Personal Finance Ideas to Protect and Grow Your Assets

Ready to take control of your financial future? Steve Davenport and I unveil critical strategies to build a solid personal finance framework in a new, unmissable episode of Skeptics Guide to Investing. We kick things off by highlighting the 'Personal Finance Top Five,' essential tactics for anyone eager to enhance their monetary proficiency. From the timeless wisdom of paying yourself first to the practicality of a 50/30/20 budget, our conversation spans the benefits of homeownership and the pitfalls of consumer culture. We equip you with the tools needed for debt management and credit score improvement, all while navigating the intricacies of a tech-driven marketplace that makes spending all too easy.

As we shift gears to the often-overlooked realm of financial wellness and fraud prevention, you'll learn why a solid savings strategy is your best defense against the unexpected. We dissect the average fraud loss and its equivalence to most people's emergency savings, stressing the importance of vigilance in all financial dealings. Moreover, we break down the real cost of daily indulgences, encouraging a positive mindset towards spending that aligns with your life goals. Our potent mix of insight and advice doesn't just prepare you to sidestep financial landmines; it empowers you to stride confidently toward future aspirations with the right attitude and effort. Join Steve and me for a journey that promises to leave you both informed and inspired to make 2024 a year of remarkable financial transformation.

Straight Talk for All - Nonsense for None


Please check out our other podcasts:

https://skepticsguidetoinvesting.buzzsprout.com

Transcript

Clem Miller: 0:25

Welcome everybody to Skeptics Guide to Investing. I'm Clem Miller and today Steve Davenport and I are going to talk about personal finance top five, or how to start adulting with respect to personal finance. Steve and I will dig into the steps you need to take when starting out to bring order and financial well-being. When I think of finance, I find it hard to pick where you start in discussing it, steve, as you've been focused on financial wellness with other CFA's in Atlanta and now other societies in the world. What did your group come up with for personal finance top five, clem?

Steve Davenport: 1:07

Thanks. There are a lot of lists out there and I just want to say, as we start the new year, no list is perfect. Great is the enemy of good. Let's just get started doing some of these and it's a great way to begin the year. It's a long journey and every journey starts with a step. No, really, we look at two main areas of financial literacy personal finance and investments. We're going to do two different podcasts one on personal finance and one on the top five tips for investing. We tackle personal finance today, but in the next few weeks we'll start with the investments podcast. We want to be brief so that people start and don't feel overwhelmed. I believe we are in a time of great change where states are starting to req uire a class in financial literacy. Currently, 24 states are in the progress of some requirement For those adding it. I hope we can help with some of the work done across CFA societies and nonprofits around the world.

Clem Miller: 2:10

Steve, what made these top five?

Steve Davenport: 2:14

Let's get to it. Number one pay yourself first. Start any budget with paying for your future. Number two budget for needs and wants. Put it on paper and be 60% successful. Share it with your friends and be 80% effective. Number three spending in your plan. Take your time, don't rush when you're buying something. The big buttons that marketers put on the phone app and the frictionless pay with Apple Pay and other vehicles make it very easy for you to spend, and that's because they want to make it easy. Number four emergency fund. Expect the unexpected so you can sleep better at night. Number five debt management for your best credit score. These are high level ideas and you can apply them in a rigorous or casual way. The important thing is to think about them and start taking action, one day at a time.

Clem Miller: 3:13

So, Steve, on the first point that you made about paying yourself first, how do you actually do that?

Steve Davenport: 3:21

Pay yourself first means that before you pay the rent or the car gets budgeted, you have made a payment to your retirement account, your health savings account and started or added to your emergency fund. You have to make sure that you come first. You work hard and you want to be thinking of the now and the future. You may want to get a certification or join a health club. No one has your best interest as hard as much as you do. You can get matching money from your employer in a 401k. Your health plan can save you money when you start making the right choices. If you have elective surgery, then contribute to an HSA account. Some people have a travel budget or an account for a new car. These are your priorities, so think about them when setting up, but also for motivating yourself when things get tough. You know you're doing the right thing and you're doing things for your future. This is not easy. That is why some don't do it. It takes work, but most good things do. Pay yourself first is a great way to start.

Clem Miller: 4:34

So, Steve, okay, putting yourself first makes a ton of sense, but somebody has to pay the rent. So let's go to your second point, which is that you need to budget for needs and wants.

Steve Davenport: 4:46

Yes, there's a need to budget. Live with less, allocate your resources. I think when we think about it, the term budget has such a negative connotation and savings. I like to think about it as living with less and living is a positive thing that you want to try to do according to your own plan and your own values. I think of it as the Steve company, and it takes a plan to do the right things, to get spent on at a reasonable rate. We all want things to happen, but really it's about timing. I have a feeling that we might move into a house. It takes planning and effort to make it happen.

Steve Davenport: 5:29

Budgets are part of your long-term strategy. They tend to be for one year, but if you can look longer in the future, good things happen with that too. When you look at the after tax and 401k spending on the paycheck, here is when the fund starts. You need to look into your needs rent, transportation, utilities, food, insurance and your wants Eat out, entertainment, clothes, travel. There's a common goal framework 50/ 30/ 20. 50% needs/ 30% wants / and 20% savings. These are goals. These are guidelines. What do you think about these guidelines, Clem?

Clem Miller: 6:12

So I would say, touching on one point about buying a house, I think if you're young and you're looking to buy a house, this is a very big decision and I know that with rates so high that a lot of young people are looking at that decision and saying, well, I'll never be able to afford a house, I'm going to continue to rent Pretty not the right decision because over the long term, real estate tends to go up in price, home prices tend to go up. So this is something where you might want to spend some quality time thinking about what your long-term goals and objectives are with respect to paying out rent or taking some equity, even if it's expensive to undertake that right now with current rates. So that would be my thinking on that. But I would also say that spending obviously is an important issue too, and, Steve, I know that you want to talk about spending, so that's your number three point. Can you tell us a little bit about what your thinking is on spending?

Steve Davenport: 7:31

Spending is the dirty word at number three. We are a consumer-driven culture. We watch the videos, shows and advertise style and how much it should affect how I dress and see myself. We are all going to be fine. Let's give each other ourselves and each other a break on what we need to dress up. I think these should involve some generosity to yourself and to others. Marketers have figured out what text color and button size helps us buy more. The elimination of friction and purchases. Just pass your phone over the register.

Steve Davenport: 8:15

Life is wonderful. Making it easier for you to spend can't be in your best interest. Take your time, think about decisions. The item will most likely be there when people think about decision overnight. 80 percent of the time you think about it you don't go back. I think you just need to calm down and take your time. Be gentle and don't say I need this, I have to have this. Most of the things in life that are most enjoyable are free a walk, meditation, ability to exercise. Those things are all well within your control. I think spending is one of the things that most people have trouble with. Take your time and think about how does it fit with your goals and your long-term plan.

Clem Miller: 9:11

Yes, to that point. Prime delivery from Amazon doesn't actually help either to be able to buy things online and have it delivered right to your door. I think there's a reason for that one, right, obviously, I like those thoughts. How about your point number four, which has to do with an emergency fund?

Steve Davenport: 9:36

Yes, an emergency fund is something everyone needs. We should have started this one, but I think the others set the plates for this to happen. When you have identified your savings needs and wants, the heavy lifting has been done. We believe you should have six months worth of needs on hand so you can go on when an injury or an other crisis hits your life, job loss being main one. Acting is always better than reacting. A flat tire or a new pair of glasses should not cause a lot of pain. You don't know what could happen, so you make room for it in your budget and you sleep better. You can't quantify all the benefits or all the risks. We prepare for some event and we are thankful when it isn't needed.

Steve Davenport: 10:26

Emergency fund is not a solution for everything, but it is a great step in that direction. It could be two months and you build it up to eight months. There is no perfect answer. You decide, as an adult, what makes you feel best. When I think of this, I think this should be invested in several ways. What way do you think you should invest on your safety? Emergency fund, Clem.

Clem Miller: 10:54

When I was young. Obviously now I have a lot of investments, I can tap those in the event of some major emergency and have plenty of money left. But when I was younger and considerably poorer, I did have an emergency fund, but it was rather meager, it was rather thin. But then again, at the time I was healthy, I had a job, I was building my future. So an emergency fund is important. You got to put money away. I wish I could have put more money into an emergency fund because who knows what could have happened? I was lucky to have health insurance, obviously through my jobs. Emergency fund is important. It depends on what your needs are. Obviously, if you're in an industry where there's a lot of job turnover, a lot of layoffs, certainly you would want to have a higher emergency fund. In those circumstances, if you have health needs that may not be fully met by health insurance, you'd want to have a higher emergency fund. So it really depends on your individual circumstances, but just know that an emergency fund is necessary.

Steve Davenport: 12:31

So when I go to the last tip on the list, number five, Steve Credit or debt.

Steve Davenport: 12:42

They mean the same, but credit sounds so much more credible. When you don't have all the money for a large purchase of a house or a car, you may need to borrow from a bank or another entity. On a $30,000 car, you might put down $10,000 in finance or borrow $20,000 at a certain interest rate. You might spread this over four years or 48 months and at a theoretical interest rate of, say, 12%. When you start and you have no history of paying bills, that rate's pretty high. As you borrow and show good payment habits, then the rates get lower. People who have a better credit will save almost $200,000 during their lifetime from lower rates. Let me repeat that this is a Fed study. We would have saved $200,000 with better credit during their lifetime. Let's sign up for that! I think the most important thing that you can do is to use auto-pay. This simplifies your life and prevents late fees or charges. There is a system with your credit score with the credit agencies Equifax, Experian and TransUnion. They have a scoring sheet for each individual, very demeaning to reduce me to a number, but this is the world we live in, so let's make the number as good as possible.

Steve Davenport: 14:12

The five areas and weights are your payment history. You pay people on time 35 percent the amount owed. Is it 30 percent of your credit or more? This is 30 percent weight, the length of your credit. How long have you had the credit card and how long have you paid it without missing the types of credit. There's auto credit. There's mortgage credit. Those are considered good because there's assets attached. Credit card bills are considered less good because it's nothing that they can attach to in terms of that credit. And new credit. Have you added new cards at every shopping center that you visit? Looking at your credit and focusing on it can yield immediate results from your diligence. Credit matters, so do things you can to improve your scores.

Clem Miller: 15:06

So, Steve, before we go to the mailbag, I just want to make one comment on what you were just talking about. I think that if you're a student, and even if your parents can pay for everything of course I didn't have that experience of parents paying for everything, but let's say you are a student and your parents are paying for everything it still makes sense for you to take out student debt. The reason for that is so you can build up your credit score, build up your credit record, so when you're off on your own, you're not starting with zero and still dependent on your parents. So you want to start building that credit record when you're in college with that student loan debt.

Steve Davenport: 15:53

Yeah, I think that student loan debt gets paid after you're out of college, though, so I encourage people to do at least one utility If you're living off campus, put a utility in your name and make sure it's on auto pay.

Clem Miller: 16:06

Yes.

Steve Davenport: 16:07

I think that utilities tend to be less than $100 and you can easily build up your credit with that, and I think the other thing to do is to auto pay your credit card and keep your credit card in a draw, not on you all times, so that it is only there for purposeful decision making.

Clem Miller: 16:26

I a thousand percent agree with that. Use the credit card but then pay it back right away.

Steve Davenport: 16:35

You got the mailbag Clom.

Clem Miller: 16:37

Yeah, steve, let's turn to the mailbag, and I see here what is not included in your top five but just got cut out. So what would be like number six or number seven?

Steve Davenport: 16:52

So fraud and watching out for your personal information. There is a lot of fraud out there in terms of phishing, in terms of emails sent to you asking you to click on this opportunity that you just can't live without. There's plenty of people calling trying to get your personal information, your social security, your date of birth. They have one or two pieces of information and they need a third. So watching out for your information and watching out for fraud is one easy way. The average fraud is about $500, and that happens to be the average amount that people have saved. So if you don't want to wipe out that emergency fund, or you've got a watch out and what do you think should have been included? Clem.

Clem Miller: 17:44

So maybe this is something that you could say has already been included under budget, but it would be something I would certainly emphasize. And that is looking at expenses that are sort of empty expenses. You know how they talk about empty calories, alcohol being an empty calorie. Well, it's also an empty expense. I'm not saying don't drink, I'm just saying consider whether you're putting a lot of your budget into things like alcohol or fast food or whatnot. Not only can it be bad for your health, it can also be bad for your wallet. So I would be very careful about expenses like that.

Steve Davenport: 18:32

Sure. So let me just summarize: Keep your head up and take care of yourself. You are the one who's most concerned about your financial wellness. One pay yourself first. Make sure that you put money away for things that you want and they're part of your plan Budget for your needs and wants. Look at the things, understand what you can't get rid of and what you can. As Clem said, look at those ones that are light on calories or light on value. So spend on your plan, take your time, think about what works for you and don't rush when there's an opportunity for you to just pass your phone over the register.

Steve Davenport: 19:16

Number four emergency fund. Put away six to eight months, eventually, of your need money so that you have the money if something happens to your job or something happens to your health. Number five debt management. It's a big one, but it also has a big advantage Two hundred thousand if you do it well during your life. I think that it's something you can do and I think it's something that you want to do to try to manage your financial wellness going forward. If you want to get the house, you've got to have the credit to do it. So, clem, do you have anything else?

Clem Miller: 19:53

Yes, just one thing. I think that don't think of this stuff, about personal finance, as being a burden. You should take a positive psychological attitude towards this. Be optimistic. Think to yourself if I do these things, then I'll have the financial flexibility to be able to do what I want in the future, and not just at some distant retirement if you're young, but in the nearer term too. If I save money now and I don't spend on this or don't spend on that, or develop good credit, I'll be able to take that vacation or I'll be able to maybe buy a slightly nicer car sometime down the road.

Steve Davenport: 20:40

We'll look for a home and visit my parents.

Clem Miller: 20:43

Yes, exactly. So I would just say hang in there and take a positive attitude and realize that the future can be a lot better than the present for you if you take steps and hang onto the momentum.

Steve Davenport: 21:02

Yes, I think it's about attitude and effort, and if you start it and you get it go ing, I think you develop some confidence and that confidence leads to you doing even better. So let's just get started. Let's start 2024 in the right way. Thanks again for listening to Skeptic's Guide and we hope you enjoy this, and hope you enjoy all of our podcasts. Thanks, Steve.