What is personal finance? Listen to Episode 3 of The Megan Robin Podcast now to find out! In this episode, I define personal finance and I share some essential “rules” you must always keep in mind when managing money. I explain what inflation is (and why it matters to you), the role risk plays in finance, and how to be on the lookout for hidden fees!
Episode 3 Transcript
[00:00:00] Hello and welcome. I'm your host Megan Robin. I'm an attorney, a mom of two, and your new personal finance BFF. Be sure to subscribe now because over the course of this season, we are going for a wild ride from the mean streets of Wall Street, to what to do with the money in your kid's piggy bank. It's going to be fun and dare I say bingeworthy?!
I hope you got your chart of accounts done and you're ready to move forward. If not, no judgment here. I, for one, understand procrastination because yesterday I spent like two hours making a lasagna.
Every time I find a lasagna recipe, I tell myself, "Oh, it's not going to take that long, I can whip this up in no time. I'll make half and I'll freeze half and it'll [00:01:00] be a double win." Then I get a spare sliver of time, I get all the ingredients out, I go for it, and it is (sigh)... I should just call them lasagnas of regret, because losing two hours of free time when you're a mom is a travesty, and it is so not worth it to me to have a lasagna at the end of all that.
If I get struck by lightning tomorrow, then my eulogy will say, "She could have lived her dreams. She could have started a movement to help women find financial freedom, but instead she made a lasagna."
Oh my goodness. But I guess I will say it's a motivating lasagna because I did that yesterday and it took way longer than I thought it would take and then I redoubled my efforts to say, "No more lasagnas. Get back in there, post another podcast episode today and everything will be okay."
If any of you see me and find out, I'm going to get back in the kitchen and do a with lasagna again, just tell me, [00:02:00] "No. Do, a podcast. Maybe bonds, stocks, CDs, talk about something you're good at. Cooking is not a thing I am good at or enjoy."
For all you mamas out there who find cooking, relaxing, or therapeutic, or you're good at it and you make delicious things, props to you. You are amazing. That is not my strength, so I will stick to this and I will stay in finances. All right, let's jump into it. Enough rambling. I know you have stuff to do today.
Today I am going to talk about how I define personal finance, and then I will share with you some essential ground rules that you should always keep in mind when dealing with money. Let's knock out the disclaimer so we can dive right in today.
The information provided in this podcast is for general information purposes only and is not intended to be legal advice. The content of this podcast does not create any kind of attorney-client relationship and is not intended to be a substitute for [00:03:00] professional advice. Today I want to talk about what I consider the personal finance framework.
This means, what does personal finance entail? What are the categories that you need to know and understand to have your personal finances under control? In my mind, there are five categories. The first is just your day-to-day money management. The second is credit, the third is savings. The fourth is insurance, and the fifth is taxes.
These sound like pretty big categories, and in some ways, yes they are, but it doesn't have to be super hard or complicated. Start simple, and then once you have a solid foundation in each of these categories, you can get fancy if you want to. I'm not going to stop you, but the majority of people don't really need to do anything besides the basics.
We will go into each of these topics in depth throughout this podcast, but for now, I just wanted to make sure that we are on the same page so that when I say personal finance, you know what I mean? Okay. Let's [00:04:00] dive into my ground rules. As I mentioned before, these are things that you should always keep in mind when dealing with money.
The first thing to know is when you are dealing with money, there is always risk. Even a checking or a savings account is not without risk. As you know, if you've already listened to episode one, banks can fail and the FDIC only ensures up to $250,000 per depositor per insured bank. That said, risk is a part of life.
Even if you hid your money under your mattress, your house could burn down and you'd lose it all. It's not worth losing sleep over this, but you need to be aware of it. All right, onward. Number two: never invest in anything you don't understand. As I've said before on this podcast, the internet has greatly democratized finance.
You can Google anything, so never invest in anything that someone can't clearly explain to you or that you can't figure out [00:05:00] yourself on Google. Throughout this podcast, I'm going to teach you the basics, so you will have a solid foundation, and from there you should be able to look up anything that you need to research further.
Okay, onto the next topic. When dealing with the world of finance, there are almost always fees. As the saying goes, there is no such thing as a free lunch. Always look for fees and hidden costs, especially when dealing with investments. Banks sometimes hide the fees by baking them into an investment.
Sometimes you have to do the math. To reverse engineer what the fee is because it's not clearly stated. If you're not a fan of math, don't worry. There are a ton of online calculators that can do the math for you, whether you do it yourself or use an online calculator, always do the math. You must know what you are paying, whether that's ATM fees or built-in fees on stock trades or investments, [00:06:00] or any other kind of fees that are everywhere.Always look for them and if you're not sure if there's a fee, ask.
The last topic I want to talk about today is inflation. It is June 2023 when I'm recording this, and inflation is a big deal right now.
So what is inflation?
Inflation is when the price of things like goods and services goes up, and when that happens, the purchasing power of the money that you have decreases.
It's pretty much the equivalent of when old people say, "In my day, you could buy a gallon of milk for 35 cents!" So why does this matter for you in the context of personal finances and investing? Okay. Let's think of some old timey name like Otis and Agnes. Sorry, to any current day Otis's and Agnes's.
Let's say that Otis and Agnes saved a thousand dollars under [00:07:00] the mattress. Their plan was for this money to go to their like great, great grandbabies. It was their financial savings plan. Okay, so a thousand dollars in 1920 is equivalent to the purchasing power of about $15,000 in today. This means that today's prices are 15 times as high as the average prices were in 1920.
A dollar today only buys about 6% of what it could buy back then. For example, a movie ticket in 1920 was 15 cents. A haircut was $5. So if Agnes thought that she was giving her great grandbabies a lot of money, the equivalent of $15,000 in today's money, she was actually not really giving her grandbabies very much, because a thousand dollars today wouldn't buy very much.
That's inflation.
If you just sit on your money and you don't invest it, you don't get any [00:08:00] returns on it, then the value of it shrinks because inflation keeps making things more and more expensive. So as I said in episode one, you need your money to be working for you just to keep up with this inflation.
The last thing I want to talk about is the secret to success in personal finance, and this secret is spend less than you make. All of personal finance boils down to one essential maxim. I'm going to summarize hundreds of pages of personal finance books for you right in this moment. Are you ready? If you are not happy with your current financial situation, you have two options.You must make more money or spend less, make more, or spend less. That's it. Those are the only two options.
All you have to decide now is what feels right to you in this moment. Where you are on that spectrum depends on where you are in [00:09:00] your life. But there is nothing wrong with either side, and for most people it's a hybrid where they're doing some budgeting and cutting back in some areas and really hustling and working more in other areas.
The whole idea behind "get more or spend less" is simply that if your financial situation isn't what you want it to be, then either more money needs to flow in or less needs to flow out. How this happens in your life is unique to your life situation. For some reason, it's always the simplest things that are the hardest, like eat healthy and exercise or be yourself.
They sound so simple, but they can be surprisingly hard to execute. However, in the world of finance, we have each other now and we are going to work through this together. So now you are up to date on what I consider my personal finance ground rules. I'll see you in the next episode.[00:10:00]