A Fresh Look at Money

Tom Finn:

Welcome, welcome, welcome to the Talent Empowerment Podcast. We're here to help you love your job. We unpack the tools and tactics of successful humans to guide you towards your own career empowerment. I am your host today, Tom Finn. And on the show we have my friend, Andy Hoffman. Andy, welcome to the show.

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Andy Hoffman:

Tom, it is an absolute pleasure to be here. I'm so excited to nerd out with you and your audience today.

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Tom Finn:

Well, let us nerd out my friend, but before we nerd out, we're gonna have to understand what it is you do around here. So let me give you a little background on Andy. Earlier in his career, he joined the US Coast Guard at about age 21. Now, he got a small bonus that of course slipped right through the financial cracks. And at that point, he knew he needed to get a handle on managing his money. So he went to the bookstore and bought a copy of Rich Dad, Poor Dad. That's a pro move, my friend. And that book sent Andy down the rabbit hole, lighting an insatiable fire in him to learn everything he could about money. So if you're thinking today's show is gonna be about money, you are right on the nose. Andy did some work in corporate America as well, but at one point he ditched his comfy, C-suite job in financial services to help people master their finances effortlessly without budgeting, which is gonna help me today. His goal is to help non-money nerds go from zero to hero with money. So all things money my friend How do you think about money?

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Andy Hoffman:

Phenomenal question that we could take. 100 different ways could be a four-hour show just with that alone, but I think the easiest and simplest way to start that is just by noting that money is a tool. It can be a terrible master, but a great tool. And so I think if people can view it through that lens to start, how do we use this tool to our advantage? How do we optimize this tool for our betterment and not let it overtake us? And I think so many people in the world we live in... have the deck stacked against them when it comes to money. We're all trying to get ahead and we're always battling this thing called lifestyle creep. We're blasted with 5,000 marketing messages every single day. And we don't have enough ammunition at our disposal, in my opinion, to mitigate those risks that we face from an ad standpoint, from keeping up with our colleagues and maybe their suit attire or the car that they drive up to the office in, knowing that... The stats say otherwise. The stats say 69% of Americans have $1,000 saved. And so happy to unpack why some of those things are the case and kind of what people can do against it. So I think that's probably where I'd like to start.

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Tom Finn:

Yeah, let's go right into this term that you just put on the table, lifestyle creep. What does lifestyle creep look and feel like to us as consumers?

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Andy Hoffman:

Yeah, I think for me Parkinson's Law is a great way to set the table for that. Parkinson's Law states that work expands to fill the time allowed. So we've all had a school project that we're given like, you know, maybe it's the senior project that's going to take all year and you just dread it for the entire year. And then you, you know, crunch into a very small window of time and get it in. Right. So if we have two weeks to do a job, it's going to take two weeks. If we give ourselves a week, we'll figure it out and get it done. And so the same is true with money in the sense that money, you have to have constraints on money. So if you've ever gotten a big bonus, a big payday, you've gotten a raise, and then all of a sudden, you're like, where did that extra income go? That is Parkinson's law at play. And so we have to have, James Clear in the book Atomic Habit says, we don't rise to the level of our goals, we fall to the level of our systems. And I think most people in America today, do not have a system that is working for them as it relates to their money and making it easy. Instead, they have to claw every dollar away from the real marketing machine of America and just our own kind of neuroses as it relates to trying to buy our happiness through the next latest and greatest piece of technology or the car that is really saddling us with potentially unnecessary debt for a stranger to think we're cool at the stoplight.

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Tom Finn:

That was a lot of information. I'm gonna try to unpack that to the best of my ability. All right, let's see if I captured some of this. So in terms of the law, do you feel like we tend to just spend what we have available to us? Is that what you mean in terms of the financial modeling?

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Andy Hoffman:

100%. And we, yeah, absolutely. Like we, most of us are going to, and we, maybe our grandparents' generation was different and that they had these kind of ingrained habits maybe generationally prior to us to save and put away money. And now the things have changed so dramatically with the rise of credit cards and again, the marketing machine that I keep referring to. And again, like, you know, I market to other people to have them buy my services. So I'm not anti-marketing, but I do think that We need to do what we can to stack the deck in our favor as it relates to those things.

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Tom Finn:

Yeah, so let's go into this thing you called systems. You fall to the level of your systems. We default to the level of systems is really what you were saying. How do we create financial systems for ourselves, right? Not for corporate America, not for global enterprise, but for us regular old humans with families and lifestyles and bills and all that kind of stuff.

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Andy Hoffman:

Yeah, man, I love this. So I think just to paint the picture briefly, that I think most people when they Google, how do I get better with my money? Step one is create a budget. And I loathe that step. I think for most people it turns into this monster of what is the perfect budgeting solution. And if you're a perfectionist like me, you just spin your wheels and you try to find the perfect solution. And then you typically have to recreate that every time you get paid and like update a spreadsheet or use like a Dave Ramsey, every dollar app. and then it's not working for whatever reason, or I didn't think about this other item that I needed to budget for and now it all falls apart. Now I feel really guilty and shame spirals ensues. I better never budget again, right? And I think that's what happens to a lot of people. And so when I think of systems thinking as it relates to personal finance, we know that there are certain things that we need to spend money on every single week. Groceries, we probably wanna go out to eat at some point. We have toiletry, household items, and then maybe some family entertainment for those of us with young ones at home. And so if we can figure out a budget for those items, set that to a weekly budget. And here's why weekly makes sense, because Tom, if I say you're going to have a great year this year income wise, but we're going to pay it all to you on January 1st. Is that a good thing or a bad thing for you? Do you think?

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Tom Finn:

Likely a bad thing because I'm going to spend it ahead of the months that I need the cash flow. So when I get to the middle of the year, it's probably gone.

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Andy Hoffman:

Right, right, if we're lucky, if we're lucky. And I found that out, you know, as I was trying to incorporate this system for myself, I remember getting paid every other week in corporate America, let alone the commissions and the bonus structures and all that stuff that made it a lot harder to manage. But even just the bi-weekly versus weekly, when people go to a weekly model, I think it's much more sustainable and we can automate that process. It doesn't take a fancy app or anything, but just a bank to bank transfer. And so I recommend step one for all my clients is opening up a new account at a different institution from where you pay your bills. I like Ally Bank. They seem to do a good job, no sponsorship or anything, but they've done, they've made it work for my clients. And so we just set up a weekly transfer. We have a joint checking account for husband and wife to use that money to go buy the groceries and then really anything else that comes up is typically what actually happens, but really we're mentally earmarking it for groceries, going out to eat the household, toiletry stuff, all that stuff. And it refills every week. then we become accustomed to this habit. So we're kind of like locking in our lifestyle so that over time as income increases over time that we can set that up to be defaulted towards saving and investing with no additional discipline or effort required of us.

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Tom Finn:

Okay, so in this ally account in the example, and there's other online banks that could be utilized. So in this ally bank account that's online, we take a portion of our paychecks, we throw it in there so that weekly we have a budget. And so we both get, you know, partners get a debit card, and we look at that one account, we don't look at our bigger accounts, we look at just that one account. and say, hey, you want to go out to dinner? We've got $247 left in that account. It's Thursday, we refresh on Friday, you want to go blow the 247.

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Andy Hoffman:

100%. Yeah.

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Tom Finn:

Okay?

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Andy Hoffman:

Guilt free.

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Tom Finn:

And then Friday, the next, whatever the number is, I'm just gonna say 500 bucks, 500 bucks comes in and we're good to get back on Amazon and stack up all those boxes on the front door, which we all love to do.

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Andy Hoffman:

Theoretically, theoretically, and there's no shame in that in the sense that we need this kind of release valve and that's what this account acts as. We have all this discipline going on in our life. Think about the 80-20 rule. I know 99% of the people here listening have heard of the 80-20 rule that 20% of our bounty comes from 80% of the effort, whether you're in sales or running a business or growing crops even. That's where the Pareto's law came from. Because if we think about that in the same way with our money, we want to have, hey, we want to... do the heavy lifting, we want to check the box, we want to put money in the retirement accounts and save and invest, but also we need money that we can spend freely and not feel guilty about. And I think when we go with that budget model, oftentimes it leads to a sense of guilt and dread, and even to the point where I was looking for the perfect budgeting solution for so long that I would get chest pains literally thinking about this and like, I'm going to make this budget and it's going to look great on paper, and then when I try to live it out in real life, something's going to fall through the cracks and I'm going to feel like an utter failure. And so just by automating this process, that's a great step one for most people because it really takes the pressure off and you can find the number. To your point, you use 500 as an example. Great example for families. It can go all over the place. And I would say most people when they begin to implement this, I would say just start at a higher number than you think is necessary. Like look through the last 90 days of your transaction history if you want, add up groceries and the household stuff. Get a rough idea if you want. Don't spend any more than 20 minutes doing that. and then start with a number. Maybe it's $500. And then after a week two, you'll say, you know, maybe 525 is really the number we need or 475. And just go in 25 or $50 increments until you find the sweet spot to where you've got enough to do the things you want to do. But there is money left over to do the other things that we need to do as well, because also we want to probably save for a vacation or, you know, put some money away so that when the flat tire happens, we're not, you know, it's more of an inconvenience than like, Oh crap, how are we going to pay for this? And so, we're kind of like rewiring our behavior to be less dependent on a credit card to solve all of our problems in a way that is hopefully more guilt free.

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Tom Finn:

So I think most families have this conversation at some point. And they have the budgeting conversation internally. We try to figure out what amount of money needs to go to car payments, rent or mortgage, kids school, kids activities, like you said, vacations, and then the home goods, as well as eating in and eating out. How do we actually have that conversation with our partners, right? Our spouse, our partners, how do you do that without? feeling or making them feel like you're coming down on them. This is a big thing in relationships.

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Andy Hoffman:

I think it's about bringing both parties to the table and just having an open conversation about what is important to us. When we can align our spending and our money with our values and our intentions, I think that's really important, helpful, and empowering. Ideally, we get to a place where we're having this discussion about what are the priorities as it relates to our money above and beyond the normal bills. How often do we want to eat out? It could be an easy example of a question. how important is it to us to eat at home? How much money are we gonna save by eating at home versus eating out? What kind of a car do we wanna drive? I mean, there's a million questions that you and your spouse can have to determine what is important to you about money. And then I mentioned that kind of joint account that we have, but just the quick side note is that my wife and I also have our individual spending accounts. And I think that's where it brings a lot of relief to the conversation because so many people have. These things like I'm a great example in the sense that like I'm actually a spender, if you can believe it, and I love even before that we started recording today, I went and had a double chicken Chipotle bowl and I use like a spending account of mine to pay for that because my wife could care less. She will like rummage the fridge and find whatever she needs and I am like convenience and I want a healthy macro based meal so that I can feel great when I work. She could care less about that. And so she will scroll away all of her money and then go. come home with a new outfit and I'm like, where'd you get all this money from? And she just naturally more of a saver than I am and so she scrolls hers away, but we have that autonomy between ourselves. We're trying to manage the household and manage the kids and all the things that we're supposed to be doing, but having not only the joint spending account that pays for like the day-to-day necessities of life as a family, having those individual accounts, I think relieves some additional pressure in that we can go spend the money guilt-free on ourselves. and not feel bad about that. I think that is helpful to bring those conversations to the forefront. So my wife and I, as an example, we have the same amount that comes in each and every week, but a recent client of mine, you know, his wife really loves the time to like go get her nails done. And so she had a little bit extra in her spinning account. He's like, I could care less. I mean, obviously maybe getting his nails done is not a top priority for him, but he was like, I just want money to like buy a cigar, maybe every other week and just sit out. throw the ball to the dogs and I'm just going to puff on my cigar for like an hour and just have that kind of me time. And so I think it's helpful to have these conversations and find out like what do you really want and it might cost less money than you think, might be a lot more sustainable, might be a lot more easy to implement than you even realize.

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Tom Finn:

Yeah, I love that idea. Sit out in the backyard, throw the ball with the dog. That sounds less expensive than a lot of other alternatives for sure.

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Andy Hoffman:

My man.

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Tom Finn:

So when we think about this, it's really a weekly budget. It's managing independent accounts. It's managing that joint account that pays all of the bills. You made it sound super easy. What are the what are the hiccups? Where do people stub their toe?

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Andy Hoffman:

Yeah, thanks. I think with automation as a rule, you have to have, I would say, be cashflow positive or make sure that you're not living on a credit card paycheck to paycheck. As long as you're cashflow positive, then we can begin to implement some of these things. For a lot of people, that just might mean cutting out some frivolous spending or reining in some things, maybe slashing some items and go through your bank statement to see what are the things that I'm currently paying for that I do not value. Sometimes we sign up for a promotional offer for a service or a subscription offer, whether it's Hulu or Netflix or one of these, and if we can shave some of those costs down, it makes it that much easier to begin to implement. And when we do implement something like this, when we do find the savings, then we can actually recapture it. Because I'm a big believer of the fact that you're not saving money unless you're actually saving money. Meaning, you've got to take money out of your checking account and put it into a savings account or an investment account. Otherwise you're not. saving money. Like a sale doesn't save you money, if that makes any sense. You're still spending it, and when we talk about Parkinson's Law previously, it's going to get spent unless we tell it where to go. But by implementing the spending account and earmarking those dollars to be spent, the money that's left over in our checking account that pays our bills, we can then transfer that out to a savings account and begin to actually put the money to the family vacation, or the thing that we want to buy.

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Tom Finn:

Saving money doesn't actually save you money is one of my favorite lines of all time and you just hit the nail on the head. I love it when people say, oh my gosh, I just saved 50% on this sale and I got these great new clothes, I'm gonna look awesome. And that's fine, there's nothing wrong with that. The problem is don't come and tell me that your $700 credit card line item didn't cost you $700, it sure did. and you owe it to your Visa company or your A-Max or whoever you use. And just because it wasn't 1400 doesn't mean you didn't spend 700.

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Andy Hoffman:

Could not agree more. And I think that goes back to what we talked about, just the marketing messages. And like we have to, it is on us as individuals to get a certain baseline knowledge as it comes to personal finance. I can completely understand how this is not everyone's favorite topic. But if we can get, you know, people use this term minimum effective dose, right? If you, if it takes 212 degrees to boil water, anything above 212 degrees is just wasted energy. Right. And so I'm not here saying anyone should be a PhD in personal finance. to get ahead with their money. Quite the contrary, I'm saying people need to just have a basic understanding of some of these concepts. And like we said, if it's not saving money, is a great example because I think we've been, we hear these messages all the time, like, oh, think of all the money you're saving by going to the mall. Like, what? You know, that's not gonna, not only is that going to drain your bank account, but if we're chasing that high of that, what's the term? It's like shopping, retail therapy, right? You know, it's almost like a bad joke. this retail therapy doesn't actually bring us happiness, you get the new outfit. And again, I love a new outfit. I mean, who doesn't love a new outfit, right? I want to look good. But beyond that, there's just diminishing returns on these purchases and they will lose their shine very quickly. And those don't typically add to lasting happiness for us, unfortunately.

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Tom Finn:

Yeah, one of the things that I always feel we spend a lot of money on annually that we, uh, I feel like we could cut out cause it doesn't hit my value system is the summer fair. I don't know if where you are, you have the big fair that rolls into town and you've got four weeks and there's the rides and the carnies and the games and the snacks and like, I don't know if you have that where you are, but we have that out here in Southern California and the Orange County fair rolls into town. and every kid on the planet wants to be there. And literally the place is just packed. And they get you because the tickets are something like $15, which seems fair and appropriate. But then you get in there and the rides are an absolute fortune, right? You're paying, I don't know, $72 for a hot dog. The hot dog's the size of your arm because they want everybody in America to be morbidly obese. But... I end up spending hundreds and hundreds and hundreds of dollars because I have four kids and We go to this thing. I'm sweating, you know, I'm just I'm drenched I'm standing in lines and I'm spending a fortune and this year Andy this year We're not going and I feel Fantastic about it. We're gonna save probably close to $500 and We could do anything with that money And it's going to be fantastic. I feel absolutely wonderful about it.

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Andy Hoffman:

I love it and I feel like you could just write yourself a $500 check and throw that in the family vacation fund.

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Tom Finn:

Yeah?

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Andy Hoffman:

And see the next road trip or who knows? I mean Southern California, do you need a vacation? I don't know.

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Tom Finn:

Yeah, of course, we all need vacations. We just don't have to live in humidity. That's the difference between most of the rest of the country and what we do in Southern California. But let's get back to finance. So you mentioned something that I thought was really interesting. You said we don't have to be experts. So why is this basic fundamental financial knowledge not taught in schools?

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Andy Hoffman:

Whoa, that might be a whole nother show. I mean, we're talking like, we're gonna get down the conspiracy theory rabbit hole if we get too deep in this. I think Seth Godin, you've probably heard of him, marketing whiz of our time, worked, chief marketing officer for Yahoo in their heyday. And so he did a phenomenal TED talk that I would absolutely recommend anyone watch called Stop Stealing Dreams, probably 15 years ago. When he talked about how, and I'll touch on this very lightly, but the industrialization of our country, we had a lot of these tycoons that basically said, Seth Godin's words, not mine, that we want to kind of draw people away off the family farm into these factories that may or may not have the best working conditions. And so we'll use school as a way to get them to kind of be orderly and think in line and compliant with our desire to have these factory workers. And so I think you can make a compelling case that a lot of that is still the same way today. And that... You know, we're not our school systems are not pumping out entrepreneurs and thought leaders. They're oftentimes pumping out people that are very compliant and maybe afraid to take a risk. I would say, and I want to be very gentle on how I say that. I'm certainly a product of the school system myself. I did not finish my undergrad for what that's worth to add that to my, you know, lack of credential, if you will, but It is frustrating to at the end of the day. It is very frustrating to me that is not a subject that is taught in schools and so That's something very near and dear to my heart. And I think about, you know, what does that look like to give people the tools they need? I'd love to just share a resource that I use and recommend to my clients. There's no affiliate link buried in this or anything like that, but there's a tool that I found very helpful. It's called Greenlight. Greenlight.com is the URL. And it's basically like a one-stop shop, kind of like that you can basically automate this process, which you know I love, where you give your kids an allowance. You can tie chores to it within the app, but basically you can set it up to automatically um... dump divvy the money up so here's how we do it so my nine-year-old we give him nine dollars a week as an allowance and then he without he has no idea i mean he knows this is happening but like he doesn't have control over this process but basically someone who goes into a giving bucket and in a spinning bucket that's attached to a debit card uh... that he has uh... and then there's a savings bucket and then the investment bucket which i love that and so i'm of the ad again going back to kind of the individual responsibility I think it's on us as parents, despite the fact we can't control today, tomorrow, immediately we can't control the school system and the lack of personal finance curriculum, but what we can do is educate ourselves and there's certainly a sea of information available to us for free at our fingertips, but just employing these basic things. So what I love about this, and again I don't mean to lie, this is not a commercial for their company, but they do have some kind of gamified knowledge base. baked into the process. And so my nine-year-old came to me and did one of the modules, and he learned about opportunity cost, which is a beautiful thing for people to understand that, like, hey, if I spend all my money on ice cream, I can't go spend it on the video game that I really want. And so just learning about these trade-offs, I think, is important for people at a very early age to begin to adopt. So I don't know if I even answered your question about the school system, but it's certainly maddening to me. I wish that was taught. But then maybe I'd be out of work, I don't know.

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Tom Finn:

I don't think you'd be out of work. My take on the US school system is a simple one, that we have gotten so ingrained in traditional coursework, history, English, mathematics, language arts, whatever it might be, that the skills that we actually need to be successful have just changed, but school hasn't.

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Andy Hoffman:

Yes.

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Tom Finn:

So personal finance wasn't necessarily a thing. There weren't 7,000 different credit cards 40 years ago, right? Personal budgeting was different, mortgages were different, the cost of goods was completely different, the home life was different, the way home was built. So everything was different and school's still the same. We're still teaching the same old, same old from sort of the industrial revolution, which is where you were going. I completely agree with you. The simple fix.

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Andy Hoffman:

and I with you.

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Tom Finn:

Yeah, I think the simple fix is just. that we teach kids about money. It doesn't take, you don't have to have a PhD in advanced mathematics to be able to teach a high school junior what interest rates are and what credit cards are and how to divide your income into what you did, Andy, which was four quadrants. Your answer there was savings, investment, spending and giving. So that's sort of a four quadrant model that you can use with your kids. Hey, a 15, 16, 17 year old, we'll get that pretty quickly. You don't have to have a PhD in advanced mathematics to figure it out.

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Andy Hoffman:

100%. And I think too, granted I'm very biased towards the automation component of all this, but I think using a tool like that builds in that automation from the beginning, and especially the investing component, which I'm a huge advocate for because I think one of the big misnumbers is that if we just put money in a savings account, then that's all we need to do. Or at least I think people just overweight the importance of a savings account in the sense that my opinion is that anything... above and beyond maybe three to six months of emergency fund should be invested. And here's why. Because even the highest high yield savings account today is still going to be paying less than inflation. And so it is impossible to get ahead by putting money in a savings account, period, full stop. People have to invest. We are not in our parents' generation where everyone had a pension or like the dominant amount of the population had a pension. Those days are long gone. And so people have to know that the onus is on them. And there's a beautiful part of that, the freedom that comes with that, I think, can help people rise to the occasion and truly build a life that they didn't think was possible when you have people like Mr. Money Mustache retiring at age 30 and spawning this group called the FIRE community, if people want to Google it, which stands for financial independence retire early. There's pros and cons of both of these options because it's an extreme end of the personal finance spectrum where people try to get a high paying job right out of college and then their goal is literally... to invest 70% of their income with the intention that they will be able to retire in like nine years. And so while I love that, I love the chase of freedom. And again, using money as a tool, I think some of the downside risk is that by putting your life on hold for a decade in some ways, is it really worth the price? To then rediscover yourself 10 years later to find out what you truly enjoy. And again, I'm... painting a very broad brush here, but I think for most people, if they can catch some of these concepts early on, teach them to their children, get their children investing very, very early on, then letting that compound interest really do the heavy lifting for them over time, then they will be immeasurably better off.

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Tom Finn:

Yeah, well said. I think everybody's trying to figure out how to get ahead financially. And that's why we see a lot of gurus and classes and courses and online everything to teach you how to be that next millionaire. There's a big watch out here, though. Most of those folks are not making a lot of money. They're just trying to pretend to teach you how to do it yourself because they haven't been able to do it. I think money is much more complex than people actually give. credit to it. I want to go back to one thing you said. You talked about savings, interest rate, and you talked about inflation. So just give me an example for our 101 folks of savings interest rate versus inflation and why that doesn't actually work.

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Andy Hoffman:

Absolutely. So inflation from a very basic understanding is that our money is losing value at a certain percentage Every year on average historically. It's about 3% And then right now I think the latest numbers are right around 6% still so you might feel like you're doing an amazing job By finding a savings account with a 4 5 percent savings rate currently But again 6 minus 5 is still negative. You know, we're still losing, you know, we've got a 1% gap And so I think that for people that are listening to this and might feel like it's really hard to get ahead, this is one of the reasons. We could have a longer conversation about the origin of inflation, all of that kind of stuff, but that's maybe a conversation for another day. But the reality is we have to outpace inflation if we wanna get ahead, period. And so that's why I say investing is mandatory. And so people thankfully have options available to them. that maybe weren't available to our parents' generation. So like the 401k came out, I wanna say 1979, and so that can sound really murky and confusing to people, but the reality is if you just sign up for it when you start your job and get that company match, obviously people love the concept of free money, but there is a setting that I think most people can take away from this conversation with a very tactical takeaway, which is there's an auto increase function in almost every single 401k in existence. where if you're saving 6% to get a 3% match, hey, pat yourself on the back, that's awesome. But if you can continue to increase the contribution, your savings rate over time, that's really how we continue to get ahead financially. And so as an example, you can click a button inside your 401k provider software and say, hey, maybe doing 6% now, next year let's do seven, next year let's do eight. And that's a very painless way to do the hard work of putting the money away instead of spending it all. And so... If people can just adopt this mindset of like, what are the most frictionless ways that I can get ahead with money and feel the least amount of pain possible. If you can adopt that mindset, I think you can do really well.

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Tom Finn:

So let's talk about 401k. So 401k is a retirement solution intended to replace, at some level, the pensions, because pensions became too expensive for businesses to continue to offer to employees as our population grew. That's essentially what happened. And for those of you that don't know what a pension is, that's when you retired and they kept paying you until you died. That's basically a pension. OK? So it sounds pretty cool. There are still some jobs out there that have it. Some government jobs, many union jobs, labor union jobs at high levels. Certainly police, fire, those type of roles in most cities and states have some sort of pension due to the difficulty and nature of the job. They make, the trade off though, right, Andy, is that the traditional pension, you made less. in your role during your career, but you made it for a much longer period of time and you were able to retire on basically the same amount of money, but not have to go to work. Am I getting that right?

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Andy Hoffman:

100% spot on.

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Tom Finn:

Okay, so if we say that that's likely not available to my friends that are under 50 at this point, or if you're a fireman or police officer, or you're in a trade, so the rest of us have to figure out how to retire. That's what this 401k thing is. So we put all this money away, right, in this 7, 8, 9, 10 percent, whatever you can afford in your budget. It goes into some account that you never look at. You select the first time whatever you want your mix of investments to be and you never look at it again Until you leave your job and then you look at it and go oh, there's 30 grand in there or oh, there's 15 or whatever the number is How do you do this well because you You don't get it until you're 65 you take it out early if you hit a if you had a skid and You're out of work for I don't know a year and you're looking for the right role and you need your 401k, they're gonna penalize the heck out of you if you're not 65.

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Andy Hoffman:

Yeah, well said, a lot to consider here. And so this is where a lot of the kind of traditional financial advice comes into play in that having an emergency fund is a great answer to the out of work question. If you do have a 401k and need to liquidate it, hey, that's, welcome to reality. Sometimes that does happen to people and it's a tough place to find yourself, but better than perhaps being on the street. So don't feel bad if that's you and you need to tap into some of that to just kind of make it meet for the meantime. So. In terms of best practices, I would say learning about investing is probably one of the best rates of return you'll ever get in terms of your own knowledge work. I can make it very simple for people, hopefully on the call today. I don't know how much time we have, but I can get into a very quick high level on mutual funds if that's okay. So a couple things to consider. So again, I worked in the financial services industry for the last decade, so this is not me trying to poo them. I think a lot of amazing people do a lot of amazing work for people and clients. That said, in general when it comes to mutual funds, the term mutual fund typically implies active management, meaning someone is managing the fund, managing maybe hundreds of different securities of these different companies with the sole intention of beating the market, whether that's the S&P 500, the Russell 2000, depending on the type of fund. 84% of the time, these funds fail to do their stated goal of beating the market. 84% of the time, they fail. you're paying 1% on average for failure. So let's understand that. The 1% fee doesn't sound like much, but reality is if you were going to get a 9% return, now you've got an 8% return. It doesn't sound like much. Over 30 years, that could be hundreds of thousands of dollars gone in fees. So the remedy in my opinion, Jack Bogle, founder of Vanguard back in the 70s, had a thesis of if we can just get the market average and keep fees very, very low, I think the average investor will do well. Come to find out who's right, and that's thus the advent of the index fund. So again, not investment advice, but purely educational. Most people can invest in index funds, whether it's the S&P 500 index fund through a Vanguard or Schwab, whoever, or I'm a big fan of the total stock fund, which is VTI or VTSAX, that's a Vanguard ticker right there. But basically you're getting the entire market in one fund, or you can cobble that together inside your 401k. And so you just want to, I love if I can find funds that are less than 0.1% for a fee, just to give very tactical advice here. I mean, and by that, I mean education, not advice. If it were me, that's what I would be looking at. So 0.1% oftentimes these funds inside a 401k can be like 0.02, 0.03, which again, for perspective, 97% cheaper. the new mutual fund that's going to not beat the market anyway over time. And so if they can be typically, if it were me, I've got to happen to have a book right here. Look at me. Nick Murray, great book if anyone's interested, Simple Wealth, Inevitable Wealth. Nick Murray taught financial advisors for like 40 years, one of the biggest thought leaders in the space. And so he just has a lot of good work to say about equities versus bonds in that equity rates of return are typically going to be around 9% historically. Bonds are going to be typically half that. when we're looking at 10, 20, 30, 40, 50 years of time, we want the highest rate of return possible if we can stomach the roller coaster on the way. And so behaviorally, this is one of the benefits of the 401k. When we look at census data, the largest asset for most Americans are retirement accounts. Second is home equity. I would say the underlying premise is automation. Maybe I'm biased, but by setting it and forgetting it at your employer, if you pick the right funds and if you do the auto increase function, you're halfway there in my opinion. because if you can have the funds doing the heavy lifting, you pick the right ones. I'm not a huge fan of the target date retirement funds because typically they're too bond heavy. And if people can be more overweight in stocks than bonds for the majority of their lifetime, because we still need rates of return, even in our 60s, 70s and 80s, because we know life expectancy is continuing to increase. And so longevity risk as it's called is really outliving your money. That's one of the greatest risks long term. So we really need that rate of return to do the heavy lifting for us. And if we can buy our time as a, you know, someone in their early 20s listening to this perhaps and click the right buttons once and then go live our life, like we could really be setting ourselves up for success.

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Tom Finn:

I love the quote, the best time to invest was yesterday. The second best time to invest is today. How do you feel about that?

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Andy Hoffman:

I love it and I think that it makes, hopefully reframes this conversation because in the world of personal finance, it can be really saddled with guilt and shame. And I'm speaking for myself here. I mean, there are plenty of times, the reason I kind of developed the methodology I did is because I struggled to put away the money. I was making six figures in corporate America, but with the quarterly bonuses and the commissions and people just saying, oh, just live on your base salary, which didn't feel possible supporting a family. I've been there and I felt like, man, I should be doing better than this financially. And so that led me down the automation rabbit hole, if you will. And so if people can just employ some of these tactics, and I would say start where you are today, the barrier to entry has never been lower. A lot of these investment companies will literally let you build a portfolio with $10 a month, which is in stark contrast to the 80s when if you wanted to invest in, let's say Coca-Cola, But let's say Coca-Cola was trading for $100 a share. If you didn't have $100 to invest, peace out. You don't qualify, unfortunately. And so even if you do, and you put in $100 and Coke goes bust, your money's gone. And so we have so much more safety within the index fund environment, because not only do we have one company that we're investing in, it's maybe 100, maybe in the case of the Vanguard Total Stock Fund, 3,900 companies that make up the US stock market. We have the safety of the entire market to kind of fall back on. Is it going to go down over time? Of course. Is it going to go up over time more often than not? Yes. And so if we can just get into this mentality of sitting in it, forgetting it, starting where we are, just open the account. Just open the Rothro IRA. Just open the 401k. Start small and slowly turn up the dial over time.

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Tom Finn:

I love it, Andy. Great advice for everybody, automating your budgets, creating systems and processes that automate, starting small, being able to increase your investment amount over time. And I do love the fact that you said, just start with 10 bucks. We can all find 10 bucks to start, 10 bucks a month, can be moved into an account, and we can just kind of play with it without a whole lot of risk or fear. or that uncomfortable pit in the bottom of our stomach that we're doing nothing, and we know we should be doing something.

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Andy Hoffman:

Yeah, 100%. Now, a couple of quick investing adages that came to me while we're talking is that I'm a big believer of the sudden forget it philosophy, which actually works really well with our behavior because even institutional people that are managing these funds, there are correlations to the less often they move money inside the funds, the higher the average performance is. And so there's a great investing adage that investing is like soap. The more you touch it, the less you have. And so if we can pick the strategy, stick with it. let automation do the heavy lifting, then we can pretty much go live our life. Even Jack Vogel said in an interview once that if you can just kind of like buy into this philosophy of the term is dollar cost averaging, which is a fancy way to say just invest a little bit out of every paycheck, because the market's doing this and you're able to buy low as the market goes down to accumulate more shares and then ride the wave back up. If you can just do this over your lifetime, then you want to have a cardiologist by your bedside when you open up the account statement, because you might have a heart attack of all the money that you've accumulated over time. And so, Even when I was recruiting financial advisors, one of the largest teams I recruited, and this is not above board necessarily. I'm not recommending this strategy. I don't think the compliance department would love me saying this, but he would say to his clients, just toss your quarterly statement in the trash. Don't even open it. And so because we have this tendency to fiddle around with things and we want to mess with it, and you look at the data that the market does 9%, the average investor does 2.8%, if we can just set it up. Leave it alone, go live our life, focus on the things that we love, and bring us fulfillment and enjoyment and grow our careers, and then just slowly turn up the dial on our investment vehicles over time. I think people will be a lot better off.

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Tom Finn:

Andy, we're going to leave it there. Well said, my friend. Thanks for joining us today. It's great to have you on the show. If people want to get in touch with you, where should they go about doing that?

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Andy Hoffman:

Absolutely. Thank you. It's been an absolute pleasure to riff on this topic Email’s probably best hi at Andy Hoffman dot me is a great email address. You can get to Andy Hoffman dot me There's a little bit of information Rebrand coming soon, but I've got a course that talks about some of those and I do offer a coaching as well

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Tom Finn:

Well, we will put all of that in the show notes, my friend. Love chopping this up with you today. Appreciate all of your wisdom on how to make finance simple and how to streamline our processes to make this part of our lives just a little bit easier. Appreciate you being on today.

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Andy Hoffman:

Thanks, Tom.

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Tom Finn:

And thank you for tuning into the Talent Empowerment Podcast. We hope you've unpacked a few tips and tricks to love your job and improve your financial situation. Get ready to dive back into all things, career and happiness on the next episode. We'll see you then.