GET MONEY author Kristin Wong answers our burning finance questions so we can finally “get” money.
1. What inspired you to write your new book GET MONEY?
Money has always been interesting to me. I’ve learned a lot about it over the years, that knowledge has changed my life in important ways, and I want to share that feeling with others.
At the end of our lives, our regrets are never money-related. We regret things like not spending enough time with our family, working too much, or not seeing our friends often enough. These things are important, and they seemingly have nothing to do with money, yet money has a huge influence on them.
Money dictates how often you can travel across the country to visit your best friend, how much time you can afford to take off of work, and so on. I wrote Get Money to help people take control of their financial lives so that money no longer becomes an obstacle to their goals, but a tool they can use to reach those goals faster, whether it’s taking more time off work, traveling with friends, or just spending more time with their loved ones.
2. What are some of the biggest money mistakes you see Millennials making?
From my perspective, Millennials are actually pretty great with money, given the hand they’ve been dealt (although I might be biased, since I’m technically a Millennial.) We grew up in a post-Recession economy, and we question everything. We’re hesitant to get into credit card debt, for example. We don’t buy into the myth that homeownership is always a smart financial move. Thanks to the housing crisis, we’ve seen how that way of thinking can backfire.
For the most part, the mistakes I see are less “Millennial” mistakes and more “young people” mistakes.
For example, most young people don’t save enough for the future. That’s not to say they aren’t saving at all; Millennials are saving quite a bit, actually. However, in your 20s and 30s, it’s hard to fathom just how much more you can gain by saving even a little bit extra. When we’re young, we figure we’ll focus more on our retirement savings as we get closer to retirement. Ironically, though, that extra 20 or 30 years of saving is crucial because of compound interest. The more you save now, the easier it will be to save later. Put another way, your dollar is way more powerful at age twenty than it will be at age fifty. My advice? Think of your youth as a resource and take advantage of the time you have to allow your savings to grow.
3. Do you have any advice for people in relationships who might be considering merging their finances?
Please talk about money before you actually merge your finances. It’s not just important to talk about money in a relationship, it’s crucial if you want to give your relationship a fighting chance. 43% of couples don’t even know how much money their spouse makes!
You want to get on the same page with your partner financially to avoid any unpleasant surprises down the road. So first, sit down and talk to your partner about your financial past, present, and future. In Get Money, I’ve included a checklist of specific topics you’ll want to cover, including: outstanding debt you owe, how you dealt with money growing up, your current habits are with money, past debt you incurred, your future financial goals.
A financial planner once gave me a great tip for merging finances: keep joint and separate accounts. My husband and I have joint checking and savings accounts for our shared bills and goals, but we also have separate accounts where we’re allowed to spend a certain amount every month. We’re both privy to those accounts, so it’s not like I can’t see what my husband buys or vice versa. However, as long as the spending is within our individual budget, and we’re both contributing to our shared account, we really don’t care what the other person buys! This helps keep any fights at bay. For example, my husband recently wanted the new iPhone X. If our finances were combined, I would’ve probably given him a hard time for that and it may have turned into a fight. “That’s so expensive, we shouldn’t be spending our money on that!” Since he has his own individual spending budget, he can spend on whatever he wants and I don’t have to think about it! (Even if it is, in my opinion, an overpriced phone.) In other words, we don’t have to worry about how our individual spending affects our joint spending because we have separate accounts for our own indulgences.
Finally, it’s important to talk about finances regularly in your relationship. Have monthly money “dates” with your partner. A friend of mine has these money meetings with her spouse at a restaurant. She says this helps keep the conversation civil because no one wants to be the couple who fights about money at the Cheesecake Factory, you know?
4. What would you tell people who are scared of investing?
Yeah, investing can be scary. But you know what’s even scarier? Losing money to inflation every year.
This is what happens when your money sits in a bank account earning .01% interest (or even 1% interest, if you have a “high interest” account).
While you want to have some cash liquid (which means easily available when you need it), after you’ve saved a decent sum for an emergency, you have to start thinking about investing. While there’s some risk involved with any kind of investment, if you’re investing long-term, chances are good that you’ll get a 6-7% return over time. Some years, you might get even higher than that. Some years, your investments might plummet. But if you’re investing long-term, and you should be, you’re not worried about short-term fluctuations.
Try this exercise to help get over your fear. Look at a mutual fund like VTSAX on Google Finance. Check out its 3-month view. Crazy, right? There are many ups and downs, and those downs look risky! Now look at that same fund’s 5-year or 10-year view. You’ll see that it’s significantly and steadily increased over time. If you’re invested properly, that’s what your return is going to look like, too. You’re not in this thing for three months, you’re in this for the long haul. So don’t pay attention to daily ups and downs and don’t panic when the stock market drops — it happens!
The key here, though, is long-term investing. And that means you’ll have a boring, but diverse, group of investments that you will hold onto for ten years or longer. This way, you have time to wait for your investments to bounce back.
Active trading is a totally different kind of investing and it is inherently riskier because active traders try to time the market, and yes, that can be a gamble. But if you’re investing for retirement — in a 401k or mutual funds — you’re not timing the market, you’re counting on time in the market. As Warren Buffett puts it, “Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.”
5. What is the number one most important thing people can do to increase their net worth or savings?
The most effective thing you can do to increase your net worth is to start investing, and in the book, I break down how to get started with it, step by step. For increasing your savings, there are a number of possibilities, but one of my absolute favorites is a money challenge, like the 52-week savings challenge.
With any money challenge, you challenge yourself to a savings goal for a set amount of time — cut back on restaurants for a month, for example — and put whatever you save in an actual savings account. (In other words, don’t just spend it on something else.) This is an effective strategy because it turns saving into a game, giving you a “quick win” and thus, a sense of empowerment. Plus, it keeps a good money habit top-of-mind. I’m a huge fan of money challenges because they make people feel like they can actually take charge of their money. It’s motivating to see an extra $50 or $100 in your account every month and know that you made that happen.
Kristin Wong regularly writes about personal finance, career, and human behavior for Lifehacker, The New York Times, and New York Magazine. She’s also written about the economy for NBC News, and her work has been featured in Business Insider, Forbes, and MSN Money. She has produced online videos about Millennials and money for companies like Fidelity and CreditCards.com. Kristin has also won awards from the Society of Professional Journalists, LA Web Fest, and the Worldfest International Film Festival. She lives in Los Angeles, CA.