This week on Gimme Some Truth, we explored the question “what financial advice would you give your younger self?” Tune in to see if your answer made the show! You can find us on iTunes or Soundcloud. Don’t forget to subscribe!
Transcript: Gimme Some Truth #11[00:00:00] Welcome to give me some truth I’m Kevin Castro your podcast producer and your co-hosts are Clint Walkner and Nate Condon the co owners and financial advisors at Walkner Condon financial advisors in Madison Wisconsin.
[00:00:13] This is a podcast series dedicated to illuminates some of the darkness around fees. Conflicts of interest and motivation behind recommendations in the financial industry. Here are your hosts.
[00:00:35] (Intro music).
[00:00:46] Welcome back.
[00:00:48] As we asked in a blog post to get some feedback from people trying to find out a little bit more about if they could tell their younger self something about investing or finances what would that be. Nate now comment a bit on some of those responses so nate one of the SWAT’s one of the things that somebody wants to redo.
[00:01:14] So reading directly from the responses we got. Start thinking of the future early in life saving any amount at an early age is a benefit.
[00:01:24] So this is practical advice for the masses if you will Clinton I try to counsel people that you know starting today versus tomorrow is good starting this week versus Next week is good.
[00:01:38] Regardless of your age starting whenever you can at the earliest ages if possible just has profound effects on the amount of money that you have in the future and what it does for a retirement plan that we can always run a compound and calculate and that obviously shows that you know the compounding looks great over a really long period of time.
[00:01:59] But I think the most important thing about savings is getting started and being consistent with it because you truly do just kind of put it together into a budget and you make it work. So if we ask somebody hey raise your for on a contribution by one percent every single year. It’s actually quite easy to fit into somebody’s budget because the raises are commonly more than 1 percent and also that savings habit just kind of doesn’t get noticed. So you know that’s the easiest way to do it. The hardest thing for Nate to do is to ask somebody to actually reduce their lifestyle and to find that money to try to save. So if you can build in in early that and develop that habit it’s a lot easier to do it that way rather than have to go the other way.
[00:02:39] Yeah it really comes down to the habit piece of it more than the money itself. It seems as though people have a harder time starting the habit than they do.
[00:02:51] You know putting themselves in a position where they say I can’t afford to do it it’s a it’s a behavior it’s a learned behavior more than anything and so again the starting early in life even to the extent of you know people in their teens and early 20s it’s not about the ten or 15 or 20 dollars a week or even a month that they’re able to save. It’s the fact that they’re learning on a monthly basis or a weekly basis that putting money away for the future is not a choice it’s it’s a necessity. And so the earlier that we learned that behavior the better off we are.
[00:03:23] Yeah I think one of the things to teach if you have any children and they’re doing babysitting jobs or even jobs of cutting the grass or doing chores and getting an allowance is encouraging them and in some cases kind of forcing them to save a portion of what they make and put that away in the savings and then allowing them to spend some of that money as well. You know it’s the kind of way where we can teach them just to save and we can’t teach them just to spend. We’ve got to teach them that balance.
[00:03:52] Yeah it’s the same advice that honestly that we give to people that are in their 30s and 40s and 50s you know when you get a raise at work when you get a bonus when you get some money that you weren’t expecting the behavior is the same. You know whether it’s $10 or $10000 the behavior is the same you know if we have gotten in the behavior when it’s $10 to save you know two of that $10 then it’s $10000.
[00:04:15] It just makes sense for us to save you know 2000 of the 10000 Yeah one of the thing to realize is that if you ever get a tax refund back at the end of the year that’s your money that’s not found money that’s not money that can just get spent. So I think a lot of people have that misconception that that it is all of a sudden found money and they just go out and blow it. So you know when you do get a tax refund back you’re just refunding your own money that you withheld too much of your taxes throughout the year.
[00:04:45] So just note that.
[00:04:47] Kevin When did you start saving money at what age.
[00:04:51] I mean I had a job all through my four years of high school.
[00:04:54] I was an overachiever. That’s right. So please don’t tell us if you’ve never saved your money. That would really practice all the things that you need to say I’m not even saving right now. What did you want me to say we’re going to pause the podcast here for a second to have a conversation about his long term future. I will take him off the hook on that. I’m not the adviser.
[00:05:16] But Kevin you do save money right. When you start when you start putting it away.
[00:05:20] Was it something that your parents you know instilled in you.
[00:05:23] Yeah they did. And back in high school I mean graduation parties and all that stuff definitely got a nice little lump sum to start off college with and then still try to put as much away as I can.
[00:05:34] All right on the heels of that one let’s look at a different response that we got from a client save at least 10 percent of every dollar you make it sounds similar to the first response we got but it is a little bit different in terms of its pointedness and the specific nature of it. Clinton I agree with this recommendation of 10 to 15 percent of gross income should be saved so we get asked that question a lot which is you know how much should I be saving and obviously you know we can run very detailed you know algorithmic based financial plans for people but if we’re looking for just a really garden variety. Rule of thumb you know 10 to 15 percent of gross income is a great place to start.
[00:06:16] Yeah I said that with the caveat of more for long term retirement savings for that amount if you’re looking to lump sum. You know are really looking to do college savings on top of that and other savings goals that are in the interim that may not be quite as much savings as you need. But I generally tell people about 15 percent of pretax savings towards retirement slash long term financial planning goals.
[00:06:38] It’s difficult for people as they go through phases of our lives. I mean obviously daycare expenses are more than mortgage payments and a lot of cases and so they’ll go through phases of your life where that 10 percent is difficult if not in some cases almost impossible. And we understand that. So whether it’s a year in and year out every single year we’re able to hit that or whether it’s you know we try and do what we can do and most years we’re able to hit that a good a good target if nothing else for us to shoot for.
[00:07:10] All right let’s look at another one.
[00:07:12] A dollar now is worth more than a dollar later. What does that mean to you.
[00:07:18] Well I think you look at it and a bunch different ways. But the thing that I think of with my economics brain is inflation so a dollar today is worth more than a dollar in the future for sure. Because if we look at the price of a gallon of milk or you look at the price of a car etc. In most cases technology not withstanding since that’s gotten cheaper over time as flat screen TVs. But as a general rule the goods and services that we consume are going to be more expensive in the future and therefore your dollar is worth more today. So those are things to think about and put in your financial plan because inflation does have an impact on all of our numbers and the higher inflation is the more insidious it is. So you know if we go over a 10 year period and we had inflation rates that are more towards the norm because now inflation is pretty low. You know you’ve got to incorporate that into your financial plan and if you don’t do that you know what’s going to happen is you’re going to realize 10 or 20 years from now that things are markedly more expensive and if you don’t put those dollars to work for you.
[00:08:19] Compounding you know you’re not going to have as much later on as just your purchasing power will erode and purchasing power is really difficult to take a look at.
[00:08:28] Over short periods of time yeah it’s sometimes referred to as the silent killer because it’s just something that we can’t see it happen on a day to day week to week month to month basis because it doesn’t move that quickly at least in the inflation environment we have now back in the 70s and 80s people could see things get you know drastically more expensive from even a year over year basis but you know we’re more of a normal if not below normal situation now. So it’s harder to see it which is why it’s known as the silent killer. But if we think about the fact that just in general on normal inflation rates we’re going to have good double in cost about every 15 to 20 years. It gives us you know a pretty big pause when we think about the cost of a vehicle going from you know average vehicle of say $30000 nowadays to $60000 you know 15 to 20 years from now. So money that does not at least keep pace with inflation is eroding. It doesn’t make that money bad if that money needs to be purely liquid. That’s the cost we pay to have it be purely liquid. But it is just understanding the fact that we will buy less goods with a dollar $10 $100 today than we will a year from today or two years from today.
[00:09:41] I think is really a good thing because people in Kevin’s age category and maybe slightly older than Kevin they really haven’t seen inflation very high and they haven’t really seen high interest rates either. So you know they haven’t really lived through that as a consumer. You know when they are born inflation was obviously higher and interest rates were higher but they haven’t really lived through any sort of higher inflation and or higher interest rate environment. In the course of their investing career so it’s going to be interesting to see what happens and what sort of behaviors occur when that does happen because history will eventually end up repeating itself.
[00:10:18] And it’s funny what we get to in our own lives. You know I remember when I was in high school and for whatever reason I’ll remember this until I die. Extra value meal at McDonald’s $3 and 14 cents. Yeah. After tax it was 299 and then it was $3 and 14 cents and it’s a funny thing to kind of think about. I don’t know why that sticks in my head. But you know you look at it now and it’s you know what five six bucks something like that. So you’re looking at almost double the price. In some cases more than double and so it is a real effect on our budgets. That was the number two by the way with the two cheeseburgers. Is that the one that you guys will always want without one. I don’t know. I don’t even know why they offer the other ones. I mean everybody went with a number two.
[00:10:53] Some people like to keep you at She’s the one for her policies.
[00:10:58] This is true is true. But I think that the number two call.
[00:11:02] Pretty standard Yeah except for the high C exercise she was fantastic under which she always has two cheeseburgers plain with cheese.
[00:11:12] That’s it played. No no. Now that I live with a coke. Wow. Yeah.
[00:11:19] Kevin do you do you remember anything being more expensive now than back when you remember it. Or are you just too young in life to peg that.
[00:11:28] I’m going to play that too young. Sure most of them getting a blank. Sure. All right let’s. Dollar Menu is just it’s no longer this time of year anymore.
[00:11:39] It is 30 cents more than it used to be.
[00:11:42] What was that Taco Bell. Taco Bell was what it was like. Forty nine cents sixty nine cents. Eighty nine cents because they had like a three year deal to that that they had for a while but I think it’s 49 cent tacos because I think we used to get it right and tacos for under five. It crazy. I’m sure that’s good. Moving on from our conversation of quality fast food.
[00:12:04] All right. So the final question that we received has to do with college planning and the different ways that we can look at higher education. Now in comparison to you know five 10 15 years ago and not that these are earth shatteringly different but I think that the view of these are the perception of these is quite a bit different. So the Clyde wrote this actually and thank you for the detail that they went into here. Kind of layered it out maybe three or four or five different kind of examples of what they’re talking about. First one is considering the technical college route for the first two years which I think is fantastic advice.
[00:12:45] That’s great advice and particularly just speaking about Wisconsin. I mean they have automatic acceptance into a lot of schools if you complete the two year degree. I believe it’s if you have basically automatic severance and then just about any UW school if you finished the two years I don’t know if that’s still the case but I know that was the case for a while. So I mean it’s markedly less expensive to go that route than it is to just enroll directly into the four years so if you can get all your credits to transfer and you can get automatic acceptance I mean what it costs ever.
[00:13:19] Yeah it’s changing now to the extent where college at least from our experience back when when Clinton I were at that age was more of almost kind of your trades college you know skilled trades and things like that. Now it’s looked at in a completely different light and it’s definitely an option that Clinton or both big big fans of because the cost of college is really starting to get to the point where it’s almost affordable for a lot of people out there.
[00:13:50] That’s right. I mean hopefully that cost curve bends out at some point but it’s running at a 6 percent inflation rate right now which is just incredibly high. I mean the prices of these double and you know hopefully we’re going to have some people in Washington that end up being able to address this because it’s just it is truly out of control at this point and you don’t want college to end up being only upper middle class people that can afford it so they’re going to have to do something about that and then hopefully it’s somewhat of a free market type of solution. But I don’t know what it’s going to be.
[00:14:22] Yeah I think a lot of it is kind of viewing all of the options and deciding what one is right for the student. I know that you know that the kind of the rule of thumb is always you just applied and whatever was the best college you got into that you got accepted to is the one you went to. And now we have to look at it and say well if that best college that you’ve got accepted to you know runs at a cost of 45 50 $55000 a year not to throw stones. But when we look at some of the other big ten schools that’s where that’s what they’re costing these days in Ivy League as is at least that high if not higher.
[00:14:59] Yeah I remember when I was going to looking at schools and I applied to a few different schools and I wanted to look strongly at Wake Forest in one of the first financial sort of big decisions that I had to make that would have an impact in my future. My parents said to me Well you know we’ll help you out. For the vast majority of your expenses if you go to like a wake forest well we’ll pay up too. You know what a public in state would be. Wisconsin you’re on your own for the rest and I looked at those numbers and yeah there was quite a bit difference so difference in those numbers so it made my decision a little bit easier there is that I you know it just comes down to dollars and cents sometimes and sometimes the affordability factor is just a huge huge thing and you’re just going to have to take that into account. I mean everybody would like to go to a different school in a different state without any sort of regards to costs. But that’s just not the case anymore. I mean you just have to we also have to consider what the student is potentially going to study. You know if they’re going to rock up you know $200000 of college debt and they’re only going to earn $40000 over the course of their career per year. I mean that’s an it crushing them on a student debt that that student may not ever be able to get out of. So they can’t get any help on that. You know they really do have to consider that.
[00:16:19] So you know and I also heard that they know a lot of times they just say well just go get a liberal arts degree and you’ll be fine and you know I don’t know if that’s sounded that if I say anymore I mean we all need to turn everybody into financial planners and engineers. But you know it is a situation where you have to have a realistic discussion you know among the parties involved to determine OK what are they going to actually possibly earn and what sort of debt they’re going to exit college with.
[00:16:47] Yeah. It’s a conversation that if it’s not happening right now between parents and you know high school kids it needs to because they were to the point now and the decisions that we make. You know for people that are 15 16 17 18 years old as Clint alluded to. You know these decisions could have hundreds of thousand dollar ramifications in life. And so having a conversation like that with a high school or is not good advice. It is required advice because we’re talking about numbers of commas and we have to be real careful when that happens.
[00:17:24] You know we all remember that college is only for or for some people five years. And if you’re going to have some impact 60 years of your life because of four or five years I mean we just really have to be so careful about that because you can actually wreck yourself financially for the rest of your life because you made a decision to go someplace when you were 18 for a four or five year period. I mean it’s actually kind of shocking that we have very little counseling when it comes to college choices. You know it should be so much better than it is now and it’s just not and just about anybody can qualify. I mean it’s not like you know at 18 years old it’s like you know you don’t look at credit scores and things like that. It’s not like buying a home and it’s an intangible asset. You know basically it’s your brain and your earning power over the course of your career.
[00:18:12] Kevin how did you pick UW Madison is kind of a lot of I mean obviously money is a big factor when you’re looking at any college decision. I mean I basically didn’t even apply to school saying he wasn’t going to be able to afford those bigger private or farther away schools I didn’t even bother because why waste the hundred dollar application fee if you’re going to go there anyway. So I just looked at the schools that would be within the budget that was kind of set right away. I mean I knew it was going to take on some student debt no matter where I ended up. And this is you know was the best school I could and the debt was manageable. So I made the best decision based on what I thought would do for my future as well as being able to afford it financially.
[00:18:53] Yeah that’s that’s the conversation that we’re hearing more and more. And so the evolution of that conversation is interesting to see from you know 20 years ago where it’s now. So the other thing to keep in mind is you know high schools nowadays are doing some amazing things with advanced placement courses as well as you know credits that can be used toward college. Absolutely take advantage of those or at least explore those options with your kids because you know for every dollar you’ve ever credit in college you can equate that out to some some pretty heavy dollars of what each credit costs.
[00:19:32] And so it’s something that I can get I can take care of that. Yeah I came in with a full year of credit you know. So I was able to graduate with a double major a semester early so that definitely paid off in the long run.
[00:19:42] Yeah. I mean again that’s we’re going to go back to when we say you know we have to I blinders off and really look at all the options and all of the different paths that are available to us when we approach this decision because it’s frankly not as easy as it was the decision itself is not as easy as it was 15 20 years ago.
[00:20:01] Well and the other thing too is you know this isn’t meant to be a public school advertisement too. So if you’re looking at private schools as well you can get credits to transfer it and also there are a lot more negotiating tactics you can use with some of those private schools particularly some of those that have money set aside endowment funds. And there’s a lot of flexibility in private schools that people might not be aware of. So just because it’s private I wouldn’t necessarily just excluded from the list because the rack rate is really high. Oftentimes you can get those down to what a public in-state school costs. They have tons of flexibility and you know you should shop schools against each other. It just makes economic sense.
[00:20:44] Yeah it’s it’s definitely the kind of the adage of you know if you don’t ask you know you’re never going to know and so if you don’t ask you know is there something that a college can do. You know from a cost standpoint you know you’re if you just assume that they can’t then you may end up paying full price in the student next to you you might have gotten a pretty drastic discount.
[00:21:05] So thank you for listening. And if you have any additional questions you want to cover in future pop that one is happy to tackle those as well. We look forward to talk to you soon.
[00:21:23] (Outro Music).
[00:21:44] Advisory services are offered through Walkner Condon financial advisors LLC a registered investment advisor in the states of Wisconsin and Texas. Clint Walker and Nate Condon are investment advisor representatives of Walkner Condon and Kevin Castros an office manager and marketing communications specialist for Walkner Condon financial advisors. He’s not registered and is participations podcast is limited to unregister activities and will not be providing any advice at investor related nor should any comments he makes be construed as giving investment advice. Insurance products and services are offered through WC Insurance Services LLC Walkner Condon financial advisors LLC and WC Insurance Services LLC are affiliated companies. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice you should always consult an attorney or tax professional regarding your specific legal or tax situation. Walkner Condon financial advisors LLC is not engaged in the practice of law. Whenever you invest you are at risk of loss of principle as the market does fluctuate. Past performance is not indicative of future results. Purchases are subject to suitability. This requires a review of an investor’s objective risk tolerance and time horizons. Investing always involves risk and possible loss of capital. Long term care estate planning insurance products and tax advice are not offered the Rauner current financial advisors LLC Walkner Condon works on a best efforts basis and does not promise or guarantee any results. Past performance does not represent future results. Please see n Dotcom for additional disclosures.