make more money and your life immediately files a counter claim. It's like, I need a better apartment now. I need better dinners. I need a better car. And the trap is like not that you upgraded something. That's okay. It's that every raise you got basically takes your ego over before it reaches your future earnings potential.
>> I'm kind of a big deal. >>
And I think that is how people who make six figures are still one emergency away from going broke. The Federal Reserve found only 63% of adults could cover a $400 emergency expense with cash. And that's why lifestyle creep is so dangerous and somehow humiliating. It can make a 70,000 $170,000 a $270,000 life feel weirdly similar. Maybe you're eating at a different level of restaurant, but you haven't escaped the the same anxiety.
And I think that is so true for businesses, too. You start to grow a little bit. You get an assistant. You get the nicer office. Don't have no. And suddenly the business that was thriving is barely staying above water. We see it all the time in the boardroom where basically we see companies that should be operating at 30 to 40% margins are at 15%.
And I like this version because it is simple enough to remember. 50 3020. 50% to future you, 30% to financial cleanup, 20% to your upgraded life. So future you means you're investing in things that actually make you money back. If they do not make you money, they do not count as investing. Financial cleanup means high interest debt, taxes, insurance gaps, like the boring adult stuff that stops future emergencies from becoming catastrophes. Updated life means you go wild. you know, you go to the new restaurant, you take the vacation, you know, you hire the virtual assistant, which actually I highly recommend.
There's actually this fascinating study where these two guys from something called the Save More Tomorrow program asked people to commit future raises to future savings before they got the cash. What do you think the average savings rate rose from? 3.5% to 13.6% over 40 months. I love this and I think you should do it more in business, too. The trick is really simple. Capture the raise before your lifestyle does. And the catch is you can't split a raise you've never actually measured. Most people have no idea what their money is really doing month-to-month. So, you got to treat yourself like the business you are. I actually built a free personal P&L, profit and loss statement that it's what I use and our company runs at a much more simple level except it tracks your income streams, your expenses, your monthly savings rate. You fill it in once and that raise split stops being a guess and starts becoming a plan. I'm going to give it to you guys for free. It's in the description below. Tell me if you like these free things for me too in the comments. I'll create more of them for you. So the goal here is you assign the money while you are rational and then you let the system be disciplined when you are not. If your old habits were broke at 60k then you just become like premium broke luxury broke at 160k.
The next trap is important emotional spending. This is spending as anesthesia to the general benality monotony and difficulty of life. And it's really something that our generation is struggling with. You're lonely, so you scroll on Tik Tok shop. You're behind in life, so you buy a designer bag. You're stressed, so you book a trip. Live, laugh, love, whatever. The product is actually not what you really wanted. You wanted relief and a small vote that said, "Hey, I'm okay. I got this." And that's why the trip actually worked so well. You buy something that can briefly make you feel like you're in power when the rest of your life is kind of messy, right? But in fact, researchers found that making purchase decisions can reduce residual sadness because shopping restores a sense of personal control, which is soed up and it's really useful to understand because it can ruin your life, even though that everybody does it.
There's this company called Bankrate that found that 48% of social media users have made an impulse purchase because of something they saw on social media. And I want to tell you, I think those guys are liars cuz it's 100%. Like that machine knows to catch you at the tired moments and then sell you a better looking version of yourself and your life in one tap.
So here's the fix that I put on my life. You tell me if it's useful for you. I want you to think about before you buy comfort. Write the emotional receipt first. Like what am I feeling? What am I trying to change? What actually fixes the feeling? What will this cost me tomorrow? I do this a lot right now because Instagram knows me better than my husband when it comes to gifts. And so it knows quite well what clothes I want. Do I need this new makeup thing? And I would find that I was watching TV at the end of the day sort of mindless and then all these boxes would show up in my house. And it felt good. I actually felt like I was like checking something off the to-do list while I was doing it. But I didn't want to do real work.
And that's because there's real brain science um that's called effect labeling, which is like when you put feelings into words, you reduce your amygdala activity and increase activity in other areas involved in emotional regulation. Instead of just letting myself mindlessly buy stuff online, I might say something like, "Ah, I think uh I'm not feeling like I look my best right now, so I'm actually buying a bunch of clothes on women that I think look better than me, and I think that's going to make a change." You know what would probably be better? Get to the [ __ ] gym, Cody. Naming the feeling lowers the need for the temporary solution. And then you can use the replacement rule. If tired equals sleep, lonely equals call someone, anxious equals a walk, not feeling hot equals go work out, you're allowed to want nice things, but just don't expect the shopping cart to actually do the work for you. A purchase can solve some problems, but it can't solve a self problem, which is what a lot of these are.
Now, I want to talk about the big bad guy, right? This is invisible spending. And invisible spending is really scary because I think it's the most dangerous leak. And the reason is it will cost you over a 100K in your lifetime, which is wild. Subscriptions, free trials, saved cards, one-click checkout, autopay for stuff you've stopped using during somebody else being in president. These do not feel like financial events, and that is by design.
I know we run a bunch of businesses. This study found people estimated they spent $86 a month on subscriptions, but their actual spend was $219 a month. They were off by $133 every month. That's 1,500 plus a year, disappearing through small charges that you can ignore. You know, it's no surprise that the buy now pay later borrowers were more likely than non-users to have higher debt, also to have delinquencies and lower credit scores. So, like splitting a payment can make the purchase feel safer without making the buyer stronger. In fact, that's typically what it does. And a lot of this is built on forgetfulness. The company wins when you don't notice.
So the patch is actually to create friction. So we call this the frick audit. Basically, you're going to find every recurring charge, open your credit statement, and search for recurring trial PayPal. Cancel the stuff that only survives because you forgot it existed. This means your Netflix, your Dash Pash, your subscription to that VPN you made 3 years ago while on vacation. I'm actually right now at this moment having my chief of staff do this exact same thing. He found literally hundreds of subscriptions charging anywhere from 10 bucks to 200 bucks a month. The crazy part is that when he found all of these and asked my company leaders which ones we still used, most of them weren't touched at all. So this one audit is saving my business tens of thousands of dollars per month.
Now next I want you to think about removing saved cards where you can never opt in to letting the company automatically charge the same card. I know it's so annoying, but that's why you forget. When you add friction, then you won't leak as often. Install cancellation dates. Like, put reminders on your calendar when you sign up for something. It's actually so fun. In 3 months, you'll actually have a calendar invite pop up that says, "Hey, you're not using the service you signed up for today, and if not, cancel it." So, cut anything you don't want to buy again. I think we are biased to consistency. Meaning, if you spent money on something in the past, you're more likely to spend on it again. That's why you need to ask yourself, would I really buy this again? And I want you to do this on the first Friday of every month. I have something called financial Friday, as I do every single Friday, but measure the leak or it will keep managing you.
And the point is to stop letting companies rent space in your future because your your present self was basically too busy. Because if you look at every hourglass, each trap had a different reason for being there. When you build a structure that catches the decision before the weakest version of you makes it, then you actually stop leaking the money and the question changes. It's no longer where did my paycheck go, it becomes where should my money go next? And I think this is the move from defense to offense. Defense is just trying to flip these and plug the leaks as quickly as possible. offense is buying assets that actually produce cash flow because the ultimate flex is not looking rich, it's being free. Like, I want you to drive that ugly car for a season, pack the boring lunch, buy the used couch, say no when everyone else says, "I deserve it." And instead, only spend money on things that make you money. Because cheap is not the goal. Freedom is the goal. So when you patch the leaks, point the money somewhere better because then you build a life where you are harder to sell.