Many people have a lot of questions about personal finance issues, such as credit, insurance, and retirement. Learning more about these concepts properly will lay the groundwork for a good financial base or help you to progress.
I spoke about these issues recently on my radio show, The Goldstein On Gelt Show, with Laura Adams, author of Money Girl's Smart Moves to Grow Rich. Laura raised many interesting points about personal finance and what is very important to know.
Below is a transcript of this interview.
Douglas Goldstein: Who did you write the book for?
Laura Adams: I really wrote the book for the typical Money Girl podcast audience. I had started the show and had gotten a lot of questions about a variety of topics, from retirement to taxes, insurance, and I really wanted to address that typical podcast audience that I'm used to. It's really anybody from their 20s up to age 50, men and women. A lot of people think, "It must be geared toward women because it says Money Girl," but it's really geared for everyone who is interested in learning about money. Maybe you've already got a really good base, a good foundation, but you want to take it to the next level and get a little bit more serious about financial security and happiness.
Douglas Goldstein: How did you develop the ideas and ultimately get them on paper?
Laura Adams: I had a pretty unique situation, which was that my publisher, MacMillan, was not really very specific with me. It was like they said, "Write a book." So I had a lot of freedom about what I wanted the table of contents to look like, and that was wonderful. But it was also a little unnerving at the same time, as I was creating something and then a year later I submitted it and hoped that they liked it and everything looked good. I really wanted to address the main pillars of finance. I wanted to talk about the things that I felt would affect most ordinary people, and I just went from there. Like I said, it was really geared toward the typical audience that I see on Money Girl. So writing it, I had a lot of freedom and flexibility, which was terrific.
Douglas Goldstein: You spend a huge amount of time educating people about personal finance. What's one area, or maybe the top area, that you think people need to learn more about?
Laura Adams: I certainly get a lot of questions about credit. I get a lot of questions about debt, and of course those are very related. Credit is an issue where folks are just confused. I find that people don't really understand this kind of underground world of credit and how lenders use credit, and even how insurance companies use credit to evaluate you, and it's really something that's growing in importance. So more and more companies, merchants, are going to be using credit to evaluate you. Not only is it going to affect what you pay for a credit card, the interest rate that you're charged, but it affects things like what you pay for car insurance. So those issues can come as a surprise to some consumers and it's a little controversial. A lot of people think, "That's kind of unfair. Why should I be judged, based on my history? Does that really make sense?" Whether you like it or not, that is what it is, that's the financial landscape so have to play within those rules. So I love helping people get clarity on credit.
Douglas Goldstein: There's a whole philosophy that people should as little as possible use debt and try to live an existence where they only pay for things that they can afford on a current basis. These are going to be people who maybe use debit cards, checks, or cash and they are in the plus in the bank all the time but they don't really have much going on in their credit score because they just don't deal much with credit. How does that affect them?
Laura Adams: It's unfortunate that it does affect you negatively. If you are in a situation where you will never need credit, that's wonderful. It's okay to say, "I don't want to borrow for a home," or "I don't want to borrow for a house or a car," more power to you if you have the savings to make those big ticket purchases with cash. But the majority of people out there do want a mortgage. They do want to buy a big ticket item and they do want to finance it wisely, certainly never financing more than you can afford, but the issue comes into play with credit where it's affecting things that have nothing to do with debt, like your insurance rate, like getting an apartment. Those things are also going to be a part of your credit profile, and folks are going to look at you and say a thin file or no file and unfortunately that can hurt you.
With that being said, I think there are really smart ways to use credit if you do want to build your profile and you do want to build credit. Certainly there are ways to do that without going into debt. You never need to go into debt to build credit.
Douglas Goldstein: One of the other issues that I find as a financial advisor is I'll talk to people about saving and the importance of building up, and I can give the whole story about compound interest and why a penny saved today is really going to grow over time. At the end of the day, people say "A great idea," but they are just such crummy savers. What is it that we in the financial professional world can do to encourage people to realize that saving and investing is such a critical part of long-term financial success, not only on paper but you actually have to do it?
Laura Adams: This displays into our human nature. We like to have immediate gratification, whether that's buying things with our money or eating something that maybe we shouldn't be eating. We love to have immediate gratification and it takes a lot of maturity and emotional intelligence to say, "I'm not going to buy that thing. I'm going to go ahead and save that money for retirement because I know that in 10, 20, 30, 40 years, it's going to mean a lot more to me then than it will today," and it helps consumers when they really see the numbers. When you see those numbers on black and white, you say, "Wow! I could have a couple of million bucks if I only invest X amount per month." That can really get people excited. They really need to see those numbers play out, because certainly people, not everybody likes math, not everybody is capable of making those projections and understanding it. So if you can demonstrate that for people in easy ways, like simple case studies, I think it is very eye opening. I know it was for me. Looking at saving and saying, "Wow! I really can be a millionaire if I only do this," and staying focused on that long-term goal is not something that everybody is going to want to do or can do. But I think our challenge in the professional field is to help people stay excited and motivated about that long-term goal.
Douglas Goldstein: What technology have you seen that's been able to help people to improve their finances?
Laura Adams: I definitely love technology when it comes to finance because I think we can use it to our advantage - certainly younger people today, the millennial generation that are on their phones all the time. Millennials are especially into technology and so comfortable with it. If they can use some of that technology now to set themselves up for the future, they will be in really good shape. There are things like the Acorns app. Acorns is an app where it rounds up your purchases. So if I go out and spend $15.50 on my debit card, it will actually round it up to the next dollar and save that $0.50 to the point where maybe I've got $5 saved up and pending and then it will invest that $5 once I've accumulated that amount. That's not something that is necessarily should be your only way to invest, but that's an example of a way to automate savings so that you don't even have to think about it. It's happening in the background without you even really noticing. I love things like that. Of course even just things like retirement plans at work, where you're automating the stuff in the background, and if you don't have a retirement plan at work, simple bank transfers. It can be as easy as just setting up that monthly automated transfer with your online account. All of those technologies are available to all of us. We can all make transfers. We can all use an app like Acorns for the most part and just create those automated processes because I think that's really the key. I think setting it, not necessarily forgetting it, but setting it and letting it run its course, that is the key because we're going to end up living on what is left over in our account and when we prove to ourselves that we can do that, I think it makes it easier to just continue with that habit. If you put that habit into place, you're more likely to let it play out and then before you know it, it's like "Wow! I've got a really nice balance in this account and I didn't even have to think about it."
Douglas Goldstein: One topic that certainly comes up a lot for retirees is the low interest rate environment that we're living in now. People say, "When I worked, I always expected that I'd retire, I'd put my money in the bank, and make my 5 or 6% interest and now that's just not the case whatsoever." What sort of hope can you give to retirees?
Laura Adams: It is frustrating for those folks who have to deal with fixed incomes that are at a very low return. I think one thing to consider is that the low interest rate environment is probably not going to last forever. It's been around quite a while. It's been around a lot longer than I thought it would last. I don't think it will last forever but I do think that it's a great lesson for the folks who are preparing now. If we can say, "You know what? I need to prepare in case I am only going to get a couple of percent return on retirement," that means you've got to save more now. You've really got to put away those extra savings amounts on a monthly basis in order to prepare for it and then if we get to retirement and the interest rate environment is better, it's more in our favor. Then we'll just have that much more to spend in retirement, but I think we really do have to prepare for whatever environment is out there, and we just don't know what that's going to be. So I guess the key is to be as conservative as you can and really just try to prep. If you're in retirement right now, you're already dealing with those frustrations. I know my parents are in that situation. They are retired and definitely looking at income that's less than what they had thought. They are still doing fine, but it's not what they thought it would be. They are looking at some other things that are bringing them some higher returns. REITs and some other things have been doing well for them. So I think diversifying even if you're in retirement is still the key because you've got a long way to go. If you're 70, and you're looking at "Wow! I'm going to live to my 90s," you've still got to have to a little bit of risk in your portfolio in order to get that additional return you need to get you through those decades that are still going to come.
Douglas Goldstein: How can people follow you and follow your work?
Laura Adams: I would love for folks to learn more about me on my site, which is www.lauradadams.com and would love for them to get involved with the Money Girl community, which is a podcast and blog over at www.quickanddirtytips.com so I hope to see you there.