Bobbi Rebell, author of How to be a Financial Grownup: Proven Advice from High Achievers on How to Live Your Dreams and Have Financial Freedom discusses how to be a financial grownup. Bobbi uses her journalist background to offer a how-to guide for responsible money habits. Although the book was originally intended for the millennial generation, Bobbi soon discovered that people of all ages need practical money advice.
Bobbi suggests automation as a tool for making sure you have the necessary discipline to maintain financial responsibility. She and Doug talk about David Bach and support financial automation as a tool to reach financial goals.
Are you seeing your retirement needs clearly?
Doug tackles the question, “can you save too much?” Doug also explores the potential pitfalls of pensions. While financial professionals tend to put an emphasis on saving, there comes a time when it is OK to withdraw principal from retirement accounts. Doug give pointers on when retirees can make the switch from saving to withdrawing.Read the Transcript
Interview with Bobbi Rebell
Bobbi Rebell, author of Be a Financial Grownup, talks about financial self-care and discipline, and shares her practical tips on being a financial grownup.
Douglas Goldstein: I’m very excited to have on, The Goldstein on Gelt Show, Bobbi Rebell. She’s an award winning international financial journalist. She wrote the bestselling book, How to Be a Financial Grownup, and if you are not yet a financial grownup, I think you definitely have to check this out.
Bobbi, how are you doing?
Bobbi Rebell: Good. Thank you for having me Doug, I’m a big fan of the podcast.
Douglas Goldstein: Thank you very much. I appreciate that. In my day job as a financial advisor, I run into people who are in their 30s and 40s, and sometimes even their 50s, and they haven’t quite realized that they have to take responsibility for their money.
What do you when you are in that situation?
Money Responsibility Isn’t Just for the Young
Bobbi Rebell: The idea is that you have to get a reality check, and I hope that my book inspires them and motivates them to start paying attention to their money and basically getting their act together and becoming grownups.
It’s amazing, Doug, because originally this book was conceived for millennials. But as the process went on, because it was written very much as a journalist, I interviewed a lot of people and met with experts.
I received a whole wealth of advice and people came to me and said, “This isn’t just for young people. I need this book. In fact, my parents need this book because they’re getting close to retirement and they still don’t have their act together when it comes to their money and having good systems in place, and knowing what they have and having a plan for their future.”
The reality is, people go through different phases in life, and in each phase, you have to tweak what it means to be a financial grownup and how you’re going to meet the different needs that come about.
Douglas Goldstein: Let’s get to the hard stuff. The first time someone says, “I’m in debt and I know I didn’t put enough money into my retirement plan, and I can see my parents didn’t plan so well. My rotten kids are asking for money all the time, and they’re expecting me to pay $250,000 for them to go to school, to get a degree that’s never going to be worthwhile! What should I do?”
What’s the first thing for someone who says that to do?
Financial Self-Care: Taking Care of You
Bobbi Rebell: Doug, you travel internationally. You’re on airplanes all the time. When you get on the plane and they have that announcement when they say, “Okay, parents put your life mask on first; the oxygen mask on first,” that’s what you have to do.
You have to start with yourself because at the end of the day, especially if you are the parents, the worst thing you can do is have your children being forced to support you.
Before you worry about their education, tuition, and that kind of stuff, focus on yourself. Focus on seeing where you are, and what you need to do to create your own financial stability.
Get the situation under control and then focus forward on creating financial freedom for the future. Once you’ve got your own situation under control, then you can start looking around and seeing who you can help as much as possible.
You have to first get your own house in order, so you have to look at how far off you are. Usually, things aren’t as dire as people believe. No, they aren’t.
Douglas Goldstein: That’s nice, okay.
Bobbi Rebell: I know that in the U.S., we have Social Security and that’s one piece of the puzzle. It was never meant to solve everything, but odds are, you do have other things going on that can work in your favor.
Even if you had a completely empty bank account, which I can’t believe any of your listeners have, you probably have other assets and resources that you haven’t thought of.
For example, the equity in your home, the things that you own, there are things that you can do that are not ideal, but every situation is different.
I’m a journalist. I can give information, not advice, so you have to look at what you have to work with, and there’s such a broad swath of different situations that I can’t address them all.
Look at what you have and go forward from there and do what you can, but you can’t ignore the situation because it will not go away.
You’re going to get older, you’re going to have to face the situation, so you need to start saving.
The best thing to do, is to start automating, because David Bach, a friend of mine who wrote the Automatic Millionaire, talks about it all the time. “If it’s automated, that’s the only way it’ll happen. The minute you take out the automation, you suddenly don’t have the money left.
Douglas Goldstein: People lack the discipline, and I think part of being a grownup and to go back to your metaphor is, that you need to have the discipline to actually do these things.
People have to make that decision. In other words, you have to first of all decide that you want to be successful.
As you’ve said, you should consider how you’re going to build up your own nest egg because it’s true. Even if you might have alternative assets, you’ve got to live in your house, and you can’t sell that when you’re 60 and use that money to live on.
What are some of the tools that people can or should be using to help build wealth?
Tools to Help You Build Wealth
Bobbi Rebell: I can speak about the tools here in the United States, but hopefully they have similar ones in Israel.
Most companies have a retirement plan; that’s the free money. If your company has a 401(k), and there’s a match, think about that like an automatic return.
If you can put in 6% and they will match that, you’re getting 100% return. You will never match that in the market, so you’ve got to go for that first.
Then from there, go to the Roth IRA if your income is low enough. Again, I’m using U.S. terms, but basically if there’s some kind of a tool that puts in after-tax money and you meet the income requirements, you can do that, and of course an IRA.
Again, I don’t know if in Israel you have catch ups for folks that are over 50. Sometimes when you’re older, the government gives you a break and you can put in even more money, so you start with anything where there’s a free match with your company, if it can help.
Hopefully some companies have pensions, but that’s becoming less popular here in the United States, and then you use your own tools like that.
Of course, if you’re self-employed, there are retirement vehicles that you can do for that as well.
I don’t necessarily think that this is always the best thing, but the truth is, even though you mentioned you can’t live on the money in your house, you can, in a pinch.
If it is appropriate for you, and this is something you should talk about with a financial professional, there is such a thing as a reverse mortgage.
Douglas Goldstein: Ouch!
Bobbi Rebell: I know, but if somebody is old enough and they do it responsibly, under proper guidance with a professional, it can work.
Douglas Goldstein: Don’t try this at home. It’s a real risk.
Bobbi Rebell: It’s there.
Douglas Goldstein: The problem is people try to be too smart sometimes or they get advertised too.
They can do a reverse mortgage, but then they don’t realize that if they have to sell the house and move into a nursing home-
Bobbi Rebell: They have nothing left.
Douglas Goldstein: They’re doomed, right? That’s the end of it.
The Risk of Getting Money Out of Your 401(k) Before Age 59½
Bobbi Rebell: Exactly. I say that very tentatively. It’s like borrowing it from your 401(k); you should never do that, but life is messy. It happens.
One of my coworkers came to me. It was very sad. He was getting divorced, and he’s in his 50s. I’ll tell you, he’s 58 and a half. Now in the U.S., the way it works is if you take money out of a 401(k) before you’re 59 and a half, you get an additional penalty.
He comes to me and he said, “I want to be really responsible, Bobbi. I don’t want to have any debt because I have to buy a new home. I’m getting divorced, so I’m going to basically drain my whole 401(k) to pay for this house.”
I said, “Well, why? Why? Don’t you have any other resources? Why do you have to pay for the whole house in cash? That’s ridiculous.” He says, “Because I know debt is bad.”
I said, “Okay, debt is bad and I’m not going to disagree with you there, but taking out money from your 401(k) is worse.”
I said, “Why can’t you take out 10%, 20%, whatever you need, to avoid any extra mortgage insurance, basically to get the best rate?”
We went through it, and I convinced him, and he did have to take some money out of the 401(k) and pay the penalty. He didn’t even understand that by waiting even one year, while he was going to have to pay tax on the money, the normal income tax, the way that it works here in the U.S., is he at least avoided that extra penalty from taking it out.
Information from professionals like you, from CFPs, is important because just having that information was pivotal and helped him avoid making a huge mistake.
Douglas Goldstein: I think it’s critical to realize that situations are complicated. A lot of people say, “It’s so easy. Just put aside some money every month. Open up some brokerage account and buy an index fund and you’ll be okay.”
That doesn’t take into account the fact that people have a real life and real things come up that knock you off balance.
It’s good to have someone on the outside, just to at least bounce the ideas off and tell you when you’re about to make a huge mistake.
You saved this guy 10% as a penalty that he would have paid by taking his money out of the 401(k).
Bobbi Rebell: Just as a penalty, and I will tell you, this conversation happened in October or November. In the time between then and now, the stock market has gone gangbuster, so the money, forget the 10%, Doug. The money he has earned just riding the stock market has been phenomenal.
Douglas Goldstein: I think you should take all the credit for that.
Bobbi Rebell: I know I should.
Douglas Goldstein: We’re just about out of time, but how can people follow you and follow your advice?
Bobbi Rebell: First of all, people can check out my book, which is available on Amazon and most major book stores.
I look forward to hearing feedback from people. I hope they enjoy the book and I hope it helps people.
Douglas Goldstein: Thanks so much, Bobbi. We will put links to all of that at the show notes of today’s show at GoldsteinonGelt.com.
Bobbi Rebell: Thank you so much.