Did you know only 38% of Americans work with a financial advisor to manage their money? We look to experts for advice on so many topics, but most of us are still tackling money issues without professional help. In the season finale of Making it Count, Cristina and Will welcome back Addition Financial expert Heidi Pauley to conduct a real financial consultation with members Chelsea and Desi! Listen and read along below to learn how a financial consultation can help you get on the right path with your money.
Heidi asks Question 1: “What area in your financial life needs a little TLC?”
Chelsea responds: “Definitely our savings. We are not homeowners. We have never owned a home before. That is something that we have goaled in the next few years. We want to put ourselves in a situation to have a nice down payment, closing costs, all of that good stuff, as well as prepping for two kiddos now. So, that's our main goal: just padding that savings and preparing for what's to come in the next five years.”
Desi responds: “I agree with her as well, but I think budgeting would be one way to get our savings where we want it to be. I believe if we can track with the money that's being spent, we can taper it down and get it into the savings. So I think that those two suggestions would be good.”
Heidi follows up: “Yeah, budgeting and saving are the two…when you look at the big picture of life, those big purchases — buying a house, buying a car — those are your two largest purchases that you will ever make in your life. It is being prepared. And in reality, budgeting is very intimidating to a lot of people. A budget is continually fluctuating.”
“We have life events — whether it's an illness, loss of job — that we don't prepare for. So when you have the savings in place, preparing for a new baby along the way, building for a house, that budget is the most crucial thing you guys could accomplish, or anyone in general accomplishing together. That is the bare bones basics of knowing what you have and where you want to go. So we'll dig a little bit more into that and working on some of those for you.”
Heidi asks Question 2: “So these are a little bit personal and vulnerable, but when we're talking about money and finances, that's really what needs to happen. It's about exposing everything and moving forward. What was money like growing up for you guys? What did you see as kiddos — how your parents were with money and their perception of money — which may have reflected on how you are with money?”
Desi responds: “My parents were both immigrants. When we came — well, I was born here, but raised in Mexico for a while. When I came over here, I was culturally shocked. My mom watched after us while my father worked almost seven days a week. Finances weren't discussed in the house, mainly because that was a topic amongst the parents and the grown ups. So we didn't know anything about money or anything like that. But we were taught to work hard for what you wanted.”
“I started actually working at the age of 16 because I wanted money to buy things. And some of those purchases weren't the smartest. When you're young and you have money, you usually waste it on clothes or food or things that you want. It's not until I started working in the financial business that I learned how to manage my money. That's how we perceive it. So yeah, Chelsea and I's background are a little bit different.”
Chelsea responds: “Definitely. I am an only child, so that kind of seals the deal there. No siblings. I'm the only grandchild, the only niece, the only child in my whole family, pretty much. So, as you can imagine, I was very spoiled as a child. My mom, I love her to death — the woman cannot manage money to this day. She does not even have a savings account. We would go out to eat, we would go shopping every day, all the time. And I definitely see those traits passed along to me as an adult."
“I have to stop myself at times because if I had a life motto, it would be ‘Treat yourself,’ because that is my motto. Like, ‘Girl, get you that Starbucks, get that drink. You go to work every day, treat yourself.’ And I find myself saying that like 20 times a week, and I'm like, ‘Okay, maybe I've treated myself enough.’ So definitely those things have passed along.”
“And he is so frugal. My husband does not spend money, like ever. I will force him like, “Desi, you need new work pants. Like, we have to go buy some new slacks.’ He is using an iPhone 6. I'm not kidding, the man is frugal. And then you have me who's like, ‘Look at this on Amazon! I got this for Lily today.’ So definitely opposites attract, what they say is true.”
Heidi follows up: “And that's where the money struggle usually comes in with couples. You've got one that's a spender, one that's a saver. And it's always two different upbringings. You don't realize the power of what you're subconsciously watching as you're growing up, when you're watching your parents work and how they spend. Are there fights about money? Desi's family, they're really hard workers, so that just is naturally ingrained in you the same as being a super spender.”
“But as we get older, you get to acknowledge and say, ‘Okay, wait a minute, this is how I know I'm supposed to be, and this is what I am.’ These are the strong wills that we need to say, ‘Hey, you know what? I want to make a change. And I know that these are adjustments that I need to make.’”
"So, one thing as we're talking about that is — Chelsea, it’s when you go into a store. We did this on my 11-year-old: spending want versus need. It's the, ‘Do I really need this? Do I need that third cup of coffee this week?’ And what you do, as we're talking about the budgeting and the saving: ‘Hey, you know what? Because I know that we have these goals. I know that we want to buy a house and we want to get stuff for the new baby. Okay, I'm not going to. I'm going to now take this money, which I have in my hand, I'm going to take it and I'm going to put it into a savings account.’ So those are the small, small adjustments that over time create big successes.”
Chelsea follows up: “Oh, definitely. I find those little minor expenses are my biggest expenses at the end of the month when I'm reviewing everything. Because in hindsight, $5 on a coffee, you're like, ‘Oh, it's just $5.’ But when you've done it every day this week, that's $25. And then you multiply that by the month, you've now spent over 100 bucks on coffee. So those are the small tactics that I definitely want to put in place.”
“When we did the New Year's Resolution episode, that was the one that I was on. And I remember saying in January, ‘I'm going to stop buying those Target dollar bins. I'm going to stop going over there.’ I'm happy to report I've made it about halfway. I have bought one spring kitchen towel, so I will take it as a win.”
Heidi asks Question 3: “How do you define financial success?”
Chelsea responds: “I think financial success, at least for myself, is security. I don't want to be stressed. I don't want that pit in my stomach that I get when it's the first of the month and I have to pay my rent. I don't want to be concerned, like, ‘Okay, this bill is coming, we're going to pay this. And then that leaves X amount of money for everything else.’ I want the security of saying, ‘Hey, if the car breaks down, we're good. We have everything in place.’ That is my idea of financial success and stability.”
Desi responds: “Financial success would mean having a cushion for us. As Chelsea said, it would be something if the unexpected happened. For instance, I work in the insurance business, and insurance is for the unexpected. And by having a solid financial foundation, if that unexpected happens, we have something to fall back on. So, yes, I agree with Chelsea. It would be having enough that if the unexpected happens, we're going to be okay or enough to survive.”
Heidi follows up: “Yeah, absolutely. And everybody defines their financial success a little differently. And that's why it's so important to have these questions and this self reflection. So write it on paper, set your goals. Again, there's the smart goals, vision boards as well. Those are all good certain ways. And you can have a financial vision board as well that you guys work on together, to create your kind of where you are now and where you want to go.”
Heidi asks Question 4: “Are you both currently budgeting?”
Chelsea responds: “So, I have to say, I am probably the financial manager, and I put that in air quotes because it is so loose. Believe me, I am by no means tracking. But I would say that I'm probably the one that manages the money more in the house."
“I do try to be conscientious of my spending, but we definitely do not write things down. We definitely don't allot a certain percentage of our funds to go in certain accounts — definitely room for improvement. Granted, all of our bills are paid, so check on that box, credit score going up. But there is definitely room for the savings like we've been bringing up."
Heidi follows up: “Perfect. That leads me to the ‘here's how we move forward.’ We've established that you guys are wanting to buy a house, you're wanting to build a savings, prepare for the baby, the regular life stuff that comes up along the way. So, we need to start to establish a budget, on paper, visually seeing — because it really makes a difference.”
“You will be so surprised once you actually put it on paper. When you say, ‘Okay, this is what our monthly income is, these are our monthly expenses.’ And when we sit down and start to work on it, it's not going to be the Starbucks, the eating out. It really is going to be looking at the four walls. I call them the survival expenses: the rent, food, car payment, all of those things that are what we have to pay for us to survive. We need to live.”
“There's debt to consider as well: credit cards, unsecured personal loans. Of course, auto loans are something a little different. Those are a necessity.”
Chelsea follows up: “Definitely. And that was one of our goals, too, is credit cards. I mean, we're definitely not carrying a huge balance by any means. We're talking $1000 at most. But I do want to have that completely knocked out by the time that the baby does come so we're not worried with extra expenses.”
“Car notes — thank god we only have one car note. The majority of our new debts, if that is going to come, would simply be new things for the baby. Those are really the only new debt items that we plan to take out.”
“But credit cards are something that, especially me being on the lending side of things — very, very light waters to tread with a credit card. I try to avoid that at all costs. Unless, right now we have that promo going on. If you're going to book a trip, go ahead and use it. But I am not booking a trip anytime soon, so my balance is getting paid down.”
Heidi follows up: “Yeah. And that's perfect. You guys have to sit down and this is something that you discuss together. Not really many people use their bank statements anymore. No one looks and prints out their statement. Everything is all electronic. But that's where you sit down and look at the last 30 days: ‘Okay, where are we spending? Where is the extra going? How much are you spending on eating out? Where is your money going?’”
“And that's the whole point of when we sit down and talk about a budget or a spending plan. It's not saying, ‘Oh my goodness, this is so daunting. I don't want to do this.’ It's saying, ‘Okay, you know what? We need to take control of our money and we're telling it where it needs to go.’”
"So you will sit down: ‘This is going to be okay. This is what's going out. Where are we spending our money and where can we cut back?’ Because guess what? When you decide to eat out only one time a week, and then you look at what you've been spending? Put that extra towards knocking out that credit card debt, working on that emergency savings, because that is ultimately something that's so important.”
Heidi asks Question 5: “Do you guys have an emergency savings?”
Chelsea responds: “We do have a small — very small — savings. You know, it wouldn't be able to carry us through for a long time, but we would have something to at least, you know — tire pop, those kinds of expenses. But anything past, — you know, if something happened and my husband could not work, we would be strapped for cash. We need our monthly income.”
“That's another thing with bringing back it to the security, I want to have the peace of mind that if something happens to us, we're going to be okay. That’s my idea of success, because I know we will probably never be rich. I'm okay with that, I've made peace with it.”
“But I know that I definitely want us to be able to say, ‘Do we want to put Lily in private school? Is that an option for us?’ I want us to be able to do those things, give experiences, travel to see family. Those are the things that I truly want to invest in: experiences and bettering ourselves as a family. Not so much easy day-to-day life, like, ‘Oh, man, I really love those shoes. They're so cute. Oh, that new purse.’ Those expenses are what's going to take away from the big picture."
Heidi wraps the consultation up: “Well, it really sounds like you guys are on the right path. Budgeting is key, that savings is key. You guys have a really great plan, but sit down and communicate. Communication between married couples is so important when it comes to finances for you guys to be able to reach your goals, and you've got some big things coming up.”
“One thing you need to know is that along the process, I'm here for you. This is just the beginning. We work to establish your budget and make you comfortable to let it all out. And to be honest, it's overwhelming. It's scary. And this is why going to a financial counselor is so important, because I'm there. Those that do this, this is what we do for a living. We're holding your hand. We're taking you through these big steps of life, of ‘I don't know where to start in this financial journey.’”
“So holding your hand, guiding you, but giving you the empowerment, the tools, the resources. I'm your coach, I'm your guide. But you guys are totally in control of this, and I'm there to provide any insight along the way. It comes up to you guys for that commitment, the sacrifice and dedication, because that's really what it's going to take.”
Chelsea responds: “Yes. And that's where we hit that roadblock. We definitely have a plan. I've sat down so many times: ‘Let me get on Pinterest and find a nice budget calendar so I can use my pretty pins, and then I'm going to really stick to this.’ It's the discipline. And I think that's the great thing that comes with having a financial counselor. You have someone to report to. Someone to monitor your progress.”
“With your spouse, they're your person. It's easy to just be like, ‘Babe, this month, I went overboard. I'm sorry. I love you.’ And then you move on. When you have a counselor, somebody that's really saying, ‘Okay, well, last month you said you were going to do X, you did not.’ I think that's a huge, huge thing for people like myself who know what needs to be done but need that extra push.”
Heidi follows up: “And it's not to do any shaming or make you feel guilty for, ‘Oh, you spent a little extra!’ It happens. You know, we are human. We have to live. We've got this life. It's how we're smart about what we do with things, but it's also enjoying life. It comes and goes so fast. You're going to look back and think, ‘Oh my goodness,’ when the kids are grown. ‘Where did the time go? What did we do?’”
“It's making the most for what you've got — it's making it count. It really is making what you have work for you. Whether it's $500 that you have extra or $5,000, it's all the same and all perspective on how you look at it and what you do with it.”
“Through the uncomfortableness, through the scariness, the tears, whatever it might be, I'm going to be here to push you, encourage you. I am your financial cheerleader. I'm going to push you through the positive change that you need for a financially better future.”
“So, I look forward to working with you guys! We're going to create that budget, even work on vision boards on setting those goals, and that's going to be huge. We're going to do short-term goals, even a month. A month, six months and a year. We're going to start small. Of course, long term, I'm sure owning a home is something that's very important to you. But we’ve got to look at what's going on right now and make those small changes.”
Will asks Quick Question 1: “How does a person's age affect their budgeting? I'm assuming that people should reevaluate their budgets on a regular basis.”
Heidi responds: “Budgeting is something that gets re-evaluated often. When you have a change of circumstance, whether it be a job, loss, increase, anything where your budget is changing as well. If you are looking to pay off credit cards or get out of debt, your budget is going to change [versus] when you're looking to budget for savings.”
“It's going to depend on whether you're a teenager learning to budget. Kids might be trying to save for a car. I actually have a 16 year old who is working on budgeting now. She's got her very first job and a license. We're learning [about] saving, spending and bills because she is required to pay her car insurance. So it's establishing responsibilities and gaining the concept of what budgeting is early on because it is forever changing, and what it might be today could easily change in three months.”
Cristina asks Quick Question 2: “When people create a budget, they tend to focus on the recurring expenses, like groceries, mortgage, electric bill. But not all expenses are monthly; some are seasonal, like holidays, and even quarterly, or that one yearly bill that you pay. What's the best way to account for these particular items in your budget?”
Heidi responds: “I personally love the idea of having different savings accounts. So, under your savings account you can have sub-shares. [By] creating different sub-shares, we’re telling your money where to go.”
“So you can have one gigantic savings account and you pull money from it as you need it. But when you give your money a name — for example, maintenance around the house. If you have lawn services that necessarily don't come up every month but every three months. For me personally, we have our termite re-inspection that comes up every year. The best way to do that is to take what it is, divide it by 12, and then make it part of your regular monthly expense.”
“That way, when you know that it's November and we have this coming up, you're not going to be scrounging around going, ‘Oh my gosh, I didn't factor this in the budget.’ You can simply go to that particular savings account and there you go. You've got the money all ready to go, just transfer it out, pay the bill. So it's to allocate your money throughout the year.”
You can reach out to Heidi about your questions — or to schedule your very own financial consultation! — via email at hpauley@additionfi.com.
On this episode, Cristina and Will shared a guide called Money Management Tips and Savings Strategies for Every Budget and Age. This is a terrific resource that’s ideal for anyone who wants to get a handle on their money!