When people find themselves buried in debt, searching for savings or floundering to come up with a budget, they're not necessarily terrible at money management, says financial expert Peter Dunn, but rather at being organized.
"When people get stressed out about their financial lives, they tend to bury their heads in the sand. This is where the problems begin," the man behind personal finance blog Pete the Planner says. "If you bury your head in the sand and try to ignore the problem, then disorganization takes hold, and the problems become seemingly irreparable."
Financial progress will only start when people get organized, get focused and stay engaged, he adds. Ignoring the problem always makes the problem worse.
We recently checked in with Pete, a former comedian turned money management guru, to get his no-nonsense take on getting your family's finances under control. Here's what he had to say:
Tell us about Pete the Planner...when and why was the site started?
PetethePlanner.com is a website that focuses on giving practical financial advice to real people. I'm an author, radio host and personal finance expert. I'm a former comedian, and I ran a successful financial-planning practice for over a decade, until I sold it in 2012. I started the Pete the Planner brand in 2005 to address financial questions and concepts that are awkward and hard to address. My blog focuses on presenting very challenging financial concepts in a very conversational way. Another way I educate people is through financial wellness education in the workplace. I travel around the country and speak to more than 275,000 people per year about financial behavior.
Who should be reading it?
Anyone with a bank account. PetethePlanner.com is a resource for budgeting how-tos, retirement planning and tips for paying off debt. It's also a great place to challenge yourself. I don't mince words. I give hard and sometimes harsh advice, but it's because I genuinely want you to experience financial wellness.
What programs do you offer?
A vast majority of our advice is free to the general public. Our daily blog posts are the core of our curriculum. We integrate our radio show, TV appearances and readers' email questions into our blog as well. We have some guided "promotions" throughout the year. They are free, too. Earlier this year we had a foolproof program that had people accumulate an additional $465 into savings in just 30 days. It was a great program. In just 30 days, we helped our readers accumulate hundreds of thousands of dollars in savings.
When should individuals enlist the help of a financial planner? Why are they useful?
I don't think financial planners are equipped to help people with personal finance problems (budgeting, debt, credit issues and behavioral issues). Sites like ours are specifically designed to help people with these issues.
This is a financial industry problem. There isn't a reasonable compensation model for financial planners that want to serve peoples need for personal finance help. This is why I think people should only hire a financial planner once they clean up their daily finances. When you have money to invest on a regular basis, hire a financial planner. Until then, the solutions will come from self-study on personal finance problems.
What's your advice on finding an advisor who complements your goals?
I prefer that people interview two to three advisor candidates. You need to find an advisor that will motivate you to act, as much as anything else. If you think of your advisor as your accountability partner, then you can't go wrong. In addition, you should ask the advisor candidates what their goals are for you. They'll likely say it's to help you accomplish your goals, but you need to push them on this. Keep asking "how" until you get a reasonable non-lip-service answer.
Why is it important for families to create a budget, and how often should they revisit it?
I believe a budget holds people accountable to their goals. Sometimes people choose to keep extra money in their checking accounts, in order to not budget. They call this a buffer or cushion and are convinced that this is not responsible for their budgeting problems. But it is responsible. If your lowest checking account balance for the month is $1,000, then I'd argue that you're not pushing yourself hard enough. That $1,000 cushion will create complacency. A family should compare their spending to their budgeted spending every single month. If they don't, problems can go unaddressed and things can spin out of control very quickly.
What's the biggest money-management mistake you see people making?
I think people spend too much of their net income on housing. This tends to happen because banks are much more liberal with their lending than most people think. I like housing expenses (mortgage property including taxes and insurance or rent) to stay around 25 percent of take-home pay. This isn't easy in some major cities, but transportation costs tend to be lower in major cities, which makes it all workable. I think if a person spends in excess of 40 percent of their net income on housing, they're going have a ton of financial stress and seriously risk running in place financially for a decade or more.
How do you advise people on saving versus paying down debt? What should be the priority?
I think saving for retirement should a person's very first move. This means 401(k) (or other retirement plan) contributions should be made, in spite of debt. A modest contribution of five percent will suffice. After that, a person should aggressively pay off debt.
What's your advice on talking to kids about money? How can you instill good habits early on?
I think it's vitally important to talk to your kids about money. But if you act differently than what you preach to them, prepare for them to follow your actions and not your words. Children are much more perceptive than you might think. If vast consumer debt exists, yet family vacations are a regular thing, then a child will have a hard time rectifying this. I'm a huge fan of lemonade stands. I think parents should help their children start a lemonade stand around age 5, and then use the stand to teach business and money skills.