VENTEUR spoke with Ari Parker, a Medicare expert, about how to master our personal finances. Parker works with financial advisors, including Mercer Advisors, Sovereign Financial Group, and Wealthspire Advisors. He is the author of the best-selling Medicare book, "It's Not That Complicated." Ari is a Stanford-trained attorney who leads the Chapter's team of 40+ licensed Medicare advisors.
Financial literacy is the knowledge that every person and every household needs to achieve financial freedom. Unfortunately, we live under constant pressure to spend more and make more impulsive purchases: we're often given a chance to borrow money with minimal effort–from leasing a pickup to paying for a cruise in installments–which makes it easy to spend money we don't have.Â
The biggest obstacle to financial literacy is the illusion of affordability: monthly payments distract consumers from the price they're paying for a good or service over time and their actual value. The secret to becoming financially literate is to focus on value instead of price.
This is very obvious in my field of work: I advise consumers on what Medicare insurance policy to purchase.Â
The insurance industry's strategy is to get beneficiaries to focus on the supposed affordability of Medicare Advantage plans (which often have $0 monthly premiums and an array of perks). Insurers hope buyers will focus on something other than the limitations of provider networks and coverage that many of these Advantage plans have. I use my 3 Ps method to shift my clients' attention from affordability to value. By focusing on the overall value of coverage instead of just the "sticker price" of a plan's monthly premium, my clients can make an informed choice and access the highest quality healthcare they can genuinely afford.
I generally tell people to focus on realization instead of rationalization: the realization that you can control your finances over the rationalizations you make to justify unnecessary purchases.
Confidence comes from control, and control in personal finance is the ability to defer gratification. If you can resist the impulse to buy something as soon as you want it, over time, you will feel like you can control your finances. Unfortunately, we lie to ourselves a lot in life: we tell ourselves that we had to buy a dress because it was on sale, or that we needed a pickup truck (to commute to the office), or that we could afford a fancy dinner because of the rewards we got from our credit card. Rationalizations like these are the most commonly told lies in the world.
Learn how to defer the gratification of making a purchase, how to stop lying to yourself about the affordability of your choices, and how to wait: a lot of confidence comes from the realization that you can wait before gratifying your impulse to buy something.
Start by paying total credit cards monthly and never buying anything in installments. A mortgage is OK, but you should avoid borrowing money for anything else. If you can do that, you will be well underway in your journey from rationalization to realization!
Learn how to cook (then do it). I see a lot of people spend way too much money on meals. Cook a meal for your family and pay yourself (by depositing it into your savings account) the difference between what you spent on groceries and what it would have cost you to dine out or order the same meal for delivery. You will quickly notice just how big of a dent food used to put in your budget.
Learn how to shop for groceries: supermarkets love it when you buy prepared foods, as the markups are pretty significant. For example, you can buy a whole pineapple for less than $3 and slice it yourself instead of purchasing the new, pre-sliced version for $7.Â
Uninstall Doordash, Uber Eats, and all the other meal delivery services. Not only are the delivery charges high: the notifications you receive all the time prompt you to order for delivery much more frequently than you otherwise would (and should).
Most consumers should look for a checking account with no monthly maintenance fees. Many banks offer ways to waive monthly maintenance fees–usually by enforcing a minimum average balance before the fees kick in–but it might be worth looking for checking products without maintenance fees in the first place. In addition, very high net-worth individuals can consider premium checking accounts and personal banking options.
All consumers should also keep an emergency fund (as close to nine months' worth of household expenses) in a savings account. While opening a savings account at the same bank where the checking version is accessible, it makes sense to shop around for an FDIC-insured, high-yield savings account. As I write this, two of the largest banks in the country only offer a 0.01% APY on savings accounts, while some smaller FDIC member institutions offer APYs in the 2.50-2.75% range. Just like you would shop around for the lowest rate when borrowing money from a bank, you should seek the highest APY when you lend money to a bank by depositing it in a savings account.
In 2021 only 43% of US households paid income taxes: almost six in ten did not. 401k plans can be effective tax deferral strategies for households with a sufficiently high income. However, for lower-income households with sufficient deductions to avoid paying income tax, depositing money in a 401k doesn't provide any actual advantages: it has the disadvantage of making it harder to withdraw the investment in an emergency.
Remember that most personal investing mistakes are fallouts from greed. Wanting something for nothing is the fastest way to get nothing for something. There are no quick and risk-free ways to make money: the more immediate and higher the return, the greater the risk. Building wealth is a marathon: saving money every year over many years and investing it along the way in mainstream markets (mutual funds or exchange-traded funds) is the best way to guarantee a happy ending.
High-yield savings accounts are the most straightforward option because they are FDIC-insured. That said, cash is very vulnerable to inflation, so only an emergency fund (6 to 12 months of expenses) should be kept in cash. Any extra money should be invested or used to pay a mortgage faster.
Insurance needs depend on the particular stage of life people are in. A frequently overlooked type of insurance is umbrella coverage, which protects beyond the limits and coverages of other policies. For example, consider how many car insurance policies have relatively low liability limits: a $250,000 limit for bodily injury or death caused to a third party is modest in case of a lawsuit. So it's a good idea to supplement car insurance with an umbrella policy that can extend coverage well beyond the $250,000 limit.
Breadwinners in every household should protect their families with term life insurance. These policies are relatively affordable and essential to ensure that unforeseeable health issues or accidents won't leave children without the financial resources needed to survive.
Once children are grown up and independent, parents approaching retirement should make prudent choices regarding Medicare insurance. There are Three Medicare decisions that Americans need to make to protect their health and money after age 65: when to enroll in Original Medicare, how to cover the 20% share of healthcare costs that Original Medicare does not cover, and how to keep Medicare working for you. I've written about all these decisions in my book, “It's Not That Complicated."
