Every financial decision is a vote for where you’ll end up in the future. But most happen on the fly. So how do we make sure we’re making great day-to-day financial decisions without becoming exhausted and overwhelmed in the process?
In this episode, Ryan and Terry explore the structural dimension of change. Structure dictates behavior, so by changing the structure you can tune your behaviour to align with your goals automatically.
What you'll learn:
Terry: Hello and welcome back to the Passive Income Project. It’s Terry here. I’m here with Ryan, say Goodday mate.
Ryan: Hey mate, back for two in a row. How.
Terry: Yep, absolutely. We’re talking about today, the last kind of part of this change model. So at the start of this series, you might remember we talked about motivation and ability when it comes to change, but then these three different dimensions we talked about, personal dimension of change, the social dimension we covered in the last episode.
Now today we’re gonna be delving into a little bit of a baby of ours, the structural dimension of change.
Ryan: Love it. Love it. Yes. We’re huge advocates for this one because when you get this right, it just makes things easier. You don’t have to rely on effort as much. You’re trying to kind of lean into willpower. And so structure’s the thing that dictates behavior ultimately. And um, we just wanna make sure that we can make it easy for ourselves to maintain and sustain our efforts over time.
Terry: Yeah, it’s huge. Like you’re right, structured dict dictates behavior. Like think about it like this. If I go to a church, I’m gonna behave very differently versus if I go to a, like a sporting match. It’s just very different kind of social, social
Ryan: I would hope.
Terry: This is everywhere in our life, isn’t it?
Ryan: Yeah, yeah, yeah. Like, you know, lived experiences. You think about supermarkets, that’s why they put milk at the back of the store. So you have to walk past a chocolate stand that bit at the end, or maybe where they’ve got the box of powerades or all the goodies, the donuts, maybe before you can get to the bread and the butter.
Ultimately, it’s very intentional thing that impacts decisions.
Terry: And it’s a huge impact when you think about it. They pay millions and millions of dollars for the consultants and advisors to tell ’em what these structures need to be, because think about the rewards for getting that. In terms of the patterns of people’s spending versus the costs of getting it wrong.
And I don’t think a lot of people think about their own kind of banking structures as an environment like this that we can impact. And I think it’s so valuable to, we spent like a whole module on this in our mentorship going through and actually building out the right banking structure because we understand that like you do this once and you can benefit from it for the rest of your life, isn’t it?
Ryan: Huge. Huge, huge. You know, I was just thinking about, as we mentioned supermarkets, the story of somebody that created a toy and managed to get that toy at the right placement at checkouts at, I think it might have been Woolworth, and ended up doing like 10 million in revenue. Over a couple of years, some stupid number, and it was because it was just in the level of the eye of children.
And you think about obviously children being like, that’s what I want. And then turn into mum and saying, mum, gimme that. Otherwise there’s a tanty. That’s very intentional. That’s not by chance.
Terry: Yeah, but you know what’s interesting to me is like, I think in a lot of personal finance space, a lot of what we see, I. Presented as solutions. It’s more based around how to make things easier with money as opposed to make things better. And that’s not necessarily the same thing is.
Ryan: Yeah, absolutely. There’s a big difference between what’s easy and what’s effective, and ultimately what we see impacts what we want and what we decide. And so you wanna be very cautious and intentional about how you lay your money out. And what signals you get from how that money is laid out because that influences decisions on such great extent.
We’ve talked a lot around how, I guess looking at how money works versus how people work with money and, you know, that has a, has a huge thing as like, what’s your observation around how experts tend to approach this?
Terry: Well, it’s very logical and rational, but people aren’t, and it doesn’t make sense the way people decide. Like your line of sight, what you see. We are literally like walking computers where it’s like, cool, I just noticed that I just saw the big golden arches. Now I feel like I want some McDonald’s, right?
I’ve just driven past the thing and it’s like an algorithm. If this, then that. It’s 3:00 PM I’m hungry.
Ryan: They build a KFC just around the corner from home and I drive past it every day and there must be something wrong with my car cause it keeps pulling left.
Terry: Mate, you’ve got this like reward mechanism where it’s like, oh, I just went training, or I, I just did football or something. I’m gonna have some KFC now. I’m gonna bet something. When you played, well, when you were a kid, your parents got your K ffc correct,
Ryan: Uh, no. I actually never had K ffc growing up.
Terry: didn’t you? Oh, that’s probably why then. That’s probably why.
Ryan: We always went to Macs. Macs where I grew up was better than kfc. Yeah.
Terry: And you were just sitting at Mack’s seating going like, man, I just wanna go to K ffc.
Ryan: No, I actually never had an interest, so sorry mate. Proves you wrong. But yes, I’ve definitely attached the idea that when I’m feeling low in energy, when I get K ffc, I always wake up better the next day. Maybe there’s a sodium thing in there, but no doubt there’s another association that exists there somewhere too.
Terry: absolutely. But it kind of proves the point, right? So like what’s in our environment influences what we call our decision architecture, and that’s what behavioral economists call it. And so just setting up money. To make money move easier, to make it like push us over there so I don’t have to think about it too much.
To me, it’s very short-sighted, and yes, it might work in the short term, but if you really understand yourself and how you work with money, then you can set up a structure that streamlines the right kind of behaviors, keeps nudging you in the right direction, improves your decisions without you having to break out some kind of calculator, any kind of spreadsheet on the fly, right on the fly, and it’s just being able to sit down and go, okay, cool.
What does that structure need to look like for.
Ryan: You know, when I think about that conversation we had with BJ Fogg and the importance of creating win states like feeling good. For the sake of wanting to do more of it. And we definitely observed that a lot of, I guess what we call prescriptions, methodologies, that are basically automations, they remove decisions and actions, which removes the opportunity to create WIN states, which is kind of incentivize good decisions and good behaviors ultimately.
And so, yeah, we definitely see that a lot of people get robbed from the opportunity to create win states and habit formation because the decision architecture is kind of stripped back or even removed Al.
Terry: Yeah, you’re putting the power of your decisions into the prescription that a prescription will decide for me what I’m gonna do with it, and then those decisions happen over there, and I just, I’m over here living my life. I understand. They come from because we want that law of least effort to work for us.
But it actually, I think it goes too far because there’s a way to make your structures help you surface those spending trade-offs the right way. We’ll get into this later that help you make much better decisions on the fly, but you’re still deciding, you’re actually surfacing that decision at the conscious level of awareness, and you’re using your internal kind of nature the right way to get a better result.
So I think the right structure can help you massively improve your awareness, find the best things that work for. and also just sleep soundly at night, right? Because you know you’re getting maximum value out of every dollar. And we hear this a lot, right? I hear a lot of people come to us and they say, you know, I’ve set this thing up.
I’ve set this thing up, I’ve followed all the rules, but I’m still stressing about money. I don’t know, like what’s going on with my money? Do you hear that?
Ryan: Yeah, absolutely, and I think it is. You don’t get to build confidence by doing ultimately cuz it’s like you almost become so removed from it that you don’t get the opportunity to create those win states or to be able to wayfind and make decisions that actually move you closer or speed things up. You know, we’ve talked about how decisions create pathways and, and kind of choose what’s in front of you.
And decisions around money are votes that you make around the future. and if you remove your own voting power , like, and this is why I think about decisions around allocating towards objectives, to building things that you wanna work towards so that life gets better and easier over time. And the more you remove decisions, the more you lose your ability to vote for what you truly want for what’s most important to you.
And that kind of just starts to kind of shift around in the background, kind of get into a little bit of a sleepwalking mode in that sense. And so, yeah, like we want to be able to make. The structure gives you the visibility and helps you see cuz that impacts the decision, gives you the signals, but then also lay the framework for you to be able to think into and decide into ultimately.
Terry: Totally. Yeah. So in this episode, we. Focus on your banking structure. and how to make it right for you. How you know it is working for you, or whether it’s not , why you might need to change it if it isn’t working for you, and exactly how you can change it in five simple steps, right? And we’ve helped people do this from all walks of life.
It doesn’t matter your situation, it’s not important that you are a freelancer. It doesn’t matter that you’re self-employed. It doesn’t matter if you’re an employee. It doesn’t matter if you’re a business owner. The principles apply, but the way that you. Is specific to you. So hopefully today we can give you some really good guidance on what we’ve learned helping hundreds and hundreds of people build the right structures for.
Ryan: Yeah, perfect. And you know, if I think about the signs, the structure that you have is not serving you right now. First one’s probably motivation you don’t have any. Second one would be anxiety around money. Maybe you have too much. And then the third one would be saving. You’re not getting anywhere. So if you feel like one or two or all three of those is true, then it’s probably a signal to say that your structure could be designed a little bit differently to make things easier for you and to speed things up.
Would you agree?
Terry: Yeah, and I’d be interested from your perspective in terms of your observations here as well, but my observation is that the biggest one that’s lacking for me most of the time is number one, motivat. Yes. I feel like I’ve got, I’ve followed the rules, I put the prescription in place, but like, I’m just not, like, I’m not amped.
I’m not excited by this. I don’t love looking at my bank. I’m not engaged with it. You know what I mean? Doesn’t feel like it’s taken me anywhere
Ryan: You’re talking about like conversations you’re having with people or for.
Terry: when I see it with other people. And when we talk to people about what’s, what’s kind of missing there, you know, they’ve kind of read the books, they’ve followed the prescriptions, they’ve done the rules, but they’re like, yeah, but now what? And I think the thing that’s missing is like, it’s not their structure.
Ryan: Probably the extension of that is they don’t find managing money fun or meaningful. And I think that’s probably the feedback that we get from a lot of our guys that go through where they go, geez, this is addictive and I’m actually looking forward to sitting down and managing our money.
Terry: Yeah. Yeah. Yeah.
Laughs: you go
Ryan: They say it through, uh, clenched teeth cuz they think it sounds weird and silly and stupid. But that’s motivation, right? It’s like being excited to want to do something ultimately is what motivation is, right?
Terry: We’ve got a whole page in our notion account of photos and, and messages and things that people would send through where it’s like, here’s me with my kind of money mapping stuff and me kind of working through it and the same message all the time, right? Like, who the fuck am I now? What’s going on?
Terry: Have you done?
To me? That’s essentially the sentiment, isn’t it?
Ryan: Yeah, a hundred percent true. And not getting that. What do you find the implications and impact of that is? Like if you don’t have the right structure set up for.
Terry: Yeah, well, I think like there’s two ways you can be with this, right? You’ve followed somebody else’s prescription and now you feel like you’re a passenger to that prescription, and it doesn’t necessarily reflect you. So you’re kind of, I guess you’re a little bit apathetic. You’re a little bit, it’s like, yeah, okay.
I feel like I’ve done something here, and there’s that. So I think from that perspective, you’re sort of a little bit more detached, not as engaged. And if you have absolutely no s. , then you feel like everything’s a mess and you dunno what’s going on. You’re kinda like just making decisions on a whim.
You’re just trying to make it work. I feel like there’s two pathways you can be in there where you’ve got this like a rigid kind of generic structure that’s not yours, or you don’t have anything . The financial house is a mess and you just don’t wanna look at it. So there’s like a lot of this fear of finding out isn’t there.
Ryan: Yeah, absolutely. And things are just harder than they need to be. Aren.
Terry: Yeah, I think there’s like a few kind of classic symptoms here that would shine a light on, you know, if this is a scenario that you find yourself in on either of those pathways, either you’ve got a structure that’s not necessarily yours, or you have no structure at all, I think you’re gonna be probably distracted or obsessing over little things cuz you don’t have the big things handled, right?
So you’re like really worried about small transactions, like whether you’ve had too many coffees or whether you should go out for dinner tonight or any of those kind of things because you don’t have like the big. You don’t know kind of exactly what’s going on with it. So the default position is just like, just keep as much as you can and it’s just a shitty way to live.
Ryan: Yeah, yeah,
Terry: it’s not fun and I think it does set up that toxic relationship with money. If it sets up this like fear-based decision making where you don’t even see money as a tool to use to get opportunities. You just see it’s something you have to hoard and keep. And ultimately because of that, you don’t use it as that tool and you go a lot slower cuz you’re not investing yourself, you’re not investing in your future, you’re just trying to like hold onto it.
Ryan: yeah, yeah. And the harder you try to hold onto it, It tends to go the other way, right? You end up with less of it. It’s, uh, like you said, you kind of miss opportunities to grow, to invest, or to move things forward, and the hardest way to live is to not know what spending is. Okay.
Ryan: Like you said with coffees to not know whether or not that’s okay cuz a lot of the time it is.
And the value you can get from that is far greater when you give yourself permission to do that. And when you can set up structure in a way that gives you those signals to show that you have enough and that it is okay, you obviously enjoy those things a whole lot more too, don’t you?
Terry: Yeah, it’s a lot easier to work with other people, particularly if you’re in a couple, for example, where you’re like, I kind of baked this in. Like this is not something we need to discuss. You know, we are fine with this thing. We’re not sort of quibbling over this little stuff. That’s exactly how I used to be.
I’d be like, yeah, let’s just make sure we don’t spend too much money. Those are good uses of money and those are bad uses of money. And instead of actually going, cool, what are we trying to accomplish here? And then what’s in the way? Because if coffee is in the. Then it’s not a discussion we have to have where it’s like you cut that out.
Because if we decide it’s more important and it’s either or, then our spending should align. But it doesn’t necessarily need to. You can usually have both. It’s just like whether you’re wasting money in other areas, isn’t it?
Ryan: Yeah. Yeah. So you’ve got over the fact that Elise bought a SMG coffee machine and then kept going a bean squeezed to buy a coffee,
Terry: Do you know what annoyed me about it? It’s just like, we should buy this coffee machine and I’ll never buy a coffee again. And then just like.
Ryan: and you did the math on how quickly you’d pay the coffee machine in
Terry: I was like, yeah, that makes sense. Let’s find the machine. Nah, just still guys out gets the coffee again.
Terry: But it doesn’t matter. It doesn’t matter cuz we sort of accommodate for it now and it probably has slowed it down a little bit, but it just took longer to pay that SMG off, didn’t it?
Ryan: Where to say a hundred percent. Yeah. We talked about when it’s not right, what that can mean. What’s the solution to getting it right, do you think?
Terry: Yeah, like we kind of alluded to it very early in this episode, right? The solution is build a customized banking structure that’s geared towards your own goals. Follow a prescription, or have no structure. Build something that really reflects you. What you are trying to accomplish and who you are. Right?
So the analogy for me is that, you know, a world-class cyclist, they don’t go to a bike store, get a bike off the shelf, and then jump in the tour to France. No, they don’t.
Laughs: I get.
Terry: They get a bike that has been specifically tailored for them. The dimensions of that bike are correct. The tire pressure is right. Um, attention on the brakes is a hundred percent set up for them and the way they ride everything has to be specific for them.
Cuz if you get that right, guess what? It’s a lot easier for you to get more out of who you are. You’ve got genetics, right? You’ve got things that you are inherently, naturally good at. You wanna actually make the most of those things, and you can’t do that if you have like this off the shelf solution.
Ryan: Yeah. Yeah, yeah, yeah, that makes a lot of sense. I remember I had a bike, it was kinda like a cross country race that I had early days and. Think mom and dad picked me up a bike from like Kmart or something and uh, I knew it was their fault,
Terry: Absolutely. No, it’s not the fact that you’re not a good writer. No, it’s not that.
Ryan: mate. No way.
Terry: What a tragedy. Who you could have been
Ryan: Who I know I could have been the next bloody geez, who’s a famous bike rider? I don’t even know.
Terry: Yeah. There you go. You’re really
Ryan: Armstrong, but now it’s like, oh no,
Terry: Kid Evans mate. Kid Evans.
Ryan: Kidal Evans. Of course, local too. You know, and I think about why people don’t do it, they don’t really take that time to build out the dimensions of what works for them, what they’re working towards, but also how they act, what things influence their decisions.
And you know, I think there’s probably two big ones, like you said at the start, that five O, not flying fly out, but fear of finding out. , and that’s usually reflected when there’s no structure. It’s just like, you know what, it’ll take care of itself. Um, the second one is probably fear of change, which is sticking to a structure that’s potentially not working just because there is discomfort with change with anything when things move.
Or you’re kind of worried that you might miss a payment or something. And that’s a huge one. You know, that’s probably a, a comment I hear a lot is like, oh, I’m worried that I might miss a payment. Truth is, in the 21st century, if you miss a payment, , you’ll get 77 options to fix it.
Terry: It’s gonna be okay. It is going to be okay.
Ryan: Yeah. Yeah. And literally it’s hardwired in
Ryan: software takes care of it. So if you miss a payment of some sort, they’ll have an automatic system that gives you three or four email options over the next three days, and it’s easy to fix.
Ryan: But those two really stand out, kind of fear of finding out and fear of change ultimately, and kind of does keep people stuck in this.
Terry: I think there’s also some associated objections or things that slow people down that sense too, and it’s about like, moving my money is risky. So if I have to move my money across from one account to another, start a new bank account and then move it from one bank to another, like I’m just gonna like, I’m gonna lose it all.
That’s a big one. Right? And particularly if you’re dealing with decent numbers. Like say for example, you’re gonna be moving your cash cushion and maybe it’s like tens of thousands of dollars, but like there’s an easy way around that isn’t there? Like send $3, get it right and send the rest
Ryan: a hundred.
Terry: There’s an easy way around that.
And then the other one I think, which is more than fair, is the banks are fat and slow. They are annoying. They are super annoying. I mean, we got some members at the moment that are just going through the ringer at the moment with the bank that they’ve got. But I guess what I’d say to that is that the opportunity cost of not doing this versus the cost of actually working through that discomfort in that shorter term, it’s just a no-brainer because like I said before, right up at the top of this episode, it’s a one-time thing that you do, that you benefit from for the rest of your life.
Ryan: Until you change banks again,
Laughs: Yeah. Yeah.
Ryan: but at least for the next 3, 4, 5 years, usually you only change bank because you’ve had to change your loans, your lending products, and then that’s the kind of process in itself. And have your mortgage broker do that for you.
Terry: And probably the other one too is automatic payments, right? I’ve got all my things automated and I don’t wanna have to sort of settle those up again. That’s usually pretty overblown, isn’t it?
Ryan: Yes. Yeah, yeah, yeah. Direct debits and things. Yeah. Usually there’s between six and nine, in my experience. Six and nine direct debits that might be set up. And yeah, it can take kind of half an hour, maybe an hour to sit down and do make changes. For sure. And I think the way to combat that cost benefit ultimately is to think about why it’s worth the effort.
So what would you say why it’s worth it to customize your banking s.
Terry: Yeah, I think the big thing we said at the top is like you can just achieve your goals a lot faster and it’s a lot less effort. If it is a structure that’s set up for you, like it’s your structure, it works best for you, like the tailored bike, you’re just gonna find the ride a lot more fun. , you’re gonna have to spend a lot less effort and you’ll be able to kind of get the most out of your situation.
That’s a big part, less guilt along the way as well. But most importantly, you’re gonna figure out what works best for you, not what someone like you should be doing. And that is the difference I think, between the prescription and you figuring out what your own practice, what your own instruction needs to be, because you have to generalize and you have to change aspects of who you are to be able to fit into that prescription.
Whereas when you’re setting up your own prescription, you’re not doing any of that. You’re saying, this is who I am, this is how I’m going to work, and this is what’s important to.
Ryan: I think it is probably worth distinguishing the fact. Some people are happy just to kind of go through the motions on this front, whereas we are probably speaking to guys that you don’t want to get the best out of it. And a big part of this is making sure that you can extract as much value from the money that you have and the money that you will get to help you fund as much of that life you want to build as you possibly can.
And so if that is you, then you are looking to find out what works best for you, not just have a kind of a generalized thing that works for, for some people at kind of the, the lowest common denominator. If you like the mass market, maybe you are happy just kinda going through the motions on that front, or you might be saying, you know what?
I wanna get the best outta myself, and because of that I’m gonna figure out what works best for me and gives me the best lived experience as.
Terry: Yeah, spot on. So let’s talk about the two big jobs that a good banking structure has to do for you. And the first one for me is it has to be a scoreboard, right? So we talked about motivation before now. What does the scoreboard do? It helps you surface a sense of progress. It tells you where you’re at in the game.
And so inherent in that is that it’s turning your money management into a game of sorts. And what does a game have? It has rules, it has a scoreboard, and it has a goal or goals. And so you should be able to look into your banking structure. and get a sense of where you’re at. And if you do it right, what you’re gonna be finding is you’re gonna see containers for progress and those containers are gonna show you where you’re at, how fast you’re moving, and also potentially what you need to do to be able to achieve those goals differently in the future.
So there’s this really important concept called the peak end rule. And what it is, it’s about how humans want to close gaps. So what’s interesting to me is like you look at the Olympic marathons and usually the last kilometer in that, Is usually the fastest for most races, and it’s because you’re closing the gap, you’re giving to the end, and that’s exactly what happens when it comes to goals.
And so you wanna take advantage of that instinct of human nature for your banking structure and set it up for each single goal, don’t you?
Ryan: A hundred percent and wanting to close out something that. Visibly. See in your mind’s eye, you’re saying, when I hit that finish line, I’m going to Japan to snowboard for two weeks. Or when I hit that marker, we’re buying this house, or we’re almost buying back a month of our time. A hundred grand in the market, whatever it might be.
It’s up there with hitting the finish line on the marathon.
Terry: Yeah, it just changes. And you’re like, oh, we’re nearly there. What can we do? And it starts to ask yourself these questions like, how would we get there? Like in another two weeks instead of another two months? Those type things happen. And you said before, it’s a wayfinding process, but you only wayfind if you’ve got very clear sources of feedback and if you’ve got the right structure, you’re getting clear feedback every single day on what’s going on with your.
Ryan: Yeah, yeah, yeah, absolutely. Having it as a scoreboard is a critical job, and the second job it needs to have is being a dashboard too, so being able to show you how you’re going at a point in time and thinking about the pace at which you’re moving with different things as well. And so we’ve talked about the Hawthorne effect previously, Hawthorn effect, very much being around as you observe yourself.
As you observe the decisions you’re making and how money’s moving, then just that observation of self allows you to kind of tweak things to refine. You naturally kind of adjust the way you’re doing things, to reflect things that you value most, your highest priorities. And so the more that you can see what you’re doing and you know it’s true with lots of different things, so you start to count calories and you start to eat better, you start to count your steps.
You walk further. We got some Apple watches, didn’t we? And uh, no doubt we’ve picked up the kilometers a little bit in there too. And so same thing is true for. When you’re observing your vitals, then you do the things that make the vitals look healthy, and that’s that effect. The second thing is also around how we kind of induce demand, how we kind of impact the decisions we make around the resources we have by controlling the supply.
And that comes to how you allocate money and how that allocation of money and the serving sizes you put on the plate for yourself impact how much you choose to consume. You know, a huge thing for guys that have a single bank account, living outta one bank account. They’re eating out the fridge and the fridge is full.
The fridge is full of amazingly good stuff. Maybe there’s some leftover lasagna. Yeah, yeah. There’s leftover lasagna, there’s spaghetti. All the carbs are in, there’s beers and wines as well. And it’s a willpower challenge. And willpower is weak, right? It uses too much glucosamine, and so the brain doesn’t like to rely on it, so it comes in waves and.
That’s a tricky thing when it comes to money having to rely on willpower. And so creating structure and breaking out and allocating money allows you to kind of break that apart and remove that so that you can control the supply to induce your own demands ultimately, and, and that’s Parkinson’s lawyer.
Terry: Absolutely. Yeah, you’re right about that sort of willpower challenge and it’s like a feast and famine type thing. So if you are living. On bank account, the start of the month get paid, you’re gonna be like, yeah, cool. Let’s just spend liberally. And you get to the end of the month and you’ve got more month at the end of your money, then it’s probable that you’re not managing the supply of money very well and you’ll be living that feast and famine type sort of existence.
And the other thing I wanted to mention too, when it comes to dashboard is trade-offs. So if we set the structure up correctly, what we’re gonna see is we’re going to understand. The different spending trade-offs that we’re making, it should surface those spending trade-offs. For example, we talked to Katie and James just before Christmas or around Christmas, and they talked about setting themselves up for the little one coming along and making sure that they were funding their maternity leave for Katie.
Now having that quarantined separated out and sort of put there against other goals and then actually having the structure so that you can kind of see where you’re spending, what you’re spending from, it kind of shows you what the priorities. and if you’re having to pull from that account, you know what the cost of that is.
So if I’m having to take a thousand dollars, cuz we really wanna go on that holiday this weekend cuz we’ve just burned out and we just feel like we need a holiday. I know where that thousand dollars is coming from. It’s coming from the maternity leave fund and all the science shows, all the decision science shows that when we make decisions in the presence of trade-off.
What do I care more about? Do I care about repairing my mood with this weekend getaway? Then I care about setting ourselves up for little one coming along. That you’re gonna make a much better decision when those two things are clear to you than if you just have money that’s sitting there as savings, because savings by itself, if the money doesn’t have a job and it’s not clear what it’s for, then you’ll just use it for your desires and you’ll forget about your dreams.
Ryan: You kind of contrasted two things that very well could. Related to their internal scorecard that weekend way, having experiences as well as preparing for above to come along. And a lot of the time those trade offs are actually around things that you actually want versus the things that are right in front of you.
And you know, the more that that trade off becomes a visible, the more you align your decisions and your resources with the things that are most important. This is where people say to me, all the. and they kind of get into a, have a destructure that’s designed for them and then get into a, a really sharp operating rhythm with it, is that they say, yeah, we don’t feel like we’re spending less, but we have more for the things that we care about.
And that’s because those trade off decisions always ultimately, like the thing that’s most important comes out in front. And the things that are less important fall into a shadow.
Terry: only when you can actually surface those next to what’s right in front of your face. Because whatever’s proximal looks like it’s important in the moment, but if you don’t contrast that with the things that you’ve actually defined to be important, then there is no trade off. So that you just go, oh yeah, no, that’s really important that we get this weekend away.
We’re gonna be better off for it, da da, da, da. And then you just justify it in your mind because you don’t actually see that we’re all up against this. Whatever’s proximal, whatever’s right in front of my face feels important, but those two aren’t necessarily the same thing. So defining a structure that actually identifies labels and shows you what’s important, and it’s showing you every single.
now you know what those opportunity costs are. Now you see what the spending trade-offs are, and you don’t have to break out a calculator or a spreadsheet to make better financial decisions, do you?
Ryan: Yeah, absolutely. so two big jobs, scoreboard, dashboard, make sure it helps you do those two things. Now, how do we do that? You mentioned before that there’s five steps to do this. Let’s talk through those five steps. What’s the first one?
Terry: Yeah, the first one is all about creating a really compelling vision, so a structure that’s. Linked to a higher order kind of picture for what life you’re trying to create. It’s a functional thing, right? And I think that’s what we see a lot of, like where it is the prescription, where there isn’t, it’s not connected to their own vision and it isn’t linked in that way.
So what we wanna do is we wanna sit down, we wanna map the whole thing out, give that vision, color, actually help them connect to it on a. At a, at a level of the sensors, what does it look like? What does it smell like? What does it feel like? What does it taste like? Who’s with you? What have you done? What are you proud of?
Get to that level first. And then from there, we want to take that vision and we wanna start to boil it down, don’t we?
Ryan: Yeah, yeah, yeah. And I think about that vision and that last episode we just recorded focused on the medic theory, and it’s helping distinguish between what part of that vision is based off your internal scorecard. And usually most of it is. And then what part of that is external to you and doing it for kind of different reasons.
That is a huge part of kind of boiling that down and going well within that vision, what is most urgent? What is most important, and what specific goals do you have that wanna work towards right now? And what that helps you do when you start with that vision is you make sure it is the things that are most important to.
It is reflective of your internal scorecard, not just shiny objects. You know, if you just ask a stranger that hasn’t really been thinking about this much, what their goals are,
Terry: A house in a boat, bro. I want a house in a boat.
Ryan: a lot of the time they are shiny objects. They’re recency objects that have been proximal have been close to them. And so that vision allows you to zoom out, zoom away from today or this week or this month, zoom out and. The life at almost like this bird’s eye lens, this meta view and go, what is most important to me?
And then within that, now how do I chunk that down into what I can do right now? What’s next for me? And yeah, that’s where you kind of pull that out, pull from that vision and go, what are the goals that are most important to me to do right now and at this stage in my life as well. Yeah.
Terry: Hundred percent. And if you do want a little bit more information on that, we did cover that vision in, in a fair bit of detail on episode 47 on the podcast. And as Ryan. Episode 75, we just talked about that internal versus external scorecard. Spending a bit of time to get that right is really important and it’s hard to do.
It’s hard to do for yourself. That’s why we kind of facilitate it because you are kind of separating out and teasing out those things that you are kind of like being taught to want versus the things that are kind of a little bit more natural and authentic to you. It’s always shocking to me that when we get to the end of this, people will usually say, man, what I thought I wanted and what I actually need, what it’s important to.
It’s a lot simpler than I thought. And that’s not to say that the goals aren’t ambitious, it’s just that there was a lot of fluff, a lot of stuff at the surface level that once you punch through that you go, hang on, hang on, hang on. None of that other shit matters. It’s this here. That’s really important to me.
And themes are very clear when you go through that, aren’t they?
Ryan: Yeah, and people say, you know, run your own race. That’s how you do it.
Terry: Spot on. We’re gonna do that, create a compelling vision, and then we’re gonna boil it down into what’s most urgent and important. And we wanna make these goals very smart. Right? So the example for me is young guy we’re working with, he wants to travel. That’s part of his vision, but we wanna make it really, really specific.
and where we take it to really with some exploration and understanding what his values are, career is really important. And I’m like, what is it about this travel? He’s like, well, I just feel like it’s something I should do this, this kind of part of my life. I’m like, yeah, maybe it is, but like, let’s make it specific to you.
Why would this be compelling? Um, and then we end up boiling it down to, well, look, you know what? What would be great, and I’ve never really voiced this, is I would love to travel around America and get mentored by all these people in my career. Um, and just kind of soak in the best knowledge of what there is in my industry.
So actually saving up to travel around America and do that is way more compelling to me than just travel. And so we wanna make it very specific in that way, Don.
Ryan: A lot more colorful too. Yeah. Yeah. Yeah. Travel can be a bit of a shiny object, but then when you take it to that next degree, it’s like, what can I help you do? How can it take you closer to this, the point in time in the future that you’ve imagined? Huge. Okay, so step two, boil it down to what’s most urgent.
Step three is then to separate income. From outgoings, and this is critical when it comes to structure because if you’re spending out of the same place that money comes into, it’s always gonna feel like you’re trying to catch sand in your hands. Yeah. It’s always gonna feel like it’s kind of just falling through your fingers.
And so this is where you allow yourself to embed, you know, Parkinson’s law where you get to control the supply to induce demand. So make it easy for yourself and reduce the reliance on willpower. Ultimately. Yeah. Don’t eat out of the fridge. And so that’s a really kinda subtle step, but has a huge impact on how people make decisions with their money and how much they end up using for the right things.
And ultimately it helps you find a good balance as well. When you get this right, it helps you find a really good balance between carving money off for money now for current self to enjoy the experience you’re having versus how much you’re carving off for future. To set yourself up and to fund those big objectives and, and to make life better and easier over time.
And so don’t skip that step.
Terry: Yeah, and this is where you are tailoring your vehicle for you, right? Cuz you’re figuring out what works best for you with time. So you’re developing like a spider sensor. What that right balance is between funding that future vision and spending now on the things that you value. And it’s that happy space between the two where you go, man, I’m actually just really enjoying the journey.
And it’s in enjoying the journey that you stick to it and you do the little things long enough to get the really big results. And that’s when things compound with time. So you hear like the Helen and Chasers come on, their comment was like, it’s not something that we feel like is a chore, it’s actually just what we do and the way we do it now.
Um, because it’d be weird to do it any other way, and that’s because of it. They’ve found the right balance for them. This is kind of the trick, isn’t it? Getting to that place where it’s like, yeah, that’s my, that’s the way it works best for us.
Ryan: That’s a battle that we’re all in. Trying to find the balance, this arm wrestle between now and future, and it’s actually more of a mechanical thing than it is anything else. It is more about how you see it and how you create that decision architecture that kind of allows you to choose between this and that and find the balance ultimately.
Terry: Guidance from us is like, how can you make sure that this doesn’t feel like a chore? Like the best diet is the one that you dunno that you’re on. And so if you can over months and months and months, figure out what that nice level is where you are like, we don’t feel like we’re sacrificing too much at all here.
Now you’ve got it because now you’re gonna actually every single month do this. And we talk about building identity. It is way. To save 5% of your income for 50 months in a row, then save 50% for one month and hate it and never save again. And so what we’re trying to do is figure out what that number is for you.
We’re not trying to tell you you should be saving 50% of your income. We’re like, what is it for you? Because if whatever we can stick to, we can sort of slowly find that threshold where you’re like, yeah, there. It feels like it’s encroaching too much on my life. So this is why we say it’s so important not to outsource that thinking to a prescription, isn’t it?
Ryan: Yep, a hundred percent. And so that’s step three. Separate income and outgoings or step.
Terry: Step four, quarantine living and lifestyle. This is an interesting one, isn’t it? Like I feel like people do conflate the two sometimes, even if they don’t, if they’re not spending outta one account, we’re not differentiating between like keeping the lights on. What we have to pay to live versus the things that we like to spend on going out for nice dinners, shows, experiences, those kind of things.
I think differentiating those two is really important too, because obviously we want to contain costs when it comes to living as much as possible without being silly. And then when it comes to lifestyle again, we wanna actually look at what’s the ratio of like lifestyle versus saving, and how does that balance look as.
Ryan: Yeah, absolutely. And that’s just distinguishing between things that you need and things that you want. And lifestyle spending is not a bad thing. It can be demonized in a lot of ways, but it’s just figuring out what is the lifestyle you want to live now on the way, on the journey to the destination and being able to know what that is and where it fluctuates as well.
So my life. In the summertime, it’s uh, a lot different to the wintertime
Ryan: and the structure is what allows me to contain and control when I am more free, I’ll say, where you can kind of make the most of the other time so you can be a bit more opportunistic as well. But it is just knowing how much is enough to satisfy. and to feel like you’ve always got enough for the things that matter most.
And then obviously carving off the rest towards progress towards bigger things so that the quality of that living and lifestyle can continue to lock in at higher levels to get better and better with time.
Terry: Yeah. And it’s also like, again, coming back to that wayfinding thing, like you can play with this and experiment. And that’s what we encourage people to do is experiment with different levels. And so there are times where we’re like, Hey, what would it feel like to spend another $500? And then, and people be like, oh my God, that doesn’t feel good at all.
Well, that’s why you should do it and see that the world doesn’t cave in and realize that actually next month money’s coming in again and find out that everything’s okay. But let’s find out and stretch the boundaries because it’s actually those changes of decisions that sort of help you invalidate some of those unconscious assumptions that you’ve made.
And over time, what you find is that your spending starts to naturally orient around this nice balance between the. It’s not something someone told you. It’s something that you’ve worked out because every single month is new evidence, new experiments that you’ve run to be able to go. Cool. That feels about right
Ryan: Mm. Perfect. Got lots of comments to guys that have come through over the last few months around the fact that you’ve been spending on.
Ryan: Yep. Lots
Terry: I’ve been spending on clothes.
Ryan: We’d done an episode before Christmas, I think it was. I think it was when we’re talking about forecasting and making sure that you kind of bake in, you kind of look at it and go, how much is okay?
And I encourage you to put a couple hundred bucks a month in for clothes.
Terry: Yeah, yeah, yeah,
Ryan: Just a report on that guys. I think he’s doing okay. He’s picked it up a, a level I reckon. There’s, uh, I’ve seen a couple of new shirts and yeah, he is got some nice boots and so not too bad.
Terry: I got an electric scooter.
Ryan: An electric scooter. Yeah. . Yes. That’s made up for it.
Terry: Stevie whipping around Geelong. That’s me. I’m the the Casey. Nice stat of Geelong at the moment.
Ryan: So step four, quarantine, living and lifestyle. There’s one more. Step five. What’s that?
Terry: Yeah. So create algorithms for spending. Can you kind of talk through this one a bit more? So how do you explain this to folks?
Ryan: Yeah, so algorithms of spending is just basically creating. If this, then that type scenarios that put rewards and incentives or sometimes disincentives behind the decisions you make. And so you mentioned before around creating visibility of trade-offs. It’s how you create those trade-offs by, you know, maybe it’s you ran outta lifestyle spending for the month and it’s saying if that’s then true, then you have to take from.
And so once you exhaust the resources that you’ve set for yourself that you said would satisfy you, once you hit those limits, you then have to make this decision to go, all right, because of that, I now need to pull from here. And it might be something that’s truly compelling to you, the hardest thing to pull from, or it might be something that’s there to serve that purpose because it’s what it’s meant to do.
Terry: Give us an. This,
Ryan: Really specific, you know, there’s more month at the end of my money and I’ve had a really good time it December and I’ve had a great time and it’s coming up on New Year’s and I know there’s a bit of a party going on and I wanna get around it. All my friends are going, loving this, looking at your face right now.
Terry: this actually happened.
Ryan: definitely, ring sharpened the memory and you know, it’s gonna be a couple hundred bucks to have a, a good night out drinks will be expensive, no doubt. And there’s a DJ or something like that. And I ran outta money though. I then have to make the decision of, we are planning to, we’re going to Columbia in May this year, and let’s say this is that next objective.
I’m like, I’m funding towards that, but because I’ve run out of money here, I now have to make the decision to pull. That decision or the savings that I’ve got to go to Columbia. And so as you can imagine, there’s friction there and I go, is that what I really want to do is 200 bucks on a night out here in lawn with mates doing that?
More important. Or more urgent than what I can do with that and that experience in Columbia, that’s gonna be radically different to what I get to experience. And it’s probably a little bit further stretched from, you know what’s always possible. So it creates a bit of a decision trade off between those two.
And ultimately you look at what you have for the objective that you’ve got. So say it’s Columbia and you go, how’s that tracking? And is it on track? Or would this truly cost it? And then you look at what you’re doing and say, is this important or urgent? And obviously that’s a proximal thing that’s sitting in front of me.
So it’s not always easy. But as soon as you do compare those things and you go, well, what is more important to me? What is more valuable to me? And sometimes you just go, I’ll figure out how to do both, which I did
Terry: I was gonna say if I was a betting man, and that’s what you.
Ryan: but it’s that thing, right? Where all of a sudden you go, well, how can I be resourceful in a way? that allows me to do both. Cuz sometimes you are like, no, I’m not willing to trade off so I’m gonna work a bit harder and earn a little bit more. Or I’m gonna give up something else next month or pull from somewhere else.
And so as long as it’s clear that what you’re looking at and what are you deciding for is visible to you, then you’ll be resourceful and you’ll use your own ingenuity to figure out how to make them work. Or you’ll priorit.
Terry: I want to kind of decode this a little bit cuz there’s actually a fair bit going on there, right? We say algorithms for spending, you kind of work through that example, but there’s actually a lot going on. There’s a trade off between dreams and desires.
Terry: desire, the thing that’s right in front of me, and then the dream, which is Columbia.
And then you are kind of going, is it an either or, or can it be an yes and. And if it is a yes, and how do I make that work? But the one thing that you are saying I’m not going to do is pull from, for example, my cash cushion to make that happen. I’m not doing that. I’m gonna have to either make it work this way or it’s gonna have to work this way.
And so that’s why we called an algorithm, isn’t it?
Ryan: Yeah. Yep, absolutely. Because there’s other algorithms that you kind of bake into it, or if they send that scenarios, that would make sense for you to use the cash.
Terry: To give us an example of one of those.
Ryan: Maybe a car gets side swapped and you gotta pay the excess or go in to get a filling air in your copper root canal. So something like that, where it’s probably more associated with a living expense and a cost of life that the cash cushion is there for, it’s there to help cushion the blow.
Terry: Yeah. And you know what I think is interesting about this too, is that you become a lot more resourceful when you think about the lack of resources and how to manage the resources. So for example, that first one that you said, okay, I’m gonna do it, but I’m gonna figure out how to save an extra 200 next month.
to be able to make up for that. How are we gonna make that happen? That’s a conversation. You get to have yourself, yourself and Brit, and then you kind of go, cool, next month we know we’ve got this little mission, which is to find an extra $200. And this is where collaboration, communication, uh, and I guess just working together as a team is pretty damn cool because you’re not, again, you’re not outsourcing those decisions to a prescription.
You’re figuring out how to make it work best for.
Ryan: Yeah. Yeah. And do you know what? There is a false assumption that people are making, which is, if that isn’t visible to me, then I’m not making the trade off decisions, which is not true. Because the reality of fine art resources is you’re making those trade off decisions. Whether or not you like it or whether or not you can see it, you’re already making it.
Ryan: You just can’t see what it’s between, and you don’t get the opportunity to be resourceful or be deliberate in kind of prioritizing. If all your money is in one bank account, it’s called savings, then you are still trading off between this and that, option A and option B. It’s just that you’re flying.
Terry: Pretty big. That last one I reckon, and that’s where I think it gets to be fun because you get to play around, you get to play with the concept of money. You get to think about like what it actually means for you guys and find what matters to you each. Like if you’re in a couple, what matters to the both of you and how to work those things into your life basically.
Ryan: Yeah. Yeah. And it doesn’t always become about spending less. The aim of the game is not about spending less and creating greater savings rate based off fixed or the, you know, the set income that you have right now.
Terry: Yes, it is made. It’s all about maximizing net worth and just saving as much as possible so that one day you’ll be happy. It’s all about.
Ryan: Hope everyone understands sarcasm. That was Terry’s sarcasm voice, and so it is just figuring out what do you value most. And then figuring that out. Cause once you figure that out, you can then get to work figuring out exactly how much income you need to make sure that you can cover living the things that you need, cover lifestyle, the things that you want, and still make meaningful progress.
And the sooner you can figure that out, the easier you can get into that sweet spot where progress is sustainable and you can enjoy the ride on the way to the Destin.
Terry: Yep, spot on. And just quickly to summarize this episode, what we are really saying here is that if you’re in a situation where you’re not motivated by your money, you feel like it’s something that’s kind of separated from you, maybe you’re detached from it, maybe you’re afraid of it, and maybe you’re kind of stressing about little things and you’re making, I guess, fear-based financial decisions, then you might want to think about how you build a customized banking structure.
And we talked about why people don’t wanna do that, and. It doesn’t matter and you should do it anyway. The two good roles, right? Has to be a scoreboard, has to be a dashboard and the five big steps we just walked through. Then create a compelling vision, boil it down to what’s urgent and important, separate income from outgoings, quarantine, living and lifestyle.
And then also create algorithms for spending. So if you’ve gotten through to the end of this episode and you’re kind of thinking moment, this sounds great, but going through those five steps sounds maybe a little bit overwhelming and I wanna make sure I’m doing it correctly and just feel free to reach out, hit that link in the show notes, book a quick call with us, we can talk you through it and see whether it could work for.
Ryan: Yeah. Nice. Love it. Chat to you soon.