Smart Money Podcast: Countering Uncertainty, and Building Wealth Early

Sean and Liz discuss how to counter uncertainty, and respond to a young listener's question about building wealth.

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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a discussion about overcoming uncertainty in our present moment.

Then we pivot to this week’s money question from Luca. Here it is:

“Hi Wallet Nerds,

I have used NerdWallet for quite some time and recently discovered your podcast, and am a very big fan. I have a few questions I would like to ask of the show.

I'm 16 and, as you can tell by me emailing you, a personal finance nerd. I want to know if there's anything I can do now to help my financial future. I have a job, IRA, checking/savings accounts, and am an authorized user on my parent's credit card. Is there anything else I can do?

Because I am a personal finance nerd, I also like looking into various accounts. I am not very satisfied with my current bank and want to switch. Are there any cons to having multiple accounts? What about closing old accounts? I feel confident in my ability to manage them and keep track of my money.

Thank you very much!

Sincerely,

Luca”

Check out this episode on any of these platforms:

Before you build a budget
Track all your spending at a glance to understand your trends and spot opportunities to save money.

Our take

Uncertainty seems like it’s here to stay. Whether you’re navigating a new COVID-19 variant, inflation or a climate change-related disaster, take steps to build your financial resilience and prepare for what you might encounter next. When it comes to managing your finances, take steps to shore up your savings and trim expenses where you can.

And you can also work to counter some of the current challenges. If you’re planning to travel to see your family over the holidays, you can build resilience into your flight or road trip. If you’re taking a flight, brush up on your airline’s change and cancellation policies. And if you’re driving, think about driving more slowly and using cruise control to save on gas.

To start building wealth early and set up your financial future, focus on your retirement savings. The longer your time horizon, the more time you’ll have for your money to grow. Also know what you want out of your money so you have goals to build toward. Additionally, if you’re in the market for a new bank account, take the time to shop around.

Our tips

  • Know how to direct your money: Whether you’re just getting started or are a seasoned veteran, a budget and defined financial goals can guide your money management.

  • Start investing: The sooner you start, the longer you’ll have to build wealth.

  • Shop around: Take the time to compare your options with financial products.

More about managing your finances on NerdWallet:

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Liz Weston: Welcome to the NerdWallet Smart Money podcast where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Liz Weston.

Sean Pyles: And I'm Sean Pyles. To send the Nerds your money questions, call or text us on the nerd hotline at 901-730-6373, that's 901-730-NERD, or email us at [email protected]. And to get new episodes delivered to your devices every Monday, be sure to subscribe. And if you like what you hear, leave us a review and tell a friend.

Liz: This episode, Sean and I answer a listener's question about how to build wealth early. One tip: It's never too early to start saving for retirement. But to start off this week's show and our This Week in Your Money segment, Sean and I are talking about how to manage uncertainty.

Sean: Because it does seem like uncertainty is the only thing that is certain nowadays. With yet another COVID variant in the news, supply chain issues dragging on and inflation bouncing around different parts of the economy, Liz and I thought that now might be a good time to talk about how folks can weather uncertainty. And for me, the counter to uncertainty comes down to one of my favorite words, which is resilience.

And this is actually an idea that I got from my partner, who's an architect. In the world of architecture, the conversation around building design has shifted from sustainability to resilience. And that's in particular with climate change. And I think that this is applicable to our personal finance too. The idea is that you should always assume that there's going to be some sort of disaster that will come and try to design longevity and ease of repair into your personal finance.

Liz: When we talked to Michelle Singletary from the Washington Post, she talked about living her life as if she were in a perpetual recession. So this is kind of the same idea that you want to focus on how you're saving money, what you're signing up for in terms of debt, how flexible you are in your finances.

Sean: And also focus on what particular crises you may face. When it does come to climate change, realize that in the Pacific Northwest, we might be getting ice storms or fires or who-knows-what next because as we've had all sorts of calamities come our way. In the realm of personal finance, realize that you might have an unexpected car expense pop up, which happened to me the past week, happened to my partner the week before that. So there's always going to be something.

But one of the best ways to shore up your resilience is to focus on savings. And there are a few ways you can do that. One that seems pretty straightforward is to try to free up cash where you have more money to save by trimming expenses or paying off high-interest debt. Those are things that we talk about a good amount. Also think about talking with an investment advisor about whether your portfolio is well-balanced. That can help you be more resilient when it comes to your own investments.

Liz: We also like Roth IRAs here at NerdWallet. And there's two reasons for that. One is that you're building up tax-free money for retirement, which is always great, but also you can always take out your contributions. People get confused on this, but any amount that you put in, if you put in $5,000, you can always take out $5,000, no taxes, no penalties, anytime. Like the day after you put it in, you can yank it out. You won't have to worry about the IRS.

Sean: Exactly. I also want to talk about how to focus on your resilience beyond money. I think it's really important to shore up your relationships with your friends and your family because they can provide really important emotional support that can help you in a pinch if you need someone to talk with or even if you do need a little bit of cash to get through whatever emergency does pop up.

Liz: We talk about money a lot and we forget the bigger picture of the family relationships, friend relationships, and also your job. This is something to keep in mind that right now the worker is king. We probably have more leverage than we've had at least in my memory. You always want to try to be one of the top performers at your work if you possibly can. It doesn't mean you can't be fired and it doesn't mean you can't be laid off, but you're lessening the chances.

Think about that. If you're not in a good fit with your current career, now would be a great time to be looking around. If you are in a good fit, now is a great time to really invest in trying to be indispensable at your job. Keep in mind, you can be the best coal shoveler on the Titanic and you're still going to go down with the ship. So it also depends on what industry that you're in. In general, these are things you should be thinking about and thinking about where you going to be in five years. I know that's always hard. You look at where you are today, could you have predicted that five years ago, Sean?

Sean: Even looking at what the world could be in five years, it's hard to imagine. I felt last month for the first time that we were in a place where maybe I can begin to plan out six months in advance because the world seemed a little bit more stable, but then here we are, and things are up in the air again. So I try to strike a middle ground between doing what I can to make sure my future is going the way I hope it will, saving for retirement, continuing to save in my various other accounts, but also realizing that you need to have a certain amount of flexibility, again, that resilience to be able to adapt to whatever may come your way next.

Liz: One of the things I like to keep under control is debt. I'm not one of those people that thinks that debt is always bad, but I do think limiting it can be very helpful to letting you sleep at night and also your resilience if something goes wrong. You don't have to worry about trying to make huge debt payments when your job gets ended or something else big happens. So we talk about the 50/30/20 budget all the time. If you can fit a loan payment into that 50% mark, and the 50% is the must-have expenses like shelter and transportation and food and utilities, insurance, minimum loan payments. If you can fit that minimum loan payment in there, maybe you can afford it, but even then, maybe be just a little bit careful about adding debt.

Sean: And unfortunately, for many Americans, we're about to have a new debt that is actually an old debt in the form of our student loans. Many of us, myself included, are dreading this, of course, but the more we can prepare for it right now, go through your budget, realize what it's going to mean to have these several hundred dollars likely, at least in my case, taken out of my budget each month, that will help me make sure that I do have the amount properly allocated within my 50%. And I might have to move around some other things. I'm probably going to have to cut some subscriptions and other discretionary expenses that I've been enjoying over the past almost two years at this point, but that will make it so that when I do have to resume my payments, I'm not in shock. I'll be able to weather it.

Liz: And if you have federal student loans, you probably have income-driven options. So if you're going to be struggling with the payments when they come back, you can look into that to lower the payments. If you have good credit and private student loans, you might be able to refinance those to a lower rate. Now's the time to do it, before those payments hit.

Sean: I've been getting an email at least once or twice a week from the federal government and my servicer reminding me, oh, make sure that your autopay is set up properly. And I will have to change that because I changed my bank. And these are small things that we're going to be nagged about constantly until payments do resume and I'm just putting it on my to-do list at the bottom. I'll take care of it over the holidays. Eventually I'll do it, but it's good to get those things taken care of so you aren't left blindsided by the payment that you have to make.

Liz: Put it on your calendar so that you deal with it.

Sean: We should also talk about a couple other things that are going on in this particular moment with the omicron variant right now. We don't totally know how it's going to play out. If you're traveling for the holidays, it might be wise to know your airline’s change and cancellation policies if you do end up having to change your plan at the last minute. You don't want to be left paying for a ticket that you're not actually able to use if you don't want to take that flight.

Liz: For a while there, it seemed like you could change anything at any time. The change fees got waived and now the airline policies can differ quite a bit. Obviously if you've already booked, there's not much that you can do about it, but there are credit cards, those premium travel cards that have some travel insurance built into them. So always check that out if something changes. It does seem like the home tests are more available than they used to be. We test before we leave and then we also test when we get there just to make sure, because we have older family members to make sure that we're not putting them at risk.

Sean: And [President Joe] Biden did announce last week that folks who have private insurance will be able to get the cost of tests reimbursed. So that's going to be a little bit of a hassle I'm sure because dealing with insurance is never fun or easy.

Liz: So true.

Sean: But that way you can just recoup some of the costs. I also wanted to talk about how to save on gas because if you're like me, you'll be spending a lot on gas over the coming holidays.

There are a few tips that you can do. One is to slow acceleration, use cruise control and brake lightly. A NerdWallet expert found that this could boost your fuel economy by 37% if you do those three things. So that's pretty significant. Another one that I always try to remind myself of is to slow down. According to a study from the car shopping website Edmunds, slowing down from 75 to 65 miles per hour can increase fuel economy up to 14%.

Liz: And obviously it's safer and all those good things. It's just so hard to do.

Sean: I know. I have a lead foot and a long drive ahead of me for the holidays. So I always want to try to get in like 10 more miles in that hour that I'm driving, but I also have a car that requires premium gas. So I don't really want to be paying for that. Especially as I'm driving into California from Oregon, it's going to be quite expensive.

Liz: That's going to be some real sticker shock. I haven't seen a gallon under $5 for a while. So, yeah, of course . . .

Sean: So you're in LA?

Liz: I'm in LA and I have a Bolt.

Sean: Oh, I'm jealous.

Liz: I know, I know.

Sean: At least I'll be splitting the cost with my partner.

Liz: Yeah.

Sean: I hope he knows that. If not he will when he listens to this. Another final tip I want to throw out is just to follow science. We know the news is changing quickly, but we've had pretty good tools at our disposal to keep ourselves and others safe for a while now. And that's things like getting vaccinated, getting your booster shot, getting a good mask, preferably an N95 or something like that. And if and when you can, social distance.

Liz: I think we're going to be dealing with this for quite a while. All right, well, I think we covered that. Let's get onto this week's money question.

Sean: This episode's money question comes from Luca. Here it is:

“Hi Wallet Nerds,

I have used NerdWallet for quite some time and recently discovered your podcast, and am a very big fan. I have a few questions I would like to ask of the show.

I'm 16 and, as you can tell by me emailing you, a personal finance nerd. I want to know if there's anything I can do now to help my financial future. I have a job, IRA, checking/savings accounts, and am an authorized user on my parent's credit card. Is there anything else I can do?

Because I am a personal finance nerd, I also like looking into various accounts. I am not very satisfied with my current bank and want to switch. Are there any cons to having multiple accounts? What about closing old accounts? I feel confident in my ability to manage them and keep track of my money.

Thank you very much!

Sincerely,

Luca”

Liz: I love Luca. Luca is our kind of nerd. Getting an early start with investing is always good, but getting started as a teenager, that is huge. Those extra years could more than double the amount that Luca can put aside for retirement. This is awesome. Anyway, to help us answer Luca's question on this episode of the podcast, we're joined by one of our own personal finance Nerds, Kim Palmer.

Sean: Welcome back to the podcast, Kim.

Kim Palmer: Thank you so much for having me.

Sean: Our listener, who is the youngest that we've ever heard from, is looking for some advice about how to jumpstart their financial future. What do you think?

Kim: First I think we have to acknowledge that they're off to such a strong start because so many people aren't even thinking about money yet. I think it's really great that they're already so far ahead. There's one area actually that they didn't mention, and that is spending. I think it might make sense to take a deeper dive into how they're currently spending money. One thing I've noticed is that once you get in the habit of saving and of spending less than you’re earning, it's easier to maintain. What a perfect time to start that habit when you're a teenager.

One tool we love at NerdWallet is the 50/30/20 budget. And that basically allots your take-home income into three different categories. You have 50% going toward needs, you have 30% going towards wants, and 20% going towards any debt payments and savings. Now, as a teenager, everything might not apply to you there. For example, you don't probably have rent right now or a mortgage, but I still think it's a useful tool just to start thinking about where your money is going.

Sean: I also think our listener should appreciate the really unique opportunity they have by starting building wealth so young. There's the saying that youth is wasted on the young and for so many so is their time horizon for saving for retirement and investing? But I think that Luca might be an exception to this. And as you kind of nodded to, Kim, because they're starting so young, they don't have as many financial obligations. Like they probably don't have student loans or a car payment or a rent, so they can maybe fudge the 50/30/20 to make it so that they can save a lot more right now.

Kim: I think that is a great idea. When it comes to investing, you do have to be 18 to actually go ahead and open and up a brokerage account, but it can definitely be something that you do along with your parents. And, as Liz mentioned, when you do start investing early, you have a head start. You have so much more time to grow your money. One thing I like to do with my kids is go through a company like Stockpile and buy fractional shares of really big companies that you're already familiar with. For example, with my kids, they can take $25 and buy Netflix or Disney and see how the stock fluctuates. And I think it can just be a way to kind of get your head around what investing feels like, see if you like it.

Liz: Yeah, because one of the problems with getting started with investing is that sometimes the buy-in is really high. Like shares of companies that kids know and recognize might be $100 or more and that's not easy to get started with. Or, if they're looking at mutual funds, they can have an even higher minimum investment. So these fractional shares are a good way to get an early start.

Sean: But they will have to be 18 to open one of these accounts. How can they get around that? Is it that they'll open one with their parents? And are there also any other limitations that Luca should look out for because they are still under 18?

Kim: There is definitely a limitation in that you have to be 18 to open some of these accounts, but the easiest way around it is if you do have the help of your parent, then they can do it for you or you can do it jointly. Liz, do you think I'm missing anything else you should be thinking about?

Liz: You've got to consider financial aid. If you think that you're going to need financial aid to go to college, then you don't want to have this money in the child's name. Or you can do kind of a workaround, which is to open a Roth IRA. Now, there are contribution limits to those, but Roth IRA and other retirement money is not counted in financial aid formulas. So that's a way to get around that concern that your holdings could interfere with how much financial aid you get.

Sean: One thing I keep thinking about is how lucky Luca is to have parents that have encouraged their kid to start building a solid financial foundation really early on. Adding them as an authorized user on the credit card, for example, will give Luca an early start on building good credit. Kim and Liz, I'm wondering if you can share any other tips that you have as parents for how parents out there can help their kids get started like Luca's parents did.

Liz: Well, I think it's like most things with parenting is that you start talking about it early and often. So it's not a subject that's being brought up at the last possible minute. When you take your child shopping, you can talk about the cost of things and how you decide what to buy and what not to buy. With our daughter, as soon as she was recognizing that money bought things, which was very early, like 3 years old I want to say, that's when we started her with an allowance. And that's very early, but we had some good experiences with it. That's something to consider.

Sean: Right. And she seemed ready, right?

Liz: Oh yeah. Well, we've talked about this before. She was ready to save, she was ready to spend. She didn't understand the sharing part. Why should she have to share her money? Then as she got older and she got jobs and started her own little business, we would match her earnings with Roth IRA contributions.

Sean: Oh, that's cool.

Kim: That is very cool. My parents did the exact same thing and I really think it helped me. I think it helped me learn how to save.

One thing I've noticed with my kids is that from a very early age, like toddlerhood, they start asking for things and they have no qualms about spending your money. The good thing about that is that it gives me a chance and parents a chance to say no and to explain the whole idea of scarcity. We can't have everything we want. That's really the basis of learning how to budget right there.

As they get older, it morphs into a more complex conversation. For example, with my 12-year-old, we can have a more nuanced discussion about saving and putting money aside so you can afford something bigger. And I think as the kids get older, you can start having those more nuanced conversations, but it really starts I think around age 2.

Liz: Luca is also wondering about switching banks. Kim, what do you think they should know when they're shopping around?

Kim: It's a really good question to look into switching banks. A lot of people are afraid to switch banks and they just go with the flow of their current bank even though they're not happy. I really encourage this line of thought to look at if another bank could serve your needs better. What you want to do when you start thinking about opening a new bank is first, see what would be a good fit. That starts with some online research. Where can we make sure we're paying as few fees as possible? Where can we earn the highest APY? Where can we get the most for our money?

Once you do that comparison and you choose a good fit with your new bank, you just go ahead and you transfer any money that you have into the new account. You close your old one. And it's really not as complicated as I think a lot of people worry that it is.

Sean: Or as a lot of banks might want you to think it is to switch banks like that. I did this in the past year. I had had a goal for a while to go from the big national bank I've been using since high school to a local credit union in the Pacific Northwest and it took me a while to actually muster up the energy to do it and it took me five minutes. It was shockingly easy.

Liz: Yeah. I think it's more complicated when you have more bills to pay, especially if you're autopaying through your bank account. So you may need to keep your old account open for a while for those to clear. But if you're somebody like Luca, who's just starting out, you can choose whatever bank you'd like. And an online bank might be a good fit because they tend not to have minimums and a lot of fees. You can start with a small amount and build from there.

Sean: But again, they'll probably have to have their parents help to open any sort of account like this.

Liz: Luca is obviously in pretty good shape today and is already saving for their future. Kim, what else should Luca consider going forward?

Kim: Well, I think it really all goes back to getting in the habit of saving money. I think some of the habits that they're establishing now really will last possibly their whole life. Of course, as a teenager, you might not have the same priorities that you will have in your 20s or 30s or beyond. So I think when you're focused on saving and you have that savings cushion, it helps you have that flexibility. So wherever you turn, whatever priorities emerge over the next decade or two decades, if you have that savings habit, I think that gives you such a strong backbone to rely on.

Liz: Yes. Absolutely. And I love the fact that you talked about the importance of saving while you're young because a lot of people just keep putting it off thinking, "well, in the future, I'll have more money. It'll be easier in the future." It is never easier in the future. Start now. Do it now and you'll have a lot more flexibility down on the road.

Sean: Well, Kim, thank you so much for talking with us.

Kim: Of course. Thanks for having me.

Sean: And with that, let's get on to our takeaway tips. Liz, do you want to kick us off?

Liz: I would be delighted. First, know how to direct your money, whether you're just getting started or are a seasoned veteran, a budget and defined financial goals can guide your money management.

Sean: Next up, start investing. The sooner you start, the longer you'll have to build wealth.

Liz: Finally, shop around. Take the time to compare your options with financial products.

Sean: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected], and visit nerdwallet.com/podcast for more info on this episode. And remember to subscribe, rate, and review us wherever you're getting this podcast.

Liz: And here's our brief disclaimer thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean: And with that said, until next time, turn to the Nerds.

Podcast guest Kim Palmer owned a fractional share of Netflix at the time of this recording.