“I think some of it comes from friends and maybe extended family—you see where they’re at, or they’re talking about investments they make,” Blake says. “The thing that’s easy to forget is like everyone has a different job or everyone has a different mindset with saving and it’s not always easy to replicate and you maybe shouldn’t even copy that.” To help Blake decide what goals to pursue, Money Confidential host Stefanie O’Connell Rodriguez tapped Paula Pant, the host of the Afford Anything podcast, who focuses on helping people sort through their life goals and determine their financial path forward. Pant suggests that Blake stop comparing himself to others—and figure out what he wants instead. “It’s natural to compare, but it’s not healthy,” she says. “When you reduce a person’s weight to just a number and then start making comparisons, it leads to very unhealthy thinking. And yet we do that with money all the time. The less we can compare ourselves to others, the better.” After Blake has reached the financial baseline of paying off high-interest debt and saving a six-month emergency fund, he can start dreaming of what’s next, and putting dollar figures against it. Then it’s just a matter of prioritizing his goals, and determining how much he can afford to put toward each one. “That’s where adulthood becomes this really exciting choose-your-own-adventure novel,” she says. This sort of goal-setting, with concrete plans, helps make saving more enticing, too, Pant says, because you know exactly what you’re saving for.
Transcript
Blake: There’s so many things you see, and it’s like X, Y, Z should be in your savings or investment account by age 30, or it should be like X percent of your salary or paycheck. Anna: I’m just like putting out fires and putting all my money on putting out fires that then time passes, and I look back and I’m like, oh my God, I’m 50 and I just didn’t save. Margot: What I’m finding is I’m touching all of these buckets and it seems like it’s taking a lot longer. how should I start prioritizing this? Stefanie O’Connell Rodriguez: This is Money Confidential, a podcast from Real Simple about our money stories, struggles and secrets. I’m your host, Stefanie O’Connell Rodriguez. And today our guest is a 27-year old living in Spring Lake, New Jersey who we’re calling Blake — not his real name. Blake: it’s so hard to figure out what is enough or how can I buy or live a certain way. Personally, I’d like to own my own property or car or house right now, you know, living fortunately at my parents’ place, paying the rent. So I’d like kind of more of that freedom and the added responsibility. Stefanie O’Connell Rodriguez: Blake has plenty of ideas about what he could accomplish—but with so many different life and money goals he could work toward—and some he feels he should—it’s hard to feel sure about where to start. I think it’s really hard to budget when it’s just about numbers on a page. If it’s really clear what you want I think it helps, but it sounds there’s a little bit of confusion around, well, what do I actually want? Blake: Yeah, I’d love to just have more money to be able to invest and not be as worried about it. I think about it less of like, oh, I can afford to eat out or get takeout three times a week or buy a new bicycle or something else. I tend to think about it first from like, how can I invest more? But I probably should also be thinking about other things, like how could I put money aside to buy a car eventually, or upgrade something in the place I’m living now? I feel like for my age group, the connection to our parents—so it’s kind of a way to break away from that and kind of prove your personal independence and maybe your worth. I feel like my generation is doing a lot of things later, leaving the house later, staying in large cities for longer amounts of time. And those seem like more significant milestones, you know, owning a house or having a car or whatever it may be. And it’s kind of like a proud moment for a parent, but also the child. Stefanie O’Connell Rodriguez: From moving out on their own, to buying homes, to getting married and starting families, Millennials are reaching major milestones later in life compared to older generations, and often forgoing those ’traditional’ milestones entirely. Unsurprisingly, money is a major factor. Blake: I think as I get closer to 30 years old, I want to put more realistic or aggressive goals. Just thinking about them or hoping you get promoted or hoping you make money in investments is not enough. You want to get more diligent about it. And I also think you start to see people…you went to school with, or people, you know, and suddenly they have a house or a family. You start to benchmark yourself a little bit, even if you’re not thinking about it, it just, it creeps in the back of your mind. And you’re kind of like, oh, what if I did that? Or what if I started to allocate for that? Stefanie O’Connell Rodriguez: I want to talk about that idea of what you should be doing or what your life should look like by 30 or 40 or whatever it is. Where do you think those ideas come from for you? Blake: I think some of it comes from reading articles. I think some of it’s historical too. You see, like what your parents did, you’re like, oh, is that something I should be thinking about? Or is that appropriate for me? I think some of it too comes from, you know, friends and maybe extended family, you see where they’re at, or they’re talking about investments they make, but the thing that’s easy to forget is like everyone has a different job, or everyone has a different mindset with saving, and it’s not always easy to replicate and you maybe shouldn’t even copy that. Stefanie O’Connell Rodriguez: While financial rules of thumb—like having a year of your salary invested in retirement accounts by the time you’re 30—can be useful as reference points, these benchmarks can be totally unrealistic depending on your personal financial circumstances - if you graduated with tens of thousands of dollars in student loans for example. Nevertheless, falling short of these benchmarks, can be demoralizing. According to a 2020 survey 40% of adults already feel they’re behind on life and financial milestones like saving for retirement and achieving financial stability. Stefanie O’Connell Rodriguez: Beyond the age and the number in the bank account or the investments or the balance sheet or the net worth, do you have an idea of what you would like your life to look like in five years? Blake: I think maybe the house comes into play or that real estate, because it’s just like a greater sense of responsibility and I don’t know if it makes sense to equate, owning a house to like a level of maturity, but I think having a better grasp on day-to-day finances and having a house or home that’s, you know, not in disrepair, not that where I’m currently is like that, but just knowing you’re confident on like every aspect of life. I know that’s more of an emotional thing, but just having a confidence in a lot of things Stefanie O’Connell Rodriguez: Yeah. I think that confidence definitely resonates with a lot of people. The idea of maybe not buying a house, but knowing that you could. I wonder if you have more clarity around what the day-to-day would really look like for you rather than just like, oh, I own this. Or I picked this milestone. Blake: I actually think the pandemic has kind of helped me achieve half of that original goal I had, I’ve always wanted to live full time where I am now I want to be able to have the balance of going to the beach, riding my bike, walking my dog, or going on hikes. And I’ve always liked that flexibility. So, you know, that’s part of it. I also like having a car. It’s nice to be able to drive around and be mobile and have access to different things. I actually enjoy working from home. It’s nice to be able to kind of set your own schedule. I’m a morning person, so that’s kind of played into it. So I think there’s already things, now that you say it that way, that have been kind of entering my mind from that perspective. I also really enjoy being able to have the freedom to drive down, to see my parents in the Carolinas. It’s kind of like a mini vacation. I think additionally in five years I’d see myself like generally more active, like riding my bike more and being outdoors as much as I can and trying to find a better sense of flexibility in my day-to-day job. I really like what, what I do, but trying to find ways to maybe create a schedule that fits the way I work. Stefanie O’Connell Rodriguez: You know I think that picture you just painted is going to be your clearest guide for what you need to prioritize in your financial life, as opposed to benchmarking yourself against what your friends are doing or what your parents expected or what like culture tells us to do. It’s about optimizing your money for that outcome that you really want. Blake: Yeah. And I think now that we, talk it out, i think that it’s using money to empower what you want to do, not just buying a new car or whatever it may be. Making sure you can continue living that kind of flexible, true-to-yourself lifestyle. Stefanie O’Connell Rodriguez: Do you feel like you have a community where you can ask these kinds of money questions, where it doesn’t automatically just revert to the performance of the stock, but is more aligned with, what do I want my money to do for me? Blake: My mom has been my best outlet. She’s just like an incredible woman that has always managed the finances of the household, and I feel very comfortable talking to her about it. She was probably one of the first people to encourage me to think about investing or make sure I know what a 401k is. And then I have a few coworkers and friends I can talk about it, but people start to talk about performance or what they were invested in, why it’s better. And sometimes that’s where benchmarking comes in and it can be competitive and maybe actually negative without actually thinking, like actually recognizing, that it is. Stefanie O’Connell Rodriguez: So when you’re thinking about what do I need to do next? Is that where some uncertainty is coming in? Blake: Yeah, I think so. I think if I look at my portfolio or my investments, I’m like, should I be putting money here? Should I be saving this money? Should I be scaling down on things I spend on. It’s kind of like, what’s the next practical place to go? Stefanie O’Connell Rodriguez: How do you make a financial plan when you’re not even sure what you want your money to afford you? As a 34-year-old who still doesn’t know whether she ever wants to buy a home or have children, there is a lot about Blake’s story that resonates with me personally. And I’ve had similar conversations with so many friends, who feel that pressure to reach certain milestones by a certain age, or to follow in their parents’ footsteps or to keep up with their peers. The pressure is real. But so is the desire for financial independence, security, and freedom. So after the break, we’ll talk to a financial expert about her step-by-step process for turning abstract dreams and desires into a practical, concrete money plan, grounded in our values. Paula Pant: My name is Paula Pant. I am the host of the Afford Anything podcast and the founder of affordanything.com, which is a platform dedicated to the idea that you can afford anything but not everything. Stefanie O’Connell Rodriguez: Paula’s philosophy is based around this idea that we all have a finite amount of time, energy, attention and of course, money—and every day we make decisions about how we want to spend those limited resources. So every decision we make is effectively a tradeoff against another choice. For example, if I spend my money on X, that’s money I now don’t have available to spend on Y. On her podcast Afford Anything, Paula encourages her listeners to think through these decisions and tradeoffs more intentionally—and to optimize their time, energy, money, etc., around their values, instead of falling into default decisions based on some of the pressures and expectations that came up in my conversation with Blake. Stefanie O’Connell Rodriguez: Part of the Afford Anything tradeoff is being able to say, okay, do I want this or want this? But if you’re not totally clear on where you’re headed, I think it can be hard to kind of figure out what to prioritize and how to make those tradeoffs. So how do you recommend people get in touch with where they want to take the direction of their lives? Paula Pant: That is the hardest question. The vast majority of questions that I receive are, um, ‘Hey, here are multiple really good choices, which one should I pick?’ And that’s where people think that money management is about money. It’s actually about life, you make the life decisions first, and then you use the financial planning piece, the money management piece to execute around that. Where people often go wrong is by doing those steps in reverse, by letting money govern their decision-making, rather than letting life be the leader. You know, I can’t answer for you what you deeply want. But the order of operations is to figure out your vision for the next 10 years, first. And then make your money follow rather than limit yourself by saying, I can really only afford X, Y, Z. And so that’s how I’m going to choose to live. Stefanie O’Connell Rodriguez: I think a lot of things that came up in this conversation but also questions that we got from a lot of listeners, is that the decisions around what to do next were clearly shaped by an idea of what people thought they should be doing, as opposed to maybe what they actually wanted. And also just a sense of, I am X years old. I should have X, Y, Z. Paula Pant: That is one of the ways of thinking, one of the ideas that keeps people in debt or keeps them from building their net worth. Because so much of the time people think, well, by X age, I should own a home or by X age, I should not live with roommates. And there are two different types of people—there are the people who absolutely hate living with roommates, and then there are other people who actually enjoy it. or at a minimum they’re neutral on it and they don’t mind it, but they get this idea in their head of like, well, I’m turning 30, so I shouldn’t, or you know, I’m getting married and, and a married couple, shouldn’t be living with roommates. That’s really only something for singles. And that idea is formed of social pressure, it’s formed of what will others think rather than what do I really want? I know I’m just a one single case study, but it’s helped me a lot. I was not born in the United States. I was born in Katmandu. I came to the US as a baby and my parents were nearly 40 when they moved to the US and so they didn’t get driver’s licenses or own their first car until I think my dad was maybe 41 or 42. So that step that a lot of people take when they’re 16 of buying their first car, my parents they got their first shared car together in their early forties. And when I was born, they were married with a baby and we were living in an apartment. Because they came to the United States in the middle of their lives, they couldn’t buy into these social scripts of, you know, by 35 or by 40 I’m quote, unquote, supposed to own a home. There are a lot of immigrants who come here at a later age and as a result, start their life and go through these milestones at a later age. If you don’t move to America until you’re 50, then you might not buy your first home until you’re 55 or 60. That’s just you dealing with life as it unfolds. There’s a lot that can be learned by surrounding yourself with those stories. Stefanie O’Connell Rodriguez: Having different models of what being an adult looks like or being fulfilled, looks like, that’s really valuable. And I think it’s really easy to get stuck into a bubble but I also do want to talk about the practical financial piece of this too. Is there a marker, would you say, that would make somebody ready to take a huge milestone like buying a home? Paula Pant: Well, first and foremost, get rid of high interest credit card debt. There are other less egregious forms of debt. Like if you’ve got a car loan at a 2% interest rate, that’s such a low interest rate that that’s fine. If you have student loans at a 3% interest rate or a 4% interest rate, frankly, I would not rush to pay those off. But if you have anything that has an interest rate around 7%, 8% or higher, your first priority is to pay those off. So paying off any high interest debt and establishing an emergency fund that represents at least six months worth of expenses. Those I think are the two markers. Stefanie O’Connell Rodriguez: Are there any other pieces you feel like we need to talk about financial foundation before we talk about other things. I mean, we’re talking about a house, but we’re also talking about anything. Paula Pant: I don’t think that there are any other foundational pieces that necessarily need to be in place because everything that we’re talking about, whether it’s buying a single family home, or paying for a wedding or paying for going to graduate school tuition, paying for a mini retirement in which you take a year off of work and go travel across Eastern Europe. Right? Like any slash all of those are like fun, awesome things to do if that’s what you want to do, but they’re all optional. None of them are required. And so I think once you have that foundation in place, then you take a look at that assortment of options and say, well, all right, what do I want to do? Do I want to save up some money so that I can spend the next year traveling across Lithuania and Latvia, or do I want to save up the same amount of money and cash flow my way through graduate school? And either of those are good options. That’s up to you. That’s like where adulthood becomes this really exciting choose-your-own-adventure novel. Stefanie O’Connell Rodriguez: How do we get people into that mindset of broadening the scope of what is possible? Paula Pant: I think exposure to stories of people who are doing it, you can listen to podcasts and read books and read blogs from people who are in similar situations to you who are doing the thing that you believe that you quote unquote can’t. Stefanie O’Connell Rodriguez: What is that balance between finding inspiration for other models versus, benchmarking yourself against a metric that may not even be relevant to you, but you’re kind of just feeling bad about. Paula Pant: Yeah. I mean, a lot of that is social comparison. Humans are social animals. It’s natural to compare, but it’s not healthy. Like imagine if we all started comparing our weight to one another? Like that is a recipe for some unhealthy thinking and unhealthy behavior because weight is not even a good way of knowing anything about a person anyway. And when you reduce a person’s weight to just a number and then start making comparisons, it leads to very unhealthy thinking. And yet we do that with money all the time. We might not necessarily know how much a person is making, but we look for these external clues. We look at how big their home is or what car they drive, or even something as simple as what handbag they carry. And we look at these clues and we make assumptions about their financial state. And then we start comparing ourselves to that, like, wow, she carries a Louis Vuitton. I don’t, uh, what does that mean about us? But we don’t know the backstory. We don’t know if that was her aunt’s hand-me-down that she got for free. We don’t know if that bag, if she did pay for it, if that represents, um, like 10% of a paycheck, or 50% of a paycheck, or an entirety of one two-week paycheck? We have no idea what that is. It keeps coming back to the idea of like the less we can compare ourselves to others, the better. And yet we also have to acknowledge that the instinct to do so is natural. So we shouldn’t feel bad about the fact that we do it—like to compare is to be human, but some of the things that humans do are just not healthy. Stefanie O’Connell Rodriguez: There was another piece of this kind of like fear of missing out going on in my conversation with Blake and it wasn’t just the, the FOMO of life milestones that they’re not hitting, but also the FOMO of performance milestones around finance specifically. Paula Pant: There’s this concept called survivorship bias where we don’t hear the stories of people who have lost money. And we don’t hear the stories of people who just kind of broke even, or maybe made like moderate gains. I’ve had investments where I’ve made 2%, 3% gains, I’m not taking screenshots and sharing photos of that. Like, well, look, everybody, my, my Ethereum is up two and a half percent. But if a person makes eight times gains then naturally they’re excited about it and they want to share this thing that they’re excited about, so they post it online. It’s not like they’re not trying to be nefarious or deceptive. They’re just excited about it. And so what happens is we get fed this media diet of seeing only the victories and it clouds our thinking. And then this notion forms like, come on, who doesn’t want to make 45% returns in a month. Right? Like it’s natural that if you think that everybody else is making these crazy gains in the market and they’re making all of this quick and easy money. Who wouldn’t be tempted to pile into that? Who wouldn’t experience some FOMO? And yet the reality is, if a person does want to venture into that, it needs to be strategic. It needs to be intentional, and it needs to be part of a much bigger picture. You start by looking holistically, like you start with the end in mind. What’s my entire financial portfolio? Of everything that I make, how much do I want to spend and how much do I want to save? And in this context, I use the word save to mean anything that could improve your net worth. So literal savings in a savings account or investments or accelerated payments towards the debt above and beyond the minimum. Right? So how much money from every paycheck do I want to put towards net worth improvement? That’s the first question that you ask, and once you’ve decided on that number, then you further budget that number. Then it’s, ‘all right, of this money that I’m putting towards net worth improvement, how much do I want to put towards an emergency fund? How much is going to go towards accelerating debt payoff? How much is going to go towards, retirement accounts like traditional retirement accounts, such as 401ks or IRAs and how much will go towards uh, “stonks” and crypto and you know, all of these other like sexy, fun, glamorous kinds of investments?’ I’m not saying don’t do it. I play that game, too, but I do it with a very specific portion of my overall portfolio. Stefanie O’Connell Rodriguez: Prioritizing gets really, really hard. And obviously this is going to be different from person to person and financial circumstance to financial circumstance, financial goal, to financial goal. But any thoughts on how to start streamlining and figuring out that order of priorities? Paula Pant: When it comes to those lifestyle goals, uh, what I like to do is. First brainstorm every goal you have. Maybe you want to buy a house and travel and just throw a wedding and go to grad school. First let yourself brainstorm without limitation. Here, in a perfect world, this is everything that I could possibly want to do. Brain dump all of that, because if you’re holding it inside your head, that’s going to be stressful. There’s some catharsis to putting it on paper. And then once you have all of that dumped out on paper, then set like a ballpark figure for how much that’s going to cost. All right—wedding, $10,000. Uh, you know, your six month trip, a little mini sabbatical mini retirement—you’re going to budget $15,000 for that, right. So start putting dollar figures towards each one of those and then put an ideal date, on each one of those goals. And then from there, it becomes a simple division problem, right? If you want $15,000 to travel and you want that trip to start 15 months from now, that’s going to be a thousand dollars a month. Right. And so you then start kind of dividing out how much money you would need to save every month in order to reach each goal. And what’s going to happen is that the savings rate is going to add up to an unrealistic, astronomical figure, but now you can look at every goal and its timeline. You’ve divided that out in terms of what that means per month. And now that you know that you’ve got two choices—eliminate or extend. The two E’s. So which of those goals are you going to eliminate? And then which ones are you just going to extend out the timeline so that you’d have to save a smaller amount per month on your way towards that given goal. Stefanie O’Connell Rodriguez: And for goals that are not necessarily so clear, let’s say—like I just want to have more flexibility and more time so that I have a job where I work from home. I’m able to go spend half the day at the beach. I’m able to go see my family when I want to, how can you make something that’s a little bit more about feeling like freedom and flexibility, and turn it into something that’s a little bit more tangible that you can break down and turn into a division problem, as you said. Paula Pant: So for that, there are three things that I recommend, one is debt freedom. Um, and again, sometimes it makes sense to strategically choose to hold on to some low interest debt. So I’m not saying that every person needs to be debt free, or even that that’s necessarily the best choice. But you yourself know whether or not that’s going to produce a psychological feeling of freedom. And if it does, then, you know, even if paying off a low interest debt, isn’t mathematically the most sensible approach. If it gives you that feeling of freedom, if it gives you that psychological sense of relief and reduces your anxiety, then, maybe that is something that you choose to prioritize for emotional reasons, not for mathematical ones. So one is debt reduction or elimination to help, like, extend that feeling of freedom. The second is that emergency fund. And I believe that everyone should be a minimum of six months, but if you extend yours out to nine months or even 12 months, there’s a huge psychological benefit that comes from that. And then the third piece of it is having sufficient investments, that in my community, we refer to it as “f- you” money. Like having sufficient investments, such that if you don’t like your job and your, your workplace turns into a toxic workplace culture, you have enough money to just go tell your boss, like F you and, and walk away. Stefanie O’Connell Rodriguez: That’s the kind of money I want. Paula Pant: Exactly. And that doesn’t necessarily mean that you need to be unemployed forever. Like a lot of people get so caught up in the idea of financial independence, which is the idea that it’s sustainable in perpetuity. And that is such a big goal. That’s such a lofty goal that there are people who think like, if I don’t have that, then I have nothing. But in reality, for nine times out of 10, you don’t need that. You just need enough money to be able to tell your boss, scram, and then support yourself for six months or nine months or 12 months while you look for another job. Paula Pant: If you don’t know what you’re saving for, you’re unlikely to do a very good job of saving, because if you’re not motivated by a powerful why then in the moment, it’s really easy to spend more—like it just is. So I would say pick a goal, any goal. Doesn’t matter if it’s the goal that you stick with, like you’re allowed to change goals, midstream, but if you just pick some goal and start working towards it, then you are likely to make more progress than you would if you didn’t have a goal at all. And then if you are midway towards some given goal and you do have that change of heart, give yourself permission to have that change of heart. Like there’s this expression planning is everything, but plans are nothing. It’s kind of like that with goal setting—like that journey towards a goal is everything. But the goal itself is nothing. It’s the purpose of a goal is to motivate you to have the type of behavior that a person would have in order to reach it. Stefanie O’Connell Rodriguez: Well, and the whole purpose of setting a goal is because the idea is if I achieve this, I will feel this. And you’ve already translated for us how to turn a feeling into a tangible financial goals. So let’s start with how we want to feel, which for, almost everybody is probably going to be freedom and flexibility in some capacity. And you’ve given us a template for how to start turning that into tangible numbers. And I think no matter where you are, whether you have so many goals or you’re just not sure what to do next, that is a great place to start. Figuring out where you ‘should’ be by age 30 or 40 or 50 isn’t nearly as important as figuring out what you actually want and how to get it. While some benchmarks can sometimes be helpful, getting to where you ‘should’ be isn’t much use, if you don’t actually care about what that benchmark is measuring or moving you toward. For Blake, owning a home seems to be serving as a kind of a placeholder for his desired feelings of financial responsibility, independence, and confidence. But just because homeownership is one way Blake might feel the way he wants to with his money, doesn’t mean it’s the only way — or even the best way. Financial planning that starts with your wants or your ‘why’ as opposed to arbitrary benchmarks, has actually been shown to be more effective, with one study finding that when people emotionally engage with their money goals and align their money management with their ideal lifestyle, their savings rate increased by 73%. That said, there are a few financial elements that can facilitate more freedom and flexibility with money for most of us. First, an emergency fund with six to twelve months’ worth of expenses in it. Next, paying off high-interest debt that can be costly to keep around. And finally, saving and investing enough that you have what Paula called “f- you"money_money you can use to avoid or get out of situations you don’t want to be in, whether it’s a dead end job, relationship or living situation. With those foundations in place, we can start to think more freely about everything we want our money to afford us—using questions like what do I want my life to look like, how do I want to spend my time and what would an ideal day in the life be—rather than questions like what do I need to have accomplished by the time I’m 30 or 40 or any other arbitrary deadline, as our guide. This has been Money Confidential from Real Simple. If, like Blake, you have a money secret you’ve been struggling to share, you can send me an email at money dot confidential at real simple dot com. You can also leave us a voicemail at (929) 352-4106. Money Confidential is produced by Mickey O’Connor, Heather Morgan Shott, me, Stefanie O’Connell Rodriguez O’Connell Rodriguez. Thanks to our production team at Pod People: Rachael King, Matt Sav, Danielle Roth, Chris Browning and Trae Budde. If you like what you hear, please consider leaving us a review on Apple Podcasts, or telling your friends about Money Confidential. Real Simple is based in New York City. You can find us online at realsimple.com, and subscribe to our print publication by searching for Real Simple at www.magazine.store. Thank you for joining us and we’ll see you next week.
