What is Your Money Temperature?

In this video, Matt Blocki discusses the concept of “money temperature” and how people’s financial behaviors are influenced by their income fluctuations. They explain that many individuals tend to adjust their spending habits as their income increases, often struggling to save money. The solution proposed is “reverse budgeting,” where individuals focus on saving and investing their income before spending, ensuring that financial goals are met and money is effectively managed. The video suggests separating funds into fixed accounts for essential expenses and savings, while variable costs are allocated to a separate account for discretionary spending. This approach aims to help individuals control their financial temperature and achieve financial independence.

Video Transcript

In this video, we’re gonna talk about the money temperature and why an increasing income doesn’t always lead to a happier life. Money temperature, it is a real thing. Just like you may discuss with your spouse what the room temperature should be when you’re sleeping, maybe you like it cold, maybe you like it hot.

Many people will only shift a few degrees under or over what their preferred temperature is, and money works the exact same way. There’s a reason why there’s a documentary on NBA athletes who were making millions of dollars and suddenly were bankrupt literally a couple years after their careers were over.

There’s a reason why physicians during their residency or fellowship years making 50 to $60 ,000 a year are somehow able to make it by, and then their income jumps to $500 ,000 or $600 ,000 a year if they’re specialized and they still feel like they are broke.

This is because of what I refer to as the money temperature. So, did they want to address it? And then I also want to come up with a solution on how to control the temperature so it works for you, not against you. So, for example, if you’re a resident physician or any professional that has an income that starts here and goes way up, want to make sure that you don’t adjust into spending all of your money temperature.

So, an example I would use as a resident making 50 ,000 is probably netting $2 ,800 a month. Has to figure out a way to pay rent, a way to pay a car, maybe has a small income -based student loan payment. Most people I’ve met with figure out a way to get by.

And then once you become an attending, just like turning the light on, income jumps up from 50 to 500. Let’s use a surgeon or specialized cardiologist, for example, and net of taxes after maxing your 401k, that’s $23 ,000 a month.

Now, most people I sit down with, after the fact, they need a financial plan. They go through a budget and there’s just not any money left over to save. If we’re able to address the financial plan first and control that money temperature, we’re able to save a substantial amount of money, pay off school loans within the matter of three to five years and make sure financial independence is really accelerated.

So my solution to this money temperature thing, which we’re all subject to, I myself am subject to the money temperature, even being a financial advisor, is don’t budget. Don’t track every expense. Don’t worry about how much is going to Amazon.

Right now for me, that’s a lot. You’re focusing, in my opinion, on the wrong thing by budgeting. Instead, I would reverse budget. What I mean by reverse budgeting is once a year, look at all your expenses.

Look at your goals first. What needs to be saved for college? What needs to be saved for retirement? What needs to be done to reach my short -term dreams as well as my long -term security? And then reverse engineer everything in place.

If you suddenly had a pay cut, what would you do? You would adjust things. You would make do. If things stay increasingly good, we tend as human beings to continually spend and adjust our lifestyle. Once our lifestyle is up, it’s really hard to bring it back down.

So my solution is to reverse budget. Have your 401k should be automatically maxed out. I’m in opinion that a Roth is a good place for your 401k to go, a Roth 401k, regardless of your tax bracket. That’s a different video.

And then out of that $23 ,000 a month, before you see that $23 ,000 a month at your bank account, because here’s what happens. If it all hits your bank account, the brain just shows us we’ve got all this money.

Sure, we can afford that. We can afford this. We can afford that. And then the mortgage payment comes out. And the school loans come out. And then before you know it, you’re waiting till your next paycheck.

So we don’t want that to happen. So I would compartmentalize this into one account. Fixed accounts, this is what has to get paid and what has to get paid to the future you. Hypothetically, out of that 23 ,000 a month, let’s say 18 ,000 a month needs to go here, that’s going to cover the half the pay stuff, your house, your utilities, your car payment, your school loans, daycare if you have kids.

Then that also is going to automatically draft savings into short -term goals, mid -term goals which may include college education or vacation home, long -term goals, which will be your financial independence. I don’t like using the word retirement. I think you should be financially independent to work because you want to, not because you have to.

I think we get better at our jobs, the older we get, the more intellectual capital we develop. With all that being said, that would leave 5 ,000 a month. The 5 ,000 a month should be completely separate. We can’t stick our hands in the cookie jar. In fact, I would recommend don’t carry a card attached to a fixed account.

The money goes in, it goes out, it’s automated. You don’t think about it, you don’t worry about it, don’t even look at it. Look at it once a month to make sure that it’s cybersecurity. You shouldn’t really be tracking the expenses because they are what they are.

You’ve engineered that from the get -go. From a variable cost perspective, don’t track it. This is meant to be spent. This is the fund. This is the Amazon. This is also, anytime you would swipe a card, this is the account you use.

It’s your grocery bill, your gas when you’re going to the pump. This is your dining out with your friends. This is your vacation money. If you want to have vacation money, big vacation money, maybe we include that as part of the short -term bucket, but if this one goes to zero, you should feel good about that.

That means this is designed perfectly and you’re maximizing your capacity and you’re controlling your money temperature. You’re not letting it control you. Hope you enjoyed this video and please reach out if you have any questions on how to structure this.

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