Mike Michalowicz on paying off debt, changing money patterns and his new book

For this week’s MVP, we’re chatting with Mike Michałowicz.

By Rosemary Counter

In 2008, entrepreneur and multi-million-dollar business owner Mike Michałowicz hid a secret: Despite having a Virginia Tech finance degree and operating seven companies (including the aptly-named investment accelerator Prosper Group), Michałowicz’s personal finances at home were a hot mess of unpaid bills, outstanding taxes and increasingly aggressive debt collectors. Within two years of a business sale likened to winning the lottery, Michałowicz—like many lottery winners—had spent all the money and more. 

It’s not easy to admit you’ve hit financial rock bottom, but the New Jersey-based Michałowicz did that when he dared to look inward. “I was obsessed with having more (getting more money) and had spent almost no time learning how to manage what I already had (controlling money more),” he wrote in his newly released book The Money Habit. This is his tenth and by far most personal book, outlining the specific money system he developed that got his otherwise bad money patterns and habits (like, ahem, checking his balance ten times a day) working in his favour instead.

The Get talked to the bestselling author and business guru about ’fessing up, coming clean and rebuilding your bank account from the bottom up. 

I mean this in the nicest way, but it’s oddly comforting to know someone like you can be bad with money.

I have been an entrepreneur my entire adult life, ever since university. Whenever I’d sell, I’d get a big cheque. People tend to think, “If that was me, I would know how to handle that money. That’d be life changing for me, and I would manage it well.” I didn’t realize that my lifestyle would expand because now there’s more money to spend, and I’d find another way to live paycheque to paycheque, at a new level. 

My system (outlined in my book) is designed knowing that many of us already have fully ingrained money management systems. My worst money habit was what I called “double or triple accounting.” I’d log into my bank account and see, say, $1,000 and I’d think, “I can pay the mortgage and pay down my credit card bill and take my wife out for a really nice dinner.” I’d convince myself I could do all those things with the same $1,000. 

How did you change your pattern to get better with money? 

Actually, my behaviour hasn’t changed, and that pattern has not changed whatsoever. I still consider myself to be not great with money, but my system is awesome with money. 

The system is channelling my behaviour for the better, so the human me doesn’t have to change. I’m the kind of person who checks their online banking multiple times a day—almost as much as I check my email. The same behaviour used to be a stress thing, but now it’s management. I’m not a trained or certified behaviourist, but I am fascinated by the subject. Not to get too personal, but how often do you check your bank account?

I check my account once a week. Is that OK? 

That’s a perfect system for you. Whatever frequency you naturally check, you should continue to do that. 

I wrote the Money Habit to work with people’s natural habits and patterns. If we recognize them, we can put something in that pattern to intercept it and direct it to produce the outcome we want. 

I like to use the analogy of exercise, which I committed myself to about 20 years ago. I wanted to wake up in the mornings and go running, but I noticed I couldn’t sustain it. My pattern was to wake up, go to the bathroom, make a cup of coffee, scroll through the news, and skip exercising. So, much to my wife’s chagrin, I started putting my sneakers on the toilet seat at night so I’d have to put them on in the morning. I disrupted my pattern and it worked. 

I suppose it’s the opposite when it comes to money: Not seeing your money sitting there encourages you to not spend it? 

Yes, 100%. I encourage readers to do exactly that and “hide” their money by carving it into different accounts with different purposes. You could set up an infinite number of accounts, but I find most people start off with six: 

1. Income, where all your earnings are deposited and from which you’ll disburse all the other accounts; 
2. Needs like food, housing, car insurance; 
3. Wants for discretionary spending you could do without; 
4. Dreams for major life goals; 
5. Fix for debt repayment; 
6. and finally an emergency account. 

I realize that sounds like a lot, but in practice you’ll only be using two debit cards for needs and wants.

(Read: True or False: A line of credit is a good emergency fund)

What!? No credit cards? 

Credit cards aren’t inherently the mother-in-law of your wallet, they’re actually a fantastic tool for convenience, fraud protection and travel rewards. The key is remembering that they should be an ally, not a trap. If you can manage them with the right guardrails, like using them solely for fixed expenses or specific rewards, they can be a healthy part of your financial ecosystem. Just don’t let the siren call of a high limit trick you into spending money you haven’t earned yet.

But I invite people to move their daily shopping over to debit cards because when you pay with a credit card, you don’t feel it until later until you pay the bill, and maybe you’re overwhelmed that all those expenditures have accumulated to so much. 

Now, last month, I put something on a credit card: a guest bed. Our bed broke, we needed it, and it cost a couple of thousands of bucks. Buying it didn’t break the bank or anything, but it was an expense I hadn’t accounted for. When the credit card bill arrived, I was hesitant to open it because I forgot how much the bed cost. I’ve become used to being in control of my money now. 

Rosemary Counter is a Toronto-based writer and journalist whose reporting and essays have appeared in The New York Times, Vanity Fair, The Guardian and others.

Read more from this issue of The Get:

1. Is Ozempic worth it?
2. How can I get the best credit?
3. 3 resale experts on turning clothes into capital
4. True or False: You need to be an expert to understand the economy

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