Joe Saul-Sehy has some hard-won personal knowledge about personal finance. He's dug himself out of credit card debt and continues to offer a personal, far-ranging perspective on personal finance both on his site Stacking Benjamins and his fascinating podcast of the same name.
He spoke with us about managing your finances the right way.
Why do you think there was, and still is, such a taboo around talking about money?
I don't know, but it's frustrating. Part of me believes (from my time as a financial advisor) that it's because we all stink with money, so it's fine by us if we don't talk about it. However, studies show that people who DO talk about money are more successful. They have better marriages, keep a better budget and are generally better off.
As a former financial planner, what are some common mistakes you run across?
The biggest ones I ran across were pretty common: People don't start with the end in mind. They're so busy chasing strategies that they forget to start off with the question, "What will this goal cost?" and work from there. It's actually easier than we collectively make it. Second, we make emotional decisions about money, debt and investing. It's amazing how really brilliant people will make objective, logical decisions for a company all day and then make personal financial decisions based on rules of thumb and how they feel at the moment. If you were a business, you'd probably fire yourself!
What are some of the challenges in money management people don't anticipate?
I don't think people take insurance seriously enough. One guy told me he was "a really safe skier." That wasn't going to go well.... I'd start with disability coverage and make sure you're adequately covered, then look at life insurance.
What's a way to save money that a lot of people completely miss?
Here's my favorite hack. Most people can't save because any money left in their checking account after payday gets eaten away with stuff that "comes up." It seems to me that stuff comes up because there's money in the checking account. So here's what you do: Change your direct deposit to your savings account, then ask your bank to help you set up automatic "paychecks" to yourself from that account over to your checking account, based on the amount you need to pay your bills. All the extra money isn't easily available anymore...and is automatically saved in your savings account. It's amazing how well that hack worked for people. The key is in keeping that money separated from your checking account. This strategy makes it really easily to naturally accumulate money. As that savings builds, move it over to mutual funds, exchange traded funds, etc. Maybe use it to fund your Roth IRA. Whatever.
When you get a windfall, what's the first thing you should do with it?
Ha! My favorite question, and one we all wish would happen to us. First, I'd put the money somewhere far away where I couldn't touch it so I didn't make a stupid decision, then I'd sit on it for a couple months. I'd then list what was really important to me long term and try to find ways to build that pile of money into a bigger one.
Most people go out and buy depreciating assets with windfalls...things like jet skis or cars. My question would be, "How can I use this smaller amount of money to build an even bigger one?" If you think that way, you wouldn't buy a jet ski. You'd buy a business.
If you had a chance to talk to your younger self, what advice would you share?
Don't be so eager to get into debt. I applied for (and received) an American Express card within a couple months of starting college. By the time my freshman year was over, I'd completely ruined my credit. Build assets and try to ignore debt products as much as possible. You don't want to owe other people money.