Happy Monday everyone! I have to admit I am REALLY excited about today’s post. Last week I sat down with my financial advisor Kevin, while he answered your questions about saving and investing your money. I was sitting there in the coffee shop typing like a madwoman because Kevin was dropping SO MUCH wisdom you guys. He’s been in the financial planning business a long time and while he has a lot of knowledge and advice about investing money, he also great experience working with people and seeing how money affects their lives and relationships. I certainly left the meeting with a lot to think about and some tips from Kevin that I plan to incorporate in my own life and relationship.

In terms of checking in from last week, I have to confess, I didn’t fully finish last week’s challenge. I’m in the middle of trying to wrap up my finances from last year in preparation for taxes and honestly it’s a bit of a mess. I really need to have a better system for this year. Kevin suggested going through all my transactions (and also doing all my bookkeeping) once a month, so I plan to do that going forward (right now I barely do it every quarter). I use Quickbooks but I recently saw this post from Remi about organizing your expenses and I think I’m actually going to use her spreadsheet! Also, thank you to Brooke, a reader from last week who posted a comment sharing an app she uses called Daily Budget. I haven’t downloaded it yet, but for those of you looking for something to help you budget this looks like a good solution.

You guys submitted so many great questions that I decided it would make the most sense to break them up into a few different posts. Since Kevin is a financial advisor, most of the questions and answers today will focus on investing. I will do follow up posts on budgeting your money, taxes, and building credit. This week’s challenge is ALL the way at the bottom of this post (it’s a long one but worth taking the time to read). 

I want to start by sharing a quick bit of information about Kevin. I met Kevin through my Mom, who also works with him as her financial advisor. Kevin also advised my grandmother and several other family members so I was lucky to find someone I felt comfortable with and knew I could trust (and who was willing to take me on as a client). Kevin is a Certified Financial Planner and Certified Divorce Financial Analyst. He helps clients with financial planning (for individuals and small business owners), college financial planning and financial advice for clients going through a divorce. So to sum it up, he’s seen it all, and I am so thankful for his time last week to help all of us reach our financial goals.
J: What is the difference between a financial advisor and financial coach (I asked Kevin because I think a lot of your questions were best suited for a financial coach and I think it’s important to know the distinction)?

K: A financial advisor takes care of the formal aspects of personal finance, advising on investments, financial plans, etc. The nature of a financial advisor ends up being a bit like a financial therapist without a therapy license. (After spending an hour talking to Kevin, it really did feel like a therapy session by the end, haha!). 

A financial coach works more with the relationship of the client to money. It’s a more holistic part of personal finance, dealing with debt, spending habits, how the client spends their money, etc.

J: Where do I begin looking for a financial advisor?

K: Make sure they are a certified financial planner. They should work on fees not commissions. You can start by asking your parents (this is what I did, I realize this is not realistic for everyone but finding someone through a referral is always helpful). If you’re just starting you probably don’t need constant, ongoing advice, but someone who could sit down and give you a checklist to conquer for the year. Someone who is willing to do it on a yearly review or one meeting guidance consultation to start is great for those new to investing.

J: Investing, where do I begin?

K: Start with your company sponsored plan especially if they have a match (that is essentially free money). If your company doesn’t have a 401k consider a traditional IRA or a Roth IRA. If tax deduction is not that important to you, millennials should consider Roth IRA, because the earnings are tax-free later on for retirement. Tax-free anything in the future is going to be important. For many companies. Even if you are in a 401k, many company sponsored plans have a Roth 401k component as well.

J: What retirement advice would you give for self-employed individuals?

K: If you’re able to contribute more than $5500 to an IRA (per year) there is a special kind of self-employment IRA, called a SEP IRA that self-employed individuals can use to save more than that. Generally its about 20% of your take home income. The benefit of that is it’s discretionary, meaning if you have a bad year you don’t have to contribute at all, and you can contribute right up until you file your taxes. It’s also a very easy account to set up. Later if your income goes way up there’s a solo 401k where you can contribute even more, but that’s only worth it if you can contribute over $10k a year.

J: How will any of us ever be able to retire?

K: With retirement planning it really depends on lifestyle, when you’re going to retire, it’s not just a number. For every generation there’s that worry. People of our generation may never “retire” in the same sense that our grandparents did. Lifestyles are different. It’s hard to imagine earning three times what you’re earning now, you want to save what you can based on the resources you have. When you’re young you have so many competing goals, family, business, travel, debt, etc. Keep a balance between all of that. Know that for younger people time is your best friend. If you’re putting a little bit in every bucket you’re doing ok. Starting earlier is better. Student loans are going to make it harder, but 20 and 30 year olds today are much more money savvy.

J: What are the pros and cons of combining bank accounts after marriage? Especially if one partner makes much more money than the other.

K: Pros – Both spouses are aware of what’s going on in the family finances. It’s very important to have open communication and agreements about money. If they’re separate, you have the issue of who’s paying for what. When there’s such a disparity of income, over time there can be differences of opinion about who’s contributing what to family finances. There’s more of a sense of partnership. One of the biggest problems in a marriage occurs when there’s not open communication and agreement about money matters.

Cons – Sometimes one can feel a little less sense of independence, which can be hard for people used to calling their own shots.

The key is open communication and access. Not having that can contribute to feelings of suspicion, having it helps keep one another in check. Having a joint account helps in not creating that element of mistrust or suspicion. If you have no idea about your finances in your marriage you are vulnerable. It’s important and crucial to know what’s happening. There’s usually a “financial” spouse that handles the money but both should be aware. There should be a monthly review of your finances. Both people should have input and agree on how the money should be spent. Now and then a money fight is ok.

J: Paying off Debt vs Saving for Retirement

K: Balance in finance is important. If possible, try to extend as much as possible the payment period for student loans, consolidate them and try and contribute to retirement as well. Hopefully what you’ll earn in your retirement account over time will be greater than what you pay on your student loans. Retirement earnings are tax deductible so don’t give up on retirement savings in lieu of paying off student loan debt. If you can contribute to your company with a company match that is ESSENTIAL. The match is free money.

J: Should I consolidate my student loans?

K: If you can consolidate at a fixed rate do that. SoFi is one of the better companies to do this, but you need good credit. Extend the term of a consolidated loan as much as possible to give you flexibility. You can always pre-pay or pay more. Life happens, if you’re in a cash crunch you don’t have a huge shorter term loan payment to make.

J: Savings vs Investing

K: Pay your bills and have a safety fund, but try to contribute at the very least 5% to your 401k (5% is a minimum baseline when you’re starting out and don’t have a lot of wiggle room with your budget). Think hard about where you’re spending. A 401k is great because it’s forced savings. We all tend to live on what we get in our paycheck, so you have this invisible genie taking away the 401k plan money, it’s a forced saving discipline. Start out slow. If you get a raise see if you can do a little more.

This Week’s Challenge

For this week, the challenge is to either start or optimize your retirement planning. If you have nothing at all, get started by looking into your company’s plan or starting your own (a SEP IRA, 401k or ROTH IRA). If you can’t start that yet, look into a savings account that earns some interest (this is a good place to start).

Continue (if you haven’t finished) working on pulling together all of your finances and creating a budget for yourself. More to come on that! Check out this post from Remi about organizing expenses, and this app looks great as well.

And last, challenge yourself to spend less. Skip buying a few coffees and make it at home, cook dinner instead of eating out, think twice before making a purchase. Be thoughtful about where you are spending money.

A huge thank you to Kevin for his thoughtful advice this week. Good luck everyone, we got this.