[RENAY] Hey Welcome to That’s When You Get a Dog, the podcast BOWFOW, by old women for old women.
There’s been another big rise in the listenership again, so thank you everyone for listening and telling your friends about the show. New Listeners hello and welcome. Please do all continue to tell people about the show, we’re still on the homepage of Apple Podcasts in the UK which is great, we’re on castbox, Radiopublic, Acast, overcast and all the good apps. If you come across an opportunity to rate the show or comment please do and do tweet that you’re listening to the show as all these things help spread the word.
But we all know what you want, a new Ronnie fact, and for the new listeners Ronnie is my dog. So the new Ronnie fact is that he once framed a squirrel for digging up my potatoes. And he was getting away with it too until one day we caught him red handed and face covered in mud. Very naughty.
But now, anchor time.
Money money money, must be funny in a rich man’s world.
Yes the finance episode. We’re talking cold hard cash, keeping in line with our new year goals.
Last year The Guardian published an article with the headline one in 4 UK families have less than £95 in savings. That sounds shocking right , the article states this is a figure for low income families, with high income families having an average of £62,790 in savings. The average household debt, tracked by Aviva was £17,630. Personal loans were the biggest contributor to household debts.
With finances on a whole not looking so great for the average person I thought it would be good to get the hosts of US Podcast Paychecks and Balances on the show to give us some practical tips and also maybe scare us into adulting better.
First off I wanted to know if we could do it all over again when would be the best time to save?
[RICH] I would've started saving money at 21. Now that's the super responsible thing to say.
[RENAY] This is the voice of Rich
[RICH] I think as soon as you can get started you should because it's going to make things a lot easier for you later on especially when you consider compound interest where here in the states the interest rate for savings accounts isn't great. But when we think about things like 401 ks in and saving for the long term and saving for retirement the sooner you get started the easier those things are. A lot of what we talk about on the podcast is how when you wait till you're 35 40 45 years old to finally get started with saving money then you find yourself scrambling to catch up and then you've got to stock away even more money which you may or may not even have at that point in time.
What is a 401k? you may be asking if you’re not in the US. A 401k is a qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement. That’s from Google of course. A 401 k is the equivalent of the pension plans we have here in the UK.
[MARCUS] I would say the same for me, the great irony was I was my most responsible in saving at age 16.
[RENAY] This is the voice of Marcus
[MARCUS] Yeah, because I didn't have any bills so I was working my loan 9 to 5,I was a waiter. So I'm like you know I'm going to cash far as I'm concerned I'm making it rain. So it was actually very easy to save because I had nothing but income and my only expense. The only thing that my parents made me pay for at the time was my cell phone bill and I'm a dinosaur and this is back in the day when everyone didn't have a cell phone so I don't really think they thought I needed a cell phone. I went out and got that on my own. So they're like well if you want it you can pay for it. Basically what is that, maybe a hundred dollars a month to go into one bill and I bring that up because it created this false reality, like money literally grows on trees. What's the big deal? Like it just comes like it is what it is people bought it because I can make it back every weekend. Then reality struck and there is actually a point in there I went to prom and I remember I spent like 2000 or something along those lines.
[RICH] wait how is that even possible?
[marcus] it's possible yeah. So I'm 18 so I had my first debit card and like I said I have you know a few thousand in savings by this point. I've been saving since 16. I had a job since I was 16. I actually started off at a movie theater. I had a few jobs by that time and I was like because in my head I'm like money is nothing. Money is just it is what it is. So I got a rental car I did it big. Got my girl you know a nice dress you know the nice dinner got a room a hotel room because I was like the only one that can even hold a hotel room because I had a debit card and it was just all gone and it would be by age 27 That I put a budget together. Because I had never learned what it was like to live in the real world until I got in the real world and I feel like a lot of people go to this real world experience and then they're like oh I need to do this differently. And the funny part is by the time you learn like oh I need to have a abutted I need to be planning for life. And you know some studies behind it. But it's usually in your 30s and as Rich pointed out you just lost about 10 years when you could have been gaining that advantage or that compound interest in those gains and to put some numbers to that. I heard a podcast recently and they had already done it, at age 18 depending on your returns it can be as low as 100 dollars a month. At 21 it jumps to 300. I don't have it for 30 but at 35 it jumps to 900 and at 40 it jumps to over 1500. And those numbers are based on like a 6 to 7 percent return and if you want to retire a millionaire which I find very interesting because in is a true which is. Yes. Yes.
[RICH] And that’s in dollars
[MARCUS] Oh yeah. I forget we’re Across the pond. But keeping that in mind. Interesting note Neal. Most people a million dollar mark is what most people use but if you used a 4 percent withdrawal that's forty thousand dollars so if you told somebody hey you're going to live on forty thousand dollars. But you know what a shock. Guess. But for some reason it is like will save up to a million to live on forty thousand dollars.
Most people I don't think they realiSe they need more or they need to figure out how much they need to live on to support their lifestyle. And that's how much you should be saving for. We just use the round numbers because they sound good and get 5 zeros in them and a 1.
[RENAY] When Marcus mentioned saving a million in order to live off 40,000 a year from retirement that blew my mind. Yes they are talking in dollars so as of today when I’m writing this script 1 million US dollars is just under £730,000 so in the UK if we saved 730,000 we would have 29,000 a year to live off in retirement. But let face it, the way the pound is going we all may as well work toward the million.
I know that reality has just put the fear in you all right.
I asked Rich and Marcus if they really thought it was possible to save 1,000,000
[MARCUS] It takes discipline and the difficulty is it takes a lifetime of discipline. So I've done the math. You can but you have to plan for it. And as Rich mentioned the greatest benefit is going to come in your 20s. Most people don't start thinking about it until the 30s. There's like the last decade of time when they could have been planning for it now. Our hope is not lost but now you're looking at three times the amount of money that you would need to save each month. So it's not a matter of if it's a matter of when if is actually do I want to make the sacrifices to carve out 900 dollars in my budget a month or two in this case save up a million dollars. Mostly we're going to say no but you would have equally difficult conversation tell an 8 year old hey do you want to carve out a hundred dollars in your budget. Most 18 year olds are be like No that's a plus. I don't have a hundred dollars to to save each month. But in both of those scenarios and I've seen it. Let me put it this way most people can't wrap their head around living with less money. Yet they always manage to spend their raise so you get 2 percent raise you spend you get a 5 percent raise you spend it and all it's really just the inverse of that justification the same justifications you use to spend that money. You could be using to save that money. So I just talked to people like you always find a way to spend the money. Why can't we also have that conversation around saving the money.
And even for the idea of saving a million dollars that's a goal that a person has to have in the first place and a goal. And if you want to have that in your lifetime before retirement then you're going to need to come up with a plan to make that happen. So maybe it's not going to just be your day job alone. If that's the route you're going maybe you're going to have to pick up a second job or you're going to have to find other things to do on the side maybe you're going to get into investing when you have enough income to feel that you're comfortable doing that to be able to expedite that process. But if someone wants to have a million in their lifetimes like you're just going to work and then you just save and you have a million dollars like that has to be a goal and then you need to figure out the steps that it's going to take you to get there which may take a lifetime for some people and I would also add I think most people they just check out when they are a number that big. And so it's a good question that can you save a million, answers Yes but they check out because well I don't think I can. They don't have any numbers or math mind. They're just like that's a big number. It's impossible. I'm living paycheck to paycheck. I struggle to do this. I struggle to do that. I just can't do it. And for me it brings me peace of mind to know what the math looks like. What are the effects. You get into the emotions and get into the procrastination in which we are ahead. You never will. You're right. So the person who thinks they can't the person thinks they can't they're both right. It just they just don't either.
When have the information do so. So for us and I don't know I'm a little bit hesitant to say which tools I use. However if you google retirement escalator there's no limit to the amount out there and there's not really any bad or wrong retirement calculators there are just some there are more or less easy to use and to Rich's point you know is that even your goal. So we are a listener right in the 80s like early 20s and he's like you know there's no way I could save a million and no one I know can save a million didn't know any of the math behind it. So we walked through that and it actually turned out to be a really good conversation. But I also bring up this point because about 60 percent of people are saving nothing. So I can't hit a million. So my solution is to save nothing. That also is not a solution as I've talked about before having a plan and having no plan is still a plan just having no plan is a bad plan. So you strove to save a million. Now you hit 700000 yet 500000 or 250000 that's still hundreds of thousands of dollars. You just didn't hit your goal of a million because that's a big lofty goal. People are like well if I can't win it I can't win the Super Bowl and I'm going to play the game like that. That doesn't make any sense to be in it to win.
[RENAY] So Rich and Marcus say it is possible and I looked at the math and if you’re in a company that matches your pension contributions then it absolutely is possible in under 40 years but if you’re freelance, work for yourself, run your own company it becomes much more difficult but like the guys say that doesn’t mean don’t bother it means find a different figure.
So we all know we have to save, how do we start?
[RICH] There are a few ways to look at it and I will say I was in a different industry by luck so I'm not some kind of savant and I started saving at age 22 but I was forced to like there was no option. I showed up and they're like this is how much we're taking out your check every month and are like OK it's my first job. It is what it is. So it's not like I went into work. I'm more of a do as I say not as I did because if I had had the option to get hold of that money outspent it all just like everybody else so I don't want it to come across. I just knew this at age 22 when I made those choice a lot of those choices were made for me and the responsibility came through the pressures of life. So I do want to put that out there. But that being said if you are that age now or you're thinking about making that change regardless of whatever age you are I would agree with you. One popular and very easy method for doing it now is what people call fired, financial independence, retire early. And there's two ways of looking at it so you can take a minimalist viewpoint.
[MARCUS] There's several ways to do it but one way I look at it is you need to at least know your budget or know your expenses and you add up your expenses so just to keep it simple for example you say my expenses every month are two thousand dollars and then you multiply that times 12. So my annual expenses are I think that is 24000 and then you divide that number by point 0.4 percent and that's your retirement. That is a minimal amount of money you would need to, say, if you were going to pull a 4 percent withdrawal. That's how I came up with that forty thousand dollars a year if you had a million dollars in savings. So that's one way of looking at it and then the other way is ok that would just cover my bills so I know that I have a roof over my head. You know my basic things will be taken care of roof food water whatever you need to put in that budget. But most people don't want to live paycheck to paycheck. So you build up from there.
The question is the answer. You start by starting. There's really no simple way to it. But I mean if you're hesitant to do so you know start with you start as low as 1 percent. I talked about on the on the show this year last year because there was something else that I went to. I moved my 401k down to 1 percent. I still had 9 percent going to another account. So I moved it down to 1 percent. You don't have to get it right the first time. Arguably you don't have to get it right at any time because the market itself is variable but you do need to have a plan or you need to at least have a goal. This is what I want to accomplish and these are the steps that I'm going to do so. And if you are unclear just start.
Twenty five dollars ,2% whatever it is, just start it. Make it automatic. We talk about that all the time because of you I'm going to do it at the end of the month and do it next year. New year new me new year's resolution that you know get it done. So automated as quickly as possible whatever that amount is said it and honestly forget about it. And I would say if your debt still doesn't make sense to you there's always professionals that you can talk to a lot of them will do it for free for a consultation session because we've talked to a lot of Certified Financial Planner most of them don't want to work with the average person because that person didn't have a lot of money but they will have like a salty obsession with U4. Here's what you do. Here are some resources that you can go to learn what you can do so that you can make a lot of money and stop wasting my time.
[RICH] It could even be let's say you want to start with saving 50 dollars a month and then each month maybe you increase that amount by four dollars maybe you increase that amount by ten dollars maybe you. Well doubling it would be aggressive because at some point you're probably like saving 500 and then you don't have enough money to cover your bills. But there is no hard and fast rule. The biggest thing is to establish the habit and get the pattern in place. And then just by doing that you're going to build confidence in your ability to say you're going to be like well I saved 50 and it didn't make me feel like I was struggling. I saved the hunter and it didn't make me feel like I was struggling. I say 200 and it didn't make me feel like I was struggling. I saved 500. I know I'm getting into a little bit of trouble. I should probably stop right here and set that as the limit. I'm going to save until I get a pay increase or until I have some other cash flow coming in.
[MARCUS] Thank you for saying that because another piece to keep in mind which is funny how the human mind works a lot of what we need to overcome is ourselves we are biggest obstacle is you can get it back. The difference between a credit card is you can't get it back. So a person will go out run up a credit card to tens of thousands of dollars pay interest on that debt. But yet we'll not put money into a savings or retirement account which they could technically access it at a time but you can. You're going to have to pay penalties and taxes. But in both scenarios you're spending and wasting money. The only difference is if you don't need to access the retirement account early it work for your benefit that credit card is always going to cost you more. Credit card is nothing more than this is an expensive enough I need to pay more money plus interest.
On top of that based on what you're saying when it's a small personal loan every time you use a credit card. So this is an opportunity for you do something positive for yourself. And guess what. As Rich mentioned if you get into deep or you're over your head you can withdraw the account. You'll pay taxes and fees on it and then guess what you'll just move for it whereas a credit card if you can't pay it it spirals from there. Now they're coming at you it's going into collecting it's a much worse scenario than doing these positive steps for yourself. It's important to note that the taxes and penalties are going to come for the retirement account is going to be different different countries of course. But here in the U.S. if you withdraw from your 401k you're going to pay fees on that. As for banking accounts checking accounts savings accounts probably not going to pay that type of fee. I know there are some accounts where your balance goes below a certain amount. They'll charge you some amount for that. So you're probably not going to pay a penalty. But that's important too. So if you are putting money into a savings account versus a retirement account with no fees. That's money that you have access to as well. But what you don't want to do is get in the habit of saving more and then you're constantly pulling money out of your savings account and putting that into your checking account to cover bills because when you start doing it you're just not going to make progress because you're essentially eating into this bucket that you've put aside for yourself. And I've had stretches where I've done that when like you know I have a savings account. And then month after month I'd be like you know what. It's only ten dollars. It's only 20 dollars. 20 30 dollars. And then when I look at the progress that I've made that savings account over the year it was like I haven't made any progress at all. So that's why I think it's important for people when they get started to do something that's manageable and something that they can live without. So there's less temptation for them to touch that money.
[RENAY] There’s definitely a lot to consider when saving and trying to make the most from your money. I actually went to the bank last week and switched my account because I’d had the same account since I was 11 years old. I’d just been going with the upgrades they suggested rather than looking into it myself. It turned out I could have been getting cash back on my direct debits, making 1% on my balance and not getting some of the charges. It literally pays to research when it comes to personal finances.
Rich and Marcus, had mentioned credit cards and you hear so many negative things about credit so I wanted to know whether they think credit is bad?
[MARCUS] I don't think credit's bad. It's either you use a responsibly or you do not. I mean technically you can. The smartest way to use a credit card is if you are going to use it at all. Now keep in mind there's a lot of points there's a lot of rewards. There's two percent cash back. But most people don't pay it off. Month to month. So if you use it that might pay it off that month. It's same as get bless you. Gotten rewards of bonus points. Travel deals or whatever else you might have gotten. But if you do not pay it off month to month. That's where folks start to get in trouble so inherently credit. No it's not bad. It allows you to live a lifestyle and a lot of people to afford means buying furniture. Another example we know zero percent loan to buy furniture for to fill up a home that they otherwise would not be able to afford or had in the first place using it responsibly no credit cards not our credit in general. I think some people are taught that credit cards are bad. But further it's all the way to effectively use a credit card in the first place.
And for those who are responsible with credit cards they talk a lot about the rewards and the points we've been talking about like in a recent podcast how I was out with friends and I was paying for stuff on a on a debit card and everyone else around me was using credit cards and I was like Wait should I be using a credit card. And I was thinking about the way I think about credit where I got to a point where I was able to eliminate my personal credit card debt when I still had this credit is bad evil mindset and it might have been from the trauma I experienced from accumulating so much debt in the first place and then having to pay that off. But there are benefits in terms of the rewards points to travel and then people talk about being able to take trips just based off of appointments alone or do other things just based off of the points that they have gotten on their credit card But these are also people who are paying that balance off every month not letting that balance increase and paying some crazy amount of an interest which then essentially negates the points that the person is trying to build in the first place and then just credit in general if you have aspirations of buying a house and let's say you're not a millionaire and you don't have cash available to just walk around with a suitcase or briefcase don't people to walk around with briefcases. Let's walk around with a briefcase filled with money and hand that over. They're going to be benefits to you establishing that credit history so that when you do need a loan for something later on it's going to be much easier for you to get that and you're going to get a much better rate. And again that's going to vary from country to country that set up.
[RICH] Now as far as debt I guess it's not it's not an easy question to answer because I think the first answer is actually to have a plan. So what is the plan. What is important to me because we've written I've talked about this before for example. I think he's OK we went out there and he bought a car and he was taking a band of early but he had a really low interest rate on it. So my question to him was Why. Because I think the mindset was it made sense. I just want to be out of debt. And his car has a loan tied to it on that loan is less than he could have gotten by investing that money are putting that money in a more responsible way. So I think some people just want to see everything at zero. Now what about the house. What about the debt. What about the car. I just want everything at zero.
In some cases there's more responsible ways to use your money. A lot of the cards now at least over here they have 18 months zero percent interest 22 I think I saw one is at 21 months zero percent interest. I didn't realize it was like I opened it when there was like you won't have any interest charged on this account until 2019. And this was last year and I was like oh maybe I should start using this thing because that in that scenario again if you pay it off month to month that's same as graduate you're not paying any interest. There is a responsible way to use some of these cards. And as Rich mentioned we talked about and show a lot of these cards are competing for you the customer as well. So now I'm not saying go out there get 10 cars charge up 10 cards but go out there find a plan put a plan together for the card that works best for you if you already have it.
There may be a card where you can pay off that that went earlier. A lot of these cards have what we have is balance transfer so you pay like a 3 percent transfer fee and then you pay zero percent interest for 24 months and maybe that's how you can figure out OK take the debt. Divide by 24. That's how much I need to pay each month to be debt free on that 24 month.
Because that's the goal and the mistakes some people make with the balance tranche USA some people like this wasn't me. Let me stop fronting so you have a balance transfer card where you have no interest for let's say a 24 month period and I've moved the balance to that card and then literally waited until it was like two months before the interest would start kicking in to start making payments on that. That's problematic in itself because then you just find yourself in the same situation all over again. But then also with some of these cards if you transfer a balance over to a no interest card and then you don't pay that amount off that interest may have just been accruing over time. And they may hit you with that full amount of interest once that no APR period. And so that's something else to keep in mind if you're thinking about doing it like oh you know I can get myself some breathing room for a year.
But yeah just because you're giving yourself some breathing room doesn't mean you shouldn't be actively making payments because the whole reason you made that transfer was to make it easier for you to get out of debt over time and have some relief from that interest in the first place so be very careful with that. As someone who has lived that life and has seen that interest come back and bite them it ended up ultimately paying more than the long run.Do as I say not as I do.
And that's something to keep in mind with loans as well as I appreciate Rick saying that sometimes what I'm more familiar with furniture so a lot of those Furniture land people like 0 0 percent interest for 42 months Algis. Well most people don't but let's say you know I'll pay it off whenever I pay it off I'm never going to pay it off with the interest rate. Then they're shocked when they get that balloon interest payment which either they're not prepared for or if they are prepared for it they might not even be able to cover because they weren't planning for that amount of money to come out of their budget. So again it comes down to and this is something I wish I had opened with.
The plan is the easiest part. The plan is that that's actually going to be the most simple thing you do. 15
minutes maybe you know if you dedicate that weekend to it putting that plan into action over 24 months 36 months when your friends are hidden you have about Sunday funday. You know you want to get you to go out while out. That's when the test is going to come because you're going to be tested over that 24 36 60 month period. Now most people we hear them say well you know now he just justified me not started. I just gave up all over again just like when we started with the Million. That doesn't make any sense either because we buy cars we buy cell phones we pay those off over 24 36 months with no car sign. So 60 70 today they're off an 84 month Carlo's now. I don't even know that existed. We'd know no problem by 15 homes on a 15 year mortgage. So we do all these things that cost us money. Let's inverse that mindset. These days it could save us money.
[RENAY] It’s still the beginning of a new year and it’s never too late to start some healthy financial practices so I asked Rich and Marcus what tips, tricks and advice they have to help us make the most of 2018.
[RICH] In the vein of getting started, if you haven't establishing a budget and also having goals and I talk a lot about emotional goals and I don't mean goals don't necessarily make you cry but goals that when you think about them you feel some type of way. So maybe you have a goal so so so let's say you're in the middle of your career and you're like I hate this ‘ish’ and I want to get out of this. And I would love to be in a position where a job is a choice versus something that I have to do. So maybe you do that calculation and you figure out what that amount is you need to save to be able to have the choice to walk away. For most people that's going to take longer than a year or maybe there's a trip that you've been thinking about for a really long time someplace that you really want to go some. A friend that you've wanted to go visit somewhere and you and your excuse for the past year has been I haven't had the money for it and then you think about what it would be to actually connect with that person. And that's going to give you the motivation to make sure that you stick to whatever that goal is that you establish for yourself. And as far as the savings front you know it's really just starting small. You know I tend to be someone who's super ambitious and will get out and be like you know what this year I'm a stack 25. Now even though I don't make that much and feel like we're talking about earlier it's just important to get started with something that is reasonable and you'll hear a lot people talk about smart goals you know specific measurable actionable reasonable or realistic and timely. And I encourage people to apply that as they're setting up goals for themselves for this year. And that reasonable part is really important because if you set a goal that just evening like yourself your subconscious you're like I'm not going to be able to attain that because I know it's a stretch goal. You're going to have this temptation to fall off because you know you're not going to get there anyway. So with whatever goals you do say yeah maybe it should be challenging but it should be something that you could reasonably see yourself dating site encourage people to keep that in mind as they're as they're making their way through the 2018. What are their resolutions and goals.
[MARCUS] All that I would say is you know to make a change. It's easy because it's a new year to a new period time but technically you just started any point during the year. But just look at the years past that they didn't have the results that you wanted. Doing the exact same thing will just result or give you the exact same result. So I would say put that plan together and make this year different you have all the power and ability to do so and we also talk about being surrounded by people who are going the route you want to go it doesn't mean that they're trying to do the same thing in terms of their job or their career even having the same financial goals but having accountability partners is super important. I've heard a lot of talk over the past few years about Mastermind groups where people get together and maybe they connect with each other on a weekly basis or even on a daily basis via a chat to make sure that people are in progress on their goals. There's also a range of different Facebook groups and challenges and other things that are out there where it's more about a community of people working toward their individual goals but also holding each other accountable and providing motivation and inspiration along the way. So depending on what your financial goals are or even your general goals in life if it's something that you struggle with on your own there's probably something out there that's free that's going to be able to help you get there.
[RENAY] Rich and Marcus had some fantastic advice, and financial stuff can be confusing so I would highly recommend you go listen to their podcast Paychecks and Balances which is available on all good podcast apps. You can visit their site paychecksandbalances.com paychecks spelled the american way, as they have lots of Nerdwallet tools that help you budget, calculate paying off debts, what you can afford to save and much more. So of course Paychecks and Balances is my podcast shout out of the week.
That’s When You Get a Dog is produced by me, Renay Richardson, our original music is by Aaron Williams and artwork by Adam Cohen. Thank you to those have have rated the show, tweeted me, followed and listened because without you guys it would just be me and Ron. Sophie will be back next week to debrief this episode with me and I hope you’re all getting off to a stellar 2018.