Four Simple Habits for Personal Finance Success — Mint Featured on ABC News Money Matters

Four Simple Habits for Personal Finance Success — Mint Featured on ABC News Money Matters


-Welcome back to Money Matters. I’m Tanya Rivero in New York. Has the current economic crisis gotten you discouraged about your financial situation? We all know many people are struggling in one form or another, but what if you can take a step-by-step approach to building up your net worth? Well my next guest says personal finance boils down to just four good habits, and if you follow these habits, the road to financial recovery could be within your grasp. Aaron Patzer of Mint.com joins us from San Francisco to talk about these simple steps. Welcome Aaron. Thanks so much for joining us. -Thanks for having me. -So Aaron let’s start with these four good habits.
Everyone wants to know, what are they? -Yeah so if you look on the internet on Amazon you’ll
find about ten thousand different books that have been written on personal finance, and if you boil them down they
all really come down to sort of four principles. So spend less than you earn which means save money, manage your credit and your debt wisely, invest what you save, and then protect your downside with the right
types of diversification or insurance. -Alright so let’s go through these. When it comes to
saving money what exactly should people keep in mind? -Well I think the first way to start saving money is to
simply know where you spend. Most people really don’t have a good feedback mechanism on where they’re spending their money. They use their credit card or their debit card and then they never look at their statement. They don’t use
a personal finance tool that gives them the breakdown. If you simply knew that you were spending four-hundred and fifty dollars a month on restaurants, and that you went to Starbucks thirty-two times last month, you’d change your habits, and you’d end up saving more. -It is pretty shocking when you really start breaking down what you spend, isn’t it? When you first do it. Alright now the next good habit is avoiding debt. How do we approach that because I know that there are a lot of there are a lot of emergency situations that can come
up so what advice do you have for that? Well the first step to improving your situation with regards to your credit and debt is to know your credit score and know what’s in your credit report. So if you look at
the statistics seventy-nine percent of all credit reports actually contain an error in them, and twenty-five percent of them contain an error that’s serious enough to actually affect your ability to get a loan, and even if it doesn’t affect your ability to get a loan it means you’re going to be paying higher interest on all your car loans, your mortgages, your credit cards, and that’s really going to zap and take away from your savings. The first step is to know what’s in your
credit report and start to improve it. -And what about all those late fees? -Yeah so you want to set up your bill reminders on a place like Mint.com that can make sure you don’t pay your credit card late, and put everything that you can, all of your
utilities, your cell phone, your credit cards even on automatic payments so that you don’t get hit with those late fees. As Rameet was saying, ten billion dollars in overdraft fees, there are actually fifty-five billion dollars in total bank fees that are expected in all of 2009. If you do the math on that that’s, I think, three hundred dollars for
every man, woman, and child in America. -Unbelievable. You don’t want to be spending that three hundred dollars, do you? Another way, another thing that you just say avoid as many finance charges as you can altogether, right? -That’s right. If you do the math and just pay the minimum on your credit card, what the credit card company would like you to pay and suggests that you pay, you know the average American has say a five thousand dollar balance, it’s going to take you about six years to pay that off, and you’re going to end up paying about six thousand dollars in interest at the normal sort of credit card rates that they charge. So you’re going to end up paying maybe more interest than you would on the actual purchases. -And you suggest actually finding a credit card
that pays you. Is that right? -That’s right. So credit card companies make their money not only off of finance charges which is essentially making you a short term loan, but they actually charge merchants two to three percent of every single transaction that you put on a credit card, and in order to incent you to use their
credit cards over, say another one that you might have in your pocket, they’ll give you cash back, say up to one or two
percent of that purchase in the form of airline miles, in the form of cash, in the form of points, and so whenever you use a credit
card make sure that you use one that pays you back at least one percent. -Absolutely. It sounds like a very good habit. Now let’s turn to the third habit, which is invest. What should we be investing in, especially now. -Well I can’t tell you specifically what to be investing in, but I can tell you that you really ought to be contributing to a tax deferred account like a 401k or an IRA, and if you
put a hundred dollars every month into a tax deferred account like that IRA and you do that for twenty years you’re going to have at about ten percent return which is sort of a historic stock return of the past twenty, thirty years. You’re going to have about three hundred and eighty thousand dollars. If you have that in a taxable account instead, you’re going to have a hundred and fifty thousand dollars less. That’s sort of the power of compound interest and avoiding taxes. So make sure that when you do start investing you put into a 401k first and foremost if your employer matches and then secondly into a tax deferred
account like an IRA or a SEP or a keogh if you’re self-employed. -So just start investing and keep investing, right? -That’s right. Take it straight out of your paycheck. -Take it straight out, that’s right. Don’t even look at it as money you could spend. And your last habit is, you say, don’t lose it. What exactly do you mean by that? -What I mean is to protect your downside. So once
you’ve gone through the trouble of getting out of debt, saving money, investing it so that you preserve that wealth, and one of the ways to do that is to make sure that you have the right kind of insurance. So if you’re young. If you’re
in your twenties or thirties and you still rent you want renter’s insurance, but only about twenty-five percent of people actually have renter’s insurance, and you could end up losing all your possessions, and that’s a twenty/thirty thousand dollar hit on you to replace all of that. -Ouch. -Yep. -And so you suggest creating an emergency fund to cover these kind of emergencies? -You want about three month’s worth of savings in your emergency fund.
Three to six months. Depends on your life stage. If you’re younger you can get aways with a little bit less because if you don’t have any dependents, you don’t have a mortgage to take care of, but if you’re older you want about six months, and you should not let that lie around in one of those low-yield savings accounts where you’re only earning five
or ten basis points. You want to put that into a high-yield account just as Rameet suggest at ING, at HSBC, at Schwab, even Ally which is a new bank that came out which used to be the old GMAC. They’re trying to get a lot of customers so they’re actually paying very good interest rates. It’s all FDIC insured. -And you can do that with any amount of money? -Yeah. For those banks it’s zero minimum and you know, no fees really. -Alright that’s great, and Aaron quickly because we don’t have a lot of time, but besides renter’s insurance what other kinds of insurance do you recommend that everybody has? -Well the second thing and probably the most important is for everybody to have health insurance. If it’s not provided by your employer it’s absolutely critical as part of your
personal finance, fitness actually. Fifty percent of all bankruptcies actually have medical expenses cited as one of the primary causes of the bankruptcy. So having health insurance, even if it’s the cheaper kind of insurance that you know, doesn’t cover doctor’s visits, doesn’t cover prescriptions, but only handles the catastrophic sort of things or has like a two or three thousand dollar deductible, I advise that for everyone. When I was self-employed that’s exactly what I had. It only cost me about sixty dollars a month as a young guy, covers me from disasters. -Alright, Aaron thank you so much. I’m so sorry to cut you off, but we’ve run out of time, but thank you so much for your financial tips. -You’re very welcome. -That’s all the time we have for today, and don’t forget you can always watch ABC News Now twenty-four hours a day on your cell phone. I’m Tanya Rivero in New York. Thanks for watching.

Leave a Reply

Your email address will not be published. Required fields are marked *