Andrew Fiebert knows all about keeping your finances on the straight and narrow; as part of the team at Listen, Money Matters, he helps people figure out how to use automation to get more out of their money. He spoke with us about how that works and why we should automate.
What are some personal finance issues you think deserve more media attention and why?
For Millennials, there are two topics that don't get much discussion but really should.
The first is Health Savings Accounts or HSAs and high deductible insurance accounts. If you're young and healthy, you likely don't have many medical expenses beyond your standard checkups. When you enroll in the Rolls Royce of health insurance plans, you're likely bleeding cash due to your high monthly premiums - especially if you have kids or a spouse that doesn't work. We've found that when money is tight, this is likely the last place people will look for savings! Reducing your premiums can save you hundreds of dollars a year by going to a high deductible account.
If you took the amount you saved or more and placed it in an HSA account, you will reduce your taxable income all while parking your cash in a place that will allow it to grow tax free. Eventually you could even roll it into an IRA when you get older. Have an unexpected health care cost? Pull it out of your HSA, and since the money is pre-tax, it's effectively like getting a discount. For example, I'm taxed at 34%, so all things I expense through my HSA are technically 34% off!
The second issue that really deserves more media attention is this notion of the social taboo of personal finance. Back in the '80s and '90s, it was in bad taste to mention how much you made, how much you had saved and how you managed your money. What resulted is a generation of adults who largely had no knowledge of personal finance or access to people who did. As it turns out, personal finance isn't a zero-sum game where if someone gains, the other must lose. If we discuss our salaries and investment decisions openly, then everyone can leave the table smarter with an equal opportunity to improve their financial situation. It isn't just about reading and listening to financial strategies online, it must be taken offline with your friends and family so the lessons can be put into context.
What's the value in automating your finances? Why should we do it?
We don't want to spend hours a week dealing with our finances, and it's clear that our audience doesn't want that either. Understanding the time-saving benefits of allowing a computer to do the heavy lifting is easily understood, but the most important reason is often overlooked.
As smart as we are, there is still such a thing as human error. We are very forgetful and prone to making bad decisions even if we've made the same decisions correctly many times over. Computers, on the other hand, are programmed to do a specific task and will do so flawlessly as per the instructions given to it.
When it comes to spending, Mint can alert you at the first sign you start over spending. Tools like Ready For Zero can automate all of your debt payments so you don't miss a minimum payment all while paying down your debt in the most efficient manner possible. We also love tools like Acorns and Betterment, which take automatic contributions from your checking account and invest it based upon modern portfolio theory so that you can see the gains of the stock market without having to study endless charts like a Wall Street trader.
Why do you think the educational system doesn't prepare people adequately for personal finance?
I made it through high school advanced math classes, graduated with an engineering degree and eventually landed a job as a Data Engineer. This all made me very effective with math, statistics and a whole slew of computer skills. While I was lucky to get a great job that paid well, the trailing eight years of education I had didn't teach me a single thing on what to do with the money I was earning despite all the exposure to math.
Our educational system doesn't teach personal finance because there is no one demanding it. People want to learn about Irish poetry and the infamous Mongol Empire. Personal finance is just not that sexy. In order for these classes to start popping up, it's our responsibility in the personal finance community to drive interest in this subject. It's also the job of parents to demand these classes as part of the high school education - or at least make them available as electives.
It's our collective fault these classes don't exist, but the good news is that we can change this.
What are people getting wrong about personal finance?
There are two big things that people are wrong about when they think of the personal finance community. One is that advanced knowledge is needed to succeed in personal finance, and the other is that personal finance is boring.
As we touched upon, automation is rapidly bringing the power of personal finance to the average person who has a computer and a will to not work forever. It used to be that you had to go to the supermarket with a calculator and then at the end of every month pore over a mount of receipts to see how well you did against your goals. I know this because it was the life my parents lived for a very long time. We're lucky that things are exponentially easier now. You can keep your spending under control, crush your debt and invest like a badass without more than a handful of hours setting up shop.
Perhaps the worst is that personal finance is boring. You will definitely find excitement if you asked someone how they felt after finally achieving a positive net worth. Or the person who was able to cut so much fat out of their spending that they now get to go on vacation every year. Or the person who through consistent investing was able to retire in their 30's. Success is exciting, especially when progress can be seen every day.
If you could go back in time and give your younger self one piece of financial advice, what would it be?
I'd tell myself to be a bit more patient with my financial progress and not try to "beat the market." It's a topic that's been discussed to death in the personal finance space, but that's only because it can't be said enough. While many understand the idea, it's unfortunate that few practice it.
There is this perception that people must pick the best stocks and perfectly time the market. Statistics show that over 75% of professional money managers can't do this. Now, these are the professionals who do this for over 40 hours a week, every week. What does that say? That average is where it's at. If professionals can't beat the average benchmarks, then maybe the average person shouldn't even try.
The best approach is not to try and find the needle in the haystack but to just buy the whole haystack.
What trends in personal finance should we be keeping an eye on?
We all should really keep our eye on companies like Acorns that combine the best of breed approaches from our banks, our statistical knowledge of the markets and the power of our smartphones. With tools like this, we can round up our coffee to the nearest dollar and invest these small micro amounts daily, which over a few months can amount to some serious invested cash. Better yet, the entire process can be automated.
Not being invested is one of the biggest things keeping people from reaching their financial goals, and now it's easier than ever to get into the market. Now you can be the average investor that professional money managers can't even beat.
This is just the beginning, and I have no doubt that this industry will continue to innovate rapidly. Features like Acorns invest the change, and Betterment's Tax Loss Harvesting are the true killer apps of this year and likely years to come.
In short, I'll be keeping my eye on tools that combine best in class automation with all of the fundamentals of personal finance we discuss on places like this blog.