Overdraft fees, never paying my credit card in full, and a constant nagging feeling things would never get better was enough to make me bury my head in the sand.

Once I settled into a career and began earning more, my denial was replaced with confusion. I finally had the ability to save, but I didn’t know when to do what.

Should I build savings or start investing in stocks? Should I max out my retirement, or is it better to begin pulling together a down payment for a home? Do I even want a home?

Then there was my mid- to late 30’s, a time marked by extreme volatility. I was laid off five times over the course of four years. This was a long period of feast and famine that was all about survival.

Though I couldn’t see it at the time, these brutal years transformed me. They forced me how to deeply understand my financial health.

When you never know if your last paycheck is your last paycheck, you get very good at preparing for the worst case scenario. Each time I found myself in financial free fall, I got better at determining how long I had until I’d hit the ground.

After writing dozens of posts about all the challenges I’ve had with money, from my earliest days as an adult through my late 30’s, I came to realize they all stemmed from same root problem.

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The underlying issue

All my frustrations, fears, and insecurities around money came from the fact that I simply didn’t know how to make sense of my finances.

I was swimming in datapoints and advice, but I couldn’t clearly summarize my financial health. Was I good shape or not? How worried should I be at any given time?

Once I realized this, I began to see how my lack of understanding provided the fertile ground for all my negative emotions to flourish. 

I’d worry that things were extremely bad and dread the thought of being proven right. Ignorance wasn’t bliss. It was stress.

Since I didn’t know how to wrap my mind around my finances, I couldn’t possibly know how to start turning things around. I knew that ideas like saving, investing, retirement, and budgeting all had their place, but I didn’t know which to start with.

Add it all up, and I was left feeling overwhelmed and paralyzed. I’d feel all the stress and anxiety around money, and at the same time, I couldn’t get out of my own way to begin making meaningful change.

All of this frustration motivated a years-long personal finance journey that turned into a mild obsession. I read at least a dozen books, and I dabbled and experimented with budgeting, forecasting, and eventually, even investing.

There was a ton of trial and error before I figured out what worked. For instance, having a healthy 401k balance did nothing for me when I lost my job with only two months worth of savings in the bank.

After accumulating enough scar tissue, I concluded that if you want to turn your financial life around, there is a correct order to the steps to take.

It all begins with step one: You first have to understand how to read and interpret a financial situation.

And the best way to understand any financial situation is to look at it like flying an airplane. Let me explain…

Let’s simplify

Pretend for a moment that you're the pilot of an airplane. There are an infinite number of datapoints to get overwhelmed by, but you only really need to know two things: your height from the ground and whether you're climbing, diving, or flying level.

The same is true for your money. The amount of savings you have represents your height from the ground. Having zero savings and going broke is crashing the plane.

Your monthly cash flow represents your climb rate. If more money comes in than goes out, your airplane is climbing. If more money leaves than comes in, you’re diving. If all the money that leaves matches what came in, you’re flying level.

Every person's financial situation, including yours, can be simplified into these two fundamental concepts. It applies as equally to billionaires as it does to people scraping to get by.

When you start looking at money this way, you begin to realize that there are six situations that help you understand how to size your your financial health. Let's go over them from least to most desirable.

The Six Situations

Flying low and diving

This is what it looks like just before you go broke. You’re flying low to the ground because you have little savings. You’re diving because you’re spending more than you make, which is fundamentally unsustainable.

Unless something changes, and fast, it’s only a short matter of time until you max out your credit cards, get trapped by payday loans, and declare bankruptcy. 

Flying low and level

This scenario is only slightly better than Low and Diving. This is what living paycheck to paycheck looks (and feels) like.

Since you’re so low to the ground (i.e. have little savings), any slight shift in the wind (a large unexpected expense) is all it takes to put you into a dive and cause a crash.

You’re never far from winding up in the horror scenario above. Your days are filled with tension, stress, and anxiety about money.

Flying low and climbing

While you're still flying dangerously low (I kept that arrow red for a reason), at least you have the ability to reach safer heights. Brighter days are ahead, as long as you don’t squander the ‘extra’ money on frivolous expenses.

Now let’s look at the other side of the spectrum.

Flying high and diving

You’re flying high because you have ample savings, but you’re diving because your income has shrunk. Maybe you lost your job or took a sabbatical. Not ideal, but there's plenty of time to level out and recover.

Flying high and level

You’re flying level because all the money that comes in is going out. Unlike living paycheck to paycheck however, there’s no danger in sight. This is what it could look like when you trade a high paying job you hate for a low paying one you love.

There is a risk in not being able to climb however. Any large expense that takes a chunk out of your savings ends up lowering your height and keeping you there.

Flying high and climbing

This is the most desirable situation and what people think of as being ‘wealthy.’ More money than you need is coming in, and you find yourself with the enviable problem of figuring out what to do with the excess.

You can easily walk away from a job. You can choose to start investing. Imagine the feeling of giving your extra money away to people and causes you want to support.

This kind of flying isn’t only reserved for the wealthy, though. As long as you have enough savings in the bank and spend less than you earn, it’s totally possible to put yourself in this situation.

All other financial situations lie somewhere in between these situations. In the upcoming posts, I’ll be laying out the step-by-step plan to help you figure out exactly where you are and how to get to High and Climbing in the fastest (and safest) way possible.

Better days ahead

Once you realize that your financial situation can be simplified into two, easy to understand concepts (height and climb rate), you’re finally able to act on them.

You’ll feel instant relief at being able to clearly articulate exactly where you stand. When you know your height and climb rate, you exit a distorted world created by your fears and worries about money and enter a new reality grounded in objective truth.

Knowing that you only need to know your height and climb rate instantly delivers a sense of calm because you can now easily see which problem to tackle first (gaining height or increasing climb). Your mind is no longer spinning in all directions. You know where to focus.

When I noticed this for myself, I begin to feel a genuine sense of hope because I could finally see a clear and easy to understand path for getting my plane to soar above the clouds.

Perhaps best of all, this simple foundation will allow you to make sense of how and when to do all of those overwhelming and confusing things like saving, paying down debt, and investing.

When it comes to the basics, you are your best financial advisor. All you need is the right information presented the right way.

Shake the rust off

If you haven’t exactly been on top of your finances for a while, don’t fret. It’s never too late to reengage, and there’s no better time to start than now.

While we will go into detail about how to calculate your precise climb rate and height in the next post, there are a few warm up exercises you can do now that will make the next steps easier to complete.

1. Log into all your financial websites

It might have been a while since you last logged into the websites for your checking and savings accounts, credit cards, and other debts like student loans or mortgages.

Now’s a good time to find those website addresses and reset any passwords that you might have forgotten. Make bookmarks and track your passwords in a secure place. I’ve been a happy 1Password user for over a decade.

2. Note the balances

As you reacquaint yourself with your financial life, log the balances of all these accounts in a notebook or text file. Simply writing these numbers down will kickstart a relationship with them.

We’ll eventually work with each of these numbers, but for now all we’re doing is figuring out what’s what.

3. Reflect and resolve to change

Over the years, especially in the beginning, I lost count of how many times I set out to ‘straighten out my finances.’ I’d always start off strong (usually on January 1st) and lose steam by March. I struggled to keep my motivation and spirits high.

The key to eventually breaking through and finally making lasting, permanent progress was getting real with myself about how unhappy I was.

Taking a page from the world of habit formation and behavior change (another deep interest of mine), I journaled about my feelings around money. I didn’t hold back.

In the moment, getting all my thoughts out of my head felt like removing a huge weight off my chest. Not only that, but re-reading those same thoughts in later months always served as a potent reminder of how far I had come and what was left to look forward to.

Given my experience, I highly recommend taking an hour and journaling about the following questions:

1. Write down your best guess at how you think your ‘financial airplane’ looks. How far from the ground does it feel like you’re currently flying? Do you think your climbing, diving, or flying level?

2. Read what you just wrote and write down how those words make you feel. Get really detailed and don’t hold back.

3. Describe what it’ll look like when you’re flying high. What will you be able to start doing? What will you be able to stop doing? Again, be specific.

Now that you’ve got a framework to interpret any given financial situation, it’s time to actually figure out your specific numbers. That’ll be the focus of the next post.

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Thanks for reading, and I’ll see you in the next one.

According to a recent CBS poll, 77% of Americans report feeling anxious about their financial situation.

More often than not, we feel this way because of a weak or non-existent relationship to the role money plays in our life.

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Uncertainty

Anxiety and stress come from a lack of awareness about your finances. 

When you’re foggy on how much comes in and where it goes, it’s easy for feelings of frustration and defeat to color your relationship to money.

Getting laid off five times in a row over the course of four years, I know all too well what financial frustration and anxiety feel like.

Here are just a few thoughts I’ve had over the years as I grappled with the bummer that was my financial life:

All my money seems to slip away at the end of the month, and I feel like I’ll never get ahead.

I’ve lost count of how many times I’ve resolved to ‘finally get my finances in order.’

I forgot about my friend’s birthday and have to put off saving for yet another month, but honestly, it’s always something.

When you’re out of touch with your money, you face a paradox of certainty. At once you’re clear and yet still confused:

• You don’t know how much you’re spending on subscriptions each month but you do know that you’re paying too much for all of them.

• You do know you’re susceptible to impulse purchases, but you don’t know how much damage they’ve done over the past three months.

• You’re pretty sure food is getting more expensive, but then again, you realize you did just order a private car for your burrito.

Even worse, you’re pretty sure that your lack of financial awareness is screwing you. When you don’t pay off your credit card in full each month, you know you’re losing because the bank is charging you interest. 

When another month goes by where you don’t build savings, you know that you’re extending the window for bad luck to strike when your defenses are down.

You feel guilt about not putting away more (or anything) for retirement, but how is it even possible when there’s nothing left to save at the end of the month?

Total clarity

The way out of this downward spiral is to get your finger on the pulse of your spending.

Fortunately, there’s a phenomenal tool for this very specific job: a budget.

When we think about a budget, the first words that come to mind tend to be restriction and limitation, but what’s often overlooked is the budget’s real superpower: clarity.

The clarity that a budget offers is the antidote to the frustration, denial, and stress that come from being out of touch with your finances.

Why do budgets work?

By hooking into each of your bank and credit card accounts, your budget captures every cent that flows through your life. You get a complete view into what’s actually happening with your money, and that visibility is how you begin to reclaim control.

By knowing what actually happened to your money last month, you gain the ability to smartly decide what it should do this month. The tracking work that a budget does leads to effortless planning and prioritization.

What happens when I use a budget?

By revealing your spending patterns, a budget allows you to make adjustments as life happens. If you ended up spending too much eating out last weekend, you’ll know immediately how best to make up for it.

Guilt around spending completely disappears when you know when and how to recover. The same holds true for future expenses that you know are coming.

A budget excels in helping you plan for your friend’s upcoming birthday. It’s equally good at ensuring that you save up for that next insurance payment coming up in five months.

I could go on, but you get the point. When you have better information, you make better decisions. And making better decisions is how you finally take back control over your financial life.

As your sense of control grows, it acts like sunshine that eliminates the dark and murky environment that your fear and anxiety need to thrive. In a few short weeks, all that’s left are positive feelings around the role money plays in your life.

How to get started today

We live in a time that’s overflowing with budget apps, websites, and services of all kinds. Honestly, there’s never been a better time to jump on the budget train.

1. Pick a budgeting app 

   There are several to choose from but I only recommend working with those that use a zero-based budget philosophy.

   This is a budgeting approach that has you make a plan for every dollar you earn. It’s also stood the test of time, with its roots going back to the Great Depression.

   I highly recommend You Need A Budget (affectionately known as YNAB by us devotees). It’s been around forever (I’ve been using it for 10+ years) and consistently sets the standard for this category of budgeting app.

2. Set up your budget

   A good budgeting app will have an onboarding guide to help get you started. Here’s the one for YNAB.

   Guides like these should include steps for connecting your bank and credit card accounts, as well as configuring your budget categories.

   Plan to invest an afternoon to this one-time exercise. A few focused hours of effort is well worth the life changing reduction in time and stress that follow.

3. Enter your spending in real time

   Like all good budget apps, YNAB includes a mobile app that allows you to log your spending as it happens, in the real world. 

   This tiny 30-second ritual has a profound impact on your psychology. Taking a beat to log an expense in the moment has the same effect as paying in cash.

   You end up ‘feeling’ the expense in a much bigger way than when you absentmindedly throw it on a credit card.

4. Check your bank’s math daily

   One of the best favors you can do for yourself is to compare your your budget to your bank’s website every day, at least in the beginning.

   The official term for this is ‘reconciling,’ and YNAB mostly automates the work, so it shouldn’t take more than five minutes a day to do.

   Performing a daily check that your budget is fully aligned with your bank’s view of reality guarantees that you’ll never be caught off guard by a surprise or incorrect expense.

   As a fantastic bonus, the expense logging you’re doing gives you a leg up on the bank, as you’re already accounting for spending that they’re not even aware of yet.

5. Reflect

   After a month, take stock of how far you’ve come and ask yourself how you feel. Behavior change in any realm of life is hard, so be sure to pat yourself on the back and take credit for having stuck to it for thirty days. 

   You might be thinking of money more than ever, but are you still worried about it?

Conclusion

"There are all kinds of cheat codes lying around, but they usually look boring. People will routinely ignore things that already work for the hope of a slightly easier path. The cheat code is the work you're avoiding." - James Clear. 

You know this already, but it’s worth stating explicitly. Budgeting is one huge cheat code that saves you the 'work' of worry, stress, and anxiety. 

By getting clear about how your money moves, you transform your financial life into a source of confidence and serenity. You also lay the foundation for smart decision making, and that’ll be the topic of the next newsletter.

If you found value from this post, please subscribe and leave me a comment. I’d love to hear from you.

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I’ve experienced this across a number of hobbies over the years but nowhere more than photography.

My fantastically capable camera and best-in-class photo editing software would go unused for entire seasons at a time, despite massive investments in money, research, and time to learn how to use them.

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Suffocated by process

I was initially drawn to photography by the desire to document and share moments from a life well-lived.

If those moments never made it to others and instead languished on my hard drive, then, in essence, I was letting myself down and giving up on my dreams.

As any wedding photographer will tell you, taking photos is only a small part of producing memorable pictures. The bulk of the work lies in sorting through those photos, editing them, and filing them away, so that you can find them later.

A few hundred photos captured during an afternoon of vigorous shooting could easily result in 20+ hours of processing work, spread over several weekends.

This photo processing burden left me sitting on thousands of untouched photos that no one (other than myself) ever got to see. Even worse, I’d end up just leaving my camera at home to avoid the guilt of leaving those photos untouched.

An overly complex post-shooting workflow had my dream of sharing abundant memories with loved ones in a choke hold.

Rethinking the process

After moving to Birmingham a year ago to be closer to family, I realized that I had a new chapter of life to document. This fresh start gave me the motivation to finally address my photography blockage.

The first step in rethinking my post-shooting workflow was to lay out some guiding principles:

Lightweight - The experience of processing photos needed to feel lightweight and easy at all times. Each step had to be bite-sized and involve minimal decision making. Several small steps are better than a few huge lifts.

Interruptible - The work needed to be easy to pick up and put down. Devoting entire evenings or afternoons to getting one step done, as I had learned to do from numerous YouTube videos, wasn’t going to work.

I needed to be able to chip away at my photos in chunks of 30 minutes or less to keep things moving.

Enjoyable - Working with my photos needed to feel fun and rewarding. If it felt like a slog, I’d lose momentum and start procrastinating. Ensuring that a hit of dopamine was never too far away was critical.

For all of you with expensive cameras gathering dust, here’s the workflow I’ve arrived at.

My new photo workflow

Step 1: Import photos

After each day of shooting I import my photos into Lightroom, my photo processing software. Depending on the quantity of photos taken, this can take up to 10 minutes.

Step 2: Cull

I review each photo taken and rate it one star if it’s unusable in any way, usually due to being out of focus. Everything else gets two stars.

This is the first of three passes, all designed to go quickly, minimize decision making effort, and feel lightweight. I’ve found three passes to be manageable and momentum generating. This first culling step usually takes me about 10 minutes.

In addition to getting the junk out early, this step also calibrates my judgment. This first pass through the photos gives me a strong idea of what ‘good’ looks like for the batch, which informs the decision making in the next two passes.

This step ends with deleting all the one star photos. No sense in taking up more hard drive space than necessary. I’m left with a slightly reduced (but still large) set of two-star photos, all of which are usable.

Step 3: Pick and catalog memories

Now it’s time for the second pass. In this step I look for any photos I want to personally remember. The audience is me. These photos are meant to jog my memory when I revisit this event years down the road.

This is where all the photos of my meals go. Historical plaques, explanation signs on hikes, the weird quirks of the Airbnb, and other notable cues that I don’t want to forget, all make the cut.

These photos get a three star rating and a set of tags (who, what, where) to help me find them later.

This is also where I deduplicate. I often take multiple photos of a subject at a time, playing with the composition, angle, and timing. The best of the bunch gets a three star rating.

This step ends with deleting the two star photos. Yes, deleting them. I only want to remember the stuff worth remembering. I’m now left with a significantly reduced set of three star photos.

Getting through this step typically takes 20 minutes or less.

I’ll repeat steps 1-3 for each day of the event. Once I have all the three star photos for the all days of the event, I’ll proceed to step 4.

Step 4: Polish for the public

It’s time for the last pass where I go through all the three star photos with an eye for sharing with others. These photos will be public, and the audience is my loved ones.

Less is more. I only want to select the most captivating and expressive photos that tell the story of what happened. One photo overlooking the coast from the top of the hike can stand in for the seven three star photos I took along the way that remind me of how steep the hike was.

Since I’m pretty familiar with all the photos by this point, I already have a good sense of which photos will be eligible for sharing.

This is also the step where I actually edit my photos. Since photo editing is often time intensive, I only want to do this work for the best, and this is the step where I identify those precious few.

Since I exclusively shoot in black and white, my editing process is deliberately simple and straightforward. I mainly recompose through cropping, playing with shadows, and amplifying contrast.

I typically spend no more than five minutes editing a photo. Depending on the number of public photos I select, this step can take anywhere from 30 minutes to an hour. The dopamine hits at this stage are abundant.

Once I’ve finished editing a photo it gets four stars. Only a small percentage of photos make the leap to four stars.

Step 5: Share

The last step in the process is the most important. It’s time to share the four star photos with others.

Nothing beats the feeling of someone you care about genuinely thanking you capturing a great moment they were a part of, or for sharing an experience through a tight set of well crafted images.

Moments like these are why I got into photography in the first place.

Bonus step: Award a 5 star rating

As a bonus, I like to take one tiny extra step and ask myself, if only one photo can be on the cover of a magazine for the event which would it be?

The photo that meets that criteria gets the coveted five star rating. It’s really nice to have an exclusive collection of five star photos that you can easily glance through to remember what you’ve been up to over the past few months.

I’m now left with a large set of three star photos for me, a much smaller set of four star photos for everyone else, and tiny sliver of five star photos that make up my best work.

Each step along the way took less than an hour (often 30 minutes or less), and the use of star ratings allows me to easily pick up where I left off if I have to step away.

Conclusion

Documenting and sharing moments from a life well-lived was the reason I took up photography.

It took me years to realize that the self-imposed bureaucracy of photo editing had snuffed out that spark and led me to leave my camera at home more times than I care to admit.

My hope is that this hard-earned workflow helps you dust off your camera, open your photo editing software, and get back to the stuff that matters most: creating abundant memories to share with loved ones.

I’m all about optimizing life through steady refinement, and I’ll continue to share what I learn in this newsletter. If you’ve received value from this post, please be sure to like and subscribe.

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Now, think about how you interact with your personal finances. That’s a part of your life that’s likely filled with numbers and sentences but woefully short on helpful pictures and images. For most of us, ‘dealing with our finances’ is harder than it needs to be.

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A visual desert

Most of us experience our financial lives in the worst possible way: by trying to ingest and process a large set of numbers in one big gulp. That’s precisely what you’re doing when you log into your bank’s website to review your recent transactions.

Because our brains are not optimized for handling text, scrolling through your spending history always feels like work. It’s no surprise that we rarely go further than a cursory glance, crossing our fingers that nothing looks ‘off’, then quickly moving on to the parts of life we actually enjoy and look forward to.

Without good images and visuals, it’s very hard to get a big picture view of what’s actually happening with your financial health.

Arguably the most important part of my job as a data analyst is presenting information. Sure, working with data is critical, but none of it matters if people can’t understand what it means.

Compared to squinting at numbers, visualizations burst on to center stage and command attention. With the right visualization, anyone, not just top brass or people with Ivy League educations, can quickly understand what’s going on and start asking better questions and making better decisions.

Visual abundance

When it comes to getting your head around your finances, the best thing you can do is find a way to turn everything that matters most into easy-to-understand visuals.

Below are two different versions of a month of spending for a fake bank account.

As you can see, Figure 1 is just a lot to take in. Even though it’s already ordered, it takes effort and brainpower to see that the top 2 expense categories make up 60% of the monthly spending. Compare that experience to figure 2 below.

A lot easier right? You instantly notice the two huge bars on the left and the comparatively short height of everything else. It takes almost no brainpower to see that all the action is in the Groceries and Pets categories.

As someone who makes a living spoon-feeding insights to decision makers, I believe everyone is capable of improving their financial lives when they have the right information presented in the right way at the right time.

Seeing the big picture

The right set of charts allows you to pull yourself out of the minutiae of your bank’s website (or your budget’s rows and columns) and begin to reason at a higher level. There are innumerable benefits to this, but here are three that are top of mind:

Directionality - Charts and images that play out over time give you the “rest of the story” that helps make sense of the current moment.

Knowing what you spent on groceries is one thing, but knowing if that’s normal or not is how you keep anxiety and stress in check.

In the chart below, the most recent grocery bill appears to be on the high side until you realize that it’s in line with the two months before that. Maybe this is a new normal that you shouldn’t feel bad about.

Proportion - Charts make it easy to see which pieces make up the majority of the whole. If you’re trying to save more money, it’s far better to focus your effort on adjusting the big levers than spinning your wheels on the small stuff.

Let’s look at the spending breakdown in Figure 2 again. It’s clear that driving across town to buy cheaper gas might feel good and responsible in the moment, but it isn’t going to move the needle very much if you’re actually trying to cut costs.

Focus - A small handful of numbers can tell you everything you need to know about how healthy your finances are and whether they’re getting better or worse. A simple visualization can cut right to the chase, directing your gaze first to what matters most.

The dark blue bar at the end of the Figure 4 (below) shows how much money is left at the end of the month. The dark blue bar in the middle (savings capacity) shows how much of your income is typically left on any month.

Savings capacity is the best measure of your financial health, but it’s completely out of reach if you’re only looking at bank statements.

Next steps

The next time you find yourself struggling to understand what’s going on in your financial life, ask yourself when was the last time you had a good visual to look at. Chances are that it’s not your fault that this part of your life is hard to figure out.

If you find yourself struggling to make sense of a grid or list of numbers in the form of a spreadsheet, bank website, or budget app, just know that this is inherently a hard task for everybody. It’s not just you.

I’ve been a personal finance nerd for the past decade, and even after completing an MBA, it still took me far too long to truly appreciate the incredible power of a simple visual.

Here are a few tools that you can implement right away to help increase the number of helpful visuals in your life (no masters required):

How to set the perfect budget target

Stop sabotaging your financial progress

Taking a data-centric approach to improving your financial life is kinda my jam, so be sure to subscribe to this newsletter for more hot takes, tips, and tools.

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After six months of unemployment, I finally landed a job. That means that we’re getting back to being a two-income household and get to look forward to being able to build savings again.

The discussion at hand was simple: what are we going to save for and how will we do it?

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It was June, so we were already half way through the year and realized that we had spent down some of our rainy day funds, most notably our healthcare deductible and car maintenance categories. We also have some older wish list items that we’ve had to put on hold, like maybe finally painting our walls.

After a cursory overview of all the things we could save for, the conversation shifted to the the big idea I’m excited to share with you: Do we save for a bunch of things at once by putting a little money into each every month, or do we focus everything we have on a single savings item at a time?

Sequence vs. parallel

Stepping away from money for a second, anytime you have a set of projects to complete you have a choice to make for how you approach the work.

You can choose to work in parallel, where you decide to do a little work across several projects in one go, effectively taking a small step in several directions at the same time. I like to think of this as a form of multitasking.

Alternatively, you could work in sequence, where you list and prioritize those projects and then focus all of your energy on finishing one before moving onto the next.

I’ve found that social media (and therefore common wisdom) tends to favor doing as much work in parallel as possible. Apparently people love the feeling of keeping several plates spinning without having to make hard choices about where to place focus.

The truth is that both approaches have the strengths and weaknesses, and it’s a matter of knowing which is best to apply to a given situation.

When to work in parallel

In a word: maintenance.

Doing work in parallel is great for process-related tasks that never end and that contribute to maintaining some kind of standard. I like to think of this as work that keeps the trains running on time. Some examples:

• Tidying around the house where you spend an hour doing a variety of small bits of work that keep the house livable. Wiping down surfaces, running the vacuum, and starting the laundry just to name a few.

• Running errands that include a stop at the grocery store, picking up nails at the hardware store, and filling the tank ahead of the weekend. All of these small tasks can fill a productive afternoon that, taken together, help keep your life moving forward.

When to work in sequence

In a word: progress.

Sequential work is ideal for breaking down a big lofty goal into a set of smaller, more achievable milestones that can be taken one at a time.

Unlike that process-related work mentioned earlier, this type of work doesn't go on forever and usually has some kind of deliverable to show for it. In other words, it tends to be some kind of project. Examples include:

• Moving to a new home (big lofty goal) where you break down the project into a sequence of smaller projects like scouting, packing, loading/unloading, unpacking, and finally meeting the new neighbors.

• Doing deep work that puts you in a flow state. This can include writing, building a spreadsheet, or preparing for a presentation.

Save in sequence

This relationship between working in parallel and sequence was running in the back of my mind as our car discussion was in full swing. I put it to my wife and, to my surprise, we quickly saw eye to eye.

We decided that it would be best to work in sequence. The answer was obvious for a few key reasons:

• Fast rate of completion - This one is pretty obvious but still important. Building savings for a specific item happens much faster when it gets all of your excess income and doesn’t have to share with other savings categories.

• Prioritize completion - once something has been saved for, it’s done. If something happens in the future that redirects our income, we’d both prefer to have a few items checked off the list than to have a bunch of partially saved-for items.

• Focus - Saving for one thing at a time allows you the space and clarity to optimize the task at hand. That might look like doing extra research when saving for a gadget or finding creative ways to cut expenses if you’re in a hurry to meet your saving target.

• Satisfaction - This is the big one. Saving money is largely an emotional game where the feeling of progress and momentum are paramount. It’s much easier to stay the course when you can see tangible progress from filling a savings account every few months.

I expected the conversation to be heavier since whatever we decided would affect the next several months, but the four items above made the choice easy. They each speak to security and momentum, which are values that we most covet.

We made a list of all the items we knew we needed to either replenish or start saving for and put them in order. To give you a taste, here’s a sample of the items on our list:

1. Replace the gas range with a new induction unit

2. Top up the 2025 Out of Pocket Max fund for our health insurance

3. Paint the walls

The list is longer but you get the idea. We've prioritized according to what we currently find most important in life: our health. For instance, gas ranges are increasingly regarded as a public hazard, whereas the items at the bottom are nice-to-haves.

With this clarity in place (a nod to the fast rate and focus bullets above), we got to work and were able to take advantage of a great 4th of July sale. We’re excited for our new range and look forward to faster and safer cooking.

Next time you're feeling like you're getting pulled in too many directions at once, ask yourself, is this a project or is this maintenance? That’ll help reveal if it’s best to work in parallel or in sequence.

Once you make this very early choice, the rest will take care of itself. You might also find that your road trips become more enjoyable, too.

There are dozens of breakdowns and explanations that attempt to explain why this performance is so mesmerizing (trust me, I’ve watched at least 20), but this one from Charles Cornell is the most compelling because he shows how much more is going on beyond Whitney’s admittedly amazing voice.

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Chris explains that the orchestral arrangement is what sets this rendition apart. It was composed by legendary jazz bassist and composer John Clayton, and boy did he leave his mark. In a nutshell:

• The rhythm was adjusted to allow the notes more room to breathe

• Unexpected jazz chords make the notes melt at just the right times

• The key was chosen to complement and enhance Whitney’s range

This hidden structure is what makes this song "just sound really good." You don't need to be classically trained in music theory to recognize that it’s excellent, but once you understand how the components are working behind the scenes, you begin to understand why the performance is on a totally different level.

Cornell’s breakdown of Whitney’s performance makes one thing abundantly clear:

I like to think of Whitney's arrangement when it comes to performing at a high level in the areas of my life I care about, and since I care a lot about my financial life, Clayton’s arrangement got me thinking about what an exceptional performance means in the world of personal finance.

Next level personal finance

Financial Serenity is the state of having ample savings to cover every emergency expense (even if they all hit at once), a prolonged period of unemployment, and where you have zero high-interest debt. Achieving Financial Serenity had been my dream for years.

Most of us aren’t anywhere close to this elevated state of financial being (I certainly wasn’t for most of my adult life), but if you want to get there, you’ll need to learn how to deliver a high level ‘financial performance’ month in and month out.

The trouble is that most of us don’t know where to begin.

When reviewing your budget, you may deem a month to be ‘good’ if you hit some vague general outcome like spending less than you made, or adding to your savings account. But what’s usually unclear is how likely you are to do it again.

Maybe you had a month where no one had a birthday that required buying gifts, thereby requiring you to spend less than you otherwise would. Perhaps you had a month with three paychecks instead of two, where the extra income masked a higher than usual amount of spending.

Simply using high level numbers to assess your financial performance is like knowing that a song was pleasing to your ear but being unable to explain why.

If you’re trying to achieve a dream like Financial Serenity, it’s important to understand what makes a financial performance great, and most importantly, how to make it repeatable.

Learning how to dial in next level financial performance not only drastically shortens the time it takes to achieve the dream, but also makes the journey rewarding and motivating. Building momentum and seeing yourself continually make meaningful progress becomes addictive.

Revealing the hidden structure

You need a set of tools to help you see the hidden structure of your financial life.

Concepts like your Cash Flow Profile, Savings Capacity, and making a plan to achieve Financial Serenity are those tools in the world of personal finance. They reveal the components parts of your financial performance and show you how a great month came to be that way.

Like Cornell explaining how the time signature and chord structure made for a novel and interesting composition, these tools give you a new language to explain how all the moving parts in your financial life came together to produce the high level headline result that shows in your budget app.

That standard language also helps you understand your financial trajectory, giving you a confident view of how long it’ll take to achieve your goals based on the path that you’re on. These tools also allow you to forecast how long things will take and what the journey looks like along the way.

Perfecting the sequence and structure in the background, like a composer arranges a musical piece, gives you a sense of ownership and control.

When you know what delivering a great performance actually means and how to set things up to achieve it over and over again, execution becomes a joy. Your budget becomes a true reflection of your priorities, and not just a glorified tracker.

This is how you construct the optimal path to hitting your goals and actually stick with that plan (when everyone else who tries to start a budgeting habit falls off the wagon).

Aim to be great

Understanding the hidden structures behind the important performances of your life is how you elevate yourself from meh to transcendent.

Which is how you’ll achieve Financial Serenity.

So often when we set out to achieve a dream and raise the level of our performance, we only have a vague idea of what ‘great’ actually means.

Taking the time to learn what these components are for your area of interest (whether it’s personal finance, building strong relationships, or achieving health and fitness goals) will always be worth the time and effort invested.

It won't be long before you'll be hitting those high notes just like Houston.

Even though my wife and I had prepared ourselves as best we could (he was 16), our last month with him was a bizarre blur of sadness, pre-grief, and gratitude. When you love someone as much as we loved Snoopy, all you want to know is that you did everything you could to make their last days as good as possible.

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I didn’t expect to love Snoopy. I had a history of meeting dogs that had already imprinted on their owners (he was raised by my wife), and I had no expectation of ever forming a meaningful relationship with him. To my surprise, he instantly loved me, and much to my wife’s dismay, he at times seemed to prefer my company to hers. It wasn’t long until I was 100% on board with taking him into our home and raising him as my own.

A very welcome expense

Show me your budget and I’ll show you what your priorities are.

Any dog owner that takes the job seriously will tell you that two things are always true:

1. Your dog quickly finds their way into the center of your world, and

2. They are expensive

Between his specialty dog food, five daily prescriptions, and frequent vet visits, Snoopy consistently was our third biggest monthly expense after mortgage and groceries. That monthly bill only went up as he got older, and it was the best money we could have spent.

His health took a sharp downward turn six months before he died, and for that period of time, my wife and I were obsessed with the Snoopy’s quality of life.

How much pain was he in? Is this medication making him nauseous? He didn’t eat that food he used to love, is something wrong? When all you have are questions, all you want are answers. My wife and I were fixtures at the vet, and the entire staff at the animal clinic knew Snoopy well.

As we discussed symptoms and treatments with the vet, I’m so glad we never had to limit our discussions because of money. We may have been in denial about how much time we had left with him, but we took pains to ensure our budget was flush with funds dedicated to whatever he might need.

Giving everything we could

Diverting our income to maximize Snoopy’s quality of life was never a sacrifice. It gave us a sense of control and agency to an aging process that we ultimately couldn’t do much about.

Snoopy showed up in our budget in two places:

1. He was listed in our Everyday expenses category group for things like food and medication.

2. He had a dedicated Rainy Day fund for unanticipated medical expenses and x-rays.

Maintaining these two funds each month allowed us to free ourselves from ever having to make a set of hard trade offs regarding his health and money.

As time went on the decisions grew heavier. The hardest one was also among the most expensive: Finding a home euthanasia service and scheduling his final day. Just listen that last sentence. Scheduling the end of his precious little life like it was an oil change for the car.

Navigating the options for burial vs. cremation and reviewing urn materials were among several hefty financial costs we had to wade through. We did much of this over the phone, and we couldn’t get through more than a couple of sentences without taking a few deep breaths to let the sobs come out.

The grief alone was enough to make this morbid minutia feel like an oppressive tax on our attention, sadistically siphoning away our final moments with Snoopy. Thank god we didn’t have to add financing or credit card math to the mix.

Doing right by your loved ones

Snoopy’s final day came and went. Not a day goes by where my wife and I don’t mention how much we miss our dog. When you're mourning, all you ever want to know is whether you could have done more. Getting the money part right has helped me cope with this whole ordeal.

Small side tangent. I have a neighbor who’s retired and fairly open about the struggle of living on a small fixed income. He has a dog about Snoopy’s age and talked with us during Snoopy’s final walk. He shared how he was planning to simply let “nature take its toll” when it was his dog’s time to go.

Reading between the lines, he can’t afford to give his dog comfort in its final days. Hearing this broke my heart, and made me uber grateful to be in a position to do right by Snoopy.

If you’ve got a loved one in your life that depends on you, I’d highly suggest putting your conscious at ease with the following tips:

Get clear on your priorities

In my case, the first step to ensuring we were the best dog owners we could be was giving Snoopy top billing in our budget. Keeping his categories full always came before just about anything else.

Know what they actually cost

We knew, with precision, just how much it cost every month to do right by Snoopy. Giving your dependent a dedicated Everyday Expense category is how you achieve this level of clarity.

Know what they could cost

Having a Rainy Day fund that we built and maintained over the years allowed us to explore every option the vet offered up. X-rays, observational overnight stays, and new medications were all treatments we were able to access because of our just-in-case funds.

Do nice things while you can

One of the best things we did was taking Snoopy to the beach. We planned a road trip from Chattanooga, TN to Ojai, CA and spent a month in sunny southern California. Snoopy had never seen the ocean before and he loved it. We made this happen by setting up and funding an Aspirational Savings category over the course of about a year.

The firm grasp on our finances that comes from being on the path to Financial Serenity is how we were able to be the dog owners we wanted to be.

I still miss Snoopy every day, and I can’t even imagine when we’ll be ready for another dog. Honestly it feels like never. Looking back however, I’m glad I got to make the most of the six wonderful years I got to spend with him, and I hope my experience will equip you with the tools and knowledge to do the same with your loved ones.

I was working as an operations director at a high growth startup, and my weekly 1:1 with my boss was always nerve wracking. It was my job to know my team’s performance like the back of my hand, so I’d spend time the night before or early that morning reviewing reports and chasing down answers to questions that I knew were coming.

At best, these meetings would end with an acknowledgment that my team hadn’t screwed up too badly. At worst, I’d come up short on one or many questions and leave the meeting with a sense of failure that would tie up the rest of the day.

It was a stressful life that often motivated me to divert precious time and energy to work that could have instead gone toward my marriage, health, and sanity.

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The wrong definition of status

I lived this life for years because I was convinced that this was ‘what it was all for.’ I had spent three years and $200k on business school precisely to be in this position. So why was that promise of a great life not exactly panning out?

Now, with a bit of distance, I realize that I was putting up with this crushing lifestyle because of status. A prestigious title with an enviable compensation package was how I was measuring my place in society, and by extension, my worth. That concept of worth, however, would be directly challenged in the coming years.

I would eventually get laid off from that job and the next four after it. No amount of late nights, exceptional presentations, stress dreams, or resolved team conflicts would make a difference.

It was always just a matter of time until the last-minute invite would pop up on my calendar and I’d find myself joining a zoom meeting hosted by a member of HR along with whoever my boss was at the time.

Nothing is more volatile than losing your income. Overnight, you go from planning for the future to trying to prolong the present.

Vacation plans and work timelines instantly give way to performing survival calculations. How long will my money last? Where will I find my next job?

Five layoffs will force anyone to get extremely familiar with these two questions, and as I left and joined each new company, my answer to them began to change.

 I stopped drinking the corporate rah-rah kool aid and began to doubt whether I’d ever see a dime of equity as I signed the next offer letter. The sacrifices I was making became clearer to see and my idea of status began to evolve.

A new perspective

If there’s one good thing about being laid off so many times, it’s that my wife and I had become pros at living a comfortable life in ‘survival mode.’ We learned how to be frugal when times were lean and used that discipline to build savings when money was abundant.

As we paid down debts and filled our savings over the years, the cost of our lifestyle steadily went down. As I’d grind through yet another job hunt, the anticipated stress and anxiety that came with preserving my income increasingly looked like a raw deal.

I’d eventually come to realize that my true passion was not in managing people and being near the c-suite but instead performing data analysis. Nerdy, I know, but it’s the one thing I did in every job that I was good at and that always felt right.

When I found myself between jobs, I took those same analysis skills and applied them to my budget data. Performing these ‘survival calculations’ allowed me to confidently establish an income ‘floor’ that the next job needed to bring in to keep life comfortable.

I came to realize that a wide range of data analyst job titles existed in the space between my lifestyle floor and my previous income. I was finally starting to see the gulf between what I actually needed and what I thought I needed, based on my old conception of status.

What I thought I needed:

• Director+ job title

• Six figure salary

• Gold-plated compensation package

What I actually needed:

• Sufficient income

• Low stress

• Ample family/social time

This was an eye opening realization that I decided to run with. I took a data analyst job that paid $50k less than the management job that preceded, and it was a revelation. I loved the work, and I didn’t miss the responsibility and stress. Most importantly however, the salary was enough.

All the savings we had accumulated over the years meant that we had every negative outcome handled in advance. By eventually paying off all our high interest debt, we got to keep much more of our income than we did in earlier years.

Believe it or not, I’m currently in yet another job search, but I’m much, much clearer on what makes sense for me now.

Playing a new game

I still seek status, but I measure it differently now. Today, status means being able to take a lower paying job that I find rewarding and that allows me to spend time and energy on the people and interests that I care about.

I’ve traded ‘acing’ the 1:1 with my boss for 7+ hours of regular restful sleep. I spend my free time being a more present husband and no longer use it to ‘get ahead’ of the upcoming work week.

All those rounds of doing survival calculations taught me how to describe my lifestyle needs through numbers that opened my eyes to the subconscious status game I had been playing since I was in high school.

“Knowing your numbers” is something that anyone can do, whether you have a job or not, and it is the first thing I’d recommend doing when seeking to understand your financial life. If you’d like to determine yours, I lay out the steps in my post about How to achieve to Financial Serenity.

If your life looks anything like mine did a few years back, there’s a good chance you’re chasing a version of status that’s no longer serving you well. Getting clear on your numbers is how you put the tradeoffs you’re making into perspective.

Once you’re clear on the delta between what you think you need and what you actually need, that regular date with stress and worry starts to look a whole lot more optional than you think.

For the prior three months, I had been training for a marathon, and no part of life had been untouched. Suddenly all of the declined invitations, sacrificed weekends, and endless hours of icing and stretching were for nothing.

I had developed a merciless case of shin splints so bad that I was barely able to walk. There was absolutely no way I was going to be running 26.2 miles in two weeks, and the doctor and I both knew it.

He explained that I had been running too fast, too often, for too long, and that the pain in my legs came from not allowing myself to adequately recover.

I had been following a training plan suited for a more experienced runner, and my body couldn’t keep up with the damage I was piling on. After 10 weeks, my body had reached its limit.

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A hard lesson learned

As much as I'd like to say I learned my lesson, I didn't. I'd have to forfeit this and another marathon before I finally crossed a finish line.

All the while, I was playing out a similar pattern of mistakes in my financial life. I was loading my budget with a needlessly aggressive plan to build savings and pay down debts that mirrored the self sabotage I was experiencing in my running.

In an ongoing effort to turn my finances around, I’d set aggressively low spending targets that forced me to live a life of extreme limitation. My motto was “If I just don’t have a life, my financial problems will go away fast.”

Just like with shin splints however, it amounted to withholding too much, too often, for too long, and not giving myself any kind of relief along the way.

While I might be able to stay in and read a book every weekend for a month, I couldn’t do it forever. Same with food and social activities. I’d eventually crack, throw my budget out the window, and ‘live a little.’

Then it would happen again. Then again. It was as if all the limitation and withholding would build up pressure that invited reckless spending as its inevitable release.

How we self sabotage

Our culture rewards fast results through suffering.

There are countless viral tweets and Youtube videos celebrating accelerated life transformations through masochistic principles like "no pain no gain" and "rise and grind."

We idolize the extreme lifestyles of Navy S.E.A.L.S., and we’re encouraged to embrace the pain of leg day. This perspective is often referred to as hustle culture, and it’s been popular for a while now.

Hustle culture’s implied message is that the more you struggle, the faster your results. The contrapositive also holds: If you’re not seeing results fast enough, it’s because you’re not struggling enough.

As a formerly big proponent of hustle culture, my shin splints and I were always looking for a way to get big results as fast as possible. For instance, I’d NEVER allow myself to walk during a training run. I thought it was soft and weak.

I took that same stupid view to improving my finances. I’d do whatever it took to see results quickly. The more extreme the better.

I found myself:

• Slashing my spending overnight with no release valve to offset the misery

• Bragging to my friends about how small I was living

• Myopically celebrating sacrifice and obsessing over my savings ‘gains’

• Shaking my head at people who were “doing it wrong” by not going all out like I was

Not only did my warped plans never work out, but with each failed attempt to "right the ship," I'd lose a bit more confidence in my ability to ever get myself into better financial shape.

Losing confidence is the first step in losing belief in your ability to change, and once you lose that, you lose hope in ever being able to improve your financial life.

Changing my mindset

After having to sit out multiple marathons, I could see that my training approach (and perspective) was clearly not working, so I decided to make a change. Rather than trying to run as intensely as possible, I’d now just focus on feeling good.

That meant slowing down to find a pace I could comfortably maintain and, yes, walking. Making this change required me to check my ego and flex a new muscle, patience.

In a surprising twist, my overall running speed is the one thing that didn't really change. The new run-walk-run pace was actually about the same as the painful shuffle I’d always resort to after running injured for several weeks.

The speed was about the same, but my experience was night and day.

And wouldn’t you know it, the same solution found an analogue in my finances. Rather than trying to build savings and pay down debts as intensely as possible, what if I instead just focused on feeling good and being patient?

Sure, it would take longer, and maybe be less badass, but I’d actually get there.

The right pace

Luckily, when you have budget data, finding the right spending plan is a lot easier than the fuzzy art of figuring out the right running pace.

What makes it so easy is the use of a Pareto chart.

This is a super helpful visual that shows you the distribution and proportion of your spending in a single image. If a pie chart and a histogram had a baby, it would be a Pareto chart.

In the example above (dummy data) you can easily see that three categories make up the lion’s share (54%) of the monthly spending.

Pareto charts are used regularly in business to figure out where are the most impactful opportunities to make changes. I was creating them all the time at work and decided to apply them to my personal finances.

Once you see your monthly spending broken down this way, you can make smart and nuanced choices about how to adjust things with an eye toward maintaining your sanity.

If your overall spending is too high, rather than trying to completely cut the tallest bars to zero (as I did in my all-or-nothing approach), you can instead play with the whole picture.

This level of granularity allows you to confidently increase spending in one area to offset a bigger reduction in another.

For instance, adding $100 to groceries to buy fancy steaks is absolutely worth it if it offsets a $250 dinner at a fancy steakhouse. Cutting out the $179 spent on your hobby is a bad idea if the void it leaves causes you to increase your Entertainment spending by more.

Thoughtfully and carefully increasing spending in certain areas to achieve an overall reduction was equivalent to adding walk breaks to my training runs.

Putting you back in control

The magic of the Pareto chart comes from its precision and context. By seeing how all of the knobs and levers work together, it becomes possible to make fine adjustments that preserve your quality of life and, importantly, keep your confidence high.

This is especially important when you’re dealing with a timeframe that’s longer than a month or two. The longer things take, the more important it is to feel good along the way.

Equipped with this new approach, you’ll be amazed how creative you can get with a set of well-informed constraints. I didn’t use to care much for ice cream, but I began to love it once I made it my reward for eating at home five days in a row.

Getting started

To make things easy for you, I’ve done the work and created a free Pareto Chart Calculator that only takes a few minutes to set up. Here are the steps to follow to get started:

1. Pull a report from your budget showing last month’s spending for the categories you’d like to look into. In YNAB, my budgeting app of choice, this comes from the Income vs. Expense report.

   Pro tip: Pareto charts work extremely well for the Everyday Spending standard budget category group. I highly recommend organizing your budget using this structure to make it easy to see what’s happening (and what will happen) with your finances.

2. Enter these categories and dollar amounts into the Pareto Chart Calculator. Your Pareto chart will be created instantly.

3. Review the chart, and identify the categories that make up the bulk of your spending. There will only be a few, and that's where you'll focus.

4. Pick a meaningful overall spending target, and identify which bars to raise and lower to get you there. Find ways to add sugar to the medicine. Where can you modestly increase spending?

5. Track your efforts. Next month, review the Pareto chart again, and confirm that your spending levels did indeed go down.

   If they did, congrats! You’re doing it! If not, don’t sweat it. This is normal. It takes a few months to get the hang of things and remember, you’re not in a rush.

Crossing the finish line

I eventually did end up completing a couple of marathons, and in hindsight, the key to success was counterintuitive.

I had to learn to be patient and kind to myself. I had to realize that going slowly and feeling good was the fastest way to actually get to the finish line.

It was even easier with my finances. Once I found a way to reduce my spending in a sustainable way, I was finally able to stick with it for a long time, and that’s when I started to see results roll in.

Most importantly though, I was doing it in a way that didn’t feel awful. Win-win.

Next, it was noticing that our water heater was 10 years past its prime and likely to fail at any moment. If we don’t fix this now, we’ll be forced to fix it at the worst time and at the worst rate. Better not roll the dice.

Then it was the electrician, while installing the water heater, informed us that our outdoor electrical panel had degraded into a fire hazard. You can’t unhear those words. Time to pull out the checkbook.

The next week it was the dental procedure that wasn’t covered by insurance and that couldn’t wait. Teeth have a way of making them your top priority.

Finally there was the kicker. All of this financial misfortune a) pounced over a two month span, and b) started right after getting punched in the gut by my fifth back-to-back layoff.

However ominous all of this sounds, however, I didn’t break a sweat and my job hunting timeline didn’t shrink by a single day. I was ready for all of it.

But things weren’t always like this.

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Flying without a parachute

For most of my adult life, any one of these expenses alone would have ruined me.

I was totally ignorant to just how precarious my financial situation was, but perhaps worse than that, I actually thought I was killing it.

Looking back, it’s easy to see how I could have been so wrong for so long. While I always had some savings, I was woefully short of what I actually needed.

As I grew older and life got more complicated (i.e. more expensive) the tiny “emergency fund” that was never enough to begin with, quickly diminished into an ornamental line item in my budget that couldn’t even pay for half a typical car repair.

I was too busy channeling my income to more important ‘adult’ concerns like paying off debt, contributing to my 401k, and opening a brokerage account.

I was obsessed with compound interest and placed a much higher value on my future than on the present.

Waking up

This is what woke me up:

• When my car broke down, I’d have to pay with a credit card because I didn’t have the cash, and when the bill came, I couldn’t cover it in full.

• When the dog started getting old, increasingly regular vet bills also had to go on the credit card. All of a sudden, I had a balance of high interest debt again, and it was slowly creeping up.

• I didn’t have the money to cover a hospital visit after I switched to a high-deductible health plan. As a healthy young man, I foolishly thought I’d never have to cough up the $4,000 toll that must first be paid before insurance starts kicking in. Spoiler alert: I was wrong.

• The prior holiday bonus I got didn’t seem to help with any of the above. Where did that money go anyway? Oh yeah, it went to a vacation to Panama that, given my ignorance, I was sure I could afford.

Once is an aberration, twice is a coincidence, thrice is a trend, and beyond that you’re in denial.

I was in denial.

Despite all of these signals to the contrary, I was still able to convince myself that investing and paying off debts was the right thing to do with my money. That all changed when I experienced my first layoff.

You can’t invest or pay down debt without an income, and now that I couldn’t do either, I was finally able to see my present situation for the dumpster fire it really was. I had no savings, no job, and I had never been this vulnerable.

Security must come first

What I would eventually come to realize was that I was working out of order. Rather taking a crawl, walk, run approach to my finances, I went from crawl to sprint and never learned how to walk.

I placed supreme value on harnessing compound interest to build my future and treated present day security as an afterthought.

Perhaps the one-two punch of hubris and inexperience that afflicts all young men made me think that I didn’t need security because my luck would never run out.

Probably.

But what would have really helped is if I had someone, a few steps ahead of me, grab me by the shoulders and tell me how poor my decision making was.

They’d show how my efforts to build a rosy-but-hypothetical tomorrow had me walking through a very real minefield today.

Here’s what that person would say.

You can do it all, just not all at once

First and foremost, you need to have savings. Let me repeat that.

Life is volatile, and everyone’s luck eventually runs out. Until you have savings, doing anything else with your money is counterproductive:

• Progress made paying off high interest debt gets wiped away if you have to go back into debt to handle a curveball that life throws your way.

• The single worst thing you can do to a compounding asset like your retirement or stock portfolio is withdraw from it before it’s had a chance to grow. That’s exactly what you’re forced to do when one of those fastballs finds you without savings. That, or you end up “fixing” your problems with debt.

The most urgent kind of savings to build is your Resilience Fund. These are savings dedicated to handling specific one-time expenses that may or may not come.

The key to building your Resilience Fund is to have a plan that clearly lays out a timeline and is built for speed.

Unlike a generic emergency fund, which is just some arbitrary amount of cash you’ll eventually get to saving, each dollar in the Resilience fund has a purpose and target date.

Here’s how to build it.

Step 1: Name your threats

To get started, you need to make a list of all the potential expenses that you’re currently vulnerable to. Here’s a non-exhaustive checklist to help you brainstorm:

• Insurance deductibles

• Key equipment or appliances you depend on

• Medical expenses not covered by insurance

• Pet expenses

• Specific car repairs and maintenance

• Specific home repairs

This is a specific list of all threats that could derail your financial life. This is your specific minefield.

Step 2: Size them up

Next, you’ll want to put a dollar amount on each of these threats. This is the amount of money you’ll want to have in hand if and when the threat strikes. 

If you have a $500 deductible for your car insurance, then you’ll assign $500 to this threat.

If you have a washing machine that might need to be replaced soon, research the cost of a replacement and use that figure.

In the case of car maintenance, use a conservative average for how much it costs anytime the check engine light comes on.

Step 3: Sort them

Now that each item has a dollar amount, sort them all from smallest to largest and add them to your budget as savings categories. My budgeting app of choice YNAB, and YNABers commonly describe these categories as Rainy Day funds.

This is now your Resilience Fund ‘hit list’. You’ll use your budget to direct and track your income to each of these categories, one at time, and in order.

Smallest to largest matters because your psychology is of paramount importance. You need to have a list of quick wins to build momentum and boost your savings self confidence.

Step 4: Redistribute your savings

Take any general savings you have and distribute them to your new hit list. You’ll likely fill the first few instantly, which is a great hit of dopamine to get started.

Now identify the next item on the list that’s not full. That’s your target.

Every last dollar of excess income must go to filling this category until it’s full. Then, move on to the next category until that one’s full. Repeat with each category until you’ve fully stocked your Resilience Fund.

Step 5: Figure out the timeline

Remember that the goal is to build this savings as quickly as possible. The sooner you get this done, the sooner you can graduate to the sexy stuff like paying off debts, going on vacation, and playing in the stock market.

To get a sense for how long this will take, you need to know your Savings Capacity.

This is your monthly income minus

• Everyday Expenses - common monthly and weekly expenses (housing, groceries, clothing, utilities)

• Debt payments - debt payments (credit cards, mortgages, student loans)

• Scheduled Expenses - future expenses that you know the date for (quarterly insurance premiums, yearly credit card fees, semi annual subscription renewals)

Properly organizing your budget has a massive influence on your ability to read your finances and make sensible decisions. The categories above are part of the Standard Budget Category Groups described in this newsletter. I highly recommend using them.

Once you know your savings capacity, you can figure out how many months it’ll take to fill up your next savings hit list item. In the example below, it’ll take about two and a half months to fill the current hit list item before moving on to the next.

Why this works

This plan takes advantage of positive psychology to make hitting your savings goals a matter when and not if. By listing, sorting, and scheduling your savings goals, you get precise and specific.

This precision and clarity allows you to create realistic goals that you’ll want to keep yourself accountable to. Dragging your feet to save or getting lured into a large impulsive purchase by a sale stops happening because now you have a timeline that you don’t want to sacrifice.

As you neutralize each threat, you feel yourself becoming stronger. You find yourself happily reviewing your finances just to see how far you’ve come. You sleep better at night knowing that this is the best thing you can be doing with your money at this time.

Life is volatile, and we can never know how and when the universe will dole out the misfortune we’re exposed to. But you can prepare.

As long as you have a clear and precise plan that you understand and believe in, there’s no reason to ever be vulnerable again.

This is what I wish I knew 15 years ago.

Even as I spent nearly every dollar I made on a whimsical Peter Pan lifestyle, I was still an avid budgeter through it all.

The problem was that I didn’t value saving, and because of that, there was nothing to stop me from setting my spending targets absurdly high. Sticking to a budget is easy when your spending limits are in the stratosphere.

A string of back-to-back layoffs would eventually wake me up to the pain and desperation that come from not having financial reserves, and within a year, I became a born-again saver.

I made it my mission to never again be so financially frail and vulnerable. It was from that place that I stumbled across the hands-down best way to set and track my spending targets.

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The law of spending

If you’re serious about budgeting, your behavior is highly influenced by how you set your spending targets. This was true even on my most financially hedonistic days.

The world of economics has something called Parkinson’s Law, which states that “work expands so as to fill the time available for its completion.” In other words, if you have a week to get something done, it’ll take a week to do.

This law also applies to our budgets: your spending always rises to the limit you set.

This is why it’s important to have a plan that accounts for both savings and lifestyle.

Saving through spending

Saving was the first and hardest skill I had to learn when I finally snapped out of my delusion and started growing up. Your ability to save rests on how you set your spending levels.

As a new saver, the highest hurdle to overcome is facing what seems like an impossibly long savings timeline. If you can’t see yourself ever reaching the top of the mountain, you’re unlikely to start climbing in the first place.

Building some initial savings quickly is how you overcome that first barrier and start climbing the savings mountain. Successfully getting some savings under your belt provides potent evidence that you’re actually capable of saving.

You begin to believe you can do it, and that belief is what keeps you putting one foot in front of the next. In the beginning, your self-confidence and mindset are of paramount importance.

While you may want to build this early savings as fast as humanly possible, there’s a delicate balance to strike.

If you’re too aggressive and give yourself a spending allowance that’s too low, you’ll inevitably overspend and lose confidence in your ability to change your ways.

If you’re not aggressive enough, however, and give yourself too generous a spending allowance, then you lose the ability to quickly build that crucial initial savings. Summiting Mt. Savings starts looking impossible again.

The key is to set your spending levels just right.

A clue from work

Figuring out a ‘goldilocks’ range is a common problem in business and, because of that, there’s a vast body of knowledge dedicated to understanding when processes are running within a normal range.

Exposure to problems like this at work is how I became acquainted with the humble, but powerful, control chart. 

In the deep world of Quality Management (i.e. Six Sigma and LEAN manufacturing), control charts are a foundational tool used to detect when a process is going haywire.

Things clicked for me when I realized that my day-to-day spending patterns closely resembled the data and trends I was seeing at work. If I could spend 8 hours a day explaining normal ranges to execs, why couldn’t I do the same with my spending?

Why we pick the wrong targets

YNAB, my budgeting app of choice, is wonderful for tracking your spending and helping you stick to a spending plan. But it’s up to you to decide the plan.

The mistakes I made in choosing targets were informed by YNAB’s basic Reporting tab. I’ve recreated that chart below using dummy data to show you what I mean.

I was basically eyeballing it. Doing my best to determine if I should use the short bars, the tall bars, or the average.

Your friend the control chart

Here’s how the same dummy data in the graph above looks through a control chart I’ve adapted for personal finance use.

For a given budget category, the black line tells the story of how your spending shifts from one month to the next. The bar chart from before gave us that, but the control chart contextualizes the information.

The solid blue line represents the average spending, and the dotted red lines represent the upper and lower bounds. Without boring you with a bunch of math, any spending that falls between these dotted lines is considered normal.

If you have a particularly expensive month, you don’t have to automatically freak out. You can instead ask if it fell above the upper bound. November’s $1,366 was high, but it was on the high end of the normal range. No reason to sound the alarm.

More importantly however, seeing the normal range allows you to intelligently select spending targets based your goals.

If you're trying to quickly build savings, it might be tempting to try to repeat your most frugal month (you’ve done it before right?). But this is where you could unwittingly set yourself up for failure.

Digging into the data for May, you’d see that the $473 grocery figure was low because you were out of town on a vacation, so it’s unreasonable to expect your grocery budget to look like that on a typical month at home.

Control chart to the rescue. Setting your spending limit to the lower bound of the normal range ($746) ensures that you’re still lowering your spending limit, but in a way that’s realistic and sustainable over the long run.

Why they work

As you can see, the magic of the control chart comes from those dotted lines. They’re calculated from the spending data itself using its standard deviation.

Though the name sounds scary, standard deviation is simply a common way of measuring how far, on average, each data point falls from the average.

The wackier your spending, the bigger the standard deviation. The more predictable your spending, the smaller your standard deviation. The upper and lower bounds are just the average plus and minus the standard deviation.

These average, upper, and lower bounds are dynamic, meaning that each month they’re recalculated. So if your life changes in a big way (like when you move to a new city) they’ll automatically adjust.

Control charts give you a fantastically precise and nuanced view of your spending that allows you to:

• Build forecasts using data-informed assumptions

• Easily detect outliers, and react to them accordingly

• Pick sustainably low and conservatively high spending targets

• See the seasonality in your spending and its effect on your normal spending range

Once you start using control charts to review your spending, there’s no going back. You’ll have a new found sense of confidence and understanding when assessing the financial rhythms of your life.

You’ll rest easy knowing that you’ve got the tools in hand to detect when things are off, and you’ll only spend time investigating issues when it’s actually warranted.

Perhaps best of all though, you’re no longer making decisions by feel. You’re instead using math to make well-informed choices. Choices that can make all the difference when setting out to climb Mt. Savings for instance.

How to start using a control chart

If you’re good with a spreadsheet, building a control chart isn’t too difficult, but it’s a huge undertaking if your first language isn’t Excel. 

To make this easy for you, I’ve done the work and created the Control Chart Calculator.

It’s a free Google sheet you can use to quickly create any control chart you’d like. Seriously, it takes less than 5 minutes.

Just follow these steps to get started:

1. Pick a budget category you’d like to look into.

   Pro tip: I highly recommend organizing your budget using the standard budget categories groups.

2. Pull a monthly spending report for the last 12 months for that category.

3. Make a copy of the Control Chart Calculator

4. Key the values from step 2 into the Input tab

   

5. Poof! Your chart will be waiting for you on the Control Chart tab

With the power of the control chart in hand, you’ve got what you need to intelligently interpret your spending patterns and set realistic savings plans. Be sure to send me a photo from the top of Mt. Savings when you get there! 🗻

30 or so years after taking on significant student loan debt to attend an elite art college, he’s reached the limits of a debt-enabled life.

This is the position a good friend of mine recently found himself in. Just about every last dollar that doesn’t go toward his basic needs goes to meeting minimum payments across the 22 loans he’s obligated to.

He found the love of his life a couple years back, which is wonderful for his heart, but excruciating for his wallet. Without savings or a lender willing to extend much more credit, he now faces the terrible challenge of finding a way to pay for a wedding.

This is how a photographic virtuoso winds up selling his camera to pay for catering.

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The psychology of failure

My friend didn’t get here overnight. He’s been aware of his money problems from the beginning and has made several earnest attempts to address them over the years.

Unfortunately, he never followed a plan that made sense for his situation, and with each failed attempt, his faith in ever getting out was further eroded.

As he gradually lost hope, avoidance and denial settled in, leading him to increasingly rely on debt to build and sustain a lifestyle he couldn’t afford.

While my friend’s case is extreme, it’s a clear example of how the psychology of failure can lead us into a downward spiral that feels impossible to escape.

As you’ll see shortly, there’s always a way out.

Why we fail to escape debt

It’s remarkably easy set ourselves up for failure when we choose the wrong plan to get out of debt. Here are four of the biggest reasons this happens:

Conflicting information - Guru A tells you that your top priority is to build a $1,000 emergency fund while Guru B says it’s paying off your highest interest credit card. The right choice isn’t obvious, especially if your financial self-confidence is low.

Generic advice - Setting aside $1,000 for an emergency fund might be a walk in the park for one person and the equivalent of summiting Everest to another. Your goals need to be appropriate to your situation to avoid biting off more than you can chew.

Not prioritizing security - A lot of advice encourages people to pay off debts or begin building investments while they’re still vulnerable to calamity. If you still have to pull out a credit card to replace the water heater, you shouldn’t be buying stocks.

Not taking psychology seriously - Getting out of debt requires consistency and belief above all. It’s hard to stick with a long term plan that lacks early wins, a satisfying sense of progress, and a clear set of achievable milestones.

Here’s a quick litmus test to figure out if you might be on the wrong plan:

• Year after year, your debt never seems to go down

• The only joy you get from money is spending it

• There’s always something that wipes out progress and brings in new debt

• You’ve tried everything and don’t know what to believe anymore

• Another year goes by without saving for retirement

If any of those ring true for you, it’s understandable that somewhere, deep down inside, you feel that your situation is hopeless. I’m here to tell you it’s not.

Now let me show you why.

The way out

The key to getting out of debt is to have a well structured plan that meets you where you are, sets tailored goals, and builds your financial confidence along the way.

Prerequisite: Use and configure a budgeting app

All of the subsequent steps rely on you being able to track and plan your spending, which is exactly what budget apps are for. I explain how to set up your budget category groups here. I love and use YNAB.

Step 1: Figure out your Savings Capacity

This is the dollar figure you get by subtracting your Everyday, Debts, and Scheduled Spending expenses from your monthly income.

It serves as the engine that gets you from where you are to where you’re trying to go. It determines your savings rate and debt pay-down pace. I provide a deeper dive into it here.

Avoidance and denial evaporate the moment you know your Savings Capacity since you it tells, in an instant, whether you can truly afford the lifestyle you’ve been living.

Take flying an airplane as a metaphor for your financial journey, where the height of the plane represents your financial health. The goal is to fly high and avoid crashing into the ground.

Your Savings Capacity tells you if the plane is going up or down.

• The greater your Saving Capacity, the steeper your climb

• A Savings Capacity of 0 means you’re flying level

• A negative Savings Capacity means you’re descending

Step 2: Fill your Rainy Day funds

Once you’ve determined your monthly Savings Capacity it’s time to aim it at building security and peace of mind. You do that by filling your Rainy Day funds.

This is the part of your budget dedicated to saving for the potential expenses you’re most immediately vulnerable to. Think emergency repairs and insurance deductibles. Yes, we’re building (some) savings before reducing debt.

We start here because each of these potential expenses is like stepping on a debt landmine: it forces you to reach for a credit card if you don’t have the cash to deal with it when it hits.

In terms of getting out of the debt hole, saving for these expenses in advance is how you stop digging.

Unlike saving for some arbitrary $1,000 emergency fund, each full Rainy Day bucket shows you exactly how saving made your life better. To the cent. It’s a potent and addictive measure of progress.

You’ll feel a sense of calm and security come over you the moment you start filling these buckets up.

You achieve Financial Resilience when the last Rainy Day Fund is full. Back to our airplane, this the altitude in which you’re no longer flying dangerously close to the ground.

Step 3: Pay off your high interest debt

Now that you’ve disarmed your personal minefield, it’s now time to channel your well-developed savings skill to hack away at your debts. This will feel even better than the last step.

Debt comes in two flavors: high interest and low interest. We start with the high interest debt first.

A debt’s interest rate is high when it’s larger than the national average 30-year fixed mortgage annual percentage rate, commonly known as the “30 year fix” rate.

This is the dividing line for what most people agree is ‘good, long term debt,’ and it changes with the US economy. It’s 7.5% as of this writing, and I use bankrate.com to determine what it is at any given time.

Use today’s 30 year fix rate to identify all of your high interest debts, then sort them by minimum payment, from smallest to largest. This is your debt ‘hit list’.

Start adding your monthly Savings Capacity to the minimum payment of the first loan on that list and watch it’s payoff date leap closer to present day. The math that explains how this works is fascinating.

When you pay off that first debt, the light at the end of the tunnel becomes visible. You now have real, indisputable evidence that it’s only a matter of time until you’ve picked off every last debt on your hit list. On top of that, you’ll be picking up the pace.

The dollars that used to go toward that first loan’s minimum payment now go to your Savings Capacity, thereby increasing it. Using this larger figure to pay down the second loan means that you're paying it off at a rate faster than the first. That’ll put a spring in your step.

This technique is commonly referred to as the debt snowball. An alternative technique exists, called the debt avalanche, where you first pay down the loan with the highest interest rate.

While it does save you a little more money in the end, the snowball prioritizes early wins and builds momentum sooner, which why I recommend it.

Step 4: Build your Emergency Reserve

With all your high interest debt eradicated, you’re now sailing on calm waters. This is the time to build your Emergency Reserve, the safety net that catches you if you lose your income.

To determine how big your Emergency Reserve should be, pick the number of months you’d want to give yourself to line up your next job. This is your Unemployment Runway.

The length of your runway is a highly personal choice that reflects your risk tolerance. Common wisdom suggests that it takes the newly unemployed anywhere from 3 to 9 months to find a job.

Once you know your runway length (in months), multiply it by your average monthly Lifestyle Expense figure. This is the sum of your Everyday, Debts, and Scheduled Spending, averaged over at least 3 months.

If the sight of math makes you queasy, don't worry, calculations like this are child’s play for budgeting apps. Without the high interest loans to bog you down, you’ll be surprised at how fast you can fill this final savings bucket.

Think of all you have going for you by this point: you know how to save, your Savings Capacity is at an all time high, and you’ve got a long track record of wins that prove you know what you’re doing.

Once you finish filling this last bucket, you’ve done it. You’ve reached Financial Serenity. You’re now immune to financial calamity, all of your wasteful debt is extinguished, and you could take a leave of absence from work without breaking a sweat.

In the airplane analogy, this is when you break through the clouds and hit cruise altitude.

Step 5: Pay down low interest debt (if you want)

From the rarefied air of Financial Serenity, you’ve got options for what to do next.

While there’s nothing wrong with paying off your mortgage early, or closing the book on your student loans, you may decide there are better things to do with your (now huge) Savings Capacity.

This is the time to consider investing in a stock portfolio or spending some of that hard fought Savings Capacity on fun things like vacations and toys.

You’ve worked hard to get to this point, and you’re now genuinely able to afford a higher cost lifestyle if that’s what you want to do. Unlike what life looked like back at Step 1, you’re fully in control.

Go forth

A budget, knowing a couple of key numbers, and creating a credible plan are all that separate you from the depths of financial despair to an exciting and outstanding future.

The benefits kick in the moment you step foot onto this path:

• Avoidance and denial instantly evaporate when you know your Savings Capacity

• Anxiety and fear give way to pride and self confidence as you fill your Rainy Day funds

• By the time you you’re ready to tackle debt, you’re already unstoppable

You feel lighter with each month that passes by and you redefine your relationship to money as you go. You no longer have to spend money to derive joy from it.

The psychology of failure that trapped my friend for all those years can be escaped. All you need is the will and drive to get started.

The pattern always looked the same. An unforeseen expense like a car repair would wipe out months of diligent saving. The mental hit would then cause me to slowly lose confidence in my ability to meet my goals for the year.

After a period of self-delusion, I’d throw my hands up and finally admit that I was no longer trying, and I’d regress back to my old spending habits until the next new year’s resolution.

Only in hindsight did I realize that my emotions were not only running the show, but also flying blind.

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I lost the horizon

Early in their training, pilots learn about a phenomenon known as spatial disorientation.

When they lose visibility to the horizon, their bodies struggle to tell if they’re flying straight. Without a visual frame of reference, the flood of incoming sensory signals incorrectly combine to produce a false sense of reality.

In the early days of aviation, before modern instruments, pilots would regularly leave a dense bank of clouds completely shocked to find they had been flying upside down.

A similar condition happens with our finances. In the absence of a financial “horizon line” our ability to tell if our financial lives are getting better or worse is severely impaired.

This happens for a few reasons.

We don’t account for future expenses

Your lifestyle costs more than you think.

If you total up the annual, semi-annual, and quarterly expenses you’ll have to pay this year, and level them out into a single monthly expense, you’ll see that no single month is representative of everything you have going on. 

I call this monthly average your Scheduled Spending Overhead, and it can add up to as much as a third of your total monthly spending. If you don’t know this number, you’ll systematically underestimate your spending and set savings goals that are too high.

We miss seasonality

When you’re navigating by feel, recent events tend to influence your thinking more than events that happened a while back. This is classic recency bias, and it makes you miss the seasonal patterns in your life.

If you’re forecasting your expenses for the year in June, it’s easy to forget what your heating bill looked like in January.

Being unaware of how your spending changes with the seasons causes you to set unrealistically high savings goals.

We don’t distinguish regular from irregular spending

Not all spending is the same. A big expense needed to handle an emergency repair doesn’t represent how you lived your life for that month.

When assessing how well you live within your means, these large and reactive expenses eclipse the progress you’ve made, ultimately leading to a distorted view that can erode your financial self-esteem.

We lack context

A pilot would never commence a nose dive when they’re too low to the ground. They have to reach cruise altitude before it’s safe level out or descend. The same is true with building savings.

In this analogy, your savings level is like the height of the plane. You hit “cruise altitude” only after saving enough to fund your Rainy Day expenses, which is the Financial Resilience milestone on the path to Financial Serenity.

Buying that couch that “you just gotta have” before achieving cruise altitude means, at best, not climbing as fast as you could. At worst it means losing altitude when you’re still flying low to the ground.

Most of us have a rough idea of our savings level but are foggy on how quickly we’re climbing (or descending). Without both, it’s easy to justify large expenses that keep you from breaking through the clouds.

5 signs that you’re flying blind

The hallmark of flying blind is uncertainty. If any of the following are true, you’re likely flying upside down:

• You consistently end the month keeping less of your income than expected

• You have no idea how long it’ll take to finish building savings

• You don’t know how much to ask for during your next raise or job interview

• You suspect that you might be happier working a job that pays less, but don’t know how little you can afford to make

• You only have a fuzzy idea of how long you could live off savings if you lost your job

Savings Capacity: your pitch indicator

The way you bring your perception in line with reality is to determine your monthly Savings Capacity.

Back to our airplane metaphor, Saving Capacity is your pitch, the angle that describes if the plane is climbing, level, or descending.

• The larger your Savings Capacity, the steeper your climb.

• A Savings Capacity of $0 means you’re flying level.

• The more negative your Savings Capacity, the steeper your descent.

As the name implies, your Savings Capacity is the true measure of your ability to save, unburdened by the noise of life.

The car repair that came out of the Rainy Day category isn’t included in your Savings Capacity. Those were dollars you put away long ago and they don’t tell an accurate story about how well you saved in the month you spent them. Savings Capacity filters out this noise.

By contrast, the night out on the town that ended up costing way more than you expected is fully captured by the Everyday category (first red bar in the chart), which results in a lower Savings Capacity for the month.

Since we’re all creatures of habit, your Saving Capacity is remarkably stable and well suited to forecasting. This is the number to use when building a savings plan that’s actually realistic.

Finding the horizon

Once you know you how to determine your Savings Capacity for one month, you can look back and calculate a nine or 12 month average. These averages address that pesky seasonality blind spot and allow you to accurately predict how long it’ll take to reach your savings goals.

The averaged Savings Capacity figure brings another huge advantage: It reveals your monthly Scheduled Spending Overhead. Remember, this is the figure that comes from leveling out all of your annual, semi-annual, and quarterly expenses. You only know the true monthly cost of your lifestyle when you know this figure.

Finally, when you pair your Savings Capacity with your current savings level, you have all the information you need to understand the stakes involved in any large purchase decisions. Going back to our example earlier, buying that gotta-have-it couch could very likely look like this:

When you know your Savings Capacity, you instantly begin to trust yourself again. The information you’re working with is well-informed, accurate, and stable, and it allows you to set goals that are sustainable and within reach.

Figuring this out was an absolute game changer in my personal savings journey. Being able to discern regular from exceptional spending allowed me to keep my head up and stay the course when the waters of life got unexpectedly choppy.

By knowing how my little airplane was climbing in periods of employment, and descending when I was between jobs, I was able to keep a realistic set of expectations about my savings journey and accurately choose my next goal.

Not only that, but I was able make confident decisions about which expenses to cut and how large of a salary to negotiate at the next job offer.

How to determine and use your Savings Capacity

0. Start or (re-start) using budgeting software. I love YNAB

1. Organize your budget with the Standard Category Groups

2. Determine your Saving Capacity

3. Calculate your 12-month (or next longest) average Savings Capacity

4. Identify your next milestone on the path to Financial Serenity

5. Track your progress by reviewing how these figures change every month

Having this knowledge at my fingertips helped me keep my emotions at bay and finally allowed me to make sense of my finances in a way no other tools had before.

Spend a few hours setting up your budget today, and start flying with a full set of instruments.

I had to accepted a job offer in software sales for a company that I knew wouldn’t help my career, and where I knew I wouldn’t have the support I needed to succeed.

There was only one good reason to take the job: I needed the money.

My back was completely pinned against the wall. I had just been laid off from a similar role at a much bigger company, I was living in San Francisco, and my MBA student loans amounted to paying a second rent.

I had maybe three months of living expenses in my bank account with zero other prospects in sight. This job offer was lifeline. My situation was entirely due to the fact that I didn’t have enough savings, and therefore time, to find something better.

I ended up spending the next eight years creating a sure-fire system to ensure I’d never be in this position again.

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Why we don’t save

There seems to be universal agreement that building savings is a good idea yet few of us actually do it.

This paradox is easily explained:

We don’t value savings

You only need to look as far as social media to see that we reward those who play the status game. You never see a bunch of likes for people who finish funding their Emergency Reserve. It’s all vacations, designer clothes, and expensive meals.

We’re not taught how to save

Saving money isn’t taught in school. Those that save either had parents who taught them how, endured a terrible experience they never want to repeat (like me), or somehow developed a natural interest in personal finance. Everyone else never stood a chance.

Saving requires sacrifice

Saving a dollar for tomorrow means not spending it on something you want today. That’s enough of a reason to quit early or just not start at all.

We’re too optimistic

We’re bad at imagining any kind of negative future that might follow from our actions today. Just look at climate change, and people who smoke. Savings is no different.

We have a blind spot when considering how we might fare when the world deals us a bad hand. We tend to assume things will just work out.

If any of the following ring true, you’re in good company:

• You feel guilt and shame about not saving enough

• You’d be in dire straights if you lost your job

• You have a constant low-level worry about hefty bills coming up later in the year

• You know that an unexpected big expense would force you to go further into debt

In short, most of us are bad savers and for good reason.

The way out

“The best time to plant a tree is 20 years ago. The second best time is now.” – Chinese Proverb

If you have little to no savings, the best thing you can do is start building today. Everyone starts from zero and with the right plan and approach, you can dramatically change your fortunes in a short period of time.

The key is to realize that there are actually four flavors of savings, and that they’re built in a specific order:

1. Scheduled Spending: Money you set aside for known future expenses

2. Rainy Day Funds: Money needed in case of a temporary calamity

3. Aspirational Spending: Money for things that are optional but important to you

4. Emergency Reserves: Money needed in case you lose your income

Saving in this sequence arms you against threats in the order they’re most likely to strike. You immediately develop a clear understanding of precisely how the sacrifice you’re making today is benefiting you in the immediate future.

That feeling is addictive.

Scheduled spending prepares you for the expenses that you know are coming while Rainy Day funds neutralize threats that you're currently vulnerable to.

Your Emergency Reserve buys you time to replace your income after it's been lost, and Aspirational Savings works as a release valve that allows you to enjoy some of your hard work after completing steps 1 and 2.

Savings begin to matter

Your relationship with savings begins to change the moment you earnestly begin building them. I can clearly remember how my feelings of stress, anxiety, and guilt began to give way to feelings of accomplishment, progress, and purpose.

With each month that passes by, the nearest threat gets further and further away until you reach a point where even a loss of employment is nothing more than a minor speed bump.

I’m currently between jobs and had to replace a water heater last month. This expense would have been catastrophic back in 2016. Today, the most inconvenient aspect of the event was lining up the plumbers to provide quotes.

When your savings game is right you can look forward to:

• Knowing you're on track to handle every big bill on the horizon

• No longer freaking out over news of a recession or rumors of a layoff

• Being ready to handle any of the nasty curveballs life throws your way

• Satisfaction and relief that comes from knowing you’re finally on the right track

3 steps to becoming a master saver

0. Start (or restart) using budget software

1. Organize your budget to include

• Scheduled Spending

• Rainy Day Funds

• Aspiration Spending

• Emergency Reserve

2. Reallocate any existing savings you have into these new categories in the order listed above

3. Figure out your next savings goal and get to work

Since taking that bad job, I’ve been laid off four more times. In each period of earning, I dutifully worked this savings plan. It wasn’t a straight line, but I always knew where I stood and what to work on next.

When you have a clear strategy and plan to follow, building savings becomes one of the most fun and rewarding projects in your life.

With this blueprint for building savings in hand, you’ve got everything you need to start your savings journey. Now it’s time to get your back off the wall.

Don’t worry, it’s not your fault.

The anxiety you’re feeling comes from a lack of quality information.

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Most budget software can display your spending information in a number of different ways, but even after poring through all the reporting, you still find yourself asking “What does this actually mean?”

To illustrate, consider a typical American family that just experienced a minor fender bender two months ago.

They pull a spending report from their budget software for last month and immediately see a scary picture: a super negative cash flow amount.

Now, they’re not completely surprised by this grim picture. They knew that their spending last month was going to be irregular because of all the atypical spending associated with the accident.

The problem is that they can’t easily distinguish between spending related to their lifestyle and savings goals and spending related to the accident.

Interpretation

Your ability to interpret and react to your finances depends on how well you describe them.

This is where budget apps fall short. While they offer multiple ways to slice and dice your spending, they don’t have a way to directly isolate and highlight worrisome spending.

That’s where the Standard Budget Category Groups come in. They were specifically designed for this task.

By organizing your budget with these groups, not only will you be able to completely describe your spending activity, but perhaps more importantly, you’ll know how to feel about it.

As a reminder, these are the standard budget category groups:

• Everyday Spending: common monthly and weekly expenses

• Debts: debt payments

• Scheduled Expenses: future expenses you save for in advance

• Rainy day Funds: potential expenses you pay for now

• Aspirational Spending: optional expenses you’re excited to make

• Emergency Reserves: savings you only access after a loss of income

The first three groups are an accurate measure of how much your life costs for the month in which they occurred. I like to think of these as your “Lifestyle groups.”

The Rainy Day and Aspirational groups by contrast are time-shifted. They hold budget categories that act like mini savings accounts that you allocate a portion of your income to each month.

Once you move money into these categories, you part with it. That money is no longer yours. It’s destined for the bank account of some person or company that is yet to be determined, and you’re just holding onto it until you find out who.

Unlike the Lifestyle groups, money spent from the Rainy Day or Aspirational groups is not representative of how you lived life during a particular month.

In the case of Rainy Day funds, you’re finally ‘settling up’ with bills you knew would eventually come. With Aspirational Spending, you’re finally ‘cashing in’ on the investment you’ve been building for months.

You should feel good about the spending tied to these groups.

Your friend, the Cash Flow Profile

Let’s revisit our typical family now. Here’s the same cash flow chart from before, but this time broken out into the Standard Budget Category Groups. I call this view of monthly spending the family’s Cash Flow Profile.

Right away we can easily see that the majority of spending came from Rainy Day funds. 60% in fact. How’s that for reducing anxiety!

Not only does the family instantly know that $14k of their spending was totally fine, but they should be patting themselves on the back for being ready for the storm when it came.

By comparing the Lifestyle categories (Everyday, Debts, and Scheduled) to their historical averages (a task that budgeting apps are great for), the family would quickly see that spending levels here were slightly elevated, but nothing to be too concerned about.

This month had a lot of noise in it, but nothing to lose sleep over. The Cash Flow Profile made it clear that despite the big expense, they’re still maintaining an even keel.

4 Steps to harnessing the Cash Flow Profile

Reviewing your Cash Flow Profile is easy once you set up the Standard Budget Category Groups:

0. Start (or re-start) using a budget - I love and use YNAB

1. Organize your budget categories into the Standard Budget Category Groups

2. Use your budgeting software to review last month’s spending with these groups

3. Take note of how much spending ‘belongs’ to last month (ie Lifestyle) and how much was time shifted (ie Rainy Day & Aspirational)

4. Celebrate any responsible spending and revisit whether you need to start saving again.

The car replacement example was based on an event that happened in my real life. A completely unremarkable and routine trip to the grocery store resulted in a total distortion of my financial picture.

Luckily no one was hurt, and thanks to the Cash Flow Profile my wife and I didn’t have to worry about the financial implications. We had funded our auto insurance deductible (Rainy Day expense) the year before and insurance took care of the rest.

Getting to this point took years of making mistakes, getting caught off guard, and ultimately worrying about the wrong things.

The Standard Budget Category Groups and Cash Flow Profile are what came from all that lived experience. Start using them today and start sleeping better at night.

The moment of clarity came when I realized that despite all my fastidious budgeting activity, I was actually moving backwards and didn’t even realize it.

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The backward drift was easy to miss because, if I’m being honest, I didn’t really know where I was headed. I just knew that if I had some savings, things weren’t so bad.

I couldn’t see the limitations of budgeting until I realized that I was operating without a plan.

Budgeting has its place. And its limits

I’ve been an avid budgeter since 2012 and in that time I’ve gone from a complete financial mess to finally getting my spending under control.

If you’re living paycheck to paycheck, like I was after graduating college, starting a budgeting habit is the single best thing you can do to improve your financial situation.

The limitations of budgeting only become important after you’ve moved on to calmer financial waters.

I’ve been laid off five times over the course of my career, and for the majority of those periods of unemployment, knowing I could afford to live off savings for several months at a time was enough to keep stress and anxiety at bay.

It was only during a year-long sabbatical (layoff number 4) that I had the mental space and distance to realize that I was in a loop. When I had a job, budgeting helped me rebuild the savings spent during the prior layoff. When I was between jobs, budgeting helped me stretch my savings until I could land on my feet again.

Budgeting was essential to keeping my head above water during turbulent times, but all the budgeting in the world wasn’t going to help me determine when I was ‘financially fit’ enough to transition from perpetually playing defense (i.e. saving for the next rainy day) to investing in a new path forward that could finally break the cycle.

Budgets lack context

Not all spending is equal. Shelling out $1,000 for a car repair is perfectly fine if you’ve saved for it in advance (budget nerds call this a sinking fund.) Spending $1,000 on an impromptu long weekend is toxic if you can’t afford it.

Your budget can’t tell the difference between the two. If you ended up overspending on one category, your budget will force you to pull money from other places to cover the shortfall.

If those other places include your emergency nest egg, the feeling of responsibility you have when covering the shortfall can hide the fact that you’re actually losing ground in the big picture. This was what was happening to me during the sabbatical.

Budgets don’t know what they don’t know

A good budgeting app allows you to save for future expenses like insurance premiums and anticipated repairs, but it won’t tell you if you’re saving for everything you should be.

Did you remember create a savings category for that old water heater that’s about to die? Are you on track to pay the annual fee on that fancy travel credit card?

Budgets leave it to you to determine what goes in them, so if you’re missing something important, your budget is none the wiser.

Budgets don’t tell you what to prioritize

Even if you did a great job identifying all the things that you should be saving for, if you’re like most of us, you can’t fund everything at once.

You only bring in so much each month and your budget leaves it to you decide which categories to contribute to now, and which to contribute to down the road.

Your budget does a great job of displaying all the places you could park you money, but doesn’t have anything to say about which categories to fund first. This is where a plan comes in.

The utility of a plan

A plan charts your path from financial infancy to mastery. It’s a roadmap, a set of principles, and a safety net, all rolled into one.

To understand how a plan fits into your financial life, it’s best to describe the job it does relative to your budget.

Think of your budget like your maps app, dutifully spitting out turn-by-turn directions to get from point A to B. Your plan operates on a higher level, telling you that you’re headed on a road trip and identifying the stops along the way.

A plan wonderfully addresses the limitations of a budget.

• It provides the context missing from your budget by giving you a way to measure progress toward a set of milestones, allowing you to clearly discern good spending from bad.

• The very act of creating your plan ensures that your budget is comprehensive and complete. No more getting caught off guard by foreseeable expenses.

• Your plan sequences your savings goals so that the most urgent and important items are taken care first. When you know where you’re going, and how you’re getting there, prioritization is built in.

• Your plan gives you a sense of place, showing you how far you’ve come and how much is left to go. It’s like seeing the “you are here” arrow on a map.

3 Steps to creating your plan

Step 0: Start (or restart) using a budgeting app.

A budgeting app is crucial to tracking and planning your spending. The numbers in your budget will serve as the foundation for all of your decision making.

You really can’t define a proper plan until this piece is in place. While there are many budgeting apps to choose from, I love You Need a Budget (YNAB).

Step 1: Set up your budgeting groups

Your budget is made up of categories (groceries, rent, clothing, etc.) organized into groups. A strategic set of groups is what allows you to connect your budget to a plan.

After experimenting with several variations of groups over the years, these six are the most impactful:

Everyday Expenses

This group holds categories for expenses that are regular, predictable, and that happen multiple times a month.

Examples include rent and utilities, groceries, dining out, clothing, and household goods. If you have a category that doesn’t fall in any of the following groups, it probably belongs here.

Debts

All debt payments you’re currently keeping up with on a monthly basis. Think mortgage, car loan, student loan, and credit card minimums.

Scheduled Spending

Future expenses where you know the date and amount of your next payment.

Examples include annual credit card fees, your AAA membership, and semi-annual insurance premiums.

Rainy day funds

Future expenses that you can see coming, but whose dates are unknown. This is effectively how we account for Murphy’s Law which states ‘anything that can go wrong will go wrong.’

Examples include insurance deductibles, home repairs, and replacing appliances.

Aspirational spending

These are optional (and fun) expenses you’d like to be able to make one day.

Examples include vacations, toys, charitable giving, and big ticket items like a new car or computer.

Emergency reserve

This is actually a single category that acts as a safety net of last resort. Unlike the other groups, this category has a one-way valve. You only touch it if and when you lose a significant portion of your income.

Step 2: Determine your milestones

Your plan is made up of three sequential milestones, each representing a significant developmental stage on your path toward Financial Serenity (we’ll get to this in a bit).

Achieving all three milestones will likely take along time (years not months), but the end point is life changing and well worth the effort.

Milestone 1: True Breakeven

You achieve this milestone when your monthly income covers your actual spending in addition to saving toward your Scheduled Expenses.

Example:

Let’s say you make $1,000 a month and spend $900 of it just living life. Let’s also say you have a $1,200 car insurance payment coming up in 6 months.

In Step 1, you added the car insurance premium category to your Scheduled Spending budget group, which means that you need to be saving (and not spending) $200 each month to be on schedule to make the payment on time.

In this simple example, you wouldn’t be at True Breakeven because your income of $1,000 doesn’t cover your actual spending ($900) plus the savings needed for the car insurance premium ($200).

To achieve True Breakeven, you’d either need to spend $100 fewer actual dollars or find a way to make an additional $100 over the course of the month.

When you hit Monthly Breakeven, it’s impossible to live paycheck to paycheck. By definition, you’re spending less than you make. The days of being caught off guard by a big, predictable, expense are over, and you’re ready to graduate to the next milestone.

Milestone 2: Financial resilience

You achieve Financial Resilience when all of the budget categories in your Rainy Day funds are filled.

In order to make progress in this stage, your monthly income must exceed your Monthly Breakeven amount.

In our previous example, you’d have to make at least $1,100 a month to make headway in this stage.

This milestone took the longest for me to achieve (nearly three years) but was also the most satisfying. Each budget category is like a mini-savings account dedicated to neutralizing a threat.

Every few months I’d fully fund another category, shortening the list of potential threats that could afflict me, and adding another layer to my financial armor. Your plan ensures that this is a finite list, meaning that you’re not going to be saving forever.

Once you fully fund the last of the Rainy Day categories, you finally switch from playing defense to playing offense, and it’s where things start to get fun.

Milestone 3: Financial Serenity

You achieve Financial Serenity when your Emergency Reserve is equal to 6 times your average monthly spending across the Everyday, Debts, and Scheduled Spending budget groups.

Because you covered all your worst case scenarios when achieving the first two milestones, you can take the scenic route on this final leg of your journey.

Feel free to siphon off some of your excess income toward funding one or two of your aspirational expenses with the remainder going toward filling your Emergency Reserve.

A worthwhile journey

While achieving all three milestones undoubtedly takes a long time to complete, the benefits kick in immediately and continue to build throughout the journey.

By the time you achieve Financial Serenity, each of the following will have come true:

• All of your monthly expenses are covered and, taken together, only amount to a fraction of your income.

• Each of your Scheduled Expenses are on track to be paid one time, meaning that you’re never caught flat footed.

• You can take a punch and are ready for anything. Murphy’s Law becomes a vanishingly small threat to your financial life until it’s gone completely.

• You’re spending money on things that are actually fun with no guilt or apprehension.

• You’ve got a stockpile of cash that can sustain you for a meaningful period of time in the event you lose your income.

Budgeting is an important skill to have for anyone serious about improving their financial situation, but without a larger strategy to guide your efforts, it’s all too easy to let the busy work of budgeting feel like progress.

With a clear plan, diligent saving, and a few lucky breaks, it took me roughly five years to achieve Financial Serenity. Ironically this happened the same month as my most recent layoff (number 5).

Unlike prior layoffs, I now find myself in a position of strength. I have the leeway to teach myself new skills to switch careers into something more stable, and I look forward to making this the most productive layoff yet.

A big part of turning these layoff lemons into lemonade is sharing tough lessons I’ve learned the hard way with you through this newsletter. Consider subscribing if you’ve gotten something from this piece.

As a productivity nerd, I spent years honing my task management system so that I never missed a thing, but despite all my organization, I'd still find myself scrambling to prepare for a meeting or losing track of my top tasks once my day began and the chaos began creeping in.

All that changed when I stumbled onto a new rule for my to-do list, which led to a new practice that's been a complete game changer for keeping chaos at bay. In this post, I’ll get into how it works.

How the die was cast

Do you ever look back and realize where your habits started? When it comes to how I work, I can trace things back October 2014. I had recently joined the management ranks at a large healthcare consulting company, and I was in my second year of an MBA program that gobbled up my nights and weekends.

Managing a team and being in a client facing role meant that my days were often chaotic. Each morning my inbox would be filled with emails that often needed a response, and my calendar was always at least 50% full of meetings that I had an active role in.

More often than not, I felt like I was just trying to keep up with whatever the day was going to throw at me. Inbox zero was a rare treat when I could achieve it, and my to-do list was always brimming with dozens of tasks that had to get done in the near future.

Believe it or not, I had been a strong adherent to David Allen's Getting Things Done productivity system, but it still didn't feel like it enough. I'd find myself scrambling to prepare for a meeting that was less than an hour away, or pushing back a really important task after getting dragged into the weeds on some other project that wasn't in my plans.

Over the next nine years, I'd have many other jobs at many other companies, but this way of working didn't really change much. It wasn't until I found myself on sabbatical that a new pattern finally emerged.

The experiment

For the first time in my professional life, I found that I got to choose what to spend my day doing. Despite all that freedom however, my to-do list still felt overwhelming. With no meetings or deadlines to govern my attention, how could I still be feeling overwhelmed?

After a bit of reflection, I realized that my problem came down to two issues: The menu of choice was too long, and I didn't look at it often enough.

For years I would mostly stick to a weekly review where I'd budget a couple of hours to assess the 50-60 active projects I had going on at any given time. After finishing this review however, anytime I'd pull up my to-do list, I'd be faced with a wall of over 40 tasks that I could do, interspersed with a handful of tasks that had to be done.

It took me a while to realize that my eyes would simply glaze over when I saw a list that long. So I decided to try an experiment.

I'd resolve to keep my to-do list to 20 tasks or less on any given day. During my weekly review, I'd pause the majority of my projects so that only 10 or 12 were active at any given time. The result was a short menu of available tasks that most importantly, felt manageable.

By keeping the list short, I found that I'd rip through the actions much faster, and enjoy that infectious feeling of progress and momentum as I checked items items off the list. Crossing an item off a small list feels like a much bigger step forward than shaving off a task a huge list, and there's nothing quite like the feeling of clearing the whole list for the day.

I also found myself looking at that dwindling list several times a day instead of once a week, which meant that I always had a line of sight into the day's most important tasks, which helped me say no to competing demands with more confidence.

By keeping up the weekly review, I was still reviewing all projects, active or not, which helped thwart the anxiety of missing something important that was suppressed from my daily short list.

The lightweight nature of the short list led to a new ritual. Each morning I'd spend maybe five minutes reviewing my short list and making decisions about which of these limited tasks were most important, and which might be better saved for another day. Then I'd get to work.

The most surprising thing that came from this experiment is that the morning ritual still ended up being very helpful even after I reentered the workforce.

An unexpected benefit

Even though I'm back to a knowledge working role with a hyperactive Slack culture and dozens of demands coming at me at all hours, I still protect that first hour of each morning to set the day.

I treat it like a pre-flight check to ensure I cover all my most important bases before I settle into deep work. My morning ritual now includes reviewing my calendar and quickly preparing for any meetings I have coming up, balancing my checkbook, screening email and slack for action items, and then most importantly, reviewing my short list and selecting which tasks need to be prioritized for the rest of the day.

Completing this morning ritual takes anywhere from 30 minutes to an hour, depending on how much new activity is needed to review in slack or email. Once I'm done, I have a clear idea of what my day needs to look like, I'm ready for each meeting I have coming, and most importantly, I don't feel like I'm constantly trying to just keep up.

Calmer seas

Keeping my to do list short allowed me to create a sustainable morning ritual that in effect is a compounding system. Clearing my head of all but a handful of items allows me to get things done faster, which allows me to build on top of completed work sooner, allowing me to get more done in a shorter amount of time, even when the environment is noisier than ever.

Setting the day is fantastic for figuring out what the next eight or so hours need to look like, but if you can fill that remaining time executing or building a compounding system, the sky's the limit.

In case you’d like to see a spoken version of this essay, be sure to check out this post on YouTube.

During my most formative adolescent years, my home situation left me as a prime candidate to fall in with the wrong crowd and head down a really self-destructive path.

Instead, I lucked into finding a structured program and a supportive community that lined up with my childhood dream, and by extension, stumbling onto a path that would forever convince me of how identity-based change can transform anyone's life for the better.

Early seeds

As a young child, I had always been fascinated by airplanes. While most kids were naturally drawn to action figures or books, I was always deeply interested in aircraft and the thought of one day flying. I loved the movie Top Gun, but I couldn't care less about the story. I only cared about the dog fight scenes where Maverick hunted down the fake Russians in training.

The calm before the storm

I grew up in a small suburb north of San Francisco, and went to public school. My upbringing was in many ways very typical. I played soccer throughout elementary school and started playing the recorder in the fourth grade. During elementary school, I was always drawn to order and structure. If I wasn't building model airplanes, I was challenging myself with origami. I liked having a set of instructions to follow.

Apart from my chosen interests, as a child I didn't really stand out in any particular way. My grades were average at best and I was a middle of the pack soccer player. My parents are both immigrants from Ecuador who were constantly working, so I was largely raised by my grandmother in my early years. I was always embarrassed when I had friends over because I knew my house smelled funny from the food my grandma would lovingly prepare every day.

By the sixth grade I had picked up the saxophone and discovered that I had a knack for it. Before long I was the lead alto sax in a pretty competitive jazz band. I won awards and was given all the best spots to solo. By the eighth grade, I was beginning to think that I could make a run at being a musician. This little ray of sunshine however was about the only good thing going on at this time. My family life was falling to pieces.

A cruel mix of infidelity, alcoholism, and bankruptcy lead to my parents divorcing. My dad moved out and my mom was just starting to fall into the depths of a decades long struggle with alcoholism. My house devolved into squalor and my aunt and uncle had to eventually move in to raise my sister and me, alongside their two kids. Shout out to them since they also had a huge impact on making sure I was raised right.

Band balanced the scales, and I was still watching reruns of wings (the airplane show, not the sitcom) as a way of escaping to a place that made me happy.

When it all changed

Then, everything changed one day when my 8th grade class was called to an assembly. A small group of cadets from the local Junior ROTC unit were invited to make a pitch for joining their summer school program prior to my class starting high school.

Ten or so sophomores and Juniors all dressed in Airforce uniforms stood on a stage and told us about how ROTC could turn us into leaders. They explained the details of the summer program, and how it could turbocharge the path to becoming an officer in the military. One of the few things I knew about being in the military was that all pilots are officers.

I don't think I had ever left a school assembly more excited in my life. For the first time, I could see a clear path that would lead me to being a jet fighter pilot. These kids were pumped to be in uniform and their proudly displayed ranks and medals also spoke to my desire for structure when everything else in my life was in free fall.

I ended up joining that summer school program and met people who were just as enthusiastic about airplanes as I was. I watched what they were doing and started following a similar path. When I found out that ROTC and band were offered at the same time, and that I'd have to pick between them, I didn't think twice. It wasn't even a choice. I put down the saxophone and never looked back.

Enter identity

I learned that graduating from the United States Air Force Academy was often a direct line to becoming a fighter pilot and made it my mission to get in. It's a super competitive place to get into though, so I started taking school and extra curricular activities really seriously.

One of my new friends was taking community college courses while in high school to make himself a more competitive candidate, and I followed suit. Once I had my drivers license, I began taking math classes at my local community college and by the time I graduated from high school, I had completed calculus 4. I also quit soccer to lead an after school drill team, and I volunteered in my town's city council as a youth representative.

We had to wear our ROTC uniform every Wednesday during high school, and while many of my classmates hated the ridicule that came with it, I loved it. Looking the part allowed me to see myself as a fighter pilot in training, and once I really started to believe it, I found myself happily doing the things that many of my classmates were reluctantly doing to please their parents.

My friend group slowly transformed as I spent more time with people who were just as driven as I was. Looking back, I'm certain that had this positive support group of friends not been in place, my roiling family life and desire for belonging and purpose could have easily caused me to fall in the wrong crowd and go down a self-destructive path. I know this because that did eventually end up happening down the road in my mid 30's.

The power of identity-based habits

The environment of ROTC transformed my general interest in airplanes into a crystal clear identity that I ran wild with during my formative early teenage years. Many years later, heading into my 40's, I came across James Clear's book Atomic Habits, and saw an idea that I knew deep in my bones was true:

“Incentives can start a habit. Identity sustains a habit”

“Behavior that is incongruent with the self will not last. You may want more money, but if your identity is someone who consumes rather than creates, then you’ll continue to be pulled toward spending rather than earning. You may want better health, but if you continue to prioritize comfort over accomplishment, you’ll be drawn to relaxing rather than training. It’s hard to change your habits if you never change the underlying beliefs that led to your past behavior. You have a new goal and a new plan, but you haven’t changed who you are.”

Taking on the fighter pilot identity was about as transformative an experience as I have ever had, turning me from someone who was fairly aimless into a driven and disciplined person. I also love that this tactic is always available to anyone who is striving to achieve lofty dreams that appear to be a million miles away.

Harvesting dividends

I did end up successfully applying to the Airforce academy and getting pretty far down the process before learning that my eyesight disqualified me from the kind of flying I wanted to do. It was the first time I had ever had a dream shatter before my eyes. I did end up picking myself back up, but how I dealt with that is a story for another post.

I had only applied to two colleges coming out of high school, the Air Force Academy and UC Berkeley, and UC Berkeley was really more of a backup plan because it was a good school that happened to be nearby. Luckily, all the hard work I had been doing effectively amounted to accidentally creating a compounding system that had begun to pay great dividends, and harvesting that work would eventually open unexpected doors that would again profoundly impact the direction of my life.

I started this newsletter because I'm excited by the transformative power of compounding systems, and I'm eager to meet others who feel the same way. I'd love to hear any feedback you might have for post.

Please leave a comment letting me know if I lost you anywhere or if my story resonated with you at all. In case you’d like to see a spoken version of this essay, be sure to check out this post on YouTube.

It's bound to have happened to you at some point. After sticking with something for long enough, you unexpectedly hit a major milestone that leaves you with a deep sense of satisfaction and pride. One technique that really stands out toward arriving at moments like this is generating momentum, and you can harness it to keep yourself consistent for long enough to make hitting that next milestone a matter of when and not if.

Back in July of 2022, I found myself unemployed and reeling from my fourth layoff in a row. The stress of losing my income and the hit to my self esteem of having to yet again look for a job, left me feeling pretty demoralized and in need of some kind of positive outcome I could control.

I needed a win and I needed it to count. Some small pick me up like a nice meal out or a bit of retail therapy wasn't going to cut it. What I needed was an injection of accomplishment that had to be earned. Something that could offset all the set backs I had just experienced with an even bigger feeling of accomplishment. It had to be hard, and I needed to prove to myself that I could do it. It was under these conditions that I decided that I wanted to be become a runner. The problem is that I've been here before.

I've been running off and on since my early 20s. While I've had some success along the way in completing a couple of marathons, my running career looked like a graveyard of hopes and dreams.

I'd start out excited about achieving some kind of goal, like completing a race or hitting a certain time. I'd get a couple of weeks into training but inevitably I start to notice that I wasn't improving at the pace I expected. Either I wasn't getting faster, or I'd develop an injury that I wouldn't allow myself to adequately recover from.

My initial zeal would fade and before long one missed run would turn into two, then a week would go by, then a month, and at some point I'd have to confront my denial and admit to myself that I wasn't really trying to run anymore and that the dream was dead.

This long history of false starts and failures was a clear reminder that running was a risky thing to dive into from the low point I found myself in. I was emotionally fragile, and the thought of inviting another set back at this point in my life made me realize that if I was going to pursue running again, I'd have to do things differently this time.

A different approach

The first thing I did was to lean into the idea that Motivation is very hard to sustain without the feeling of progress. In his book Atomic Habits, James Clear writes “... habits often appear to make no difference until you cross a critical threshold and unlock a new level of performance. In the early and middle stages of any quest, there is often a Valley of Disappointment.” I've lost track of how many times I had fallen victim to the Valley of Disappointment, so this time around, keeping motivation high was paramount.

Next, I changed my definition of progress and started tracking effort instead of results. I decided that good run was no longer one where I hit some kind of personal best. I used to be obsessed with making sure that every run had some kind of improvement to show. A faster time, a better pace, a longer distance covered. Instead, a good run now was a completed run. Rain or shine, hot or cold, if I got a run done, then it was a win.

The biggest wins were those that were hardest to do, like during travel, when I was tired, or when the weather was ugly.

I also decided to focus on how I tracked those wins. I set up a running log that was low friction and fun to engage. I loved nothing more than to post a new entry as soon as I came through the door, still sweaty and breathing hard. It was thrilling to watch my mileage go up day after day, then month and after month.

Seeing this relentless march of wins stack up kept my motivation high, and it only took a couple of weeks for that initial win streak to turn into a sense of momentum that made it easy to keep going.

Running became a part of my daily routine, and before I knew it, I had run over 500 miles. Now I hadn't set out to hit this mileage as an explicit goal. It was just a natural and inevitable outcome of setting in place a sustainable system that generated momentum through a relentless stream of wins.

In summary

James Clear sums up my experience nicely, “When you solve problems at the results level, you only solve them temporarily. In order to improve for good, you need to solve problems at the systems level. Fix the inputs and the outputs will fix themselves.”

The sustainable running system I had set up rested on three key ideas:

• Motivation relies on progress

• Tracking effort and not results

• Making tracking fun

By building and reliably executing on this system, hitting 500 miles became a matter of when and not if. That milestone renewed my confidence in my ability to achieve whatever I set my mind to, and the whole experience acted as a really positive force in an otherwise dreary time. I had accomplished something hard that had to be earned, and doing so had a profound impact on my self esteem.

While I applied these ideas to my desire to become a runner, they can just as easily be applied to any personal endeavor aimed at a big lofty goal.

Do you have a story to share about setting up a sustainable system that made a big milestone inevitable? If so, I'd love to hear about it! Please leave a comment below about what you were working towards, and how you set things up to get there.

Momentum is critical to consistency, but surprisingly, setting goals might end up doing more harm than good. Be sure to check out this post to see why.

In case you’d like to see a spoken version of this essay, be sure to check out this post on YouTube.

“Give me six hours to chop down a tree and I'll spend the first four hours sharpening the axe.” I love the idea behind this Abraham Lincoln quote, but how can I apply it to setting up my todo list? That's what we're getting into in this post.

At the start of each day, I often ask myself how best to channel my attention and energy to make the best use of limited time. This typically looks like reviewing a list of things I could do, and then choosing the handful of tasks that "make the cut." Sometimes tasks make the cut because they have deadlines, but when that's the not the case, I've found tremendous value in considering leverage when choosing tasks.

All work falls on a spectrum of leverage

If you've ever had to train somebody new to a job, then you'll know what I mean. Teaching someone how to do a task that you can do in your sleep usually takes more work than just doing the task yourself.

Once the person is trained however, they can do that task instead of you, leaving you free to spend your time on other things. That return on investment makes the heavy lift of training worth the effort.

The more value a task produces, the higher it's leverage. Recognizing the leverage value of work allows you to get more deliberate and intentional about how you choose which work to do on any given day.

Three kinds of work

I like to classify work into one of three segments on the leverage spectrum: single serving, limited, and everlasting.

Single serving work only delivers a single instance of value. In our tree chopping example, this would include each swing of the axe. The portion of wood cut out from the trunk represents the single instance of value that the axe swing produces.

Next we have limited value work. This is work that yields a several instances of value, but that eventually runs out. Sharpening the axe is a limited value task. It allows each axe swing to be more effective and easier to perform, thereby reducing the overall time and effort needed to eventually fell the tree. The axe will eventually get dull however, so the value is limited, it doesn't last forever.

Finally we have everlasting value work, which as the name implies, delivers value forever. In terms of chopping down a tree, this might look like writing down the procedure for how to sharpen the axe, and illustrating the most effective technique for how to make the cuts. The task of documenting this information only happens once, but it can be applied infinitely many times to cut down any number of trees.

How they relate

When you start to look at work this way, you begin to notice something. Higher leverage work usually makes lower leverage work easier to to do

Single serving work is usually repetitive and kind of boring, but that's also what makes it so great for optimization. And optimization is precisely what limited and everlasting work is best for.

When I was first building my running habit, I found that constantly making little decisions added up to a fair amount of friction when trying to get out the door. Figuring out how far I needed to go and which route to take could easily be just high enough of a barrier to keep me in bed on a cold morning.

That all changed the day I finally sat down and spent a few hours creating a running plan. I laid out what every run needed to look like for the next 9 months, and once that was done, all I ever had to do was look at the plan and execute. No more decision making, or wondering if I was doing the right thing on any given day.

Making the running plan was a great example of limited leverage work. The outcome gave me value for 9 months, and made the single serving work of doing each run much easier to do.

Single serving work is all that counts

This brings us to our final point: when it comes to building a compounding system that transforms your life, single serving work is the only thing that counts.

Going back to my running example, all the reading and planning in the world wouldn't do me a lick of good if I didn't actually get the runs in. Consistently building mileage, day after day, was the only thing that counted in terms of becoming a stronger runner. Same with cutting down the tree. Until you actually swing the axe, all the sharpening in the world doesn't matter.

High leverage work can be sexy and fun to do. It's often the world of research, tool building, and planning. But it's also a fantastic way to procrastinate. Pro tip: A good way to think of procrastination to think of it as the time between single serving tasks.

In summary

The four ideas covered here are connected and together form the secret behind getting more done less effort: tapping into leverage. Recognizing that all work falls on a spectrum of leverage opens up the ability to classify it. You can then make wise decisions about how to spend your attention and energy by balancing the fact that limited and everlasting work makes single serving work easier to do, but always keeping in mind that when it comes to compounding results, the single serving work is all that matters.

Do you have a personal example of high leverage work making your life easier? If so, I'd love to hear about it! Please leave a comment about whether the work was limited value or everlasting, and the kind of single serving work it streamlined. I'm sure you'll inspire me and others, and who knows, you may very well make a difference our lives.

Single serving work is the unsung hero of any compounding system, but how do you keep your spirits high when failure starts to enter the picture? Be sure to check out this post to see how.

In case you’d like to see a spoken version of this essay, be sure to check out this post on YouTube.