Recently, I came across the concept of a “money map” on Four Pillar Freedom. I always appreciate exploring new concepts with visuals. So, I decided to capture the financial phases of our journey to a 7-figure net worth with money maps. I didn’t have a post ready to go for today, so decided to publish my individual geeking out.
As we have taken control of our financial lives, we’ve moved through several distinct phases:
- Debt paydown
- Lifestyle inflation (big mistake!)
- Starting to Invest/Save
- Accumulation (Now)
It was an interesting exercise to capture those phases in a quick and easy visual form. I thought I’d share in case others might be interested in exploring the concept. (For more on the concept, check out the original post on Four Pillar Freedom: My Financial Map.
It’s also a really useful way to capture how differently we’ve approached money throughout our life.
In most things, I prefer to move towards simplicity. In this exploration, the money maps get more complex as we grow in our financial understanding.
Don’t confuse this complexity with difficulty though!
You’ll see significant complexity in the final phase, but that is a result of increased knowledge and increased automation. We are more in control of our money, not less, because we’ve built an intentional map. Our stress has certainly decreased – which is the opposite of what usually happens when making things more complex.
Let’s look at the maps.
Lifestyle Inflation – The Simplest Money Map
This wasn’t our first phase, but I’m leading with it because it’s the one we spent the longest in AND it is the simplest visual. It will be a good entry into the concept.
Again, I encourage you to go to the original money map post to learn how Zach approached it. I followed the same general idea, but with my own spin. In my maps, I capture four different types of money move:
INCOME is in blue. The money coming in.
ACCOUNTS are in yellow. Places where money is held or passes through
EXPENSES are in red. Money that goes away and never comes back.
SAVINGS are in green. Actions that increase net worth.
Lifestyle inflation is simple to capture:
- Our income came in after being earned at our jobs
- We paid taxes on it
- It went to our checking account.
- We spent it all.
You’ll note there is NO green for actions that increase net worth.
This type of money map means you will need to continually work to support yourself. You are not growing your net worth at all. It’s an endless loop.
In sequential order, we actually attacked our debt before our lifestyle inflation phase. Then we stopped paying attention (whoops) – that’s why the lifestyle inflation map above is dead simple. Money flows straight through.
We took on debt paydown after we spent our first years together accumulating debt. (I choose not to try and map that!.) Our money map for the debt paydown phase looks like this:
We earned wages from our jobs and took on extra duty assignments to earn more.
We paid taxes at payroll and the money was then deposited into our accounts.
Then, we applied a set amount to our debt immediately. We had two credit card balances, a car loan, and a consumer loan to deal with.
We used the debt avalanche method (paying off the highest interest rate debt first), but debt snowball or equal distributions would have accomplished the same thing eventually.
Everything else – we spent.
It was not ideal, but tackling debt early was one of the smart things we did. It grew our net worth from negative…all the way to zero.
Then, we made the big financial mistake of lifestyle inflation.
Starting to Save / Invest
We remained in the lifestyle inflation phase for a number of years. Our net worth grew, primarily due to appreciation of the large house we bought. But, our money flow wasn’t intentionally built to grow our net worth.
That started changing when we began to intentionally save and invest. It wasn’t a lot, but you’ll see a bit more complexity here.
In this map, we continue to earn more than in earlier phases. We’re still taking on extra duty assignments to bring home additional cash. I’ve also started doing some work as an adjunct professor. Those add to our income streams.
The income comes in. But, for the first time some of the money goes towards our savings before we pay taxes!
I’ve started a contribution to a single 403b plan. After that, we pay taxes on the rest and the money is deposited into our account.
We’re still spending most of it, but we also add a savings account here. We begin contributing some money to an emergency fund. This isn’t automatic, but we are becoming more conscious of our spending and starting to intentionally accumulate.
In the next few years, we take several other actions. Our finances are growing in complexity, but much of it is automated. With each new step, boxes are added to the money map.
Which brings us to our current money map:
Accumulation Phase (Now)
This map is much more complex. I’ll explain it below the diagram, but first I want to make it clear – the complexity doesn’t mean difficulty. As we’ve grown in our financial knowledge and committed to pursuing FIOR (financial independence option retirement) we’ve increased what we do, but automated almost all of it.
Here’s what our money flow looks like now:
Lots of boxes, right? Virtually all of it happens automatically!
Let’s look at each section:
We now have multiple sources of income. Our wages for our education jobs: teacher and administrator. Extra duty work we do attached to our jobs that pays extra. Adjunct professor work. We also now have cash flow from a rental house. Our income has grown!
And no – I don’t make any money from this site.
Having access to multiple pre-tax investments is one of the educator advantages for financial independence.
Now, we put money to four separate accounts – a 403b and a 457b for each of us. That’s a total of nearly $100,000 pre-tax in 403b and 457 contributions in 2020! This is our biggest money move. And, it all happens automatically.
We hold US stock market index funds and a bond fund in those accounts.
After that, the money moves into our checking account.
We pay for all of our expenses with credit cards to accumulate rewards. We rotate credit cards for good bonuses. The credit cards are a tool and are paid off every month (important!). The payments are made automatically from our checking accounts.
Expenses used to be the center (and end point) of our money map. Now, they’re off to the side because they’re just a fraction of our financial life. Capturing this was probably my favorite part of doing the money map exercise.
We still maintain a savings account. It primarily serves as an emergency fund. We only move money to and from this when needed either for an unexpected expense or short-term cash flow. We then immediately replenish it.
We contribute automatically to two investment accounts after tax. We have a monthly withdrawal of $500 that goes into an international equity fund (FZILX.) We also contribute until our IRAs are funded.
All of this happens automatically.
At the end of each month, we sweep our checking account of any amount that’s remaining and invest it into a brokerage account. (Again, US index funds.) . Once the IRA is funded, that amount is added to this sweep.
The end-of-the-month sweep is the only non-automatic action in the map!
I found mapping out our monthly money flow in this way an interesting exercise. It helped me think through and clarify exactly the steps we’ve taken over time as we’ve progressed through our financial phases.
It was also interesting to see the complexity at each of the phases. The simplest was actually our most destructive phase – when it was a straight flow through!
Mapping out our final phase made me realize just how much our financial life has evolved. It was illuminating to realize that the map was complex, but our life doesn’t feel that way. The power of automation.
What do you think? Have you ever mapped out your money this way?
Love the breakdowns and great article with solid advice. Keep inspiring all of us!
Thanks, Adam. I’m glad to show our progression and mistakes so everyone else can do it better than I did.