JG: This is the TBC Podcast, by bestcompany.com. I'm Jordan Grimmer. On this week's program we return to FinCon for Part 2 of our series on personal money management. Just to recap, FinCon is an annual gathering of the top digital content creators in personal finance and investment management. It's an opportunity for bloggers and other money experts to network, promote their own brands, and get an inside look at the latest financial trends. And like last week, today you'll hear from some of those bloggers, as well as financial planners and other money experts who were kind enough to sit down with us during the expo. And in case you missed us last week, don't worry! The link to Part 1 on student debt can be found on our site, BestCompany.com." You can also find us at facebook.com/bestcompany, or you can follow us on Twitter. And now, let's start the show.
Editor's Note: Special thanks to all of the experts at FinCon who helped us put this piece together!
Aaron Hatch is a Certified Financial Planner® and co-founder of Woven Capital, a fee-only financial planning firm in Redding, CA. Aaron's goal is to help clients simplify their expenses and worry less about money.
Eric Rosenberg received both his undergraduate degree and MBA in finance, and is the founder and editor of PersonalProfitability.com. Eric has a passion for helping others "organize and simplify [their] financial [lives] to save time, money, and headache."
Rosemarie Groner is a blogger with BusyBudgeter.com, a site dedicated to helping individuals and families categorize and organize their spending, and increase their savings. Rosemarie is passionate about personal finance, and wants to help others make smarter decisions with their money.
Scott Frank is a Certified Financial Planner® and founder of Stone Steps Financial, a fee-only financial planning firm in Encinitas, CA. Scott seeks to help his clients understand their current financial situation and identify their goals.
Whitney Hansen has a B.S. in accounting with a Master's in business, and she is the owner of Whitney Hansen Coaching. Her mission is to "coach millennials who desperately want to pay off debt and secretly yearn for financial independence."
JG: Last week on the TBC Podcast, we asked the experts at FinCon what advice they had for students or recent graduates who are dealing with student debt. And the first thing they told us was that students needed to get educated:
WH: High school students are not gaining the appropriate financial education they really need.
MM: If I had really known the after-effects of student loans after I graduated it would have affected, you know, going to a state school on a full ride versus going to a $30,000 private school and taking out loans for the whole amount.
JG: Prospective college students and recent grads today are largely unaware of the implications and consequences associated with applying for and paying off student loans, basically treating those loans like free money. We also discussed how being honest about your college and post-college expectations might influence where you go to school, and even what major you select. Second, look at your budget, and have a plan to get those loans paid off as soon as possible, even if that means working off a loan while you're in school.
These insights into student debt got us thinking: with national consumer debt just eclipsing $11 trillion, America's consumer debt problem is so much bigger than the $1.2 trillion owed in student loans. The student debt crisis, while major, is just a symptom, a reflection of the mentality many consumers have adopted with regard to their finances. And now, Part Two: Personal Finance. You might recall that at the end of last week's episode we asked the experts at FinCon what they believed to be the number one mistake people make in personal finance management. Their answers revealed something kind of alarming about consumer debt. And the number one mistake people make with regard to their finances?
KC: Not taking action at all.
AH: Not understanding where their money is going.
RG: They don't know where their money is going.
WH: Not managing their finances.
SF: Not knowing what their finances actually are.
ER: They ignore them.
JG: So really, it's not that consumers are doing anything actively wrong when it comes to personal finance, in fact, we're not doing much of anything. And that's the problem. Whether it's through willful denial or simple ignorance, the average consumer is not taking the active role necessary towards becoming a responsible money manager. And we have the data to prove it. We conducted a survey among 1,500 random people, asking them how often they check their finances, if at all. Of those 1,500 respondents, 25% answered "never," and over half of our respondents said they check their finances less than once a week. It's almost like when the man on TV asks us . . .
Sound Clip: What's in your wallet?
JG: Half of us may say, "I don't remember," while one in four of us will respond, "I don't know," or worse, "I don't care." And when we asked Scott Frank, Certified Financial Planner® and founder at Stone Steps Financial to describe the type of people he serves with his financial planning business, he said . . .
SF: So, when people come into my office they really don't know what their current balance sheet is, what their real cash flow is, who they owe money to, and what interest rates they owe that money at. These are basic things that people don't take the time to do.
And Scott isn't alone. Aaron Hatch, co-founder of Woven Capital, runs into people with the exact same problem every day:
AH: Lots of people that I meet with as a financial planner spend way more money than they make and they have no idea where it's going.
JG: So the problem, like with student debt, is ignorance. But what causes the ignorance? According to Karen Carr from SocietyOfGrownups.com, our financial ignorance certainly doesn't stem from a lack of resources:
KC: We have this wealth of information and you can sit on the Internet and Google things until the cows come home. But if you're not actually taking some of that information and using it to make a decision, and move forward, and take action to build your financial foundation, it's pretty much a little bit of wasted time, right?
JG: And it's true. Just Google, "How do I manage my money better?" and you'll find over 400 million tips, tricks, blog posts, softwares, and apps - all designed to make you a smart saver and a smarter spender. In fact, when we asked our experts just what kind of tools were out there for aspiring budgeters, they had a lot to say. They recommended apps and websites:
KC: Level Money
SF: Credit Karma
JG: Fellow bloggers, online courses, finance books, podcasts, and even their own proven products. The list goes on. And quite frankly, there has never been a better time to start taking charge of your finances than now. But none of that matters if people don't use it. All these resources, these experts, and this technology are specifically catered to make us smarter budgeters. But Rosemarie Groner, a blogger from BusyBudgeter.com, suggested that technology may also be contributing to our ignorance:
RG: Technology really works against us in budgeting because things are so easy that you think that you don't have to sit down and work out the numbers on a piece of paper or on an app or a system because everything's just automatic. But, I mean, that's one thing that can really screw you up because if you overdraw or if you forget things that's gonna cost you a lot in fees. That's how most banks make money is fees: you using the account correctly.
JG: Think about it. You go to your favorite fast food joint, place your order, and swipe your card. The register approves the transaction, while the teller asks you if you would like a receipt, which you probably decline. You place the card back in your wallet or purse, eat your food, and go on your merry way, as though nothing happened. And I'm not saying to be a smart budgeter you have to also be a penny pincher or a receipt collector. But let's face it: technology has made money intangible, almost conceptual. Online shopping, eCommerce, and even mobile wallet technology combined with the over-saturation of credit and debit card companies have made us think less and less about what is in our wallets. People spend 12 to 18% more per transaction when they use credit or debit cards than when they use cash. And as Aaron Hatch maintains, no amount of swipes can replace that feeling of loss when we hand over that crisp $20 bill.
AH: You have this magic card that gets you things, and there's no consciousness about, when you hand that card over to somebody, what that actually means. It's numbers on a screen perhaps that go up or go down depending on what money is coming in or going out. So having a person that is actually using catch is sometimes the most conscious because you feel that dollar bill in your hand, it's tangible, and you hand that over and then you get something back. If you pull out a certain amount of money - this is totally old school, it's what my grandfather did - he pulled out the money he needed for the week, put it in the envelope, and then when it was gone it was gone, and he would stop spending. Waited until the next Monday.
JG: While this strategy may not be as practical now as it was back when Aaron's grandfather was stuffing an envelope, there are some lessons we could learn from past generations. Remember that survey that we ran? The majority of respondents who said they never check their finances were between 18 and 24 years old. As for the majority of those who said they checked their finances every day? They were 65 or older. The need for staying on top of our finances isn't new; it's a simple, time-tested strategy, born out of necessity: have a plan, and don't spend more than you make. And Whitney Hansen from Whitney Hansen Coaching says you don't necessarily need technology to do that:
WH: The best place to start is to just write down your income.
JG: Now, don't get me wrong. Having a budget tracker app or working with a financial planning firm can be incredibly useful. I have the Mint.com app on my phone, check it every day, and I like it because it keeps me honest about my finances. My point it, no amount of technology is going to fix your financial situation unless you change your mentality. Scott Frank elaborates:
SF: The first thing that I would do if you have no resources other than a pen and a piece of paper, get one out and write down every asset that you have, write down every debt that you own to get a sense of what your net worth is. Don't necessarily worry about whether it's a positive or negative number just be glad that you now know what that is. And then also from a budget standpoint, start to get a sense of what your fixed expenses are, things that you can't change no matter what, so you have to pay rent, you have to pay for groceries, you have to pay your phone bill - I'm gonna say you have a pay a cell phone bill now, you can't go without one. But then also look at what you're paying every month that you possibly could be more flexible on. Get a sense of what that is, get a sense of what your actual net income is after taxes for most people on a w-2 income or on your paycheck stub, and then start to see whether you're spending more than you make. Start with those simple steps.
JG: And when you actually take the time to write down and look at your income and your expenses, you might be surprised to find that you're paying for things that you don't need, things you don't even want. Eric Rosenberg from PersonalProfitability.com has had a couple experiences like that:
ER: A big success story I had in budgeting was cable TV. I was paying $70 every month for TV that didn't really make my life any better. It was just a frustration dealing with the cable company. And one day I said, "You know what? I'm done!" and I called them, I had Pirates of the Caribbean on (that's what I was watching) and it turned off mid-movie. And I brought the box back to them, and I went out and started doing things with people in person. My social life got better, my personal skills got better. I started working on more projects, and life became better for me. And I saved $70 a month.
JG: Also, on a lesser note, when Eric started tracking his income and expenses, he found another surprise:
ER: Wow! I've bought a lot of burritos in my life!
JG: So, let's say you've decided you want to be more aware of what you're earning and what you're spending, you've actually taken the time to actually write it all down, and you're starting to notice personal spending patterns you want to change, what do you do next? Aaron Hatch:
AH: Once you have a sense of what your behavior is and where your money does go, it's much easier to look at a spending plan, as it were, and then you can start controlling it. If you have measurements, you can control them in some way, you can start influencing them once you know what's happening.
JG: A spending plan, built around specific financial goals. Take a second to think about what your financial goals are right now, at this very moment: do they involve getting out of debt, improving your credit score, setting money aside for college, a vacation, a new home or new car, a savings account, or an investment strategy? Of course, a lot of us think the quote-unquote "easy" way to achieve most of these goals is to actually go into debt even further (and the statistics support that assertion: consumer credit card debt is just over $890 billion). A few of our experts including Rosemarie Groner suggest categorizing your spending:
RG: Log every single purchase you have into a category. You can make your own categories; it doesn't matter what category you create. You can have something as simple as "John's books," or "Rosemarie's music," whatever categories you feel comfortable in, but know what you're currently spending, so that you can create a budget that's workable. You cannot possibly go from $1,200 spent in a month on groceries to $290 spent in a month on groceries. I think that that's a common thing that I see is people are like, "okay, we're gonna do this, we're gonna do this right," and then they have unrealistic expectations and then they fail and give up. So if you just even reduce each category by $50, by $20, $100 - we reduced our budget by over $23,000, the first year, by doing just that. We didn't go nuts, but we just kept shaving off, kept shaving off, kept shaving off, and we never added those figures back, so we're still spending. I think we're like three or four years into this, $23k less than we were five years ago. So that's a huge impact over the course of your life.
JG: And for a lot of people, that really works. Most personal finance apps will automatically categorize your spending based on the vendor, showing you monthly expense reports, and even telling you where you went over budget. For those detail-oriented people, category monitoring is the logical solution. But then again, not all of us are detail-oriented people. In fact, the thought of tracking so many categories can become a little overwhelming. Karen Carr offers another solution:
KC: Think about a really big picture; it doesn't have to be so data driven if you don't want it to be. The idea of "I have my paycheck" or freelancing income, or wherever your cash flow is coming from, and then I have some really basic bills: I have to pay my mortgage, I have to pay my rent, I have to pay some utility bills, whatever those are, I have this basics category. And then I have my fun money. So that idea of income that comes in, you have a bunch of basics, and you have some discretionary fun money. And hopefully in the third bucket, thinking about savings or paying down debt, or whatever those financial priorities are. You can think about it in the big picture; it doesn't have to be so granular if you don't want it to be.
JG: And for those of us who still need a little help? Scott Frank:
SF: If you really value and you really enjoy learning about personal finance, and this is something that you wake up just giddy to do - I haven't met people who are like that - but if you do, then do it yourself. But if you don't really want to take the time, and spend the time and resources to get the knowledge base, to effectively make smart money decisions, hire someone to help you. It's really that simple. If you're gonna be a runner, if you have a team that you train with, you're gonna be more likely to succeed, right? If you have a coach, you're gonna be more likely to succeed. It's the same thing in finance, it's the same thing in fitness. So, just decide whether that's important to you.
JG: These are great strategies! They're effective, they're proven to work, and they will help you achieve your financial goals. You can be as involved with your finances as you want to be, just as long as you're actively involved. But what these tools won't do is fix the problem that started this whole mess to begin with: ignorance. Like personal finance technology, these strategies are useless unless we learn how to change our mentality. But how do we do that? We can listen to podcasts, like this one, but the real solution to our financial ignorance problem actually starts at home, and having open conversations about personal finance management. Aaron Hatch identified the problem this way:
AH: Nobody really wants to talk about money at all; however, it's really vitally important for the health of a family and an individual on a financial basis to communicate and start having those conversations, especially with their spouse or partner who are going through this financial journey together.
JG: Think about it. When you were growing up, how often did your parents talk to you about their finances? If you look at your own spending habits, how many of those habits would you say you picked up from your mom, dad, older sibling, or grandparent? When you got married, how long did it take before you opened a shared bank account with your spouse? How honest are you with your family about your financial situation? How many times have you groaned when someone in your family says, "I think we need to talk about a budget." It's true. For some reason, we don't like to talk about it. So really, the first step in becoming a responsible money manager is being willing to talk about money, even if it's unpleasant. Eric Rosenberg thinks open communication can actually make you feel better about your own situation and struggles:
ER: don't make finance taboo. It has for generations been a taboo thing to talk about your money with anyone other than your spouse, and that needs to stop because everyone's going through the same thing. Whatever your struggle is, there are millions of other people struggling with the exact same thing and if we can talk about it as a society we can all get better about it.
JG: But what about talking about money with your kids? Is that okay? Rosemarie Groner is speaking from experience when she says, "yes":
RG: The best thing you can do is talk to your kids about money. I have fantastic parents, but they never told me anything about money. I had to learn that on my own and that was tough. So if you can, without scaring them, even if you are not in the best financial situation, You don't have to have them fear finances or money. You don't have to have them fear about what's going on in the family. But you can give them information about this is how much things cost. If you can set up even a very small allowance and have them budget their own money. If you have them consider things like, do they want to go to the movies on Friday, or would they rather have a bigger birthday party next year? Give them choices, give them a little bit of control because when they're 18 and in college, credit card companies will give them that control, so either they'll learn from you or they'll learn from them.
JG: And it's not necessarily about full disclosure either. Here's Karen Carr:
KC: I'm not saying necessarily that you have to tell your 5-year-old all about your mortgage terms, but base it upon their age and what they can absorb, and make it a conversation that is actually open. And you don't have to be so closed off from it, and shielding your kids from it; it's actually really helpful to bring them into the conversation in a way that's age appropriate, but that helps them be a part of it and understand that age-old saying that, "money doesn't grow on trees," to understand that mom and dad work very hard, and they bring home a paycheck, and they don't write a check and it's like magic paper money, it's actually coming from somewhere. And even getting those basic things down will help kids absorb over time in my opinion.
JG: So, what's the takeaway here? We've heard a lot of really great advice from the experts about tools we can use, and resources we can tap into. But in order for any of that to work, to really work, we as consumers need to start being a lot more honest with ourselves about our personal finance situation. If you want to get anything out of this inside look at FinCon, you might consider this idea: for better or worse, we have a lot more control over our finances than we often realize. But when we ignore our finances, or fool ourselves into thinking that everything will just take care of itself, that's when our money problems start taking control of us. And, here at BestCompany.com, we've spend hour and hours researching which personal finance apps or companies can really help you get started. If you feel like it's time to take control of your finances, visit us at BestCompans.com and click on our personal finance section to find the company that's right for you.
Next week, on the TBC Podcast, we shift gears from FinCon to Phone Cons, or rather, scams that take place over the phone. We take a look at some of the tactics used by fraudulent companies to get your personal information and your money, and then we'll also provide you with a checklist of things to watch out for the next time you get a call from . . .
Sound Clip: The Department of Legal Affairs.
JG: That's next week! Again, I'm Jordan Grimmer. Thanks for listening.