The Ultimate Money Management Strategy for Maximum Flexibility and Cash Flow

30 Jan 2025 - Investing

Managing your finances efficiently requires a well-structured and thought out bank account setup. By properly linking bank, credit, and investment accounts, you can maximize flexibility, minimize your fees, and optimize your card rewards and cash flow. In this post, I’ll walk you through my setup and explain how each component works together to create a seamless financial system.

The Core Components of My Banking Setup

Bank Account:

I use my bank account as more of an auxillary account than a foundation of my financial setup. Because I view it as more of an auxillary account, I don’t think it matters too much the specific bank you use (not worried about fees) - personally I use Truist. Here’s how I utilize it:

1. Savings Account

This account is where my W2 income from my day job is deposited. Besides that, I keep a little money here (one paycheck worth) just in case my information was hacked into or something and I needed money in a pinch.

2. Checking Account

Once I get paid from my day job I immediately send the money from my Savings account to my Checking account. Then from there I send the money to the next component of my setup, my Investing account. Yes, thats it. As you can see nothing exciting happens here, as I keep the vast majority of my money in my Schwab account. The average investor grows their account by an average of 7-12% per year over their lifetime, but keeping my money in the bank earns me 0.01% in interest per month. Not worth it to me to keep it there, I would rather have my money work for me so I can retire early.

Investing Account:

Now that we established the benefit of investing your money versus keeping it in a bank earning little to no interest, you are probably wondering how to get started. Now this is more of a preference to me, but I use Charles Schwab to handle my investment accounts. I’d strongly recommend using a professional brokerage such as Charles Schwab, E-Trade, Fidelity, Vanguard, or JP Morgan. My only recommendation is to not use Robinhood, mainly due to it being investigated in the past for unethical business practices and ordered to pay $70 million for misleading customers, approving risky trades, and not preventing system outages that cost its users money. I would hate for a stock I own to crash and not be able to sell in time because the brokerage I used isn’t working. Also, for some reason Robinhood doesn’t allow you to purchase certain ETF’s for some reason, which I realized after recommending CLM and CRF to a friend who uses the platform. Now, here’s how I use Schwab:

1. Brokerage Account

After I move my paycheck from my Savings account to my Checking account, I then log into Schwab and request the money from my checking account to move into my brokerage Account. Now this may seem like a lot of moving and extra steps, but remember you only need to do all this when you get paid, for me every two weeks. My brokerage account only has access to my checking account and not my savings account because if my information does somehow get stolen or hacked, I want to separate my accounts as much as possible. From here, I invest the paycheck into a high yield ETF to provide me consistent weekly dividend income. You can do this by investing in monthly funds with overlapping payment dates (Ex: TSLY, NVDY, CONY, MSTY) or invest in a weekly paying fund to achieve this.

I do not automatically reinvest all the dividends because I use some of the dividends to live, while the leftover I then later choose to reinvest in whatever I’d like. This strategy means as long as you never sell your securities, your principal will never decrease. While a stock or ETF’s value may go up and down over time, as long as you are consistently paid a monthly dividend that is greater than your monthly expenses, you never have to worry, and you will have extra money to reinvest! You can read more about what I invest in by reading my investing blog posts here, but I encourage you to do your own research. It is also beneficial when creating your account to add the margin feature to your account, as I will further explain below.

2. Checking Account

I also have a Schwab Checking account which is linked to my brokerage account and has 0 overdraft fees and no overdraft limit per month. This is the account that becomes my primary bank account, where my all payments are drawn from. It is important that this account has no overdraft fees, because I do not keep any money in it! This means that when I charge a payment to this account with my credit card (more on that later), the payment is automatically overdrafted and taken from my brokerage account where my dividends are paid. This closes the loop to ensure my dividends are paying off my expenses, and not my W2 paycheck.

Now what if you don’t have enough dividends to pay your expenses, or you have an unexpected expense? This is where the margin feature on your brokerage account comes in. Tired of holding debt on your credit card and paying anywhere from 15% to 30% annually in interest? Many people have credit card debt and do not realize they could use margin debt on their brokerage account and be charged less in interest. Brokerage accounts with margin calculate your interest rate by using current national interest rates + a premium %. Your premium % is calculated using your total account balance, so the more money in your account, the less you pay in interest from margin debt. My current margin interest rate at the time of writing is 12.075%. This is far better than what someone with credit card debt would pay.

You are charged margin interest (adding to the debt) once a month, so you may be able to earn enough dividends in a few weeks to pay of your debt before you are charged interest. There is no set due date to pay back your margin, but remember the longer you carry debt, the longer you will be charged interest for it. Another key difference between margin and credit card debt is that margin debt does not show up in a credit check, but credit card debt does. This means you can keep your credit score up and still qualify for loans from banks, even with a substantial amount of margin debt.

Credit Card:

We have already talked about the most important features of my money management strategy, but it would be very remiss of me not to at least mention the credit card. I currently have one credit card, the Discover Student Cash Back card. I chose this card years ago when I was 18 and have not applied for a second card since. As I previously mentioned, this card is linked to my Schwab checking account.

Discover Student Cash Back Credit Card

This is a great credit card for me because I am a student and I was able to get this card without a previously established credit profile. The card offers a 5% cash back on quarterly rotating categories (up to the quarterly maximum), plus 1% cash back on all other purchases. This is great for me as my expenses are even and not heavy in one category. I have considered applying for a universal 2% cash back card, which I may very well end up doing for additional rewards, but I like the simplicity of only needing to carry one card arround and not having to worry about which one to use to maximize my cash back rewards.

Review

1. Invest in high yield dividend funds to generate weekly income.
2. Pay with a credit card (including bills and subscriptions), earning cash back rewards as you shop.
3. Wait until the end of the statement before paying off the card, allowing dividends to accumulate before making payments. You can set up automatic reccuring payments if you are afraid you may forget.
4. If you have the dividends in your brokerage cash balance, your payments will pull from there.
5. If you do not have the dividends, the payment will add to your margin debt at a lower interest rate than typical credit card debt.

By following this system, I maximize my financial flexibility while ensuring that my investments (not my paycheck) fund my lifestyle. Let me know what you think in the comments below!