Have You Made a Profit on Your Life? By Will Ortel

Personal finance can at times seem less scintillating than the world of high finance that is sometimes covered on these pages, but in many ways it’s much more important.

There is simply no way to make money through investing without already having money, and I’ve got bad news: There’s no better way to accumulate money than earning it, saving it, and not spending it.

Why is that so important? Well, investment media occasionally does a poor job reminding its readers that, as far as their wealth is concerned, the most recent high-profile earnings announcement is a passing distraction compared to their savings pattern.

This post’s title offers a simple way to think about it. Imagine that your personal life is a business. Are you profitable? If you’re neglecting your loan balances and buying expensive things on credit, consider how you would react if one of the companies in your portfolio was doing the same thing. What about a company that managed to go a whole lifetime without ever generating a meaningful amount of cash?

We do this for a reason

We often rationalize economically destructive decisions by imagining we will clean up our messes in the future. Things will change. Our ship will come in.

People who ignore their economic reality have been characterized as “temporarily embarrassed millionaires,” and the descriptor fits quite well. After all, how easy is it to imagine that things will get better when one of many possible good things happen in the future? All too often, we deny economic reality thinking that a raise, inheritance, or investment gain will offset our bad decisions.

This is pure inertia. It is difficult enough to find motivation for fun things. What about avowedly less fun things, like not spending money? Since none of the other investment advice on this site (or any other) will be of much value until your finances are in control, what sort of steps can you take to bring yourself on a path towards personal profitability?

You need big discipline and little tricks

This is a meaningful separation. No matter how clever the personal finance trick, there will always be a risk of financial implosion if your spending habits are not under control. If you manage to save up a meaningful emergency fund and then spend it all on a JetSki, it will be difficult to argue that you’ve improved your lot in life financially. Developing the discipline not to raid your savings is the core skill that will determine your degree of financial success.

With that said, it is possible to reduce the need for financial discipline in your day-to-day life by setting some things on autopilot. In a 2012 profile of Barack Obama, the president’s unique approach to limiting “decision fatigue” came to light. He observes “You’ll see I wear only gray or blue suits; I’m trying to pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make.”

In that same vein, why would you put yourself in a place where you need to save money manually every single day? What if you could just set yourself on autopilot?

While there are no “set it and forget it” strategies, here are three little tricks that I use to manage my own money that have made my life easier.

  1. Use multiple bank accounts and automatic payments to stay on budget. One of the easiest places to make a financial mistake is in your monthly remittances. It’s obvious that if you forget to pay your bills you’ll rack up late fees, but what about if you forget to save? I divide my paycheck up between separate accounts dedicated to bill payments, spending money, personal savings, and retirement savings. This makes it very difficult to deviate from the plan.
  2. Have some kind of central dashboard and check it regularly. Make sure you have a place where you can easily figure out if your finances are still under control. All of the automation in the world won’t do much for you if you have no way of telling if it’s getting you anywhere. Some rely on the help of a financial planner to figure this out or periodically evaluate their spending while balancing their checkbook. I prefer to use web-based platforms, like Mint or Personal Capital, because they tend to be quicker to update and easier to stick with.
  3. Pay off debt strategically. Make sure that you structure your automatic payments so that you are getting the maximum return on your dollar. One of the best ways to do this is by directing extra money towards your high interest debt. Thought it may initially seem daunting, it’s actually pretty easy to figure out what to do here. Either use specialized services (like tuition.io for student loans) or just make a list of your loans and their interest rates. Pay the minimums on most of them, and pay down the highest interest one as fast as you can afford. When it’s gone, move on to the next one.

These three tips are just the beginning. We’ve just published something that’s worth checking out regardless of your level of sophistication: the Essentials of a More Secure Retirement. It is a globally relevant guide to getting your finances in order, starting with tracking your spending and moving on to investment strategy.

Remember: if you want to be an investor, you’ll need money. Managing your own prudently is one of the best ways to get some.

If you enjoyed this post, consider subscribing via e-mail or RSS.

This was previously published on Inside Investing at the CFA Institute.

Copyright © 2008–2014 Will Ortel
All Rights Reserved.
Contact author for limited redistribution permission.

William Ortel manages Inside Investing and is a member of its founding team. Previously, he was a research analyst at Newport Value Partners, an associate in the chairman’s office at Indo-MIM, and an intern in quantitative equity trading at Oppenheimer & Company. Ortel completed his bachelor’s degree at Fordham University in three years while working full time at CFA Institute.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of