Transcript

Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026

From Young and Profiting · Episode page · Watch on YouTube

· 1 h 5 min · 14,441 words · 210 timestamped sections

This is the full, timestamped transcript of "Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026", an episode of Young and Profiting published February 16, 2026 (1 h 5 min, about 14,441 words). It mentions 24 people, works and ideas, including The Money Habit, Michael Mallowitz, cash confidence, cash control, Young and Profiting Podcast.

What this episode is about

The discussion centers on overcoming paycheck-to-paycheck living by aligning money management with natural behavior, prioritizing debt reduction, building an emergency fund, and creating lasting wealth through disciplined habits rather than relying on luck. It emphasizes debt payoff strategy, gradual expense control, and establishing cash confidence to prevent financial shocks.

Key takeaways

  • Winning a windfall isn’t skill-building; the real skill is crafting habits to survive without it.
  • Debt strategy matters: clearing small balances early reframes money fear, unlocking long-term momentum.
  • The 'lottery mindset' reveals risk: wealth without financial literacy amplifies bad impulses, not resilience.
  • Emergency funds are behavioral brakes; they prevent lifestyle spirals when the unexpected hits.
  • Profit First isn’t just for businesses—personal finance needs rhythm, boundaries, and predictable systems.

Who speaks in this episode?

What is discussed, and when

  1. – 10:00: Profit First, Michael Mallowitz, The Money Habit, cash confidence
  2. – 20:00: cash control, financial freedom, Framer, Quo
  3. – 30:00: loss aversion, Parkinson's law
  4. – 40:00: optimal foraging theory, loss aversion, Profit First, The Money Habit
  5. – 50:00: emergency account, behavioral psychology
  6. – 1:00:00: Parkinson's law, Financial Independence
  7. – 1:05:24: The Money Habit, Profit First, Michael Mallowitz, cash confidence

Notable quotes from "Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026"

  • You continue that pattern, when we have a certain life standard, it is very hard to reverse that. And so we will go to extreme measures to keep it and sometimes illogical. The…
    about loss aversion · at
  • 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…
    about The Money Habit · at
  • Research, deployed it for his company and others and said, My gosh, we have it. So, it's basically it's profit first, but it's translated to personal finance.
    about Profit First · at
  • There's a behavioral theory called Parkinson's law. It basically states as a resource expands its availability, we consume more.
    about Parkinson's law · at
  • It's called a behavioral intercept. And 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.
    about behavioral intercept · at
  • Financial independence at any level of income. What you need to do is have cash control. What cash control is an awareness of what money is available for what purpose. I…
    about cash control · at
  • Important. I talk about the applications. I touch on a little bit, but this is based upon what's called optimal foraging theory.
    about optimal foraging theory · at
  • 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 you match your system to…
    about cash confidence · at

Who and what is mentioned in this episode?

People

  • Michael Mallowitz — Person · Main guest · 5 mentions · first at
    He explains the core framework of his new personal-finance book and the behavioral principles behind cash control, budgeting alternatives, and financial seasons.
    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…
  • Henry David Thorough — Person · Referenced author/thinker (quote attribution) · 1 mention · first at
    Referenced for the idea that many people live in 'quiet desperation,' used to frame widespread financial stress.
    He goes, 900. So, it's a national brand and this is a systemic problem there. I think it's Henry David Thorough who said the mass of humanity lives their lives in quiet…

Books & papers

  • The Money Habit — Book · Primary subject (new book) · 7 mentions · first at
    The episode centers on this book’s system for personal finances: purpose-based bank accounts, cash control, and behavior-aligned money management.
  • Profit First — Book · Referenced prior work / foundational framework · 11 mentions · first at
    Used as the business-finance precursor to The Money Habit; the guest frames the new book as 'Profit First translated to personal finance.'
  • Clockwork — Book · Referenced prior work · 1 mention · first at
    Mentioned to establish the guest’s prior frameworks and credibility alongside Profit First.
    Somebody who needs no introduction, Mike Mallowitz. You know him from Profit First, Clockwork, and all the frameworks that have truly transformed how entrepreneurs run their…

Companies & orgs

  • Berts Bees — Company · Referenced company (example of attendee background) · 1 mention · first at
    Mentioned as an example of 'massive companies' connected to the Gathering of Titans network.
    That group came one got junk was there. That's Brian Scoomore. the co-founder of Berts Bees all these massive companies and we bring in expert speakers to share on topics.
  • MIT — Organization · Referenced venue/organization · 1 mention · first at
    Cited as the location/host institution for the event where the host spoke (Gathering of Titans).
    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…

Concepts & topics

  • cash confidence — Concept · Core outcome / goal state · 4 mentions · first at
    Describes the emotional/behavioral end-state the system aims to create: reduced worry and increased clarity and control over money.
  • cash control — Concept · Core mechanism · 3 mentions · first at
    Defined as awareness of what money is available for what purpose; operationalized via multiple purpose-based bank accounts.
  • loss aversion — Concept · Core behavioral concept · 6 mentions · first at
    Explains why people take extreme measures to maintain a lifestyle or possessions (often via debt) and why pre-allocating taxes reduces pain.
  • Parkinson's law — Concept · Core behavioral concept · 5 mentions · first at
    Explains why spending rises with available money; motivates the 'multiple accounts/containers' approach to limit consumption.
  • optimal foraging theory — Concept · Core explanatory model · 3 mentions · first at
    Used to explain the 'payday high to panic' cycle: humans 'capture in mass' (paycheck) then consume quickly unless preservation systems exist.
  • emergency account — Concept · Key tool / account type · 3 mentions · first at
    Highlighted as essential because unexpected events are inevitable; distinguished from 3–6 months of income-replacement savings.
    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 cuz I can guarantee something…
  • Financial Independence — Concept · Core topic (intermediate goal) · 2 mentions · first at
    Positioned as the step before financial freedom; defined as not being beholden to money and having control via cash control.
    Financial independence is where I'm not beholden to my money. That I have control over it. It doesn't have control over me. And I know we can achieve financial independence at any level of.
  • financial freedom — Concept · Aspirational concept · 3 mentions · first at
    Described as the ability to do anything without worrying about cost; contrasted with financial independence as a prerequisite step.
    Pursuing financial freedom and I think that's a great aspiration, but I think there's a step before it. So, financial freedom is where I don't worry about money. I decide, I…
  • behavioral intercept — Concept · Core implementation tactic · 1 mention · first at
    Describes designing the system where behavior already occurs (bank login) rather than relying on willpower or new tools.
  • behavioral psychology — Concept · Foundational domain · 1 mention · first at
    The guest frames the book’s seasons and systems as rooted in behavioral psychology rather than pure math or willpower.
    Yeah. And they're rooted in behavioral psychology.

Places & events

  • Gathering of Titans — Event · Referenced event (where they met) · 2 mentions · first at
    Provides context for the host and guest’s in-person connection and describes an entrepreneur learning community.
    It is awesome to be here with you. Do you know the last time I saw you was in Massachusetts at Gathering of Titans? Do you Oh my god, I can't believe that. I forgot that we met in person over there.
  • Massachusetts — Place · Referenced location · 1 mention · first at
    Location where the host and guest previously met at Gathering of Titans.
    It is awesome to be here with you. Do you know the last time I saw you was in Massachusetts at Gathering of Titans? Do you Oh my god, I can't believe that. I forgot that we met in person over there.
  • 20201 — Event · Referenced time marker (as stated in transcript) · 1 mention · first at
    Mentioned as the year the guest joined the Gathering of Titans group; likely intended as 2021 but kept as spoken.
    You rock the show. So, that group, just to give you a little bit of sense, that is an entrepreneur group that I joined in 20201. And the idea was it was 80 entrepreneurs came…
  • 2026 — Event · Referenced time marker (host plan) · 1 mention
    Used in an ad transition where the host states 2026 is the year to focus on growing her personal brand.
    That's cash control. Yeah, fam. 2026 is the year I'm fully focused on growing my personal brand. I just started a new brand and content team, and that means I'm going to be intentional about every.

Media & podcasts

  • Young and Profiting Podcast — Podcast · Primary show / distribution channel · 2 mentions · first at
    The interview takes place on this podcast; the host frames the episode as focused on The Money Habit and replays prior interviews.
    To paycheck cycle and build real cash confidence as he calls it. So let's jump right into this conversation. Mike, welcome to Young and Profiting Podcast.

Sponsors

  • Framer — Company · Sponsor / advertised tool · 3 mentions · first at
    Presented as a website builder the host plans to use for a website upgrade; appears in the ad segment.
    From leading startups to mine to Fortune 500 brands are turning to Framer now that we're due for an upgrade. Framer is a powerful website builder and design tool that helps…
  • Quo — Company · Sponsor / advertised tool · 2 mentions · first at
    Presented as a shared inbox-style business phone system to prevent missed calls; appears in the ad segment.
    Starts with not missing any calls because a missed call is money walking out the door. Quo, spelled quo, is a business phone system that helps you and your team handle calls…

Full transcript with timestamps

The number one desire people have is if I could just win the lottery. If 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 Mallowitz. 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 lotteryies 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. Like, 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 amounts 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. And so 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 cuz 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, fam. Today we're welcoming back somebody who needs no introduction, Mike Mallowitz. You know him from Profit First, Clockwork, and all the frameworks that have truly transformed how entrepreneurs run their businesses. And 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. So 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? Do you

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. So, that group, just to give you a little bit of sense, that is an entrepreneur group that I joined in 20201. And the idea was it was 80 entrepreneurs came together to learn from each other, but to really be the next level entrepreneurs. And out of that group came uh one got junk was there. That's Brian Scoomore. Uh the co-founder of Berts Bees all these massive companies and we bring in expert expert speakers to share on topics.

And there we are and I'm like here she comes. Halah 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.

Yeah. And we're also going to replay my first interview with you because I first interviewed you like

prebeard I think. I think so. It was like 3 4 years ago and we talked all about your comeup story. We talked about profit first which is a classic. So we're going to replay that on the podcast this Friday uh after this gets released so everybody can get your background.

Thank you. But you're back with another book called The Money Habit. Yeah. So 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?

So, I got this call from this guy Tommy Melo and he owns a garage door repair service. He used Profit First, made his business permanently profitable and he calls he says, "I

have another problem that presented itself." He goes, "My book is very profitable, but he goes, "My employees are struggling financially." And so, what they do is they 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? Like, you know, five or six. He goes, no, no, I have 900. And I go, pardon me, what? He goes, 900. So, it's a national brand and uh this is a systemic problem there. I think it's Henry David Thorough 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. And so this constant ringing in the back of our heads worrying about money and that's what Tommy was sharing with me and I've lived through it myself. So I said this is the time I finally write this book.

And so 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." So, it's 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. Media, we do. Yeah. I can't wait to kind of, you know, unpack all of this and see how I can use it for myself because Profit First really is like a business focused framework and this is more for personal. So, talk to us about this company with 900 employees. you saw a couple patterns coming out of this company like even when they got more money they still didn't feel like they were like their lifestyle basically just caught up with them. Talk to us about that.

Yeah, so 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. So to give context, the average American worker makes $50,000 a year. That's the average income for the entirety of the United States. So if anyone listening right now makes more than 50,000, you are greater than average. That's the middle point. And 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. And I said, "How can this be?" Because the number one desire people have is if I could just win the lottery, you know, if I could just get a big chunk of money or we observe someone else 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.

So there's this belief that if I just get more, I will finally have 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. It basically states as a resource expands its availability, we consume more.

The the more time we're given to do something, the longer it takes. the the bigger the closet in our home, the more stuff we have that fills up the closet. And the more money we have, the more we spend. So 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. And once you have control and understanding over 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 I learned that collectively out of these 900 employees, they saved like $280,000.

Yeah. It wasn't of 900. That was out of 25 people. Oh, okay. So, we started with a batch group. So, there's 900 that we served, but they said, "Let's just try this out." So, we had 25 employees go over this process for 6 months and collectively they saved a4 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 and so and 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 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. So, 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 I need to buy a piece of

furniture for the home or something like that." But I was falling victim to this thing called the primacy effect. And the primacy effect is whatever is our immediate need is our primary need, and we disregard the future. So, 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 cuz that furniture cracked or broke. and I look at my account, I say, "I have enough money to buy the furniture, but there wouldn't be enough to then pay the rent and then panic ensues." So, 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 a behavioral intercept. And 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. M

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. So he said, "Keep going to your bank account, but we're going to set an account that says furniture. We're going to set an account that says groceries, and we're going to carve out that money when it comes in to each account accordingly." And 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. So that that that's the concept of channeling your habits instead of changing them. Right.

Exactly. So most of us are told to try to change who we are. So traditional personal finance is one of two uh 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. Uh we become resentful. Like 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 will 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 uh they put a little treat down and said, "If you don't eat this, um you'll get two of these treats when I come back." The researchers said that and left the room. And you watch these children like 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 few 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 this other system uh 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.

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

Yeah. So, I 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. So, financial freedom is where I don't worry about money. I I decide, you know, I want to go to the Caribbean. It's getting a little cold here in the winter. Let me hop on a jet, uh 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. And 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 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, you know, a dollar a week or whatever it is to ultimately get there.

And 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. And maybe you say that's such a long wait, 200,000 years. It's not worth it. But that is cash control because now you see what money is available for what purpose and you can make controlling decisions around that.

So you may not be able to live financial freedom yet, but you start with cash control. Once you've cash, 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, and and that $100 I'm spending going out to dinner every week, I'm gonna allocate that toward these these trips I want to go on or whatever. That's cash control. Yeah, fam. 2026 is the year I'm fully focused on growing my personal brand. I just started a new brand and content team, and that means I'm going to be intentional about every part of my business, especially my website, which I've been neglecting for years. And that's why so many companies from leading startups to mine to Fortune 500 brands are turning to Framer now that we're due for an upgrade. Framer is a powerful website builder and design tool that helps businesses create better websites faster. With Framer, you can design and publish a beautiful, high-erforming website without ever touching any code. It's a visual drag and drop builder with smart AI tools that help you create responsive layouts

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Quo. No missed calls, no missed customers. So, 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. Yeah.

And when you think of $2 million, like that's a huge lump sum of money. That's like winning the lottery.

Can you imagine that? Yeah. So, what kind of identity shifts happen when you start to realize that in your lifetime you could make $2 million?

It's fascinating. So, uh I survey audiences teaching this. Now, I teach Profit First a lot, but also teach the money habit. I said, "Who here honestly would be really thrilled to win the lottery?" And almost all the hands go up and and me too. Like, I'd love to win the lottery. It's great. Well, I did research around lotteryies and the average payout is $2 million. So, there's these grand bucket winners we hear about that win 600 million or something crazy, but the average win is $2 million and most people take an installment plan and that can be 20 sometimes 40 years.

So, 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. And 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. Like, 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. And that payment installment plan is coming in.

Yeah. And for our young and profiters listening, I think our average income across the board is likeund 150 or something from my

$4 million or $5 million. Yeah. I I I think people aren't considering that. Yeah.

We're just saying I'm not making enough now. Well, that's the primacy effect kicking in.

Mhm. We got to assert control over what we have. And there there's this freedom once once you do.

Yeah. So, you were mentioning how, you know, even if you're not making a ton of money, you can still save for 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 uh what can people learn from that? There's some events I think that are very predictable in lives. Uh people will get married, people will die. Uh and there's costs with that. Funerals and so forth. Uh you 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.

And uh I have three children. I'm likely they're all going to get married at some point.

So my wife and I talked about we said we're going to start saving money for this. So we started saving when our children were born saying the average marrying age at the point was 27 years old and coincidentally my son my oldest son who got married got married at uh 29 so it was pretty close and we started saving and we didn't save at the same rate. It wasn't like we're going to save you know $1,000 a month every month. We started saving this 10 bucks.

What's 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. It's kind of like exercise. I think the biggest, excuse me, the biggest mistake that people make with exercise is saying, "I got to start working out. I'm going to work out an hour at the gym every day. I'm going to go for a run." 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 the gym and walk back. Like start off very small and 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. So the first thing is an identity shift, then a behavioral shift. So, we wanted to have an identity shift for ourselves that we're going to save for our children's weddings. Um, as our income increased, because this we do

this on a percentage basis, automatically the percentage stayed the same, but the dollar amount increased because it was a

same piece of a bigger pie. Uh, by the time my son was 25, we had $50,000 saved up and we said, "Okay, that's the number." And for every one of our kids, we have $50,000. And if one of my kids is watching right now that's not married, I'm not This is supposed to be a secret, so it's no longer a secret. Um, when my son got married, uh, we told him, well, 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 navigated a deal. At the end of the wedding, my wife went up, my wife and I went up to our son Tyler and said, "Here's a check for 36,000. the difference. And he's sitting there, he's hand shaking. He's like, "I've never had this much money in my life." So much so that his wife, Kora, they didn't deposit like like a month later. I'm like, "This check hasn't cleared. What happened?" Like, "We don't think we can deposit a check this big." Trust me, you can. You can. And they finally did.

A It was It was such a great gift of ours. But there was also no cost to me, my wife. The money's already been allocated. So, 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. And I'm sure, you know, putting aside 10 bucks a month, 100 bucks a month, it probably didn't feel like anything and you would have just wasted that on some other junk, you know? So, it's good to just kind of put it aside and maybe even pretend like it's not even there.

I remember looking, this was back uh 20 years ago, so this is like 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 additional cost. Every time I started putting $70 away and it was $70 a week, I'm like, "One more guest at the table. One more guest at the table." Yeah. It felt so good.

Yeah. And then I asked myself once we had uh 200 guests covered, that was 14,000. I then said, "Okay, what's a band cost?" And 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 basist. Now we got the lead singer." you know,

and so it's important to put these little milestones so we feel that we so we experience the progress.

Yeah. I did it. That's a really beautiful story and like awesome that you did that for your kids.

Um, okay. So, let's talk about why traditional budgeting doesn't fail. So, like you budgeted for this wedding and you set it aside. What was different about what you did there versus traditional budgets?

Right. Traditional budgets usually have a common pot at the bank. So, it's a separate documentation, uh, usually a spreadsheet that says, "I'm going to save X number of dollars for this wedding, say $50,000 and so forth." And then we have a singular pot where the money's stored. Maybe it's in a money market or some form of investment, which is fantastic.

Here's the problem. Um, we have to enforce willpower not to take from it and we will justify taking from it. We'll resolve, I should say, the cognitive dissidence that we have when we take the money by by giving some form of justification. So, let's say in my pot I have $200,000, $50,000 for for one kid's wedding, uh $10,000 for auto repairs and and home maintenance and these different things. And uh now something comes up and my roof is leaking. And so, I got to replace the roof. And I'm like, well, I got a pot here of, you know, $200,000.

Yeah, it's some of it's for the wedding, but but the wedding's likely not going to happen. And I'll start justifying it

and I'll replace that roof. And and now I'm back to square one. Conversely, and we actually have an account called The Roof, uh, because roofs need to be repaired or replaced in its entirety, usually every 25 years. So, we have a 25-y year vision for it. And to replace our roof, we're thinking it's going to be a big budget. So, we have that dollar amount set aside. If if I 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, but I can no longer uh subconsciously ignore that.

I had to say to myself, I just stole from my son's wedding. So now a subconscious behavior becomes a conscious awareness. It's I'm much more disciplined when I'm consciously aware that I'm stealing from something as opposed to a common pot.

Yeah. You realize that like some other goal is not happening. Yeah. You can't deny it anymore. Yeah.

Yeah. And and it's okay. Sometimes you may choose to do that but can no longer deny it.

Yeah. There's another thing is if you have multiple people involved in the finances. So we have uh my wife and I both manage our finances. Um, 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 with friends. Uh, 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. We have a her name's Christa. The Christa fund account. I have a Mike Fun account." She doesn't have to ask me.

So, there used to be like this weird parent child relationship. I'd say, "No, you can't go out." Or, "Here's your lollipop. You can go out." It's like bizarre. It's kind of creepy. And 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 we we see we can't do this now. Do we decide to override the system or not?

That's how it works. Yeah. I know that you mentioned there's a bunch of behavioral things that that humans just are, you know, likely to do if you have one big

bucket of money and you don't split it out. So, let's talk about those. You've got uh one of them you mentioned, but I'd love for you to go deeper on it. You call it Parkinson's law.

Yeah. So Parkinson's law uh is based upon a theory by this guy North Coat Parkinson from the 1950s and he observes something really interesting uh and we already alluded to it is that when a resource expands availability we consume more. The classic economics curve says that demand dictates supply. So 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. And he argued that is true in a 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.

And the classic example is with you, you can do with soda cans. Uh 100 years ago or 200 years ago when soda came out, soda cans were what we consider like almost a shot glass. Like it was a small little can. Um then they got to these I think they're 16 ounces or something.

But I don't know if you've seen cans recently. It's like a they're huge. It's a freaking bazooka. Yeah, but you could kill someone with this thing. It's crazy. And the thing is, human behavior hasn't changed. The container dictates consumption. We used to drink that small shot. We used to drink full can. We are now drinking this full container. And society, the the caloric intake is massive. And our waistlines are expanding massively as a society.

The interesting about Parkinson, he said, if we simply went back to 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.

So 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. Um, 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 those 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 or purpley pink purpley pink Porsche. It's gorgeous. And so this Porsche pulls up. Um and a Porsche would be a dream car for me. Um I do have another dream car I love. But um if I bought that Porsche, uh I would put it into my garage and save it. But say I and 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. Uh maybe I'll drop insurance. Maybe I'll stop driving. I'll 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. Dropped the insurance. But I won't do those things to get in the first place. That's loss aversion.

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 this.

And so 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 if they can just lend me a little bit of cash. I'll ring up the credit cards 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. And 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 kind of savings because you will logically try to retain something you have that you can't afford. So, 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 steady.

Is there some sort of rule like I should be able to pay for this 10 times or like is there some rule that we could follow? Generally the optimal rule is minimally three months of of full life expenses covered. So whatever your life expenses are that you have just sitting in savings ready to spend minimally 6 months is ideal. Here's what the research indicates. If I save for 3 months I'll live in the loss aversion state usually for about 1 to one and a half months about half that time span and start saying my gosh I'm eating into savings. Then we'll start adjusting our lifestyle. So that remaining one and a half months of cash I have will stretch for another three or four months. So 3 months of savings can usually last 6 months. 6 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 6 months of full expense savings minimally so that

you can sustain if you go into a dip. That's good advice. Okay. Uh the transgressive motive. What is that about?

Yeah. So we have a natural tendency to rebel. So if if listen if you came in here and tell me this is how absurd this would be. Yeah.

I'm like oh it's so good to see you by the way uh 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 kind of you but inside we rebel if you said to me like what are you doing you like this is the worst outfit ever like Mr. paley white wearing this like 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 have a saying with uh businesses if you as an owner tell your business employees to comply they will seek to defy um so when we're given instructions we resist so when we are put in constraints and budgets do this inherently we often resist M

many budgets I've seen systems will have categories like things like maybe tithing are in there. So 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. And I see that and I'm like what are you doing telling me to tithe? And a subconscious rebellion kicks in saying I don't know if this system's for me or I start to push it away. So budgets have implicit or non-implicit but suggested um compliance and then therefore I'll defy.

So just be aware of that rebellion that's inside. The best system to build is a system that you create for yourself. So if I tell myself, you know, I shouldn't dress like this. I should have colors a little more complimentary and make me a little less pale. If I said to myself, I'm like that's a good idea cuz I said it myself. So build a system around your own desires and interests. So 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. So I know uh one of the things that happens especially for people who are living paycheck to paycheck is this panic at the end of the month. Like 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's 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 a little bit, but this is based upon what's called optimal foraging theory.

So, before humankind was the neand the modern humankind was the Neanderthal, and we were hunters and gatherers.

Now, here's what the Neanderthalss didn't do. I wouldn't say, "Hey, uh, I'm hungry. Uh, let's go get steak." Uggh. No, I'd say uh we hungry uh we go hunt woolly mammoth and you and I are out there or you know 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. And the reason we 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 two tigers or whatever it's 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 hunt we're racing and chasing a big chloric burn. So, you go on a massive hunt. When you capture the food, say we go for a woolly mammoth and we capture this beast and kill it. Now, we're at risk because the food will perish. We have this massive uh beast, but we know if we don't eat it now, it's going to rot away. So, 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. So, you go into a gluttonous state, you start consuming an overc caloric intake.

Eat, eat, eat. Then uh the very last phase was now there's no food left. You start eating what's been stored and when that's gone, we better go on a hunt again soon or we're going to starve to death. That's called optimal forging 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 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 capture the woolly 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 just sitting there, the essence, the the feeling is consume, consume, consume. This is rotting away.

Uh some people preserve it by putting in a 401k. When something's inaccessible, then we actually don't worry about it. The money goes in the 401k, it's preserved. So our mind is wired once it's smoked or buried, it's okay. But when the money stay in the checking account, it's like this is going to go away. I better consume it while I have it cuz it's gone.

We prove that to be true because by a week or two, it is gone. And we're prove it's rotting away. So then we go into, "Oh my gosh, I don't have enough calories. I need to go on a hunt again." And we go into this panic state toward the very end and we go on the hunt again. So what do we do? We have to improve the preservation mechanisms. We need little 401ks.

What happens is when we get the hunt, the kill, paycheck comes in, we carve it up very quickly into different accounts. Those accounts are effectively smoking or burying that woolly mammoth pieces of it and we put into different accounts. It actually satiates us and gives us comfort. we say, "Oh, okay. I put some money in the mortgage. The mortgage is covered. I'll have to worry about that." And 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 that's really interesting. Um, as you were talking, one of the things that I think about for myself as I become more successful and make more money, I'm an entrepreneur. A lot of entrepreneurs are tuning in. Um, 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 farging theory. Yeah. Yeah. I'm afraid like and so by the way, taxes will come. Uh, we're told in our business if you spend the money on different expenses, you can reduce your taxes. Yeah. Some of that's prudent for sure. Like 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.

Yeah. Here's the most crazy thing and this isn't profit first. We encourage people to set up a tax account. So money comes in and money goes into this 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's already been allocated to it. Mhm.

One of the most crazy things, Hala, is every quarter when I wrote Prof 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 my office, which don't need to do that, but some people do. Uh saying, "I just paid my taxes. The company paid it. I feel so good."

It's like, "Why is this?" I'm like, "Oh, because of loss aversion." So that car that's in the garage we're talking about that if I can't pay it, uh I will drop the insurance or can't afford it, I'll 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 if I sit here and I said, "Hey, h this was awesome. Here's $100. This thanks for doing this." It may feel awkward I gave you 100 bucks. But you're like, "Oh, wellund bucks. Thanks, Mike." If I gave you $200 and say, "Hey, thanks for this, but oh, oh, by the way, I need a hundred back." You'd be like, "Hold on. You just give me 100 and you're taking some back." Like now it's like super weird. And that's what taxes feels like. I just earn money and the government takes it back for me. Yeah,

but if I never give you that second in the first place and just give it to the government, it doesn't feel as painful.

Yeah. And 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 like two buckets. One is like my money and one is tax. And then we just split it 5050.

And you know, if there's stuff I don't owe, it's just like kind of 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. You know,

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

Exactly. It feels like a bonus. 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 like realizing like 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. Right.

Right. So you break down six accounts, income needs wants dreams fixed future, and emergency.

Yeah. Do you want to explain each one? Sure. It's based upon Maslo's hierarchy of needs. So Maslo identified that you and I have basic physiological needs to survive. We need to be breathing air right now, drinking water, eating food. So like if someone came running in and threw a bag over my head, this plastic, and start choking me out, interview's over. Uh I'm struggling to get out of this thing because my life's in jeopardy. And what Maslo 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 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 need water, we need shelter. So 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 sold bread winner, 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 woolly mammoth and it's rotting away. So, we need to carve it up. The first account we carve to support our basic needs. And uh in my book, I identified based upon your income level, if you're a young but profitable person making hundred or more thousand dollars a year, uh 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, uh you know, shelter, rent. Exactly. wants is I want to eat out. And some people will conflate the two. They'll say, "Well, I I need to eat out." So, yeah. So, always if you don't know which level it's in, it's always the higher level. Um I know someone that has multiple homes. They 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.

So, you have to differentiate those two. And if you don't know, it's a higher level. So wants are the many luxuries. Dreams are the bigger luxuries. So dream may be, you know, I I need to eat food. I want to eat out. I would love I dream about having a personal chef.

Like that's kind of how you differentiate this stuff. Um 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 basically.

Yeah. Fix or future is this. Most people that start this system and most people in the United States are in debt. So, a fixed account is that we're allocating money intentionally to get down unsecured debt. So, credit cards, anything that's not assetbased, but a a loan for a house, generally houses, not all, but generally house will appreciate over time. There's value in that. I believe taking a mortgage or some kind of loan is appropriate for it. Um, when it comes to a car, yes, most cars depreciate, but it sustains it value over a period of time, and we do need that for transportation. I think that's appropriate. Um, 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, you know, can I sell my credit card debt to someone else? Maybe they'll give me some money for it. No, but you can sell your car to someone else or your house.

So, well, 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. Um, do you have children? Not yet.

Okay. So, 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." And so, we started allocating money for that. That was a future savings. So, 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. I don't

really. Yeah. I've been talking to a lot of people that have been there. So, I'm in my 50s now, my early 50s. Um, I've been talking to people in their 60s and 70s who've retired and uh, it ain't easy necessarily. Um, and 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 the the boiler is going to blow in the house, which recently did our house. And so you we all need an emergency account because I can guarantee something unexpected is gonna happen.

Yeah. Um and the emergency account is that different than the 6 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. And I you just can't tell what it is. Um and in the book based upon your income level 50,000s hundreds 100,000 I have all the way up to millions in in earnings and your season like 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 uh and I am kind of living in that moment right now. I just want to kind of live big and we're doing it. We're doing some amazing things. Um, you have to identify the season you're in, match it to your income, and there's different percentages I suggest.

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I love this concept of the the four financial seasons. Um so 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 and they're rooted in behavioral psychology.

Okay. So when I was interviewing people for this, uh I worked with collectively either directly or through group coaching about a thousand employees of different companies and hundreds and hundreds of entrepreneurs. and uh I'd ask them about their situation. The majority I would say is upwards of 70% have debt of some sort.

That's that's not secured debt. Like it's it's credit cards or whatever. Loans from family and friends.

Student loan debt is oh my gosh. Yeah. That was the most common. It's maddening.

And they would say I have debt. There's a behavioral phenomena that if I you say I have something, it's a possessive state. It actually becomes you. So if you say I have a a purple Porsche, it's your possession. It's actually part of your identity. If I say I have debt, that's part of my identity. It's part of who I am. And when it's part of your identity, it becomes a permanence

and that's the dangerous part. So when people say I have debt that they are also saying I am always in debt and it's very hard to eradicate. So I said okay debt's not a good word. Um we need to put the word recover. So if I'm in a recovery state that means an active move toward improvement.

The other thing is seasons are not permanent. So I said, "Oh, recovery season is a positive temporal state."

That's so smart. Yeah. So when I say, "Oh, you don't have debt. You're in recovery season. How long is this season going to last?" It's like, "Oh, that's right. There's a time frame to it." So that's why those terms exist. Seasons uh are recovery coming out of 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 kind of future experience. Activate is where we're spending more than we're actively earning. So, we're actually downing our money savings with intentionality because perhaps we want to live larger in the moment.

And I'll say, listen, that's appropriate at all stages. Or maybe you're starting a business. Does that count?

Yeah, that totally counts. Okay. Yeah. Like that's a life dream. I want to do this uh or I want to um I just want to take a year off and and and rediscover who I am

or anything. Um so that that's a form of activation. Then the final stage is 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. So in nature, seasons usually are three months in the Northeast at least. You know, you have uh winter, spring, summer, fall, and they go in rotation. In our business finances, they can pingpong around. And I was like, "Oh, that doesn't happen in nature until I realized it did." Um, I was just in Australia a couple weeks ago. Here, winter's kicking off.

They're in the middle of summer and within a 24-hour flight, I came back to New Jersey to temperatures in like the low 20s and I'm like, "Oh, I just left temperatures in the mid70s to come to the 20s and it happened like this."

Also, listen, you can be home uh and it's the middle of January where we hit sometimes the single digits and it's like an it's like a 70°ree day in New Jersey and then it drops back down. So 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. So, if you get a $5,000 work bonus, Nice. How should somebody in each financial season treat that money? So if you're in recovery fund, activate balance, how how does that get treated differently?

Yeah. So 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 trunch. In a case like that, there's two kind of psychologies. BF Skinner did research around operant conditioning and basically said if we uh get early wins in our life, we are more likely to sustain that behavior. So, 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 of rewards then we become cynical of a system and we're le less likely to sustain it. So I'm saying if there's a cookie on the table and uh and some of that can can satiate this demands you have slice that cookie not in half slice off a small piece for you very quickly give it to the other people need to be fed but give yourself some of that treat too.

That makes sense. Yeah. If you're in the fund season, um, 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. So saving any of that may actually not serve you well. So, 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 using 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 kind of split it split it in half.

Yeah. I'd love to hear your perspective more on retirement because a lot of entrepreneurs tuning in, we're like responsible for our own retirement. When you work in corporate, you just have a 401k, you kind of just put money in it and and that's sort of taken care of. And as entrepreneurs, it's it's really all on us and some of us are making a lot of money and kind of are even me like 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 right so how do you think about it?

Um 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. Okay.

So, uh, one is, um, when you hit retirement age, your health span will perhaps be on a decline compared to where you are now. So, 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 and hurting. It just does. Trust me, it's coming. It's coming.

And once you're in 60s and 70s and perhaps 80s, you may start a decline and you can't be as active. And 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, technolog is coming about and all these things with AI and medicine research that may change. So this is just what I see in the current state, but it may change. So actually leveraging more of that money for the now may be better.

Yeah. Um the second component, which we already talked about, is uh people that go into this kind of full stop generally seem to resent the fact they went to 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 the funds to live a new way, without purpose, it becomes fleeting and 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 talking listen to one guy. He says, "Potograph every single day of what you're doing and maybe even record a quick note about it." So 365 photographs for the entire year. And he goes, "What will 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 be most important is all the things remembered. And um right now, when you're in your 20s and 30s, it would be a shame if you forgot all the great things you did. You know, I look back to like my college days. I'm like, "Ah, I remember like the two epic parties that were the best parties ever." I remember a couple friends I had

that were extraordinary friends, but I don't remember like the day-to-day stuff, but I do remember it was fun back then.

I wish I preserved it. So, I I actively take pictures on my phone every single day now. And I 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 so fun. We're talking about her purple Porsche and we went for a ride in it and it was a like I just remember I love this."

Yeah. I remember the things that happened and it makes the current moment richer because you remember the past.

Mhm. That's right. And it it it prevents like recency bias even like with friends and memories and because you just really remember everything that happened all year.

100%. It's not ever forgotten. Yeah. Yeah. So debt is a big problem for people and I know uh you give some advice in terms of how to you know pay down your debt, what not to do, what to do. What's your thoughts about that?

Yeah. So um a common technique we talked about was 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 and that's absolutely a smart idea in the beginning. So if you have a lot of debt sort your debt out by the amounts 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. M

but if you continue that pattern, you may not be optimizing. And 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.

Okay? I had a loan from a friend of mine for $30,000 at zero interest rate, but he was a friend of mine. And so I put zero interest. This is a very inexpensive debt. I can take my time paying this back. And he called up. He's like, "Dude, where where's the money I gave you?" It had high consequence. Uh his name is Chris. And um 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." And that could have been the most costly loan that I wasn't paying back and could have burned me long term. So 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 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 it's 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 save. Um, but I saved 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.

Um, there was a saying from a um, I think it was Rammit Sati who's a very popular personal finance expert, great friend. Mh.

And he said uh I think it was him he says the new form of discipline is automation.

Automate the process. So 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. So if you can save before you see it. And 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 kind of hidden 401k without being a 401k.

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

And I'm a small business owner. I got six employees at one of my businesses. We can do it. Yeah.

You just got to ask. Yeah. Yeah. And also like certain bank accounts let you do it. I know Relay is a bank account that lets you like set up different accounts. I use Monarch Money and and I can set up different like little accounts.

So, yeah. So, Relay is for business owner. So, if you're an entrepreneur, use Relay. I'll give you a little plug here. banklikemike.com. It's the bank I use for my my uh business finances. And if you have a personal checking account, Relay doesn't do personal. Um you can go to dreamfirst bank. I have a link called profitfirst.bank. So, you can go to profitfirst.bank if you want to do the personal accounting. Amazing. For banking. Yeah. Well, I know that you've got a flight to catch, so I want to be

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

Um, but leave us with some advice in terms of like what's the number one thing that people can do in the new year to optimize their money habits.

Yeah. I I think the first thing is to realize that people do want you to be wealthy. Like you, everyone watching this, the people around you want to be wealthy. Now, no one says like, "I wish you were rich." But when it comes to participating in life itself, if you are worried about money, you're not fully there. The analogy I use is a doctor. Imagine, you know, I'm having a heart attack or something. You rush me to the hospital and I guess I hospital and two doctors come out. Dr. one comes out and says, I'm really poor. I have no money.

I'm actually desperate. I need I need patients. In fact, I'll do 50% off. You ready to proceed? Dr. Two, she comes out and says, "Uh, I I'm very rich. I'm very wealthy. Uh, I charge a premium for my 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. Uh, do you want to work with me? And by the way, I charge 10 times more than Dr. One. I'll choose Dr. Two. Yeah. Right. I want someone who's wildly confident because they're taking care of me. When it comes to relationships, I I want someone that's fully present in my life. I want friends who are really there. And if they were worried about their finances and struggling, there's this ringing in their head that's constantly playing out and they can't be present. So, no one's going to say, "Yeah, I wish you were rich. I wish you had more money." People say, "No, if we're friends, I want you to be fully my

friend and fully present." So, it's ironic. The world wants you to be wealthy. They just don't use those words. So, 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 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. So, if I worry about if I can afford my mortgage, I'll say I will accept an account, a new account that says mortgage. And say my mortgage is just for easy numbers,

$4,000 a month. What I'll do is every paycheck, say it comes weekly, I'll take $1,000 and transfer to the mortgage account to asssure 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 off one account that you worry or wonder about most.

Yeah. I'm somebody who like hates finances. is I'm 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 like immediately. It's going to make me feel better and it's not scary. Like all all your suggestions are so easy to implement and 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. And one one last thought is you said, you know, you're not really excited about numbers or or the finances. Like I found there's a word for it. It's called human being. Like you are so human. That is so normal. I'm not into numbers.

People come to me and say, "Oh, were you an accounting major?" No. Um, 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, uh, that want to maybe earn as much money as possible but don't want to do all the management. the 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 habit?

The the best site to go to is mikemotoribike.com. It's Mike Mallowitz.com. No one can spell it. Nickname from grade school cuz it rhymed. mikemotoribike.com. And then um I'm really proud of a podcast I started. It's called Becoming Self-Made. And 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, um 1800 Got Junk, the founder of 1800.

And I found what is their story to success. But the most interesting thing is not

success porn like here's all the things they achieved. We talk about what's the struggle they still feel today that they started off with. And it's unbelievable how much these entrepreneurs still struggle with what we consider the basics that they should be over. I think it's very empowering.

What a cool concept. Yeah, it's really interesting. Um and people get super real. Uh, it's a little bit of an Oprah moment at times. So, that's called becoming self-made.

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

This is 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. And this conversation 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 habit 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 you 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, yap fam. If this conversation with Mike Mallowed 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 fivestar 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-person 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 at Yap with Hala or LinkedIn. Just search Hala Taha. And huge shout out to my amazing Yap team for pulling off yet another powerful live recording. Appreciate you guys so much. Shout out to Hasham for Joshua on the guest outreach team. And also shout out to Bryce at Recordat ATX for helping us with this live recording. This is your host Halataha aka the podcast princess signing off.

Questions about this episode

Who speaks in "Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026"?

Hala Taha (Host), Mike Michalowicz (Guest), Adam (Guest).

What is "Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026" about?

The discussion centers on overcoming paycheck-to-paycheck living by aligning money management with natural behavior, prioritizing debt reduction, building an emergency fund, and creating lasting wealth through disciplined habits rather than relying on luck. It emphasizes debt payoff strategy, gradual expense control, and establishing cash confidence to prevent financial shocks.

What is mentioned in this Young and Profiting episode?

24 people, works and ideas are mentioned, including The Money Habit, Michael Mallowitz, cash confidence, cash control, Young and Profiting Podcast, Profit First. Each one on this page links to its own page with every episode that mentions it.

How long is "Mike Michalowicz: Stop Living Paycheck-to-Paycheck and Build Lasting Wealth in 2026"?

The episode runs 1 h 5 min; the transcript is about 14,441 words in 210 timestamped sections.

More from Young and Profiting

About this transcript: the episode's spoken words as captioned on YouTube, split into timestamped sections. Reclip.Me locates every person, work and idea in the text, keeps the time it is first named, and quotes the words around it verbatim. Last updated October 29, 2026.