Transcript of Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026 | Finance | YAPLive | E386

The number one desire people have is if I could just win the lottery, I could just get a big chunk of money. But then people come upon this money and they don't have experience controlling that money, and they blow it.

Yeah, fam. Today, we're welcoming back Mike McAlowitz. He teaches everyday people how to finally stop worrying about money and build a system around their natural behaviors so they can break the paycheck-to-paycheck cycle and build real cash confidence, as he calls it.

I did research around lotteries, and the average payout is $2 million. Do you know if you make an average salary of $50,000 a year for 40 years, that's exactly $2 million. And the average worker, at least in today's society, works about 40 years. Everyone is already a millionaire. You've already won the lottery.

Debt is a big problem for people. How to pay down your debt, what not to do, what to do. What's your thoughts about that?

If you have a lot of debt, sort your debt out by the amount due. And if you can wipe out some early debts, that's a beautiful thing because you'll believe truly that you can wipe out debt. But if you continue that pattern, when we have a certain life standard, It is very hard to reverse that. We will go to extreme measures to keep it and sometimes illogical. The better move is not to gain the things you can't really afford yet. It's to slowly build toward it. The most predictable expense for everyone is an unpredictable event. We all need an emergency account because I can guarantee something unexpected is going to happen.

What's the number one thing that people can do in the new year to optimize their money habits?

I think the first thing is to realize that...

Yeah, Today, we're welcoming back somebody who needs no introduction, Mike Michalowicz. You know him from Profit First, clockwork, and all the frameworks that have truly transformed how entrepreneurs run their businesses. If you want Mike's full origin story, the rise, the fall, the rebuilding, and everything you need to know about the Profit First Framework for Businesses, which we follow here at YAP Media. We're replaying his very first YAP interview this Friday. And by the way, guys, that conversation changed my life and the way that I run my business, so I highly recommend it. If you don't know about the Profit First framework, it will change your business. But today is all about his newest book, The Money Habit, which is about personal finances. And it might be his most important book yet because he teaches everyday people how to finally stop worrying about money and build a system around their natural behaviors so they can break the paycheck-to-paycheck cycle and build real cash confidence, as he calls it. Let's jump right into this conversation. Mike, welcome to Young and Profiting podcast.

It is awesome to be here with you. Do you know the last time I saw you was in Massachusetts at Gathering of Titans. Oh, my God.

I can't believe that.

I forgot that we met in person over there. I totally forgot that. I just felt like I was so familiar with you because of all the times I've interviewed you, but I totally forgot that we met in person. You rock the show.

That group, just to give you a little bit of sense, that is an entrepreneurial group that I joined in 2000, 2001. The idea was it was 80 entrepreneurs came together to learn from each other, but to really be the next level entrepreneurs. Out of that group came, 1,800 Got Junk was there, that's Brian Scutamore, the co founder of Berts Bees, all these massive companies. We bring in expert speakers to share on topics. There we are, and I'm like, Here she comes, Halata, and you freaking rocked it.

Oh, my God. I can't believe you reminded me of that. That was such a big event for me at the time. It was at MIT, and it was like such a big deal. We'll replay that on the podcast just because you mentioned that, I'm going to replay my speech. We're also going to replay my first interview with you because I first interviewed you like- Pre-beard, I think. I think so. It was like three, four years ago. We talked all about your come-up story. We talked about Profit First, which is a classic. We're going to replay that on the podcast this Friday after this gets released so everybody can get your background. Thank you. But you're back with another book called The Money Habit. Curious to understand what was the genesis of this book? You've written several finance books. What's different about this one and why did you decide to write it?

I got this call from guy, Tommy Mello, and he owns a garage door repair service. He used Profit First, made his business permanently profitable. He calls and says, I have another problem that presented itself. He goes, My book is very profitable, but he goes, My employees are struggling financially. What they do is they say, Hey, can I borrow some money or can I get a raise when it's a little bit early to get a raise yet again? He goes, I want to accommodate them. They're great workers because I can't afford to do this. My business will go under. He's like, I need to teach them profit first for their personal finances. I'm like, Oh, okay. I said, How many employees do you have? Five or six? He goes, No, I have 900. I go, Pardon me, what? He goes, 900. It's a national brand, and this is a systemic problem. I think it's Henry David Thoreau who said, The mass of humanity lives their lives in quiet desperation. Now, that's not the exact phrase, but that's basically it. Well, the quiet desperation is most people are not making enough money or don't have enough control over their money to feel comfortable.

So there's this constant ringing in the back of our heads, worrying about money. That's what Tommy was sharing with me. I've lived through it myself. I said, This is the time I finally write this book. That was about three, maybe four years ago, started doing my analysis and research, deployed it for his company and others, and said, My gosh, we have it. Basically, it's profit first, but it's translated to personal finance.

Yeah, and profit first is amazing. I mean, we use that strategy at my company. Yeah, we do. I can't wait to I'd like to unpack all of this and see how I can use it for myself because profit first really is a business-focused framework, and this is more for personal. Talk to us about this company with 900 employees. You saw a couple patterns coming out of this company. Even when they got more money, they still didn't feel like their lifestyle basically just caught up with them. Talk to us about that.

I interviewed people who were making very modest salaries to people who grown through these organizations and were making what Most people consider a significant salary. To give context, the average American worker makes $50,000 a year. That's the average income for the entirety of the United States. If anyone listening right now makes more than $50,000, you are greater than average. That's the middle point. There's employees that were making well more than that, and they were struggling just as deeply as people that were at perhaps just a starting salary. I said, How can this be? Because the number one desire people have is, If I could just win the lottery, if I could just get a big chunk of money, or we observe someone else. You're like, Oh, she's got a nice car, and she has all these successful things. If I had that money, I would have the life that I've always dreamed of. But then people come upon this money, and they don't have experience controlling that money, and they blow it. There's this belief that if I just get more, I will finally arrive. But you don't have the context of managing that money, and so it just collapses.

There's a behavioral theory called Parkinson's law. Basically, it states as a resource expands its availability, we consume consume more. The more time we're given to do something, the longer it takes. The bigger the closet in our home, the more stuff we have that fills up the closet. The more money we have, the more we spend. What the understanding I came across was, I need to give people control and authority over the money they have, regardless of how much it is. Once you have control and understanding of it, then you can direct it to what you want. Then adding more money helps. But if you try to make more before you can control more, you're in trouble.

Yeah. I learned You said that collectively, out of these 900 employees, they saved $280,000.

Yeah, it wasn't of 900. That was of 25 people. Oh, okay. We started with a batch group. It was 900 that we served, but they said, Let's just try this out. We had 25 employees go over this process for six months, and collectively, they saved a quarter million dollars. Now, these were people... So you think about that, that's $10,000 per person in additional savings. These were people that were living check by check by check. They didn't get a single dime in an increase in salary to do this. They simply asserted control over it. The interesting thing is Parkinson's law, I guess, shared, teaches us that the more money we have, the more we spend. The reason we spend more is most people have a primary checking account. For me personally, in the past, my money would come into one account, all my money, and then I'd say, Oh, I need to spend it on the next thing. I need to buy a piece of furniture for the home or something like that. But I was following victim to this thing called the primacy effect. The primacy effect is whatever is our immediate need is our primary need, and we disregard the future.

I have a mortgage payment coming up or rent, or I have to buy groceries, but I don't think about that when I need a new piece of furniture because that furniture cracked or broke. I look at my account and say, I have enough money to buy the furniture, but there wouldn't be enough to then pay the rent, and then panic ensues. What we did is we put people's money into buckets, and we also did it at their bank. This is the other little trick. It's called behavioral intercept. When you want to do something with consistency, don't try to change who you are using willpower. Instead, look what you're already doing and set the system where you already go. Most people log into their bank account, see how much money they have, and if they see they have enough money to cover that furniture, they buy it. We said, Keep going to your bank account, but we're going to set up an account that says furniture. We're going to set up an account that says groceries, and we're going to carve out that money when it comes in to each account accordingly. Now, when I'm looking to buy furniture, I look at the furniture account, and if there's not enough money there, can't spend it.

Yeah. That's the concept of channeling your habits instead of changing them, right?

Exactly. Most of us are told to try to change who we are. Traditional personal finance is one of two methods. Deprive yourself of a lifestyle of comfort today so you can live one tomorrow. So live in deprivation. Humans can't do that for a sustained period. We become resentful. If you love, I love chocolate chip cookies. If I don't eat chocolate chip cookies and I see one laying out, I will try to use willpower, but there'll be a moment I fatigue. And the longer I go without a chocolate chip cookie, the more I'll desire it. So the longer it sits there, the more I'll desire. And tests prove this out. They did a test with children where they said, they put a little treat down and said, If you don't eat this, you'll get two of these treats. When I come back, the researcher said that, and left the room, and you watch these children shaking and sitting on their hands and doing all these things not to do it, and they couldn't stop and they ate the treat, even though a bigger treat was coming if they simply resisted. That's true not just for children, it's true for adults.

Yet most personal finance principles tell us, deprive yourself. So that works for very few people. The other one is to use budgeting systems or technology or something that is outside your normal pathway. So don't look at your bank account Instead, set this other system to do things. And those can work, but it requires you to change your habits. It's very difficult for humans to change. So what I argue is don't change who you are, channel who you are. If you log into your bank account, the budget needs to be at the bank level, and we need to set these accounts there because now you don't have to change a thing about yourself. You continue your behavior, but the system is showing you what's available for what purpose.

I feel like the dream outcome of all this is to have something you call cash confidence. What is cash confidence to you.

Yeah. I think most people are pursuing financial freedom, and I think that's a great aspiration, but I think there's a step before it. Financial freedom is where I don't worry about money. I decide, I want to go to the Caribbean. It's getting a little cold here in the winter. Let me hop on a jet, maybe my own jet, and go to the Caribbean, and I don't have to worry about a single dime. That's what financial freedom is. I can do what I want at the whim of a thought, and I don't have to worry about the cost. That's a great aspiration. I think there's a step before that. I call it financial independence. Financial independence is where I'm not beholden to my money, that I have control over it, it doesn't have control over me. I know we can achieve financial independence at any level of income. What you need to do is have cash control. What cash control is, is an awareness of what what money is available for what purpose. I believe even at $50,000 a year, you can go to the Caribbean on a private jet if you're willing to wait about 200,000 years.

But we can start allocating a dollar a week or whatever it is to ultimately get there. At least you'll have an understanding that you can't do it now, but if you keep saving, keep saving, maybe you can do it in a long period of time. Maybe you say that's such a long wait, 200,000 years, it's not worth it. But that is cast control because now you see what money is available for what purpose, and you can make controlling decisions around You may not be able to live financial freedom yet. We start with cash control. Once you've cash control, you have the ability to decide, You know what? I'm going to live a little more... I'm going to go out to dinner less, for example. That $100 I'm spending going out to dinner every week, I'm going to allocate that towards these trips I want to go on or whatever. That's cash control.

Yeah, Pam, you just realized your business needs to hire somebody yesterday. How do you find great candidates fast? Easy. Indeed, use Indeed. When it comes to hiring, Indeed is all you need. Stop struggling to get your job post seen on other job sites. Indeed's sponsor jobs help you stand out and hire fast. With sponsor jobs, your post jumps to the top of the page for relevant candidates so you reach the people you actually want. Faster. And it works. According to Indeed data, sponsored jobs posted directly on Indeed get 45% more applications than non-sponsored jobs. What I love about Indeed is knowing that my job post is getting the the ability that it requires. Plus, with Indeed-sponsored jobs, there's no monthly subscriptions, no long term contracts, and you only pay for results. There's no need to wait any longer. Speed up your hiring right now with Indeed, and listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at indeed. Com/profiting. Just go to indeed. Com/profiting right now and support our show by saying you heard about Indeed on this podcast. Indeed. Com/profiting. Terms and conditions apply. Hiring Indeed is all you need.

Yap, there are certain services you don't think about until they stop working. And internet and mobile are at the top of that list. When connectivity is slow and unreliable, everything from work to content creation to just basic communication gets so much harder. And that's why spectrum business focuses on reliability, so it's not something you have to think about. For me, that peace of mind really matters. I want my internet quietly working in the background while I focus on growing business. I do not ever want to think about my internet. I just want it to work. That's where Spectrum business really shines. They keep businesses of all sizes connected with fast, reliable internet, advanced WiFi, phone, TV, and mobile services. They also offer tailored connectivity solutions with packages built for your business budget, which matters when you're running a team. But here's what really sold me. If something ever does come up and there's an issue, they offer 100% US-based customer support 24/7 to help you stay up and running. It's no surprise millions of businesses trust Spectrum business every day to stay connected. Visit spectrum. Com/business to learn more. Restrictions apply. Services not available in all areas.

Yeah, Pam. Starting a business is, of course, exciting. As entrepreneurs, we love to build, create, invent. But entrepreneurship can be overwhelming, especially in the beginning when you're first launching your company. It's really hard to figure out all the steps you need to do. Thinking about these things, they don't give me energy and I want passion for it. But that's exactly what Northwest Registered Agent does. Northwest Registered Agent is a registered agent and LLC service that helps you build your complete business identity in one place. They've been helping entrepreneurs for nearly 30 years, and they're the largest registered agent and LLC service in the US. Now, I'm a successful entrepreneur, but I had no idea what a registered agent was. I had one for my company. It was on auto renewal, and I didn't realize how important a agent is and selecting your registered agent is. For example, my company is incorporated in Delaware, so I have a Delaware address for my registered agent, and they collect all my legal and tax notifications, and they are supposed to make sure you get all your important documents and you don't miss things like court hearings, and things can go really haywire if you don't have a registered agent, and it's illegal to not have a registered agent.

Your company can get dissolved if you don't have one. When I started my company, I wish I had known about Northwest Registered Agent. Apart While I'm helping you form your business initially, they'll help you at every growth stage. For example, if you need to switch from an LLLC to an S Corp as your company grows, whatever it is, Northwest Registered Agent has your back. You get access to thousands of free guides, tools, and legal forms, even without creating an account. If you do sign up, which is free, you get access to lawyer-drafted operating agreements, bylaws, and meeting minutes, all at no cost. Northwest Registered Agent really is your business bestie. Don't wait Protect your privacy, build your brand, and get your complete business identity in just 10 clicks in 10 minutes. Visit northwestregisteredagent. Com/yapfree and start building something amazing. Get more with Northwest Registered Agent at nordwestregisteredagent. Com/yapfree. That's Y-A-P-F-R-E. At the very least, I hope you double-check that you have an active registered agent. It is very important you do so as a business owner.

Even if you don't make a lot of money, you say in your book that in your lifetime, most people are the average person makes $2 million in their lifetime. When you think of $2 million, that's a huge lump sum of money. That's like winning the lottery.

Can you imagine that? Yeah.

What identity shifts happen when you start to realize that in your lifetime, you could make $2 million?

It's fascinating. I survey audiences teaching this now. They teach profit first a lot, but also teach the money habit. I said, Who here, honestly, would be really thrilled to win the lottery? Almost all the go up. Me too. I'd love to win the lottery. It's great. Well, I did research around lotteries, and the average payout is $2 million. There's these grand bucket winners we hear about that win $600 million or something crazy, but the average win is $2 million. Most people take an installment plan, and that can be 20, sometimes 40 years. Most people are going to get $2 million if you win the lottery and you're going to get over up to 40 years. Do you know if you make an average salary of $50,000 a year for 40 years, that's exactly $2 million. The average worker, at least in today's society, works about 40 years. We start in our 20s, we end in our 60s, and maybe that's going to change. But everyone is already a millionaire. You've already won the lottery. That's what we have to be aware of. The thing we need to do is assert control over it, and that's what we're not doing.

We're hoping to make money. Well, you've already made it. We've got to control it. That payment installment plan is coming in.

Yeah. For our young in profitors listening, I think our average income across the board is like 150 or something from my listeners.

$4 million or $5 million. I think people aren't considering that. We're just saying, I'm not making enough now. Well, that's the primacy effect kicking in. We got to assert control over what we have. There's this freedom once you do.

You were mentioning how even if you're not making a ton of money, you can still save for big purchases. You talk about saving for, I think your son's wedding, you saved like $36,000. How did you save for that? And what can people learn from that?

There are some events, I think, that are very predictable in People will get married, people will die, and there's costs with that, funerals and so forth. There's different things that happen. Emergencies will happen. In fact, the most predictable thing in life is there will be something unexpected. So something that's predictable is unpredictable. I have three children. I'm like, likely, they're all going to get married at some point. My wife and I talked about it. We said, We're going to start saving money for this. We started saving when our children were born, saying the average marrying age at the point was 27 years old. And coincidentally, My oldest son, who got married, got married at 29, so it was pretty close. We started saving. We didn't save at the same rate. It wasn't like we're going to save $1,000 a month, every month. We started saving this 10 bucks, which It's called behavioral momentum. Once you start doing something, even in small pieces, you start becoming wired to repeat that. That's how our brain works. Kind of like exercise. Excuse me. The biggest mistake that people make with exercise is saying, I got to start working out.

I'm going to work an hour at the gym every day. I'm going to for everyone. No. Just day one, buy a set of sneakers or something and put them on. Day two, put on your gym clothes and walk down to the gym and walk back. Start off very small. Then day three is go for a little walk and stretch and you slowly build your way up and you start wiring, this is who I am. The first thing is an identity shift, then a behavioral shift. We wanted to have an identity shift for ourselves that we're going to save for our children's weddings. As our income increased, because we do this on a percentage basis, automatically the percentage stayed the same, but the dollar amount increased because it was the same piece of a bigger pie. By the time my son was 25, we had $50,000 saved up and we said, Okay, that's the number. For every one of our kids, we have $50,000. If one of my kids is watching right now that's not married, this is supposed to be a secret, so it's no longer a secret. When my son got married, we told him, when he was about to get married, we said, We have a check for $50,000 we'd like to give to you.

Now, here's what it is. It's for your wedding, or if you decide to have a lower budget wedding, the remaining check is for you. They found a way to have a wedding for 100 people for $14,000. They rented a whole restaurant. It was on a lakefront. It was amazing. But they were searching and navigating the deal. At the end of the wedding, my wife and I went up to our son Tyler and said, Here's a check for 36,000. The difference He's sitting there, he's handshaking. He's like, I've never had this much money in my life. So much so that his wife, Cora, they didn't deposit. A month later, I'm like, This check hasn't cleared. What happened? We don't think we can deposit a check this big. Trust me, you can. They finally did. It was such a great gift of ours. But there was also no cost to me and my wife. The money has already been allocated. My wife and I are still living our life standard. We're still living the way we want to live. It didn't feel like we had to take a chunk out of our life to give to them.

It was something we had built for.

Yeah, that's so beautiful and so smart. I'm sure putting aside $10 a month, $100 a month, it probably didn't feel like anything. You would have just wasted that on some other junk. It's good to just put it aside and maybe even pretend like it's not even there.

I remember looking, this was back 20 years ago. This is around 2000. I said, What's the average cost per plate for a wedding? I remember it was $70 at the time. A standard wedding, every guest, you had to pay $70 to feed them, plus this additional cost. Every time I start putting $70 away, and it was $70 a week, I'm like, One more guest to the table. One more guest to the table. I love that. Yeah, it felt so good. Then I asked myself, once we had 200 guests covered, that was 14,000, I then said, Okay, what's a band cost? A band would cost $10,000 or whatever it was. I said, Okay, we got the drummer. Once I hit $2,000, we got the drummer. Now we got the bassist. Now we got the lead singer. It's important to put these little milestones so we feel that we experience the progress.

Yeah, that's how I did it. That's a really beautiful story and awesome that you did that for your kids. Okay, so let's talk about why traditional budgeting doesn't fail. You budgeted for this wedding and you set it aside, what was different about what you did there versus traditional budgets?

Traditional budgets usually have a common pot at the bank. It's a separate documentation, usually a spreadsheet that says, I'm going to save X number of dollars for this wedding, say $50,000 and so forth. Then we have a singular pot where the money is stored. Maybe it's in a money market or it's some form of investment, which is fantastic. Here's the problem. We have to enforce willpower not to take from it. We will justify taking from it, will resolve, I should say, the cognitive dissidence that we have when we take the money by giving some form of justification. Let's say in my pot, I have $200,000, $50,000 for one kid's wedding, $10,000 for auto repairs and home maintenance, different things. Now something comes up and my roof is leaking. I got to replace the roof. I'm like, Well, I got a pot here of $200,000. Yeah, it's for the wedding, but the wedding is not going to happen. I'll start justifying it and I'll replace that roof. Now, I'm back to square one. Conversely, and we actually have an account called The Roof because roofs need to be repaired or replaced in its entirety, usually every 25 years.

We have a 25-year vision for it. To replace our roof, we're thinking it's going to be a big budget, so we have that dollar amount set aside. If my roof is leaking and I want to replace it and there's not enough money in the roof account, I can still take it from my son's wedding account, I can no longer subconsciously ignore that. I have to say myself, I just stole for my son's wedding, so now a subconscious behavior becomes a conscious awareness. I'm much more disciplined when I'm conscious aware that I'm stealing for something as opposed to a common pop.

Yeah, you realize that some other goal is not happening.

Yeah, you can't deny it anymore. Yeah. It's okay. Sometimes you may choose to do that, but I can no longer deny it. There's another thing is if you have multiple people involved in the finances, so my wife and I both manage finances. It used to be I was the primary lead and my wife was secondary, so she'd ask almost like permission, saying, Hey, I'm thinking about going out to friends. Do you mind if I go out? Do we have enough money? With the accounts divided up as we have them, she logs in the bank and says, Yeah, there's enough money. Her name's Krista. The Krista Fun account. I have a Mike Fun account. She doesn't have to ask me. There used to be this weird parent-child relationship. I'd say, No, you can't go out, or, Here's your lollypop, you can go out. It's bizarre. It's creepy. Now we're a team looking at the account, and there's not enough money in the account. There's a conversation about it. We see we can't do this now. Do we decide to override the system or not? That's how it works.

I know that you mentioned there's a bunch of behavioral things that humans just are likely to do if you have one big bucket of money and you don't split it out. Let's talk about those. You've got one of them you mentioned, but I'd love for you to go deeper on it. You call it Parkinson's law? Yeah.

Parkinson's law is based upon a theory by this guy, Northcoat Parkinson, from the 1950s. He observed something really interesting, and we already alluded to it, is that when a resource expands its availability, we consume more. The classic economics curve says that demand dictates supply. The more people want your podcast, the more you're going to produce podcasts, the more people want to sponsor your show, the more you're going to charge for it. He argued that is true in this certain number of economic cases, financially, but in most cases, humans behave in the reverse. It's not demand dictating supply, it's supply dictating demand. The classic example is with, well, you can do it with soda cans. A hundred years ago or 200 years ago, when soda came out, soda cans were what we consider almost a shot glass. It was a small little can. Then they got these, I think they're 16 ounces or something. But I don't know if you've seen cans recently. They're huge. It's a freaking bazooka. You could kill someone with this thing. It's crazy. The thing is human behavior hasn't changed. The container dictates consumption. We used to drink that small shot.

We used to drink a full can. We are now drinking this full container. Societally, the caloric intake is massive and our wastelines are expanding massively as a society. The interesting thing about Parkinson's, he said, if we simply went back to the shot glasses, you won't drink the whole can. You won't get multiple shot glasses. You'll finish off the shot glass and you're done. The container dictates the supply. When it comes to our finances, if you have one bank account, that is your shotgun bazooka of a container. We need multiple small shot glasses, and you'll just take that little shot.

That's what Parkinson teaches us. That makes sense. And then there's loss aversion. Yeah.

Loss aversion is so interesting. Loss aversion is once we possess something, we'll go to extremes to retain it, even though it's illogical, but we won't go to the same extremes to gain it. So we'll do more to retain than we will to gain. Classic example, you drove up in a nice car. I was admiring your car. Oh, thank you.

Yeah, I love it. Hot pink Porsche or purpily pink.

Purplely pink Porsche. It's gorgeous. As Porsche pulls up, and a Porsche will be a dream car for me. I do have another dream car I love, But if I bought that Porsche, I would put it into my garage and save it, and drive around and show it off and polish it. If I didn't have enough money saved and couldn't pay for it, and the dealer calls me and says, We're going to call the claim the car back and take the slips back. I will maybe take a second job. Maybe I'll drop insurance. Maybe I'll stop driving. I'll just keep it in my garage because it's my baby now. But here's the thing. I'll do extraordinary things to retain it, second job, drop the insurance, but I won't do those things to get in the first place. That's loss averse. Version. When we have a certain life standard, it is very hard to reverse that. So now I live in my new beautiful home, I'm not going to lose that. We will go to extreme measures to keep it, and sometimes illogical. I'll take on debt, I'll borrow money, I'll ask my parents, they're going to just lend me a little bit of cash.

I'll ring up the credit card, and it will crush us. But we wouldn't do those things to gain it in the first place. We have to realize this is wired into us. With an awareness, you have some control and authority over it. The better move is not to gain the things you can't really afford yet, it's to slowly build toward it and have a cushion that when perhaps your income drops that you can sustain because you have some savings because you willologically try to retain something you have that you can't afford. So don't try to grow your lifestyle very quickly, which most people try to do to pace their income. As your income increases, build a cushion for yourself as you're moving along. Let your life increase. That's our natural tendency. We want better and better, but save a cushion so that if you ever have a dip, you can sustain that for a extended period.

Is there some rule, like I should be able to pay for this 10 times, or is there some rule that we could follow?

Generally, the optimal rule is minimally three months of full life expenses covered. So wherever your life expenses are that you have a sitting in savings ready to spend minimally. Six months is ideal. Here's what the research indicates. If I save for three months, I'll live in the loss aversion state, usually for about one to one and a half months, about half that time span, and start saying, Oh, my gosh, I'm eating the savings. Then we'll start adjusting our lifestyle. That remaining one and a half months of cash I have will stretch for another three or four months. Three months of savings can usually last six months. Six months of savings can usually last a year to a year and a half. Today is a much more volatile economy. I'm encouraging people to have six months of full expense savings, minimally, so that you can sustain if you go into a dip.

That's good advice. Okay, the transgressive motive, what is that about?

Yeah, so we have a natural tendency to rebel. If Listen, if you came in here and tell me, this is how absurd it should be. I'm like, Oh, it's so good to see you. By the way, the way you dress, you could be a little more professional wearing a suit. In your mind, you'd be like, Who the F are you? Now, you will say to my head, Oh, thanks for the advice. That was very you. But inside, we rebel. If you said to me, Mike, what are you doing? This is the worst outfit ever. Mr. Paley White wearing this, you're reflecting, why don't you wear a better color for yourself? I was like, Oh, that's so great. In my head, I'm like, What a total pain in the butt you are. We rebel against advice, and we rebel against any authority asserted to us. I was saying with businesses, if you, as an owner, tell your business employees to comply, they will seek to defy. When we're given instructions, we resist. When we are put in constraints, and budgets do this inherently, we often resist. Many budgets I've seen systems will have categories like things like maybe tithing are in there.

Basically, what those budgets are saying is, we don't know if you tithe, but that's a common thing to do. You should be tithing. Well, actually, I don't tithe. I see that and I'm like, What are you doing? Tell me to tithe. A subconscious rebellion kicks in saying, I don't know if the system's for me, or I start to push it away. Budgets have implicit or non-implicit but suggested compliance, and then therefore I'll defy. Just be aware of that rebellion that's inside. The best system to build is a system that you create for yourself. I tell myself, I shouldn't dress like this. I should have colors a little more complementary and make me a little pale. If I said to myself, I'm like, That's a good idea because I said it myself. So build a system around your own desires and interests. When I made the money habit, I don't have any suggested accounts. I have ways to observe your own behavior so you can create your own accounts and your own budget effectively.

That makes sense. I know one of the things that happens, especially for people who are living paycheck to paycheck, is this panic at the end of the month. You get your paycheck and it's a high, and then 10 days before the month ends, you're in a panic because you can't afford all your things. What is happening in that payday high to panic cycle?

Totally. This is rooted on, I think, the most important principle that the entire book is based on. By the way, in the book, I don't talk about the behavioral principles. That's not important. I talk about the applications. I touch on one a little bit, but this is based upon what's called optimal foraging theory. Before humankind, the modern humankind was the Neanderthal, and we were hunters and gatherers. Now, Now, here's what the Neanderthals didn't do. I wouldn't say, Hey, I'm hungry. Let's go get steak. No, I'd say, We hungry. We go hunt wooly mammoth, and you and I are out there, or We hungry. Let's go gather berries and stuff. You didn't go for a small portion just to satiate. You went for the big hunt. The reason you went for the big hunt is there's a massive caloric burn. If we're out gathering, we're putting ourselves at risk. There could be, say, we're two tigers or whatever is out there coming after us, so we have to protect, gather. We're putting the rest of the community at risk. We have to come back. If we're going out for the hunt, we're racing and chasing a big caloric burn.

You go on a massive hunt. When you capture the food, say we go for a loy mamoth and we capture this beast and kill it, now we're at risk because the food will perish. We have this massive beast, but we know if we don't eat it now, it's going to rot away. What you do is you start burying some of the food, you smoke the food, but we also know there's a very short period before it rots. You go into a glut in the state, you start consuming an overcaloric intake. Eat, eat, eat. Then the very last phase was now there's no food left. You start eating what's been stored. Then when that's gone, we better go on a hunt again soon or we're going to starve to death. That's called optimal farging theory. Capture in mass, preserve what you can, and if you can't preserve it, consume it fast because you need those calories, and when the food's gone, go on a hunt again. Fast forward to modern humankind. We still live by that law, exactly. Now, the massive hunt is a paycheck. The paycheck comes in once every two weeks. For some people weekly, some people even once a month.

But once every two weeks is the most frequent. Do you know the optimal payroll that people should receive is three times a day? If I paid you in the morning, again in the afternoon, and one more time in the evening, you would actually manage your money better. But that's absurd, and no employer can afford to do that because there's costs associated with that. So you get it once every two weeks. We just captured the wooly mammoth. Our wiring is now, there's two things you can do. Preserve it, but there's not many ways to preserve it. You can put it in a bank account, but it's rotting away. It's sitting there or consume it. And since the money is sitting there, the essence, the feeling is, consume, consume, consume. This is rotting away. Some people preserve it by putting in a 401k. When something's inaccessible, then we actually don't worry about it. When it goes in 401k, it's preserved. So our mind is wired. Once it's smoked or buried, it's okay. But when the money is in the checking account, it's like, This is going to go away. I better consume it while I have it because it's gone.

We prove that to be true because by a week or two, it is gone, and we're going to prove it's rotting away. Then we go into, Oh, my gosh, I don't have enough I need to go on a hunt again. We go into this panic state toward the very end, and we go on the hunt again. What do we do? We have to improve the preservation mechanisms. We need little 401(k)s. What happens is when we get the hunt to kill, paycheck comes in, We carve it up very quickly into different accounts. Those accounts are effectively smoking or burying that wooly mammoth, pieces of it, and we put into different accounts. It actually satiates us and give us comfort. We say, Oh, okay, I put some money in the mortgage. The mortgage is covered. I don't have to worry about that. It actually takes away that stress of I need to consume it now or it's going to go away. Then you start consuming in a more optimal way because the money starts dripping to you from these different accounts. You use it more prudently, and we repeat this process over and over.

Yeah, that's really interesting. As you are talking, one of the things that I think about for myself as I've become more successful and make more money, I'm an entrepreneur, a lot of entrepreneurs are tuning in. When I get a lot of money, the first thing I think about is I got to spend this or else they're going to tax me on it.

Totally. That's part of That's part of optimal forging theory. Yeah. Yeah. I'm afraid. By the way, taxes will come. We're told in our business, if you spend the money on different expenses, you can reduce your taxes. Some of that's prudent, for sure. I hope your vehicle or some of your vehicles are actually going through the business to reduce your tax consequence. Some of it just can't legally be done. And yet, entrepreneurs still say, if I just simply spend or find a way to spend, and it actually compromises other elements of our life. Here's the most crazy thing, and this isn't profit first. We encourage people to a tax account. So money comes in and money goes into his tax account. And then when tax time comes, we pay from that account. What's so interesting is it reduces that sense of loss aversion because the money has already been allocated to it. One of the most crazy things, Hala, is every quarter, when I wrote my first, I was expecting people to say, Hey, I have more profit than ever before. Thanks for writing this book. I actually get people writing, calling me, and sometimes showing me in my office, which don't need to do that, but some people do, saying, I just paid my taxes.

The company paid it. I feel so good. I was like, Why is this? I'm like, Oh, because of loss aversion. That car that's in the garage we were talking about, that if I can't pay it, I will drop the insurance or can't afford it, I'll take a second job. When it comes to taxes, if I put taxes in a tax account and never came into my own pocket, I don't feel like it's being taken from me. A quick analogy is if I sit in here and I said, Hey, how this was awesome. Here's $100. Just thanks for doing this. It may feel awkward. I gave you $100, but you're like, Oh, well, $100. Thanks, Mike. If I gave you $200 and say, Hey, thanks for this. But, Oh, by the way, I need $100 back. You're like, Hold on, just give me a hundred and you're taking something back. Now it's super weird. That's what taxes feel like. I just earn money and the government takes it back from me. But if I never give you that second hundred in the first place and just give it to the government, it doesn't feel painful.

Yeah.

That's exactly what we did. I remember when we implemented Profit First, one of the things that we changed is whenever I get my sponsorship money, now it gets sent in two buckets. One is my money and one is tax. Then we just split it 50-50. If there's stuff I don't owe, it's just It's like a bonus at the end of the year.

I suspect it reduces the pain.

It does. It does.

It does to a degree. I know it's there, though.

I've had people...

You know it's there, but it does reduce some of the pain. I've noticed some people, say their tax bill is $100,000 and they saved $110,000. There's 10,000. There's 10,000 extra. They feel like they're getting a bonus.

Exactly.

It feels like a bonus.

That's a good thing. This sounds like it's a shell game, and, logically, it's a shell game, but it's actually a behavioral management system, and that's what people don't understand.

Yeah, and it prevents you from realizing at some point, Oh, my God, I didn't save money or I didn't put money aside or spending what you actually don't have because that money eventually won't be yours. That's right. You break down six accounts: income, needs, wants, dreams, fixed future, and emergency. Do you want to explain each one? Sure.

It's based upon Maslow's hierarchy of needs. Maslow identified that you and I have basic physiological needs to survive. We need to be breathing air right now, drinking water, eating food. If someone came running in and threw a bag over my head, it's plastic, and starts choking me out, interview's over. I'm struggling to get out of this thing because my life's in jeopardy. What Maslow pointed is no matter what state we're in, if the foundational needs aren't being met, we have to revert to it. But once they're adequately met, we move to the next level, which is safety needs shelter and so forth, and then belonging to be part of a community just like you have here, and then ultimately self-esteem or self-actualization, I should say, is the highest. Well, when it comes to survivability, we need those physiological needs. We need to eat, we need food, we We need water, we need shelter. That's what the needs account is. The income account, which is the first account, is simply a depository account. Money flows in there. It's deposits of your household income. If you're the sole breadwinner, it's the money you're earning. If you have collective earners, it's the collective money that's being contributed to the household.

That's our starting pot. But historically, that's just the one big pot, and we know the danger of that. That's a wooly mammoth, and it's rotting away. So we need to carve it up. The first account we carved to support our basic needs. In my book, I identified, based upon on your income level, if you're a young but profitable person making $100,000 or more, $1,000 a year, the percentage you put toward needs may be less than if you're making $50,000 a year. If you're making $50,000 a year, 80% of your money may be going to support your core needs to live in the United States. But if you're making $100,000 a year, maybe it's only 60% or 50%. Core needs are like groceries, shelter, rent. Rent. Exactly. What's is I want to eat out. Some people will conflate the two. They'll say, Well, I need to eat out. If you don't know which level it's in, it's always the higher level. I know someone that has multiple homes. I say, Well, I have these homes, so I have to pay the mortgage. I need a mortgage. I'm like, Is a basic level need for all humans to have three homes?

They're like, No. I'm like, Okay, that's beyond it. We all need a home of some sort. You have to differentiate those two. If you don't know, it's with the higher level. Wants are the mini luxuries. Dreams are the bigger luxuries. Dream may be, I I need to eat food. I want to eat out. I would love, I dream about having a personal chef. That's how you differentiate this stuff. Usually, dreams are a longer term savings. Wants are usually something you spend on a weekly or monthly basis, and needs are usually more of a daily basis.

It's basically.

Fix or future is this. Most people that start this system, and most people in the United States, are in debt. A fixed account is that we're allocating money intentionally to get down unsecured debt. So credit cards, anything that's not asset-based. But a loan for a house, generally a house is not all, but generally a house will appreciate over time. There's value in that. I believe taking a mortgage or some loan is appropriate for it. When it comes to a car, yes, most cars depreciate, but it sustains its value over a period of time, and we do need that for transportation. I think that's appropriate. But other things like credit card loans and so forth that are unsecured, we need to get rid of that. It's a big burden, and there's no value. You can't say, Well, can I sell my credit card debt to someone else? May I give me some money for it? No. But you can sell your car to someone else or your house. If you have credit card debt, we're going to have a fixed account to pay for that. Once your unsecured debt is addressed, we're going to move to a future account.

This is reserving not for retirement necessarily, But some future event of significance. Do you have children?

Not yet. Okay.

I got three kids. I remember my wife and I, when they were approaching their 18th birthday saying, We want to take them to Disney, and we want to go large because it's the last time they're going to be home before they're out of the house. We started allocating money for that. That was a future saving. That's something big for the future event. Some people were saving for some form of retirement, which I'm not a fan necessarily of fully retiring. Really? Yeah. I've been talking to a lot of people that have been there. I'm in my 50s now, my early 50s. I've been talking to people in their 60s and 70s who've retired, and it ain't easy necessarily. The general feedback is perhaps slow down the pace, but if it's your passion, stick with it to the very end is what I'm hearing. The last account is emergency. The most predictable expense for everyone is an unpredictable event. I can guarantee it's going to happen. A health crisis, an accident, the boiler is going to blow in the house, which recently did our house. We all need an emergency account because I can guarantee something unexpected is going to happen.

Yeah. The emergency account, is that different than the six months of savings?

Yeah. Six months of savings is for an extended period without income. An emergency is where there's a surge demand while you're still earning an income. I just can't tell what it is. In the book, based upon your income level, 50,000, 100,000 I have all the way up to millions in earnings and your season. Some people are recovering from debt. Some people are looking to secure their future more and more. Some people are saying, Listen, I want to live large now because of whatever. I am living in that moment right now. I just want to live big, and we're doing it. We're doing some amazing things. You have to identify the season you're in, match it to your income, and there's different percentages that I suggest. Yeah.

Young and Profiters, this year, I'm all about not missing opportunities. For me, that starts with not missing any calls because a missed call is money walking out the door. Quo, spelled Q-U-O, is a business phone system that helps you and your team handle calls and text from one shared number. Think of it as an email inbox, but for your phone. Everything stays in one place, so no conversation gets lost and no customer gets ignored. I've seen how much calmer things feel when everybody in your company can see the full thread. All the calls, text, voicemails all together in one place. Replies are faster, customers feel heard and taken care of, and the team stays aligned. Quo even uses AI to log calls, summarize conversations, and flag next steps, which takes a lot off your team's mental load. It works right from your phone or computer, lets you keep your existing numbers, and grows with your business. That setup makes a real difference. Make this a year where no opportunity and no customer slips away. Try Quo for free, plus get 20% off your first six months when you go to quo. Com/profiting. That's quo. Com/profiting.

Quo. No missed calls, no missed customers. What's up, YAP gang? When you start a business, nobody really tells you how many hats you're about to wear. One minute is a creator, the next year is a marketer, then you're the finance team and customer support. Before you know it, it can feel like way too much on your shoulders. But that's why I love Shopify and what it does for entrepreneurs. Shopify is an all-in-one commerce platform that helps you sell online. It's been a real business partner for me as I've grown YAP Media and launched products like my LinkedIn Secrets Masterclass and my LinkedIn Mastermind. Shopify powers millions of businesses worldwide and 10% of all e-commerce in the US. Whether you're a household name or just getting started, Shopify has got you covered. What I appreciate most is how everything lives in one place on Shopify. You can design your store, market your products, and track performance without juggling a dozen tools. You definitely do not need to be tech savvy. Shopify is so easy to use. If you ever do hit a wall, Shopify's award-winning 24/7 support is there to help you think things through. You don't have to do this alone.

You can do it with Shopify. Start your business today with the industry's best business partner Shopify and start hearing. Sign up for your $1 per month trial today at Shopify. Com/hala. That's H-A-L-A. Go to Shopify. Com/hala, all lowercase. Again, that's Shopify. Com/hala. Yeah, I'm I have become obsessed with the Working Genius Assessment. It was created by Patrick Lencioni. He came on my podcast about two years ago and taught me about Working genius. I took the assessment then, and it was a game changer for me individually. But this year, I'm taking it to the next level, and I've basically implemented a working genius across my entire company. This is not a personality test. It's an actual test that helps you understand the way that you work best. There are six types of working geniuses. Everybody has two geniuses. It's a type of work that gives them energy. Two competencies. It's a type of work that you may be good at, but over time it actually drains you. Then you have two working frustrations. It's the work you don't like to do, and it drains your energy. I uncovered that my two geniuses are invention and galvanizing.

My two competencies are discernment and tenacity. Then my working frustrations are enablement and wonder. Once I found this out, everything just clicked for me. Number one, I realized why I was budding with my executive team because wonder is the frustration for me, whereas my business partner has WNDYR as a strength. I wanted to get things done, rally the group, keep things moving. He wanted to think about the big picture and if this was the right direction at all. And so once we figured out, these are our geniuses, we realized we can't build this company without each other and our strengths, and it helped us work better together. And it also helped me uncover gaps within my organization. It turns out that I'm the person who has galvanizing as a core strength. I'm always rallying the team, and sometimes that can come off as pushy or aggressive. But now that my team knows that this is a gap, we need to hire people who have more of this galvanizing strength. So it It'll totally help us align on gaps. It'll totally change the way that you do your work. It will totally level up your team's happiness and productivity at work.

I highly recommend that you take this assessment, and it's extremely affordable. If you're ready to stop guessing and start working on your actual genius, take the a WorkingGenius assessment and get 20% off with code profiting@workinggenius. Com. Now, if you have a company, if you have a team, you get a report that tells you how to take advantage of your learnings and things like that. If you like what you saw and you want to implement it to your team, I highly recommend that as well so you can get your team map. I have a code for that, too. It's Profiting Teams. If you use the code Profiting Teams, you can get 20% off all the assessments for your entire team, your entire company. Highly recommend it. Again, that's workinggenius. Com. Use code Profiting or Profiting Teams to get 20% off.

I love this concept of the four financial seasons. There's recover, fund, activate, balance. Talk to us about each one and how you can tell if you're in each bucket.

Yeah, and they're rooted in behavioral psychology. When I was interviewing people for this, I worked with collectively, either directly or through group coaching, about a thousand employees of different companies and hundreds and hundreds of entrepreneurs. I'd ask them about their situation. The majority I would say it's upwards of 70% have debt of some sort. That's not secured debt. It's credit cards or whatever, loans from family and friends.

Student loan debt is- Oh, my gosh.

That was the most common. It's maddening. They would say, I have debt. There's a behavioral phenomenon that if you say, I have something, it's a possessive state, it actually becomes you. If you say, I have a Purple Porsche, it's your possession. It's actually part of your identity. If I say, I have debt, it's part of my identity, it's part of who I am. When it's part identity, it becomes a permanence. That's the dangerous part. When people say, I have debt, they are also saying, I'm always in debt. It's very hard to eradicate. I said, Okay, that's not a good word. We need to put the word recover. If I'm in a recovery state That means an active move toward improvement. The other thing is seasons are not permanent. I said, Oh, recovery season is a positive temporal state.

That's so smart. Yeah.

When I say, Oh, you don't have debt. You're in a recovery season, how long is the season going to last? It's like, Oh, that's right. There's a time frame to it. That's why those terms exist. Seasons are recovery coming out debt. The next one is funding. Funding is where we're intentionally saving more than we're spending of our income to prepare for some future experience. Activate is where we're spending more than we're actively earning. We're actually doubting our money savings with intentionality because perhaps we want to live larger in the moment. Listen, that's appropriate at all stages.

Or maybe you're starting a business, does that count?

Yeah, that totally counts.

Okay. Yeah, that's a life dream. I want to do this. Or I just want to take a year off and rediscover who I am or anything. That's a form of activation. Then the final stage or season is balance. Balance is where I'm actively trying to live in the now, but also preparing for some future events. The interesting thing about seasons, though, is you can choose the season you're in and move through them quickly. In nature, seasons usually are three months in the northeast, at least. You have winter, spring, summer, fall, and they go in rotation. In our business finances, they can ping pong around. And that's like, Oh, that doesn't happen in nature until I realized it did. I was just in Australia a couple of weeks ago. Here, winter is kicking off. They're in the middle of summer. And within a 24-hour flight, I came back to New Jersey to temperatures in the low 20s. And I'm like, Oh, I just left temperatures in the mid-70s to come to the 20s, and it happened like this. Also, listen, You can be home, and it's the middle of January where we hit sometimes the single digits, and it's like a 70-degree day in New Jersey, and then it drops back down.

Seasons can ping-pong around very quickly, even in nature. But in our personal finances, they absolutely can ping-pong around, and they don't go in sequence. You can move from activate, maybe back to recovery, to balance, to fund, and it jumps around.

Yeah, that makes a lot of sense.

Let's try to apply these seasons to real life, okay?

Okay, yeah.

If you get a $5,000 work bonus.

Nice.

How should somebody in each financial season treat that money? If you're in recovery fund, activate balance, how does that get treated differently?

If you're in the recovery stage and you're actively getting out of debt, you could use a portion, but don't use all of it, to reduce your debt in one big tranche. In a case like that, there's two psychologies. B. F. Skinner did research around operating conditioning and basically said, If we get early wins in our life, we are more likely to sustain that behavior. If you have a small debt or two and you can wipe them out with that 5,000 or a portion of it, and you haven't wiped out any debt yet, it's actually smart to do that because you'll believe you can wipe out debt faster. It's operating conditioning. But it's not logically optimal. The optimal debt is the most expensive debt. So whoever has the highest interest rate. So if you're already working on your debt and you get a chunk of money, go after the high interest rate debt because that will give you the most long term relief. It's the smartest move. But save a portion of it. I usually suggest 10% to maybe 20% to reward yourself. Because if we deprive ourselves the rewards, then we become cynical of a system and we're less likely to sustain it.

I'm saying if there's a cookie on the table and some of that can satiate this demand, you have slice that cookie, not in half, slice off a small piece for you very quickly, give it to the other people you need to be fed, but give yourself some of that treat, too.

That makes sense. Yeah.

If you're in the fund season, similar method, a big chunk of it goes toward whatever that future savings event is, but a little bit should go toward the now also to have that reward. If you are in the activate season, you may choose to activate all of it. Activate is a unique season in that we're intentionally downplaying our savings and we're going into intentionality knowing that we don't need to save more for a period of time. Saving any of that may actually not serve you well. If you're in the activate season, you get $5,000, this may be your moment to live large or to extend that activate period and use that capacity. If you're in the balance period, some of it goes toward the future, some of it goes toward the current, and you split it in half.

Yeah. I'd love to hear your perspective more on retirement because a lot of entrepreneurs tuning in, we're responsible for our own retirement. When you work in corporate, you just have a 401k, you just put money in it, and that's taken care of. As entrepreneurs, it's really all on us. Some of us are making a lot of money and are... Even me, I think about my retirement and it feels really abstract because I'm making a lot of money and I'm like, Well, I don't need to worry about that because I'm making so much money, but I do need to worry about it. How do you think about it?

I'll give you some more modern teachings that people are sharing, and I'll give you a perspective that I haven't heard anyone share. One is When you hit retirement age, your health span will perhaps be on a decline compared to where you are now. If you're in your 20s or 30s, you're at the optimal in health. When you get to your 50s, I don't care what you do for exercise and stuff, things start aching hurting. It just does. Trust me, it's coming. It's coming. Once you're in your 60s and 70s and perhaps 80s, you may start a decline and you can't be as active. It's a shame that people are saving for their 70s and 80s to do all these amazing things, but they're not physically capable. Now, listen, technology is coming about and all these things with AI and medicine research, that may change. This is just what I see in the current state, but it may change. Actually, leveraging more that money for the now may be better. The second component, which we already talked about, is people that go into this full stop generally seem to resent the fact they went into a full stop.

They've lost meaning and purpose, and that becomes a big emotional cost. So even if they have their health, even if they have the funds to live a new way without purpose, it becomes fleeting. And it's like, Is this all there is? And that's actually anguish you're living under. Here's the thing I haven't heard anyone talk about in this context. It was fascinating. I was listening to one guy. He says, Photograph every single day of what you're doing, and maybe even record a quick note about it. So it's 365 photographs for the entire year. And he goes, What would be so interesting is it's the ultimate form of memory. When you look back at those photos, you'll remember what you did, and you'll start seeing what a rich life you lived. So if you preserve what you've done, it expands your memories. I believe, and I'm starting to feel this, at the end of life, what's going to be most important is all the things remembered. Right now, when you're in your 20s and 30s, it would be a shame if you forgot all the great things you did. I I look back to my college days, I'm like, I remember the two epic parties that were the best parties ever.

I remember a couple of friends I had that were extraordinary friends, but I don't remember the day-to-day stuff. But I do remember it was fun back then. I wish I preserved it. I actively take pictures on my phone every single day now, and we'll get a picture when we wrap up here, and I'll look back and say, Oh, remember this was Holla? It was the one we were talking about her purple Porsche. We went for a ride in it. I love this. I remember the things that happened, and it makes the current moment richer because you remember the past.

That's right. It prevents recency bias, even with friends and memories because you just really remember everything that happened all year.

Hundred %.

It's not ever forgotten.

Yeah. Debt is a big problem for people, and I know you give some advice in terms of how to pay down your debt, what not to do, what to do. What's your thoughts about that?

A common technique we talked about is based upon BF Skinner's work, is this concept of paying off your lowest debts first to form the neural wiring to continue a behavior. That's absolutely a smart idea in the beginning. If you have a lot of debt, sort your debt out by the amount due. If you can wipe out some early debts, that's a beautiful thing because you'll believe truly that you can wipe out debt. But if you continue that pattern, you may not be optimizing. If you have very expensive debt, high interest rate debt, that can crush you. There's another form of debt I've never heard anyone talk about. It's called consequence. I had a loan from a friend of mine for $30,000 at zero interest rate, but he was a friend of mine. I put zero interest. This is a very inexpensive debt. I can take my time paying this back. He called up. He's like, Dude, where's the money I gave you? It had high consequence. His name is Chris, and Over time, it almost cost us our relationship because I wasn't paying it back. I said, Oh, my gosh, there's another form of interest.

There's the consequence of the relationship. That could have been the most costly loan that I wasn't paying back and it could have burned me long term. Rate by the percentage due, but also what's the consequence to your life? Will a lawsuit come about? Will you lose a friend over this? So consider that. Start off with a couple of early wins, but then very quickly sort out your debt by the highest interest rate and the highest consequence. When you have high consequence, high interest, tackle that. When you have high consequence but lower interest, that still is extremely important and often is disregarded, actually do that next and then target the rest of the stuff.

If you have debt, should you also be saving or should you just be focusing on your debt? Great question.

I still I save, but I save at a lower rate for sure because I'm targeting my debt. But I'm still saving because I want that behavioral mechanism in place. There was a saying from, I think it was Ramit Sati, who's a very popular personal finance expert, great friend, and he said, I think it was him, he says, The new form of discipline is automation. Automate the process. When money comes in, automatically save, and you will maintain that discipline. Also, according to Parkinson's law, if you save before you receive the money, so like a 401k, you will adjust your lifestyle because there's a smaller closet to store your stuff in. You'll adjust your lifestyle to live within that container. If you can, save before you see it. If you have an employer, you tell them, I want my paycheck in two forms. One is to my primary checking. I also have this other checking account. Can you carve out 20% of my paycheck to go there? You will adjust off your primary. That second one have hidden away. It's your magical hidden 401k without being a 401k.

I remember when I was in corporate, the system allows you to just do that really easily.

I'm a small business owner. I got six employees at one of my businesses. We can do it. You just got to ask.

Yeah. Also, certain bank accounts let you do it. I know Relay is a bank account that lets you set up different accounts. I use Monarch Money, and I can set up different little accounts.

Yeah. Relay is for a business owners. If you're an entrepreneur, use Relay. I'll give you a little plug here. Banklike Mike. Com. It's the bank I use for my business finances. If you have a personal checking account, Relay doesn't do personal, you can go to dreamfirstbank. I still have a link called profitfirst. Bank. You can go to profitfirst. Bank if you want to do the personal accounting or banking.

Amazing. I know that you've got a flight to cash, so I want to be respectful of your time.

I'm hoping to take a Porsche over there. I'm kidding. I'll take an Uber in a Porsche.

But leave us with some advice in terms of what's the number one thing that people can do in the new year to optimize their money habits?

I think the first thing is to realize that people do want you to be wealthy. You, everyone watching this, the people around you want to be wealthy. Now, no one says, I wish you were a wrench. But when it comes to participating in life itself, if you are worried about money, you're not fully there. The analogy I use as a doctor. Imagine I'm having a heart attack or something. You rush me to the hospital. I guess at the hospital, I guess, to the hospital, and two doctors come out. Doctor 1 comes out and says, I'm really poor. I have no money. I'm actually desperate. I need patients. In fact, I'll do 50% off. You're ready proceed. Dr. 2, she comes out and says, I'm very rich. I'm very wealthy. I charge a premium for what I do because I'm the best at this. I have all the time in the world to take care of you, and this is the exact procedure I do. Do you want to work with me? And by the way, I charge 10 times more than Dr. 1. I'll choose Dr. 2. I want someone who's widely confident because they're taking care of me.

When it comes to relationships, I want someone that's fully present in my life. I want friends who are really there. If they are worried about their finances and struggling, there's this ringing in their head that's constantly playing out and they can't be present. No one's going to say, I wish you were rich. I wish you had more money. People are going to say, No, if we're friends, I want you to be fully my friend and fully present. It's ironic. The world wants you to be wealthy. They just don't use those words. That's the takeaway I want. The method I want you to use to start achieving financial independence is real simple. Right now, think about the thing you worry or wonder about most financially every single day. Do you worry if you can pay groceries? Some of us do. Do you worry if you can pay the rent or the mortgage on your apartment? Or do you wonder if you can go on a big vacation this year? I don't know what it is, but what's the one thing that you think about most? Whatever that thing is, set up one additional account at your bank, or one of the banks we suggested, but at your bank, set up one account and give it that name.

If I worry about if I can afford my mortgage, I'll say, I will set up a new account that says mortgage. Say my mortgage is, just for easy numbers, $4,000 a month. What I'll do is every paycheck, it comes weekly, I'll take $1,000 and transfer to the mortgage account to assure that my mortgage is cared for. Now, here's the magic of the system. You've guaranteed that your biggest financial worry or wonder is taken care of. It will reduce it. But the real magic is not that. It's in what's left over. You'll see, Oh, I don't have as much money as I thought. I have to adjust the rest of my lifestyle. It will force you to start taking balance and accounting for your priorities without compromising the rest of your life. That's a real simple way to get started. You don't have to do all six accounts, not yet. Start with one account that you worry or wonder about most.

I'm somebody who hates I'm the type of person that's like, Let me just make as much money as possible so I never have to worry about this. But your stuff is always so easy to understand, and I always leave these conversations feeling like, I got to do this. Immediately, it's going to make me feel better. It's not scary. All your suggestions are so easy to implement. What you do for entrepreneurs, what you've done with profit first, and what you're doing now with the money habit for just everybody in the world is just awesome. I'm so excited to put this to work.

That means the world to me. One last thought is, you said you I said, you're not really excited about numbers or the finances. Yeah, not really. I found there's a word for it. It's called human being. You are so human. That's so normal. I'm not into numbers. People come to me and say, Oh, were you an accounting major? No. Do you love numbers? No, I suck at them, actually. That's why I built these systems, something that's really simple that works for people who care about living life, that want to maybe earn as much money as possible, but don't want to do all the management. The system manages it for you.

Yeah, I can't wait to put it into practice. Where can everybody learn more about you and everything you do? Where can people grab the money out of it?

The best site to go to is micmotorbike. Com. It's micmcalowitz. Com. No one gets a nickname from grade school because it rhymed. Micmotorbike. Com. Then I'm really proud of a podcast I started. It's called Becoming Self Made. I'm studying the journey of these wildly successful entrepreneurs. I want to get you on the show. Oh, I love that. I met with the Savannah Bananas owners. I met with Don Miller, a mutual friend of ours, Amy Porterfield, 1800 Got Junk, the founder of 1800. I found what is their story to success. But the most interesting thing is not success porn. Here's all the things they achieved. We talk about what's the struggle they still feel today that they started off with. It's unbelievable how much these entrepreneurs still struggle with what we would consider the basics that they should be over. I think it's a very empowering story.

What a cool concept.

Yeah, it's really interesting. People get super real. It's a little bit of an Oprah moment at times. That's called becoming self-made.

Amazing. I'll stick all those links in the show notes. Thank you. Thank you so much for your time. It was such an awesome conversation as always.

It's amazing. Thanks for letting me come to your studio. Of course.

It was so great having Mike back on the show. He keeps raising the bar on how we understand money. This conversation, he hit especially deep because it revealed how much of our financial life comes down to behavior and not income. Mike reminded us that most people don't struggle because they're not earning enough, but because their system is working against human nature and human psychology. And the moment that you flip the system, everything else will follow. One of the biggest takeaways is the power of separating your money into purpose-based accounts. Now, with his profit-first system, you do this for your business. But now, with the money habit, he's suggesting you do this for your personal life as well, and I love it. Instead of one giant pot that fuels impulse decisions and panics, you create smaller shot glass accounts to give you instant clarity. They turn vague intentions into visible choices and goals, and they help you stay in control without relying on your willpower. I am so inspired to go into my bank account and create little buckets for all of the different goals that I have and all the intentions that I have with my money.

Mike also showed us the importance of momentum. You don't transform your financial life through massive, rigid sacrifices. You do it through small wins that rewire your identity, like saving $10 a month or wiping out your smallest debt first. That steady psychological lift is what makes your habits stick. And lastly, I loved his idea of financial seasons, recovery, fund, activate, and balance. Each season demands a different strategy. When you label your season, you finally understand which actions support your goals and which habits pull you backwards. It takes shame out of money and replaces it with intention. So if you're in activate mode, you can feel free to spend without any of that guilt. And if you're in recovery, you know that your intention is to pay down your debt. This episode is a reminder that you already have the potential to build cash confidence. The moment match your system to the way that your brain naturally operates, you stop surviving on payday highs and start building a life where money supports your goals instead of stealing your peace. All right, yeah, fam, if this conversation with Mike McAlo had sparked a new way of thinking about your money, send it to somebody who needs this conversation.

We all know at least one person who could use more clarity around their cash. And if you're feeling this live energy, show us some love, drop us a five-star review on Apple podcast, and leave a comment telling me what resonated with you the most. And remember, you can watch all of these in question interviews on Spotify Video and YouTube, and make sure you follow and subscribe so you stay tapped into every conversation as it happens. You can also find me on Instagram @Yapwithhala or LinkedIn, just search Hala Taha. A huge shout out to my amazing YAP team for pulling off yet another powerful live recording. I appreciate you guys so much. Shout out to Husham for con Joshua on the guest outreach team. And also, shout out to Bryce at RecordATX for helping us with this live recording. This is your host, Hala Taha, aka the podcast Princess, signing off.