The anonymous blogger behind My Money Design has spent years studying finance and shares a unique perspective on money. Despite the cloak of secrecy, we asked a few question about personal finance and saving for retirement and got some insightful answers.
How'd you develop an interest in personal finance?
I've always been very curious about money and the way it works. I remember as a small child I was fascinated by the concept of "interest." You mean someone pays me money just because I let my money sit in the bank and do nothing? That was mind-blowing to a 6-year-old.
Fortunately, as I grew up that wonder never ceased. I only became more curious about the ways you take one dollar and turn it into two. I started reading everything I could about personal finance and began to get involved with investing, stocks and retirement planning.
What are some of the most pressing issues in personal finance right now?
The fact that not enough people are engaged in their own finances. In 2013 Fidelity reported that the average 401k balance in America was just $80,600. People age 55 and over averaged $255,000. That's slightly better than the average, but not by much, and certainly not enough to last you the rest of your life. You've probably only got about five to 10 years of life with a nest egg that size.
Right now it's easier than ever to find good advice about handling your money and apply it. There are thousands of useful websites, software programs and ways to connect with other people who can teach the right ways to do things. You don't have to be financial genius or do it all alone.
What tips do you have for people building a budget?
Just hop on Excel or any spreadsheet and make one! It's easier than you think to budget your money. People always make it harder than it needs to be.
The only thing you need to know is this: If you've got more money going out than in, then you're doing it wrong. Go back to the drawing board and try again.
A good budget starts by listing and tracking your bills and income for a few months. From there, you can look for patterns and opportunities for improvement. About once every few months I like to pick a bill and see what I can do to make it lower. Maybe I'll reduce it and maybe I won't, but at least I'll have tried!
What's the one thing you wish everyone knew about personal finance?
The sooner you start, the easier it is. "Time" is really your biggest asset.
Here's an interesting scenario that most people don't really know. Take, for example, when you first start your career. Suppose you're 25 years old and you start stashing away the maximum contribution to your 401(k) each year ($17,500) for the next 10 years. Then, for whatever reason, you decide to stop and not save any more money. Now suppose a different employee waits to start their 401(k) until age 35. Again they contribute the maximum amount but they do so every year until age 60. By age 60, who is richer? Who has more money saved for retirement?
Surprisingly, the employee who started at age 25. Assuming an annualized return of 8%, that employee has a portfolio worth $1,736,190 versus the $1,279,354 that the employee who waited until age 35 ended with.
How can that be, you might ask. How does someone who only invested for 10 years beat someone who invested for 25 years? The answer: time. Starting early is one of the biggest factors. The power of compound returns is proportional to the amount of time you give it to work. The earlier you start, the stronger the potential you give it to succeed. Even if you did wait until your thirties to start saving for retirement, don't get discouraged. You can still come out way ahead of your peers with more money than you'll need.
Retirement planning can be tough for some of us. What do you recommend to get started?
Read a good book or follow some personal finance blogs you can identify with. There are tons of them, and most of them are not as overly technical as you would think. Especially with the blogs, the majority of them are written by normal people like you and me, where the tone of the writing is very causal. Think of it like a good friend giving you helpful advice.
The other thing I always encourage upon people, although it's a little harder pill to swallow, is to make an attempt to understand how taxes can influence your savings. On my own blog I've shown how using a tax-deferred savings account versus a taxable one could result in over $2 million dollars more throughout your lifetime! Wouldn't you look into it if you knew you could keep an extra $2 million dollars?
Where do you see personal finance heading in the near future?
I see personal finance as becoming more...personal. By that, I mean the responsibility of everything will fall on the shoulders of the individual themselves. We've seen this with companies doing away with the management of pensions in favor of placing that responsibility on the employee with 401(k) plans.
Social Security is incredibly under-funded, and we're starting to see the government try to push more self-reliant options like the MYRA and the IRA. Healthcare is another area that more and more companies are skimping back on, forcing the average worker to pay a larger co-pay or simply handle it themselves. Fortunately though, despite all those changes, I still believe the Internet and availability of information makes it completely possible to tackle any one of these issues. Plus you don't necessarily have to do it all yourself. There are lots of options for finding help and guidance if you don't understand something or just plain need some advice.
The only caveat is that it all starts with you. As I've often said on my blog: No one is looking out for your money the way you do. If you're waiting for someone to tell you start saving or tell you what to do, forget it. Get out there and make it happen yourself. You'll be glad you did.