MP spoke with Laura Adams, an authority on finance, insurance, and small business, about personal finance. As an award-winning author, spokesperson, and host of the “Money Girl” podcast since 2008, many readers, listeners, and loyal fans benefit from her practical advice.
Adams is a trusted national media source who frequently seeks her practical advice on various finance topics for TV, radio, online articles, and print publications. Her mission is to empower consumers to live healthy and prosperous lives by making the most of what they have, planning for the future, and making smart money daily decisions. She received an MBA from the University of Florida and lives in Vero Beach, Florida.
Personal Finance (Generally)
What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?
Financial literacy is knowledge of various money management skills, such as budgeting, saving, investing, and using credit.
Being financially literate also means that you’re familiar with the jargon, such as APR (annual percentage rate), ARM (adjustable-rate mortgage), amortization, CD (certificate of deposit), and capital gains.
How can we manage our money more confidently, and what would this look like in practice?
Being a confident money manager means being proactive about setting goals (such as retirement or buying a home), monitoring your progress, and making adjustments to achieve them.
While you don’t have to know the answer to every question, confident people aren’t afraid to ask for help from professionals, such as tax accountants or financial planners.
How does our health affect our wealth, and what can we do to ensure we’re on track to a prosperous future?
Without good health, no one can fully enjoy their wealth–therefore, they’re both critical for wellness.
So, it’s essential to invest in yourself, whether buying healthy food or taking time away from work to exercise.
Being as healthy as possible also helps save money by reducing doctor visits and prescription drugs.
Budgeting and Saving
What three out-of-the-box strategies can you share to help us improve our personal budgeting, and why these three?
The three best strategies for better budgeting are categorizing transactions, cutting expenses, and prioritizing savings.
1. Categorizing Transactions
You might manually track your income and expenses using a spreadsheet or a financial program such as Mint, Freshbooks, or Quicken.
Once you label each transaction with an appropriate category, you can create reports and see totals over different periods.
2. Cut Expenses
The second strategy is to cut expenses where possible so you can use your financial resources to build wealth and eliminate debt as quickly as possible.
For example, you might cancel unused services and shop for cheaper auto insurance.
3. Prioritize Savings
Once you have a system in place for monitoring your cash flow, set an emergency savings goal, such as maintaining three months’ worth of your living expenses.
Also, begin or increase retirement account contributions, such as to an IRA (individual retirement account) or a workplace retirement plan, such as a 401(k) or 403(b).
Make a goal to invest at least 10% of your annual income for retirement.
What strategies should we use to save more, and why might these be the most effective?
The best way to save more is to automate recurring transactions, such as having a portion of each paycheck deposited into your savings account.
You might enroll in a workplace retirement plan that automatically invests a percentage of each paycheck.
Or you could create a recurring deposit from your checking account into an IRA or retirement account for the self-employed, such as a solo 401(k) or SEP-IRA.
What should we look for in a bank account, how might this change based on our financial situation, and why?
Finding the best bank account depends on how much you intend to deposit and the services you need, such as local branches, mobile banking, and remote deposits.
Look for an account that charges no monthly service fees and pays interest on checking and savings balances.
If you have a high savings balance, look for an institution that offers higher interest on a money market deposit account so you can earn more.
What steps should we take to reduce our current debts, and why?
The first step to creating a debt payoff plan is listing each debt balance, interest rate, and institution so you can prioritize them.
A wise strategy is tackling debt from the highest to lowest interest rate to save the most interest expense.
In addition, consider ways to cut the cost of debt by refinancing your mortgage, auto loan, and private student loans for a lower interest rate or better terms to reduce your monthly payment.
If you purchase a car, shop specialty lenders, such as Tenet, which makes owning an electric vehicle more affordable.
What are three commonly made debt reduction mistakes, and how can these mistakes be avoided?
A common mistake is paying extra toward a low-rate debt, such as a mortgage or student loan, before a high-rate credit card.
You should generally pay off consumer debt, such as credit cards and personal loans, before other balances with tax-deductible interest (such as mortgages and student loans).
What three out-of-the-box tips can you share to help us better approach personal investing, and why these three?
1. Save Sooner Than Later
It’s better to start investing earlier rather than later, even if you only have a small amount to set aside.
That allows you to benefit from compounding interest and accumulate more wealth.
2. Never Try To Beat the Market by Picking Individual Stocks
Instead, be diversified by owning many securities under the umbrella of a fund, such as a mutual fund or exchange-traded fund.
They may have hundreds or thousands of underlying securities, allowing you to avoid risk.
3. Use Tax-Advantaged Retirement Accounts
Use tax-advantaged retirement accounts, such as an IRA, workplace 401(k), or SEP-IRA for the self-employed. They allow you to cut your taxes and save more for the future, a win-win!
What are smart places to park cash, and why?
The cash you keep for an emergency fund should always be in an FDIC-insured savings account. That way, it’s liquid and can never lose value.
Should investments into VC funds be included in one’s portfolio? If yes, why? If not, why not?
If you want to make alternative investments, such as VC funds, gold, or cryptocurrency, it’s wise to limit them to a small percentage of your portfolio, such as no more than 3% to 5%.
What tax complications can entrepreneurship present, and how can entrepreneurs protect themselves from the beginning?
Many new entrepreneurs may not understand how business income gets taxed or which deductions they’re entitled to.
Always seek guidance from a qualified tax accountant who can help you stay compliant, use tax-advantaged accounts, and reduce your tax liability.
What types of insurance should we consider being covered by, and why?
The types of insurance you should have depends on your family, assets, and any business needs. Everyone should have health insurance; most people also need disability and life coverage.
If you own a vehicle, you’re required to have auto insurance. For homeowners with a mortgage, you typically must purchase home insurance.
While renters may not be required to buy insurance, a renters policy is inexpensive coverage that every renter should have.
If you own a business, evaluate your potential risks and get insurance based on the products and services you provide, the potential liability of having employees, and the data you store for customers.
Always consult a qualified business insurance broker about the best coverage for your venture.
Questions based in part on topics and comments provided by:
- Jen Hemphill, Accredited Financial Counselor at Association for Financial Counseling and Planning Education (AFCPE®)
- Herman Thompson, Jr., CFP®, ChFC®, Certified Financial Planner® at Innovative Financial Group
- Leslie H. Tayne, Esq, Financial Attorney and Founder/Managing Director at Tayne Law Group
- Linda Hamilton, Executive Vice President and Chief Operating Officer at Iroquois Federal
- Ann-Marie Anderson, Financial Advisor at PHP Agency
- Paul Dilda, Head of Retail Strategy, Products and Segments at BMO Harris Bank at BMO Financial Group
- Matthew Benson, CFP® Owner and Certified Financial Planner™ at Sonmore Financial
- Josh Richner, Outreach and Marketing Coordinator at National Legal Center
- Ken Tumi, Founder at DepositAccounts.com and expert at LendingTree
- Martin A. Federici, Jr., Chief Executive Officer at MF Advisers, Inc.
- Ba Minuzzi, Founder and Chief Executive Officer at UMANA