The plan he’ll actually run

+ open enrollment, and one move before your Q4 check lands

What to know

Open enrollment is closing

Most companies close enrollment in November, and the default is to roll last year’s picks forward. Before you click through, compare the high-deductible plan with an HSA against the PPO using what you actually spent on healthcare this year. If you’re healthy and can cover the deductible from savings, the HSA usually wins: the money goes in pretax and comes out tax-free for medical bills. While you’re in there, check whether your disability coverage replaces commission or only base. Plenty of group policies cover base alone, which leaves half of a 50/50 rep’s income unprotected.

Raise your 401(k) before the big check

If an accelerator or December payout is coming, change your 401(k) percentage now. Most plans apply your rate to commission checks too (confirm yours does), so 10% of a $35,000 check puts $3,500 toward this year’s $24,500 limit in one shot. Drop it back in January if you need the cash flow.

The story

A client of mine got promoted this year. His OTE went from $210,000 to $240,000, and he closed a deal big enough that he calls it “the windfall deal.” One commission check came in at $35,000, and about $17,700 of it went to withholding before he ever saw it.

So we sat down to put the rest to work. I walked him through the system I use with most of my clients: every paycheck, base and commission, lands in one high-yield savings account, and that account pays you the same amount into checking every month. Good months fill it up and slow months draw it down, so your checking account never feels the difference.

He listened to the whole thing and said it seemed complicated.

My first instinct was to explain it again, slower. I didn’t, because for him he was right. A system that feels like a chore on day one is usually dead by March.

So we built his version. He keeps $50,000 in savings as his cushion. I’d suggested $40,000, he wanted more, and that’s an easy argument to lose. Once a month he sends me a short email saying how much to invest, somewhere between $2,000 and $3,000 depending on how the month went, and we pull it into his brokerage account. A $625 monthly IRA contribution runs underneath that without him touching it.

It isn’t the most efficient setup I could design. It depends on him sending an email, and some month he’ll forget. But if he sends eleven out of twelve at $2,500 each, that’s $27,500 invested that would otherwise have sat in checking waiting for a decision.

The other thing he did on that call took about ninety seconds. He raised his 401(k) from 6% to 10% while we were still talking, so the bigger paychecks left this year send more into the account pretax, in the year his tax bill is highest.

I can draw a perfect cash flow system on a whiteboard. If you won’t run it, it does nothing for you, and a plan you’ll follow at 80% beats it every month it’s running.

If you’ve put off getting organized because the right way sounds like a part-time job, pick the version you’ll actually do. For most people that’s one automatic transfer and one percentage change before the last few paychecks of the year. You can make it fancier once it’s running.

~ Chris