What is the right way to prioritize the actions I take with my money?

Transcript:

Hey, humans! I’m Michael Liersch. This is the About Money podcast, presented by Wells Fargo. I’m a behavioral scientist with a PhD in cognitive psychology who loves openly discussing money to help humans better understand their money behaviors. By understanding our money behaviors, we all have the opportunity to make better money decisions.

In this season, we’re going to talk about how we can all sync up our life and our money. We call it LifeSync^®. You might be asking yourself, why does LifeSync matter? Well, when we align what we want to accomplish in life with our money, it can clarify whether money is truly working hard for us to get us to where we want to go. But that requires us to be intentional about what we want in our life, the jobs we want money to do for us, and compare it with how our money’s organized both now and in the future. To that end, we’re going to keep each episode under 10 minutes so that you can take immediate action to LifeSync. So let’s get into it.

In this episode, we’re going to answer the question: What is the right way to prioritize the actions I take with my money? I find it a great question because there’s a lot of confusion when it comes to how to best prioritize actions you take with your money, and I’m going to highlight it in two ways. Most people really think about prioritization in terms of time or sequence or what’s next. And what I mean by that is they think, well, what do I have to do with my money that’s coming immediately onto the horizon?

So, for example, some people may be in high school and they get their first car. And perhaps they buy that first car in collaboration with their parents or on their own. Then comes college. And they think, well, how am I might going to finance that? Perhaps their parents help them. Or perhaps they have a job like I did and get some scholarships.

And then you graduate from college if you were lucky to go, and you say to yourself: OK, what’s next? And you get your job. And then you buy a car perhaps, another car that is more reliable than it was when you were younger. And then you think: Well, what’s next?

And perhaps you then have a partner or a spouse. You have a party, a wedding, whatever it is — you pay for that. And again, maybe you get some help; maybe you don’t. You buy a house. You get the idea. And it goes on and on and on to when you get to that time when you’re not going to be working anymore and you think to yourself: Wow! OK, I did everything sequentially and it all worked out. But what I forgot to do was save and invest for the time when I’d no longer be working.

And I will tell you, that is the experience of many, many human beings in the United States. So, rather than think of things in terms of time, I really encourage you to think of things in a second way, which I was alluding to, which is in terms of importance. And that should really drive your prioritization when it comes to money.

And you may be asking: What’s the difference between time and importance, Michael? Because the things that are coming up next are the most important ones.

I want you to challenge yourself on that. Because as you move through life, if you’re always thinking of what comes on the horizon next, oftentimes what human beings do is instead of paying their future self forward in a saving or an investment account for that time when they’re no longer working, they buy bigger gifts. They buy a bigger house. They buy a nicer car. They go to nicer dinners. And magically, you know, those things start becoming normal and they never really get to what matters most in terms of importance. Which is then when we do a lot of survey research as behavioral scientists, we find out it ends up being not running out of money. And so if you really challenge yourself to think of priority in terms of what matters most, what’s most important, I want you to really think deeply about that.

So if you’re following along, what I want you to do is have a simple checklist here, literally. It’s not going to be complicated, but digging into each of the checklist items may become complicated even if you’re saying, “Yes, I’ve done these things, Michael” because you’re going to want to verify. So if you’re following along and you say, OK, Michael, fine, you’re right. Prioritization isn’t what’s next on the horizon. It’s not sequential. It’s not about time. It’s about what matters most, which is not running out of money, which is what most human beings say is one of their greatest fears. How do I ensure that I’m in good shape there?

So I’m going to put things in two buckets.

The first one is how you don’t run out of money over a long period of time.

• So the first element of that bucket of not running out of money over a long period of time is making sure you have enough money in the short term to pay your expenses, your lifestyle needs, and weather emergencies. So do you have that money on hand? All you have to do is put a check yes or, you know, put an X no. If it’s an X (no), you know, get on that. Go figure that out right now — today! If it’s a check (yes), validate how much money is there. Is that really enough to pay your bills reliably, you know, your lifestyle in the short term, weather those emergencies?
• The second item underneath this kind of first category of not running out of money over the long term: Are you spending at a sustainable rate? So, for most human beings, you want the earlier parts of your life, especially when you’re working, you want the money that you’re spending typically to ultimately or eventually be lower than the money that’s coming in, which will enable you to save and invest for a time when you’re no longer working. And in fact, evidence shows that most human beings don’t work as long as they think they will, which gets to my third piece.
• So the third piece here really gets into this idea of, you know, creating a buffer. Since there is a lot of evidence, for example, that people don’t work as long as they think they will and many people don’t really anticipate certain events that come up in life like that are going on today, where inflation rises unexpectedly. You know, perhaps there’s going to be a future health care event that you’re not anticipating. Make sure in this third category that you have a financial buffer of some point over the long term. So again, that can be through insurance. That can be through a number of different factors, but a contingency plan. It could be through investments, money, whatever that is. So do you have that buffer? Yes or no. If no, then think about what would create that buffer for you, that financial buffer. And if yes, great! Go validate that and verify it.

The second component of that I want to get to is really making sure that if something were to happen to you tomorrow, would everyone that is depending on you be OK?

• Do you have a will in place?
• Do you have a power of attorney?
• Do you have a trust or an estate plan, if that applies to you?
• Do you have term insurance, if that applies to you as well?

You know, what’s there to make sure that everyone is going to be financially supported and OK, at least in the short term, if something were to happen to you?

The wonderful part about prioritizing in terms of what’s most important is if you do the things that I just said and you say yes/no, I have or I haven’t done them. And then you address the things you haven’t done, validated the things that you have, and keep on that, then it makes prioritization based on time much more exciting and also empowering because you know, you know that you’ve already addressed what matters most. And so buying that house, buying that car, buying that boat, you know, going out to those dinners, giving those gifts, it just becomes more exciting and thrilling because you know you have the confidence to do it.

That’s it for this episode of the About Money podcast. Please email us with the topics that you would like us to address at AboutMoney@wellsfargo.com. And if you really like the episode, share it with family, friends, and anyone who listens to podcasts. About Money is produced by Wells Fargo. You can learn more about ways to work with us at wellsfargo.com/aboutmoney. I’m Michael Liersch, asking you to talk about money today.

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