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Ask Paco: Your Money Questions, Answered

Ask Paco Finance Column

Once a month, finance expert Paco de Leon tackles our pressing questions about all things money, with her dose of humor. Here are today’s three topics, including an easy book on investing…

Q. My company matches our 401(k), but, to be honest, at age 25, I’d rather spend my extra earnings than save for retirement. Can I wait til later? — Amy

This is where your employer cares about you so much that they’re going to give you free money. If they do offer a match and you don’t take it, then you’re basically Randy Jackson saying, “That’s gonna be a no from me, dawg.” Don’t do that. Again: free money. Take the match and make the contribution.

Q. My father-in-law gave my husband a term life insurance policy for his birthday after our baby was born, and I was like, ‘Wow, weird morbid gift.’ But he’s an economist so I’m assuming this was a good financial decision? — Kirsten

A. Ah, life insurance.

Here’s how it works: You may go, ‘I have a baby, I need life insurance, because if something happens to me, that baby will need my money to survive.’ The reason you get 20 year term life insurance is because you believe that baby will have its act together by 21 years old, or because it doesn’t make sense to get term life insurance beyond that. You call this person to sell it to you, and they make you fill out a bunch of stuff, they will ask for your pee and your blood, and then they tell you how much it’s going to cost.

Again, they ask for your PEE and your BLOOD. What else does that? Nothing in the world. Only insurance, one of the biggest industries in the world. Insurance can seem fascinating — like how J.Lo’s butt is insured. But insurance is basically a bunch of people, looking at tables, calculating probability all day, and making a bunch of money off it.

When choosing a policy, here is the simple answer: 85% of people looking for life insurance should probably go for term insurance. It’s the cheapest option you can get for the most amount of coverage. Term life insurance usually comes in 10, 15 or 20 year terms. It’s simple — you know what you’re getting, you get a quote for your premium, you know what you’re paying every year, and you know when it’s going to expire. (When people sell whole life policies, they get a bigger commission than with term policies. It’s a conflict of interest, so I am wary of it.)

Term life insurance is pure insurance. The important thing to remember is this: Insurance is a tool for minimizing loss, it is not for gain. If someone is trying to sell you insurance and they’re talking about what you can gain from it, just try to picture me saying, ‘Pure insurance is a tool to minimize loss, it is not for gain.’ And then act accordingly.

Q. Can you recommend any books for learning about investing? I’ve been figuring out the stock market as I go, but sometimes I feel like I’m attempting calculus before learning basic arithmetic. — Annie

A. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle. It’s a great guide for beginner investors who are just getting their footing in understanding the investment world. The recommendations are solid and timeless. And it’s super easy to understand!


Paco de Leon is a musician who happens to be killer at finance. Her experience includes business consulting, business management, financial planning, wealth management and even some time at a giant bank. Her experiences led her to found The Hell Yeah Group, a financial firm focused on inspiring creatives to be engaged with their finances and giving them the tools and support to stop freaking out about it.

Thank you so much, Paco! Do you have a money question? Please let us know in the comments below…

P.S. Five real-life ways to save and how to ask for a raise.

(Photo courtesy of Paco; illustrated background by Alessandra Olanow.)

  1. Dee says...

    I’m a freelance teaching artist, actor and musician. I work for a bunch of different companies/ schools. I also teach some private classes on the side, and I’m not sure how to declare this money for tax purposes. I just declared it during tax time last year, and got penalized for not declaring it quarterly, but how do I do that? If I technically have a “business” of my own (teaching private lessons) do I need to do anything official to make it a business? Thanks!

    • Brianna Hanson says...

      A CPA would be really helpful in this but essentially you make quarter estimates to the IRS based on what you presume your tax burden is going to be. Unfortunately it’ll never be perfect but it can help. You can also talk to them about forming a single member LLC in your state and whether that would be beneficial to you tax-wise vs you as a sole proprietor.

      Here’s some info from the IRS about quarterly estimates: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

  2. M says...

    Would love to hear Paco’s thoughts on disability insurance. A scam, or smart? Does it depend on your profession?

  3. Karina C. says...

    I’m 23 and I’ve been with my current employer for 4 years. My 401k was opened for me in April 2016 when my company made a profit sharing contribution to every employee ($33, woo hoo!). I had been hesitant to start contributions before this because I was so excited to be working full-time and building up my savings, but I work in finance and literally everyone was telling me to start contributing (F R E E M O N E Y). I started at 6% (my company matches 100% up to 6%), and I’ve gradually increased it over the years so that I’m now contributing 16% (about $600/mo). With my company match and annual profit sharing, 23% of my salary is going into my roth 401k annually, which makes me really happy! Even though retirement is so far off, it makes me really safe and secure knowing that looking out for my 67-year-old self, esp. since Social Security will probably run out long before then.

  4. Ro says...

    Any advice for what to do with a sudden influx of major dollars? Is there really a way you can use money to make more money or is that just white man magic?

    In a sad combination of events, my spouse and I both received large inheritances from grandparents who passed away. We bought a house outright with cash – which was our priority – and paid off debt, but there is still more. We’re both not great with money and I’m terrified we’re going to screw this up.

  5. Kristin says...

    Hey, Paco! Love these posts. A question for you. A friend recently asked to borrow $2,000 from my husband and me. The friend makes much more money than we do, owns more property than we do (home, car, etc while we rent in NYC), and is also a reckless spender (splashing out on clothing, vacations, and meals, etc that we would never dream of). With all of this said, he is a good person and a friend and I hate to think of him and his family in a pinch (do note that he hasn’t told his wife about asking us for money as they have separate bank accounts). We would be taking money out of our savings to loan to him which I really hesitate to do for a number of reasons. Obviously if we do loan him money we would have him sign notarised paperwork stating payback terms etc. What are your thoughts on loaning money to friends in situations like this? My heart and my brain are torn and in two sepatate places…

  6. HN says...

    Super helpful. As someone thinking of leaving a corp job to start a small business (1-2 employees) I am most nervous about health insurance. Could you do a post on single payer health insurance? I’ve looked into quotes of $800/month or needing 3+ full time unrelated to me employees. It’s the main thing holding me back, esp in this political climate.

  7. Charlie says...

    Is it better to pay off debt or maintain savings? My credit card debt and my investment account are roughly equal, and part of me wants to zero them out, and the other part of me wants to save the savings for emergencies/a down payment on a house someday.

    • Brianna Hanson says...

      Definitely get rid of the credit card debt. If you can maintain a small emergency fund and pay off your credit card, do so, but it’s worth it to pay it off regardless. You can put the money you used to spend on monthly CC payments back into savings and build it back up.

  8. f says...

    I love Paco! That’s all.

  9. Jeannie Rodriguez says...

    This might be an unpopular opinion, but (while I love the idea for the series) I don’t think this Q&A was particularly helpful… the first response seemed very subjective when Paco could have easily outlined some backup for why it’s worthwhile to contribute to your 401k to get the company match (instead of simply saying “yea, do it”). The second response seemed unnecessarily confusing… I, like a lot of CoJ readers, crave this kind of discussion about money, but I’m finding more substance in the comment section than the post. Speaking up in the interest of course-correction…

  10. m says...

    I think this is a great first step in financial education for COJ. I think it would also be really helpful to have a ‘to do’ for the month such as January – set up a Christmas savings account, March – Max out (or at least contribute to) a Roth IRA, April – think about how you are going to use your tax refund.

  11. Lisa says...

    I am 34 and have a horrible relationship with money. We came here as immigrants and it was always scarce. My dad was incredibly withholding and I never had the right clothes for school (which stuck with my). My mom would save her tips and take me on secret shopping trips, hiding our bags in the trunk until my dad went off to work the next day. I would like to avoid passing habits like these onto my children (six and two). What advice do you have on talking with children about money?

  12. Ana says...

    Love this series!

  13. Jorden says...

    My husband and I went about life in the wrong order; we are in our mid-thirties with two young kids, and have only been on our career tracks the last couple of years. We are, miraculously, homeowners, but have no other investments or savings besides what we have contributed to our 401ks. Help! How can we start to catch up financially?

    • m says...

      I would start with a nest egg to cover at least 3 months of bills and living expenses. You want this to be liquid, such as a savings account you could get to quickly. I have an automatic transfer on my payday so I don’t even have to think about it. Then I would start with maxing out a Roth IRA ($5,500/year/person). Typically my husband and I do this when we get our tax refund and then we’re set for the year. After that I could start saving for college (if you are going to) with a 529 plan. You could spread the word that you would like contributions to a 529 plan rather than gifts. I love getting my nieces and nephew the gift of college rather than just another toy. This is pretty much Dave Ramsey’s 7 Baby Steps.

  14. Sarah Lu says...

    Wish Paco would have touched on the importance of compounding in long-term investments like 401ks. THAT’s why you do it at 25, getting a match is just a nice bonus.

    • Kelli says...

      I agree. I remember my mother clipping out an article about the importance of 401Ks when I was in my early twenties and mailing it to me. I was SO BROKE then and I could not understand why I should sock away retirement money when I could barely pay any of my bills. BUT this article had a helpful graph chart that outlined compounding interest. To be able to visually see how much further your dollar will go if you invest early made all the difference in the world and convinced me to start my 401K.

      I love so many of the series here but I have to agree with the comments that requested this be a bit more in depth of a series. One of the reasons I think women claim/are intimidated by finances is they’re either thrown totally in the deep end and give up or are given too basic “fluff” talk about investing. We’re smart, we can understand it. But having more details beyond “yeah, it’s free money do it” (which YES, that’s part of it but there’s more!) would be truly helpful and what I really hope COJ can shape this series to be.

    • Joanna Goddard says...

      thank you os much for this feedback! we are on it!

  15. Nicole says...

    Any financial advice for a soon to be stay at home mom/budding writer? The long of it is that I have a 4 month old and almost four year old and work in finance. I’m 36 and have become disenchanted with what I am doing with my life. My husband and I have come to the decision to let me take a year off before my daughter starts school in the fall of 2019. We have no debit besides mortgage and utilities. We have a modest nest egg in which we have allocated a portion to assist with the mortgage while I am out of work. I am really hoping to maximize this time by writing and see where that goes. I totally get that this could be a hoop dream but if I don’t take the leap now then when? And worst case I go back into finance. Any advice on how to stretch the savings and/or anything else we should consider?

    • I would suggest taking the time AFTER your children start school in 2019 unless you are also planning to maintain childcare. I know there are some who manage it, but you might not get your best crack at writing if you try to do it while actively looking after two littles. And if it’s a save-up, one-shot situation… I want the deck stacked FOR you, not against!

  16. Kristin says...

    Any advice for how to find a trustworthy, great financial advisor?? We just moved to a new state, are in our early 30s with two small kiddos and really would like to get serious about where all our money is going and how we can make it work for us. We know a financial advisor would be helpful with this, but don’t want to just google someone! Since we don’t know anyone yet here too we don’t really have any way to get personal recs. Would love advice!!

  17. Mc says...

    Future Topic for Paco-how to pay of debts…which order? Extra payments and how to apply them only to principle? Once one is paid off, then what?

    My husband and I know these answers and have an aggressive strategy, but I see all these questions about debt and loans and I sense that answers are needed!! The people need answers!! Ha!

  18. Yes! More of this please! I read through her advice so easily. Usually I have to re-read sentences when it comes to money talk. Thank you! xoxo

  19. jac says...

    I am buying a house and I wonder if there are any pitfalls Paco can steer me away from ?! And how much will I get back if I can take home loan interest as a deduction?! I. AM. CLUELESS. It’s almost too scary to do research. Everything is conflicting. I put one pinky in at a time and then I am petrified and retreat.

  20. AK says...

    Little hesitant about the advice re: life insurance. If you are in anyway reliant on someone else financially (I.e. Mortgage with spouse, etc) or anyone is in anyway reliant on you (also i.e. Mortgage with spouse, kids) you really owe it to each other to have life insurance. Or at least I feel that way. If I suddenly died and my income was gone, my husband would have a huge tab to pay with childcare and mortgage. The last thing I would want them to be concerned about is “where are we going to move?”

    • Jess says...

      I totally agree, AK! I stay at home with our young children right now so while my husband has a strong term life insurance policy, I wasn’t sure if I needed one for me. But then I realized, if something happens to me, there will be unexpected expenses immediately associated with that, and then our children will need paid childcare. And in the long term, I also wouldn’t eventually become an earner again, which is part of our financial plan. Most importantly, my 20 year term life insurance policy costs us $18.45 a month. That’s less than I spend on coffee! We also try to save a good emergency fund, but the extra peace of mind is definitely worth it.

  21. Karen says...

    My husband and I are in our late 50s and we have a teenager in high school. We are saving for college, but keep hearing about Long-Term Care Insurance. Can you share your advice on LTC Insurance? When should one start? Are there advantages to starting early in life? If so, how early? TIA.

  22. Missy says...

    Once you pick a term life insurance plan do you stick with it until the contract is over? Like is it unlikely to switch plans once you have taken out a plan?

    • Brianna Hanson says...

      It is very unlikely. They’re set for the specific term and cancelling it for a different one would most likely be a waste of money. You can always add a second policy if you feel your first isn’t enough coverage, but you should stick with it for the whole term ifnyou need the coverage.

  23. Suzanne says...

    I love this!

  24. There is so much great content in this post! I can’t wait to read through it with my husband later tonight when he gets home!

    Paige

  25. Katherine says...

    Another vote for some clarification on life insurance policies. My husband and I are lucky enough to have gotten a head start on our savings, so we have a healthy amount saved up already. We recently had our first baby and decided to skip life insurance, figuring that if one or both of us passed away, we could tap into those savings. Are we missing something? What exactly would life insurance cover that our savings wouldn’t provide?

    And on a related note, would also like some advice regarding where to invest when you do have extra cash. Maybe a prioritized list? 1- pay down debt, 2- max out retirement accounts, 3- ???

    • Brianna says...

      You can think about the need for life insurance this way – you and your husband are relying on one another to continue to make an income and help out with the total costs of your household from now until basically forever, right? Over the years those costs will fluctuate with the general idea that they go down when you have adult children who no longer rely on you (hence Paco’s 20 year term suggestion). But what if your partner didn’t make it home today? Would your savings be sufficient? Would you need to take time off work or find unexpected childcare? Do you have a mortgage, car payments, student loans, or anything else that would become an increased burden with the loss of an income?

      I think life insurance is a gift we can give our loved ones – to be able to give someone you love, in the worst moment of their life, the opportunity to take time off work without worrying about paying the bills, to pay off major debts, to set themselves up for retirement, etc.

      I hope that helps! I’d also suggest finding a financial advisor you like – they’re the perfect sounding board for budgeting, investing in what’s right for you (everyone’s different), and prioritizing extra cash.

    • ERM says...

      Generally, the formula for a term policy (in my limited experience in shopping for one) is that you would buy a policy in an amount (let’s say $1MM policy) that once put into an investment account the interest on that $1MM amount would replace your husband’s salary. So your lifestyle wouldn’t have to change and your savings could stay as savings and you would have the additional $1MM set aside which would continue to earn you a return that you could use for basic child rearing expenses.

      I have no idea how old you are, or what your husband does for a living, but using savings to replace the money your husband earns may only last you a few years and could turn a stressful situation (loosing your husband) to an even more stressful one (moving b/c you know you can stay in your place long term b/c of cash flow).

      If you are young (under 35) and are healthy, getting a term policy now is pretty cheap. Find an independent insurance broker. They will collect the data on you and shop around to find you the cheapest policy.

      The post focuses on term. There is another product called Whole Life, which is much more of a wealth planning tool. It is also much more expensive.

  26. Is it even worth to get life insurance then, unless you have children or dependents? Reading this was the first time I understood what life insurance really means.

    Danni

    • Brianna says...

      That’s a great question and usually answered with – do you have any debts (car, house, student loans, etc)? If so, they’ll get passed on to your next of kin, even if you don’t have dependents. A life insurance benefit (the amount of the policy paid out to your beneficiary) is income tax free and a great gift to give should you wish to not burden your loved ones with unnecessary financial strain if you pass away.

    • Jennifer Collins says...

      It’s literally only (possibly) necessary if you have dependents.

    • Christina says...

      When my sister in law passed away they had no kids. Her life insurance policy allowed her husband to fully pay off the mortgage on their home, pay off the car loan, and take 12 months off of work (he quit) to grieve and be with friends. He didn’t have to worry about income or housing and I think not having that added stress went a long way to helping him heal.

    • Christina says...

      When my sister in law passed away her and her husband had no kids. Her life insurance policy allowed her husband to pay off the mortgage, pay off the car loan, and, most importantly, take a year off of work to grieve and be with friends. Could he have covered those costs on his own salary if he kept working? Probably. But being able to take a year off with no financial worries went a long way to helping him heal and move forward.

    • Christina says...

      Sorry for the double comment! It didn’t post last night so I re-wrote it this morning.

  27. cgw says...

    For Paco: We have a person who oversees my and my husband’s ROTH. We used him bc my parents use him and so when I got married, it was a no brainer. However… he likes to meet with us once a year to review and to get a sense of what our needs are, tells us about trends and forecasts, offer suggestions and all that. We did it for a few years but each time we’re left feeling like we’re stupid and not understanding any more than we did before. Is he considered a financial adviser, is he our stock broker, is he something else? It’s totally horrible, but we’ve been sort of dodging our next meeting simply because we’re scared about being so confused. So while I don’t really have a question, per se, could you possibly touch on clarifying what a financial advisor is and how different they are to someone who deals with retirement accounts/stocks/ etc? I don’t even know the proper terms and titles. Thanks!

    • Brianna says...

      A financial advisor is someone who is licensed appropriately to be able to assess all parts of your financial plan – from assisting with stock picks in your retirement accounts to being a sounding board for major purchases and life decisions – and they are so much more than a stock broker. Investopedia is an excellent resource if you’d just like to learn the basics and terminology.

      The important thing to remember is this: They’re there to educate and help you feel comfortable. If you don’t understand something he’s saying, just let him know! That relationship should feel supportive and if you don’t think it’s a good fit or don’t feel comfortable, pick someone else! They work for you.

  28. Ayris says...

    Love this so much!! Thank you for such practical and clear advise. I look forward to next month!

  29. Jennie says...

    Love this series! I’m surprised how so many in the US think it inappropriate to discuss specifics about $$. When my parents came over (immigrants), they started learning about the stock market and investing (in their late thirties), lost a bunch of money, then started learning more (mutual funds!), and now they are quite set. Growing up, I picked up enough to know I had to start asap, and having my first job at 26yo, I blindly started contributing the max to the 401K (back then, 10,000$) and never got use to spending and living on more. I’ve mostly kept it up, increasing as the max increased (now 18,500$), with a few years of having to cut way back because of having children. Now at 47yo, there is over 602,000$ in the 401K!!–proof of compounding interest, and that includes years of the recession (stick it out/invest more those years!). My income hasn’t increased significantly over the past 20 years (Occupational Therapist), only so far as market increases and even then, barely so compared to the cost of living in my town which has exploded. I’ve only ever worked a 32 hours/week and am not ambitious to climb the work ladder, so the retirement account gives me great security, even with my husband always sending me articles about a doomed economy. I’m always nagging my 25yo colleagues to GET STARTED NOW and do as much as they can in those first few years. You can always cut back the amount. Another thing to realize, is that if you put in a goodly amount, you are taxed on much less income (if in a 401K/403B/SEP IRA), and, as I did, you might drive yourself into a lower tax bracket so that it may not hurt on your paycheck as badly as you fear, or you may owe less or get a bigger return on your taxes.

  30. Hopeless says...

    I would love any advice on how to pay down private student loans more effectively. I stupidly went to a very expensive private school, and my parents encouraged me to pay it all with private student loans from sallie Mae (minus a few scholarships.) I was a very successful, smart high school student, but I really lost all my confidence in college. I’ve basically only been able to afford the minimum payments for about ten years. So effectively, I’ve only paid the interest. I don’t know what to do.
    Declare bankruptcy?
    I’m in so m

    • Tricia says...

      You can declare bankruptcy on student loans. It’s the one loan/debt you can’t bankrupt. I have thirteen years finance experience and I would recommend refinancing your loan with a smaller interest rate and just start tackling payments. It has to be a priority. The other option (if you are a homeowner and depending on the amount of your loan) is to get a second mortgage to pay off your student loans which will ensure a small interest rate and quicker payback. But before you do either of these, I would put yourself on a budget (if you aren’t already on one) and budget to get your loan paid off. Especially considering they are
      Private loans which are most likely high interest loans. There are other options but too much to type here. If Paco can’t help you, you can leave your email and I can email and help you at no cost to you. #passionateaboutfinance xx, Tricia

  31. Leah says...

    Love this column and all the comments it generates! My question is – how do I determine how much I can afford to pay on a down payment for a home? I have savings (separate from my 401k) to use, but how do I know how much I can use vs. how much I need to retain as savings for the future? I have one child and hope to have more (which to me underscores both the interest in a comfortable home and also the need for continued savings).

  32. prema says...

    Hi, I was told to get a universal life insurance as it will help with tax purposes in the future. Is this true? Thanks

    • Brianna says...

      That definitely depends on your own particular financial situation. It can be a great strategy for taxes and estate taxes. I would suggest discussing it with a financial advisor you trust, you can help make the right plan for you.

  33. Stephanie says...

    A question for Paco to consider in the future: Do you have any recommendations on how to make your banking and investing as ethical as possible (ie: so my money isn’t supporting – and tacitly approving – industries that carry out human rights abuses or destroy the planet, etc)? People often talk about how important it is to be “smart” with your money from an individual perspective but rarely address the larger cost to humanity or ethical alternatives and whenever I’ve tried looking into this myself I’ve found a dearth of information.

    • Maggie says...

      I haven’t done a ton of research on this but the Swell Investing platform seems really interesting – they invest in portfolios of companies within high growth but socially responsible businesses (renewable energy, clean water etc). Might be worth a look for you!

  34. Sara says...

    Hi! I have one. The greatest gift my parents ever gave me was the gift of college education. There were stipulations (must be in state, they paid for room and board but not expenses, no more than 8 semesters, if you have to take a class again, you pay for it, etc…). Of course, my school was 5K a semester, but now even in state tuitions seems insane! I have been told to save anywhere from 100K to 500K per kid. EEK! Is there anywhere that has guidance on how much I should expect to spend on in state tuition + room and board for 4 years? Assume 18 years from now since I’m currently pregnant. Thank you so much!

    • Eloise says...

      My parents did the same – I could go to any state school (didn’t have to be my state) or I’d have to pay the difference. I wasn’t happy at the time as most of my friends were going to snotty, private schools, but I didn’t have any burning interest in any particular field and wasn’t going to get into an Ivy or something, so, it was a smart move on their part, and one for which I remain grateful. (I don’t have kids, but if I did, I think I’d have the same conditions – assuming I could afford “even” the state school tuition.) still grateful.

    • Jenny says...

      Two resources that I use frequently are savingforcollege.com and College Navigator. College Navigator is run by the National Center for Education Statistics and has lots of great information on expenses (broken down by category) so you can see how the costs have changed over time. One thing is for sure – college is not getting less expensive which is why saving early is so important.

  35. i have to all caps shout this: YOU WILL NEVER REGRET CONTRIBUTING TO YOUR 401K, BUT YOU WILL REGRET NOT INVESTING IN YOUR RETIREMENT.

    i sat my new hire down last week and made him sign up for our company 401K, since we match. i then made our front desk attendant do the same. i have two more people who haven’t signed up yet, i am harping at them, BECAUSE IT IS FREEEEE MONEY ON THE TABLE THAT THEY’RE LEAVING.

    i didn’t sign up until i was 28, and it was because an older coworker sat my rear down and made me. i started working when i was 22, that’s 6 years i left free money on the table and i regret that.

    • Amber says...

      omg 100%. To the 25 year old wondering if they should contribute: DO IT. You may not have the option in the future! The first five years of my career my company matched, and luckily I contributed, because I’ve spent the last almost 7 years at companies that don’t even have 401k programs, let alone matching. TAKE ADVANTAGE OF IT!!!!

    • allison says...

      Yes to the all caps shout! When I was 25 I worked in a small nonprofit with a bunch of other 20-somethings. Our CFO was a kind father figure in his late 60s who sat us all down on a regular basis to talk about contributing to our plans. I started out with $25/check on a $17k annual salary.

      Over the years, every time I got a salary increase I adjusted my contribution accordingly. I’m 50 now and fortunately I’m set to retire early, even after a lifetime in the nonprofit (read: low wage) sector.

      Definitely take advantage of the free money, but even if your company doesn’t match, TAKE ADVANTAGE OF YOUR TIME. Compounding interest is your best friend! The earlier you start, the more you will earn. And you don’t have to start with a lot to make it worthwhile in the long run.

  36. Carla Koulas says...

    I’m already hooked! Thank you so much for including a financial literacy series! And thank you Paco for making it fun and engaging (and using everyday language and not financial jargon). I’m always confused as to why we don’t learn these things in school! I will be forwarding to my friends.
    THANKS!

  37. Megan says...

    I’m struggling to figure out how aggressively I should save for retirement. Financial advisers have you plan on growing really old… but people in my family sadly tend to die pretty young (even if they take really good care of themselves). My mom died of cancer when she was just 64, before the age she even planned to retire. So, I’m struggling to figure out how to balance living well now with the responsibility of planning for a retirement my bad genes may or may not allow. My gut is telling me to travel now, to enjoy life when I’m healthy and strong. At the same time, I hope to be blessed enough to live to my 80’s or 90’s and want to be prepared if I do get so lucky! It’s been a surprisingly emotional issue for me, and I’m having a hard time with it. Any advice is welcome :)

    • Julie says...

      That’s a real tricky one and hard to balance.
      I would say try for both…start thinking similarly to people who have blogs about “early retirement” and “frugal living” where the top tip seems to be to spend as little as possible in your every day life and keep doing so even as you earn more money. A lot of these bloggers seem to travel a lot too, but in a way that means you aren’t really even spending much more than if you were living in a large city etc.
      In a practical sense it means that you 1, get more savings and 2, need lower retirement savings/your retirement savings will last you longer. So would kind of help with your situation, maybe?
      I kind of do this without really doing it, basically just live off the minimal amount I need with a bit of a buffer budget for fun stuff as then save as much as possible.

    • Megan says...

      Thanks, Julie. I’ll have to look up some of those blogs.

      I guess I just don’ t want to not enjoy today because I’m saving for a retirement that there’s probably about a 50% chance I won’t be around for. I don’t have a huge disposable income, so if I were to follow a financial adviser’s advice, it would mean cutting back on some things I really like or that keep me healthy (yoga classes, gardening, locally grown and organic food, pretty dresses :), and occasional travel). Yet, other than that, I’m hardly a big spender– I’m the person my friends keep telling to get to the spa, to get a babysitter and a night out to take time for myself– I never indulge in expensive things like that because I always regret it. I drive my same old beater car from college and fix it myself with YouTube videos (though, at 200K miles, it is probably time for a new vehicle soon… sigh). Although I know could find a few hundred dollars a month in savings if I stopped traveling and stopped yoga/dance classes, cut Netflix, Amazon Prime, etc., and I know I could thereby hit recommended savings goals for retirement… that calculus doesn’t make sense to me given my genes, health issues, and family history.

      I’m just not sure how to be realistic about everything. These financial guys seem way overly pessimistic about money and way too optimistic about my health/longevity.

  38. Rachel says...

    Once more unto the breach, dear friends! I totally second all the comments about student loans…

    I just graduated from my master’s program, and while it was an experience I don’t regret one bit, man-oh-man was it expensive. Entering the program, I set up the goal to have all student loans (undergrad and grad) paid off by my 31st birthday. I’m turning 28 in October! Right now I’ve got a concrete number of how much I want to pay off each month, but I’m thinking I’ll need to take on multiple part-time jobs on top of my already demanding full-time job. Thoughts? Advice?

    • m says...

      I did a few things to pay off my student loans …
      – I started with the loan that had the smallest balance. I don’t care what people say about interest, it simply feels good to have one DONE!
      – I would buy a piece of jewelry every time I paid off a student loan. Was that money I could’ve put to the loan? Yes, it was. Would I have been able to pay off over $25,000 in less than 2 years without new jewelry? No way! :) Find what you need to get you through this period in your life.
      – I was paid bi-weekly. Typically twice a year there are three paychecks … the third paycheck always went toward my student loans.
      – My tax refund went directly to student loans. This is probably the easiest way to pay off a chunk at a time.
      – Make sure to clarify that you are paying extra toward the principal. If you don’t clarify they (at least Sallie Mae) would put the extra money directly to interest. not helpful.
      – I picked up as much overtime as I could stand. I found the more loans I paid off the more motivated I became. This time period definitely wasn’t the most sociable or personally fulfilling in my lifetime but it was so gratifying and freeing. Now my paycheck goes to my savings account rather than Sallie Mae!
      – I also figured out exactly when I was going to be done with my students loans and I even figured out my monthly budget *after loans*. talk about motivating and life changing. It was the single largest raise I’ve ever received.
      I hope you see this and it’s useful.

  39. Jeannie Rodriguez says...

    For the 23 year old asking about investing in the company 401k and getting the match… I’d like to offer this: when I was interviewing for jobs as a senior in college, one of the people who interviewed me said “if you invest $1,000/year between the ages of 20-30 ($10,000 total) and never add another dollar, you will have more money when you retire than if you start investing $1,000 a year at age 30 until you retire ($35,000 total)… TIME IS ON YOUR SIDE when you’re in your 20s and it’s very hard to catch up later”

  40. Jo says...

    I love this new series so much!

  41. Meg says...

    Paco is the BEST! I’m on my way (proudly!) to becoming an old lady, and I wish I’d had her voice around when I was closer to 30 than to 50. With the voice of consumer culture so strong, we need every pro-financial-stability voice we can get! And hers is great. Thank you!

  42. Emma says...

    It’s funny, I read these finance posts like they are the sex tips section in Cosmo. I keep greedily looking back to see if there are more comments for me to read. How much are the other mid-20s ladies putting into their 401k’s?! AHH!! I never get to talk to anyone about this stuff! I’m not at that stage of my relationship yet, and most of my friends are artists barely scraping by or business people making tons more than me.

    • As a mid-20s lady, I can tell you what I do! I should preface this by saying I grew up in a cheap household where my dad’s financial strategies were partially influenced by the Amish near his ag school. It didn’t seem like they had a lot of money, but they had a lot in savings and could buy tractors (which are extremely expensive!) in cash.

      My strategy is not for everyone, but since getting my first job at 23, I put 25% into my 401k / Roth 401k when it was available and I’ve also maxed out my Roth IRA whenever I could since I could start working at 16. In my early 20s, I lived with my parents, so didn’t have rent to cover. When I got a new job with a slightly higher salary, I kept at it. ~They~ say that people should save 10% of their salary for retirement, but I got used to putting away a lot and I’ve always just lived with whatever earnings I took home. That means not living in the fanciest apartment or neighborhood (although I really like my apartment and my neighborhood is safe), I bring my own lunch, and I’ve only gone out to dinner or drinks with coworkers twice in the three years I’ve worked at my company. However, I think that it’ll be worth it long term because it’ll give me the option to retire before I’m 60 or start a second career when I’m older and not have to worry about sacrificing anything to make it happen. I also think that because I’m saving now, if something happens later and I’m not able to save because I get laid off or need to leave work for some reason, I’ll still be protected in my retirement because of the compound interest starting from a young age.

      My mom said that she didn’t save when she was young and now regrets it because she won’t earn all the compound interest that I’ll get (which I’ve heard is basically equivalent to your savings doubling every seven years).

      Hope that helps! And Amy, yes, totally start saving! I was on the 401K board at my last job and we switched from it being an opt-in to an opt-out arrangement. We started people at 2% with their contributions increasing 1% every year. This was a compromise, and lower than I would have liked, but it means that most people will have at least a small amount of money set aside for their retirement.

    • Daisy says...

      Thanks Leah for this awesome comment. As immigrants and as International grad students, my husband and I did not understand the value of 401k. We were not even sure if we were going to stay in the US for long term or return back to India and we were not sure about where to invest. We are kind of late into 401k investing and made a very bad mistake of withdrawing out of 401k when we we were in debt. Now we are back on track but know that we cannot recover the compound interest we missed out in our 20s. We max out our 401k investment to the allowed max of 18.5k per year. We try not to take jobs anymore that don’t offer 401k contribution as our 401k also contributes to tax savings. Anytime we switch jobs, we rollover our 401ks to Vanguard IRA. And with IRA, you could also buy individual stocks and we take advantage of that as well. Of course, one has to do their research for stock investing.

    • Emily says...

      25-year-old gal here. I make 47k a year at a nonprofit job in Washington, DC. I put 10% of my salary towards my 401k and my organization matches 4%. My org contributes another 6% towards a pension.

      As of right now, my contribution will increase by 2% every year until 25% of my salary is going towards my 401k. Fortunately, my organization is wonderful and I have a clear, upward path within my department (meaning promotions/raises) otherwise I might not be able to save as much.

      I’d save more if I could, but I’m also paying off undergraduate student loans, building an emergency fund, and letting myself enjoy life. BUT COMPOUNDING INTEREST IS OUR FRIEND.

  43. Suzie says...

    I got the book for my genius 13-year-old son. I have no interest in money, which I know is crazy. But he does and he can weave numbers like a spider weaves a web. So the book has been purchased and hopefully this is the beginning of a great relationship with my son and his money. Thanks for the recommendation.

  44. Alyson says...

    Can Paco give us some advice in unpacking “money anxiety”? I graduated in 2009, am 30, and just now beginning to feel like one trip to the mechanic won’t blow our savings. My husband was underemployed for 3 years after being laid off — which did nothing for our liquid assets. I can’t figure out how to step back from the stress that has become the norm and get a healthy grasp on our floating income.

    • Joanna Goddard says...

      these are all such great questions, thank you so much!

    • Klara says...

      I second Alyson’s question! I inherited a similar kind of stress from my parents (“always be scared for not having enough” and “don’t buy anything you don’t really need”) and have a partner with a not-so-helpful attitude that pops up from time to time (“everybody else earns more than we do” – comparing to some aquintances, and “we’re almost poor” – which is not the case, by the way). It’s only a few years ago that I started to realize that this doesn’t help ME and even in a weird way blocks money flow, but I don’t know any people or books to get inspired by. So not really a technical question, but rather a question about changing attitude or energy.

    • Joanna Goddard says...

      i hear this so much!! i was so anxious about money growing up and also so so stressed in my twenties. i thought about it all the time, i felt like i was living on a knife’s edge. once i was in a more comfortable place financially, it took forever not to feel stressed by a larger-than-expected electric bill or a splurgy meal out, etc, even though i knew, intellectually, that we were okay. money anxiety is such a real thing. also, i was surprised that it felt a shift in identity — almost an identity crisis, in a way — when i realized i didn’t have to be so stressed about money anymore. i had always been the scrappy girl with five jobs, and when i didn’t have to be that girl anymore, it weirdly threw me for a loop. i was like, who am i now?

    • Try EFT (tapping)! It may seem kinda strange, if you’ve never done it before, but it is such a great tool for managing the emotions that hang around long after you’ve made such good choices :) I’ve personally had success with instruction from Gala Darling, but there are lots of instructions floating around on the Internet.

    • Meredith says...

      Another resource that might be helpful (and not intuitive) are all the money posts on apracticalwedding (dot) com. So much discussion of moving from broke to stability.

    • Ellie says...

      Omg, yes! I graduated in 2010, lived overseas for 3.5 years…then when my husband and I moved back to the States, it took me NINE months to find a full-time job. Since my husband is not a citizen, he wasn’t legally allowed to work for a while and has struggled a lot since then. At the very least, it’s nice to hear that I’m not the only 30 year old who feels so behind financially!

    • Holly says...

      I recommend reading You Are A Badass at Making Money by Jen Sincero! It is extremely helpful in understanding your current money mindset and establishing a new one if you feel that’s something you’d like to do. Highly recommend!

    • Jannie says...

      Ugh SAME. I was always a saver, and by the time I graduated high school had close to 10k in savings. But then I used to for a semester in Amsterdam (which I don’t regret at all), and then I built it back up after I finished university and started working full time – but then quit my job to get a year of post-grad university in. But since then I’ve worked a series of low paid (but extremely enjoyable) jobs and although managed to save a small amount at each of them, have then gone ahead and spent most of those savings on more travel.
      Now I’m 30, I’m married but we still rent and live with a flatmate. I have a small business selling stuff online, I actually earn more than I did at my last job but have a constant sense of panic and not having enough. Our combined income is still less than the single income of a lot of people I know who have stuck to the same job in a well paying industry and I regret a lot of the past choices I made which were fun at the time but not the best for the future.
      Half the people I know are buying houses which I feel like I could never ever even think about affording (the average house price in here Auckland is $920,000!) and my husband and I are almost kind of thinking about a kid but the thought of how much a child costs makes me panic.
      I have generous (well off but not wealthy) parents who I know would help us out and I know if I had to I could probably get a boring but higher paid job – which would make me feel less anxious about money but probably less happy overall!

    • Michelle says...

      I highly recommend looking into Dave Ramsey! My husband and I went through his Financial Peace University before we got married and I cannot stress how much of a game changer it has been for our sanity and our finances. We learned how to budget, build up an emergency fund (for those unexpected trips to the mechanic/layoffs etc), and pay off all of our debt! I can sleep peacefully at night now knowing exactly where every dollar we make is going and that we have a safety net of funds in case anything unexpected happens… which trust me, it will! Budgeting has been so empowering for us!

    • Alice says...

      Girl, same! 2009 was a rough year to graduate. My hubs and I lived paycheck to paycheck for 7 years. He barely made enough for the both of us and I could only find part-time work. Now we don’t really know what to do now that we have money to save/invest/go to doctors etc. It’s hard to lose that *must not spend* mindset.

      We just got a new-to-us washer and dryer (only a few years old!) from a friend. I was telling my mom how awesome this was and such a step up from our really old set and she goes “honey, you know you could have just bought one.” This literally had never occurred to me!

  45. Lana says...

    It’s a broad topic but as someone who found themself in a lot of student load debt, any tips regarding reducing it or making it more manageable are more than welcome. I’ve refinanced private loans once and have my public loans on a income-based repayment plan with public service loan forgiveness but I am always looking for other ways to reduce the debt burden.

  46. mary Norkett says...

    Everyone talks about the death of a spouse, but what about long term disability?

    • I’d love to learn more about this too. I’ve been paying for disability insurance for about 5 years, but I’m REALLLLLLLY tempted to stop and just save that money instead. Is disability insurance needed?

    • M says...

      Yes, someone please explain the ins and outs of disability insurance for me! My employer offers some coverage but should I be paying for more, should I buy my employer’s supplemental option or it is better to go through an independent third party in case disability causes me to lose my job?

    • Evie says...

      One of the suggestions that I thought made a lot of sense about long-term disability insurance came from my Public Agency Budgeting professor: Get long term disability insurance if you are in your 30s, 40s, 50s and 60s, if you are employed and do not have substantial passive income (through investments etc). He offered statistics which showed that the likelihood of injury resulting in long term disability during those years of one’s life is greater than the likelihood of death from that possible injury.
      As Paco said, you are insuring to minimize possible loss. (loss of a job etc)

    • Laura says...

      Well, I don’t know the ins and outs of the pros vs cons of Long Term Disability from a financial perspective, but from a personal perspective I would really caution against not having LTD coverage. I am 28 (so, quite young) and got very sick unexpectedly last year, and am now diagnosed with a chronic illness. Living with reduced health has been so stressful and full of grieving for how this has impacted the plans my husband and I had for our future in terms of if or when I will be able to have children/how many children we had hoped to have, etc, but I am SO thankful that we have not had any financial stress through this season of change. My LTD coverage paid me my full salary during the time I was off work completely. I am now back to work half time, and am still paid out the other half of my salary, and will continue to be until I am hopefully able to return full time.
      It’s a situation I would never wish on anyone, but there are just so many things that *could* happen and if you’re in a situation where LTD is needed, I can guarantee that the reason you need LTD will be stress enough, never mind having financial stress on top of the emotional/physical stress.

  47. Anna says...

    One more question, any reader help would be welcome too!

    My fiance and I are getting married in three months. I make about 40k more than him a year (we both make comfortable incomes and we both expect sizable raises in the years to come)–should we sign any sort of prenuptial financial agreement? I don’t really feel like I need to, just curious if this is common now? Or any other “getting your money in order” before you get married suggestions?

    • Christine Schwalm Design says...

      People think of prenups as a bad thing, but if they get you to have those difficult conversations *before* you are legally bound to another human being, that’s a good thing. You may consider saying something like, “I don’t think we need a formal prenup, but there are some things I’d like to discuss about money so we’re on the same page.” Setting expectations is a huge part of any relationship (friend, work but most especially spouse) and this conversation does that.
      If you can find a basic prenup online to get a sense of what it covers that may help you know what questions to ask. I’m sure there are other guides online, too, that are comprehensive. Do you want to exchange credit reports so you know just how much debt–and where–each person has? A conversation about lifestyle and the associated costs, how much debt are you comfortable carrying, childcare (costs if both of you work, who would stop working if the child needed full time care), how you’d divide your assets if you split up.
      I had this talk with my now husband in a kayak in Costa Rica before we even got engaged. No, the beautiful setting did not make it any easier, but I’m so glad we did it. Good luck! It’s the most intimate conversation you can have fully clothed, haha.

    • Katie Olson says...

      It’s also helpful to realize that prenups aren’t just for divorce. They also come in handy if your partner dies. Christine’s point is important—talking about these things before you get married is super helpful. Prenups are really a way of respecting each other and, potentially, taking care of each other if one of you dies. Pretty morbid, but such is life. The I Do podcast episode on prenups is super interesting and helpful if you’re looking for more info!

  48. Eliza P says...

    Rather than invest in a Roth IRA or some alternative, my Dad was convinced (probably by various insurance representatives who frequented military bases over the course of his career) to take out several whole life insurance policies for each of his children over the course of our life. Now that I’m old enough, I’ve taken over the monthly payments of my THREE whole life insurance policies and my Dad keeps harping on about how it’s good for life and there’s a cash value that I can withdraw from/borrow against in the future. Are there any pitfalls or issues that I should be mindful of for whole life insurance? Are there better ways to invest some of this money, so that it accrues values over time? Thanks, Paco!

    • Erika says...

      My father-in-law had one of these policies written for my husband when he was in high-school. Turns out, over the years, my husband paid more into it than it was worth- and he was 33 at the time. We were able to close that account and use the money “invested” (tax free, thankfully) for our house renovation (but we could’ve used it for anything). I’m interested in seeing what Paco says!

    • Brianna says...

      I personally LOVE whole life insurance as a long-term savings tool, with an income tax free benefit to your loved ones should you pass away prior to using it. But it is INSURANCE first. The cash value that accrues takes a long time to be significantly above the amount paid into it. Here’s my advice:

      1. Get a financial advisor you like and trust and bring copies of your policies to them. Financial advisors are also licensed insurance professionals so they’ll be able to discuss the pros/cons with you.
      2. Call the company and get an “in force illustration” (or have your financial advisor do that for you). That will show you how much cash value has accrued and what, at current rates, it will continue to accrue.

      If you have any follow up questions, feel free to leave your email and I’ll contact you. But definitely keep paying on them and keep them in force until you speak with someone.

    • Jessica says...

      A question about Brianna’s reply: this might be a really dumb question, but can an insurance agent also act as your financial advisor? Or are they inherently biased since they are selling a product? My husband and I have term and a portion of whole life insurance, and talk about our whole financial picture with our insurance agent, but it always makes me a little uneasy and unsure whether to trust his advice…

    • Brianna Hanson says...

      Jessica – not a dumb question at all! While a financial advisor can also be your insurance agent, an insurance agent is not a financial advisor. I don’t doubt your agents insurance advice, but it’s incredibly helpful to have someone able to look at your whole financial picture – and be licensed appropriately to make suggestions. Hope that helps! Feel free to email with any questions. I just love this stuff. briannahanson@gmail.com

  49. Erica says...

    Helpful! Thank you xo

  50. cara says...

    I recently had a weird experience setting up a new savings account online — it all seemed straightforward, but there were lots of unexpected complications, including a same-bank money transfer that went “missing” for a whole week! What banking activities can I feel safe about doing online, and which ones should I go see a real-life banker about?

  51. Ali G says...

    I would love to hear Paco’s take on Long-Term Care Insurance. My husband and I want to do this, but it’s hella expensive. But, after watching my grandmother decline and spend $1,000’s of dollars a month on stuff regular insurance wouldn’t cover, I can’t imagine growing old without some sort of extra safety net, that is not our retirement income.

    • Sandra says...

      This is a great question! I’d like to know the answer too. My parent’s’ financial advisor advised them to get it for my mom but not for my dad since apparently women tend to live for more years in assisted living (if they do in fact go there.) We don’t have any long term care insurance ourselves (late 40s, early 50s) and I’m curious if we should.

    • Cynthia says...

      A few years ago, our new life insurance reviewed our current policies, and suggested converting my to a policy which would pay out for my care up to the limits of the policy, including having help at home. He did not recommend long term care insurance. My mother-in-law paid a fortune into it, and she only got a couple of months’ benefits out of it before she died. These policies typically have a 90-100 waiting period before you can collect benefits. She could only get benefits by being in a nursing home facility and needing round the clock care. It didn’t cover assisted living. You’d probably be better off investing your money in the stock market.

  52. Alyssa says...

    My question is this:
    I never got a credit card, mostly because I liked that with my debit card I knew where every dollar was coming from and going to. The idea of a second card just seemed annoying. But when my debit card information was hacked earlier this year, I thought “ok, time to get a credit card for certain purchases.” However, I keep getting denied because I have insufficient credit history. How can I get a first credit card if I don’t have enough credit to get one? Help!

    • Emma says...

      Are you applying online? Getting out of college, I had a similar problem when I applied online, but I went in and explained why I had no credit history and talked to a person and they gave me a credit card. Chase Bank is great!

    • MB says...

      I suggest starting with a credit card from a vendor. My first card was an Amazon card–I also had no credit history and had just graduated college. It was a no-fee credit card and I figured I’d use it since I do shop on Amazon and can accumulate points. Once you have that you can build a credit history and that’s all the major credit card companies need to see.

    • Sharon says...

      This happened to my now husband when we first started dating. He kept getting denied due to never having a credit card before. Try going to your bank and getting one! If you’ve been a long time client they should be able to give you a cc, although it might come with a low spending limit (my husband’s limit was $250) but that should give you a starting point to build your credit as long as you always pay it in full every month.

    • Christina says...

      Try a credit union (they often dont have as stringent requirements on approval) or you can always go the secured credit card route. Basically you front the cash as collateral for your own line of credit.

  53. patricia blaettler says...

    In regard to contributing to your IRA or buying ‘stuff’ at the age of 25: INVEST THE MONEY. Would you rather have a bunch of cosmetics jumbled up in a drawer or would you rather have financial security? The earlier you start the better you will do for yourself. It’s the beauty of compounding interest.

  54. Megan Lec says...

    Really into this series. For some reason financial advice can seem demeaning or parental and I love that her advice is grounded and real, as if from a friend that makes as much as you do LOL. My question is this, my husband has a small student loan, were talking under 20,000 left. He works for a University and is 3-4 years into loan forgiveness. We pay above our minimum but I’m wondering if we aggressively pay back this student loan or focus our efforts on saving up for a house, invest. etc etc. This has been more of talking point between us lately because of our current political climate and the fear that loan forgiveness may be non existent in the near future.

    • Cooper says...

      I (and many of my colleagues) are relying on public service loan forgiveness, and from what we’ve learned, the forgiveness aspect can’t be taken away from current debtors – it just may not be extended to future student borrowers if the program is discontinued. I would calculate how much you’ll end up paying if you keep making the minimum payment until you hit the ten year forgiveness mark. We did this for my husband’s loans and realized that we’d end up paying way more if he stayed enrolled in an income-based plan and waited for forgiveness than if we just made the standard payments and paid it off earlier. Ugh, student loans are such a pain!

    • Megan Lec says...

      Great advice! We will have to look into what over the years we will eventually pay, especially with income based payments going up over time.

    • Alex says...

      Just don’t forget that you will be taxed on what is forgiven as you are doing these calculations! That comes as a surprise to a lot of people.

  55. Nancey says...

    I am coming up on two years post bankruptcy due to a divorce (awful, I know) and have rebounded my credit to be very good, and in another 6 months can and want to get an FHA loan to buy my first house BUT I will need to take money out of my Roth IRA to do so, is this advisable? I would love to own my own home, such security in that. I currently rent. is this a solid idea?

    ps. being a single mom is SO hard, money wise I mean.

  56. Stephanie says...

    In regards to life insurance, its not that simple! That response sounds lovely but I got past the term vs. whole question about two years ago when my son was born and have periodically delved back in to making a decision but still no life insurance. 20 years is a long time to commit to an insurance company! Do they have enough history, how are their ratings for actually paying out, should I get 30 year so I don’t have to buy a new policy at a higher rate when my kids are just graduating college and probably not completely self-sustaining, which company do I go with when do many are rated well, how much coverage is really necessary? I’ve tried to sort through these issues for my husband and I for the last two years and with baby number two on the way we still don’t know what to do! I’ve used the calculators and they say I need 1.5m in coverage (each!) but that sounds insane, 500k or 1m seems like enough? How do you balance what’s worth it for a monthly spend compared to the coverage when you are hopefully (!) spending money on something you will never need!?

    • Laurel says...

      Stephanie, I work for one of the largest insurance companies in the US and we purchased our life insurance through a competitor. I would encourage you to get in touch with a life insurance broker, who is someone who has access to multiple companies and can find a good fit for you. They can also answer the questions you’re asking, and once you have an idea of what kind of coverage you need, you can broaden your search to other insurance companies who weren’t available through your broker. For what it’s worth, my husband and I are both in our early 30’s with one toddler and a baby on the way, both employed, and we are each carrying $2M in life insurance. It might be overkill, but we’re healthy, the rates were reasonable, and I’m so risk averse that I’m happy with the peace of mind that figure brings. Worst, worst, WORST case scenario, our kids would be taken care of without being a burden on whoever becomes their guardian, with hopefully money left over for college or a home down payment.

    • NSU says...

      a. You can layer on additional policies and b. You can always stop paying (and lose coverage) if your circumstances change. It’s worth having something and when your situation changes (example: you have another kid; your kids go to college) you can add coverage for a shorter term (today get 20 yr and in 5 years get a 15 yr policy). I used policy genius for purchase, but an insurance broker can answer these questions too. Policy genius will be cheaper — insurance brokerage is a dying business.

  57. Amy says...

    I’m loving this series. Money is something we don’t talk about enough even though it’s the basis for so much of life. I’ll take all the advice I can get. Thanks, Paco and Cup of Jo!

  58. Jennifer says...

    I would love to buy a book about women, personal finance from the European perspective. Any tips? I have one made for a USA audience, none of the things of which apply to a context in Europe. Thanks for any leads!

  59. I’m actually really good at saving, it’s just that I don’t have much of an income, hah! I’ve been unemployed since I graduated with my masters a few years ago and now home with our daughter. It’s kind of annoying knowing that I could save, if I just had something to save. (I managed to save 10k while flipping burgers at weekends during uni) My husband pays all the bills now and we put a bit to a index fund each month, but his income isn’t amazing either. I guess I really don’t have a question, I’m just a bit discouraged and feeling like we are getting no where even though we are taking good care of the money we have.

    • Erika says...

      Solidarity! I’m at home with our daughter, my husband is in a stable career, and we still barely get anything into savings. We thought we were making the right choices, money-wise, but it’s been really difficult to have some “fun money,” let alone a solid savings.

  60. C says...

    So my question is how to find truly good places to invest $$. Are there such places? I am not interested in investing $$ anywhere that is harmful to people, planet, animals… Any advice here? I have savings but 0$$ in any retirement plan etc and I am in my 40s.

    • Amanda says...

      I’m not sure if there are any retirement plans available, but I invest with Digit for savings and stock market learning. It’s built for new investors that aren’t that familiar with investing. You personally get to pick what company you want to buy shares from so you can research their values and environmental/wage policies before you decide. I think there are other smaller companies offering the same thing as well that I’m not personally familiar with.

  61. Kate Dixon says...

    Love the column. I’ve just had my first baby & would love advice on how best to save for their future. I have just bought my term life insurance (!), but was also looking at saving for college / a friend I know started a pension for her little one… what are the best mechanisms, where do tax breaks help, I’m totally lost!

  62. Kristen says...

    Please please keep featuring this topic and more often! :) And I wish Paco was my best friend so she could advise me daily and fully.

  63. Susie says...

    We have two term life insurance policies. I really, really wish we would have done it differently and gotten one term and one disability policy. Chances that you’ll use the disability policy are greater than using the term. My husband had leukemia a couple years ago and is unable to work in his specific career due to effects of the intense chemo. Disability would have really helped out in our situation. Ironically,
    our agent called us to discuss disability just one month prior to his diagnosis and we declined coverage.

  64. Christina Matekel-Gibson says...

    My question is about paying off debt. I’m pretty terrible at budgeting, but I tally up my bills, make sure I have enough to pay, and then put the rest in savings/pay off cards. My debt includes one credit card, a year of a car loan, and many student loans. How do I know whether to pay off a credit card or add to savings first? I want to have an emergency fund in case of car trouble or emergencies, but I also want to get rid of all debt aside from my student loans. Eek!

    • Elle says...

      REAL TALK (second this question). For a year I aggressively paid off student loans and then found out they were applying these payments only to the interest! Now I am thinking it would be better to simply save and then pay off each smaller loan chunk by chunk rather than increasing my monthly payment. Or is the rate low enough I should just live saddled by debt and use those savings to invest in stocks/things with a higher rate of return?

    • Stacy says...

      https://undebt.it is helpful for prioritizing paying off multiple debts + figuring out how quickly you can speed up that process.
      Dave Ramsey recommends at least $1000 emergency fund to start, then paying off all debt, then building out a 3-6 mo emergency fund.
      My husband and I put aside our $1000 emergency fund, then paid off highest interest debt, then built out 3 mo emergency fund (while slowly paying off other debt), then paid off the rest of the debt, then build out a full 6 mo emergency fund. We use YNAB religiously. It’s so freeing!

    • Carol says...

      I’m not an expert, but the rule I was always told to follow is to go with whichever has the higher interest rate. For example if your credit card charges you an interest rate of, say, 15%, but your savings account only earns interest of, say, 5%, then it makes sense to pay off the credit card first.

    • Elizabeth says...

      I set a “bar” for my emergency fund. I notice my anxiety level decreases when I have 5K in the bank so that’s the number I went with. It’s not a magic number, I just feel better about it. It’s about two months of expenses for me, without any luxuries added in so maybe that’s why. While I was saving my 5K I paid my minimum debt payments off and then after I had my 5K in the bank I threw 100% of my extra money at our debt (Car, Student Loans, CC) and got them knocked out of the park. It was nine months of no fun ever but it was so good to get it out of the way. Now when I have spare cash I divide. 1/2 goes to savings and 1/2 goes to travel. Once my savings account hits 20K I’ll switch the savings to investing but I want a 20K cash cushion. This doesn’t happen overnight…I’ve been doing this plan for like…years now. The key is I haven’t been sidetracked much.

    • Emily L says...

      Dave Ramsey has some great thoughts about this (not everyone agrees with his method, but I do and it has worked great for me). Basically you make sure you have an emergency fund of $1000 then put together your budget every single month and put everything that’s not bills/essentials towards your lowest total to get the “snowball effect” of paying things off. My husband and I started this plan 2 years ago with 3 credit cards, two car loans, and student loans for the both of us, for a grand total around $110,000, and now are halfway through that. His budgeting tool, Every Dollar, has been wonderful for us.

      http://www.daveramsey.com

    • Ali G says...

      Full disclosure – not Paco :)
      Pay off your credit card first and foremost. The interest on that is going to be higher than your car or student loans (most likely) and it’s the most damaging debt in terms of your overall credit score.
      If you can pay off the credit card (not min payments only) and contribute to savings do that. But until the credit card is paid off only do min payments to student loans and your car payment.
      In terms of the car and loans, most people would advise just making the min payments and putting that extra money into savings. The only mitigating factor is if they add up to a situation where you are paying a large % of your income to them and you are looking to buy a house or something. But if you aren’t interested in taking on more debt anytime soon, it’s fine to just make min payments and build up your savings.

    • Katie says...

      I struggled with this for many years. Pay off the debt aggressively before saving is my advice. As one commentor noted, make sure your student loan payments (at least some) are going towards the principle. If you don’t know, call and ask. I don’t like mint.com for budgeting, but I love their loan payoff calculator. You can see how many years it will take you to pay off your loans by only paying the min. I ended up refinancing with Sofi and loved the service. My interest rate was exceptionally high before I did, and until I talked with a girlfriend going through a similar situation, I didn’t know I could refinance for a lower rate. Also, mrmoneymustache.com is great for financial tips. He is a bit fanatical when it comes to paying off any and all debt before buying anything non essential. I liked going to that site when I had any “treat yo self” urges. Sometimes it was a splash of water in the face to remind me I didn’t need to. Full disclosure: I still bought non essentials once in a while, I’m not a robot!

    • cgw says...

      Lots of good perspectives ^ on the approach to which loan to pay into/off first. The one thing I’d also find out is which of your loans (school/car, etc) allows you to direct where the funds go. For instance, with my mortgage, I pay off the interest each month, but I also added a bit more and designated that for principle. See if any of your loans give you that option.

  65. Abbie says...

    I love Paco’s voice. What an approachable and fun discussion about very overwhelming topics.

  66. Liz says...

    Thank you for having this Q&A series. It’s the best!

    I’ve been debt free pretty much my whole life, but recently went back to school for a post-bacc program. Unfortunately, I had to take out private loans to pay for school because my program doesn’t qualify for fafsa. I have a little bit of money in a Roth 401k and a regular 401k from previous jobs. Should I take that money out to pay back some of my current loans to avoid getting hit with so much interest in the long run? Another note about my situation – the post bacc program is 2 years (I need to take our loans for each year), then depending on how things go, I could be looking at med school after that which would mean even more loans and I’ve heard horror stories about trying to pay back student loans which is why I’m freaking out about now!

  67. Gwen C. says...

    A question I would love to know the answer to is how much percentage of your salary should be spent on rent? And how much its ok to deviate from the norm depending on where you live (NYC vs middle of nowhere) and how old you are (right out of college vs thinking about starting a family). I’ve heard people say 30%, but as someone who will make less than 40k for the next 5 years that is significantly less feasible for me.

    • Joanna Goddard says...

      great question! i’ve always wondered this, too.

    • RashmiKrishna says...

      That’s a great question that I have often wondered about and failed to get an answer. So I did a back calculation. I believe in saving/investing 30% of ethg I earn. Rest 70% is to spend on ethg else. As long as my rent fits in and I have spare at the end of the month, I am happy.

    • JB says...

      30% (of a household’s income) or more on rent is usually considered ‘under rental stress’ especially if on a low income wage… but in more expensive cities it can be hard to not reach that threshold pretty easily…

    • surely there is no rule, it’s too subjective. First of all, how much can you afford to spend on rent? What are you willing to sacrifice in return? How important is it where you live? I live in London and spend nearly half my salary on rent because I don’t want to spend money and especially time on travel. I work from home a lot so where I live is pretty much the single most important thing to me. In return I don’t eat out, I don’t really buy clothes and I’m not saving for a down payment. I’m also single and not responsible for anyone else so I can choose to spend my money as I please :-) I think it’s all about priorities and lifestyle choices.

    • Karen says...

      I’m on the same boat, Gwen!!

    • Sandra says...

      I hear you, Gwen! When I first moved to Chicago in the mid-90s I was making about $24,000 a year, but spending close to $500 a month on rent for a teeny, tiny studio (and all of my friends sharing places were paying more per person, so that might not have helped). After taxes, health insurance, and 401K (my parents advised me to at least contribute enough to get the full company match) there wasn’t much left over for fun! Just personally I’d say find the cheapest place you can in a neighborhood that feels comfortably safe to you. But just be really careful with budgeting so you don’t end up in credit card debt (which did happen to me for a while).

      Looking back I have never regretted not spending MORE on rent. Even going into the 2000’s I never spent more than the high $600s on rent (super crappy run-down places, but in great, relatively safe neighborhoods).

  68. Rose says...

    Yes, I would like to echo everyone on the student loans dilemma. My husband and I have quite a large amount between the two of us and we’re fortunate that we are both working and can afford to pay on them and make some extra payments. Do we pay the loans off faster? Invest? Put into savings? Consolidate the loans? HELP!

    • Anna E. says...

      This is not too difficult. It depends on the rates of each thing you ask about: look at the interest rates and think of them as “plus’s” and “minuses” toward your cash flow.
      Student loans are anywhere from (-) 3% (if taken out early 200s’) to (-) 6.5% for federal, and higher for private loans. Investments (I assume you mean the stock market) have been shown to average (+) 6-7%/year, over 20+ years (volatile!). Savings accounts typically don’t yield above (+) 1%/year.
      SOOO, if you have student loans or mortgage at (-) 4.5%, pay those off FIRST! Try to invest extra cash (401k, 403b, etc), second, at the same time you pay off loans so you don’t lose out on compounding over time (+++). Emergency cash should be last (like a savings account); but hopefully you can build up 2-3 months’ salaries as an Emerg fund, then stop and put all extra cash to paying off loans. It’s all a +/- game to come out in the (+) category.
      I have ridiculous medical school loans, but I still save for retirement and in 5 years I will have my loans paid off but I won’t be too far behind for retirement goals. It’s a balancing game, a patience game, and a discipline game (don’t buy a fancy car or jewelry!) Stay with it!

    • Elizabeth says...

      I wouldn’t consolidate your loans with your husbands loans for one reason – student loans are only forgivable by death and if something happens and you’ve consolidated together then you loose the ability to drop their loans.

      I would save until you have a decent emergency fund (our “Still in debt” emergency fund was 5K), pay off your loans as fast as possible (we cut our lifestyle down a LOT to drop 25K in debt in 9 months – we make about 100K a year pre-tax between the two of us), and now we’re saving up for a larger emergency fund (20K).

  69. Morgan says...

    I love her. It’s a wonderful addition for the CoJ community – women learning from woman how to manage money. ((Cue angels singing on high))

  70. nala says...

    Love this series! Wish it came around more often. And ditto again to the student loans. I’ve been carrying them around since 2005 (a laundry list of reasons why I’ve never been able to contribute extra). I’m so so sick of them and they make me want to barf. Help, Paco!

  71. Angie says...

    What a great column! I actually work in finance as an investor but honestly I know I have a lot to learn about personal finances. You would be surprised at how many of my fellow finance friends have zero idea what to do with their personal finances – many of them don’t even have a 401k! It’s shocking. My question – I make a decent amount of money now but I don’t want to be in this field forever (mostly bc I can feel it taking the years off my life). I don’t know if I’ll stop doing this in 5 years or 20, but what I do know is that I want to save and invest as prudently as I can now so I can one day take a job for passion, not pay. What would you suggest? I have a 401k that I max out and a small personal account that I trade a few stocks in for fun. I also save at least 20-30% of my income on top of that but it sits in a fairly low interest savings account (I can’t qualify for the higher interest rates ones because I’m in the US on a work visa). What else should I be doing? I’ve paid off my student loans and have no debt.

    Disclaimer: I am aware that this may sound like an out of touch post, and that is truly not my intent. The truth is that I am miserable in my job but hope to optimize my savings and investments now so I can GTFO as quick as I can. Any advice would be much appreciated!!

    • Stacy says...

      Great questions about prioritizing for those of us who have finally freed ourselves of debt and are wondering what’s next. Thank you!

    • Jane says...

      I hear you.

    • CL says...

      Angie, check out people practicing extreme early retirement which allows you the ability to “retire” and take a job out of desire, not the need for income. Mr. Money Mustache is a great place to start.

      Basically the higher your savings rate, the faster you can stop working. Ideally you’re investing in low-fee index funds like Vanguard, something Paco has mentioned. Good luck!

    • gk says...

      Get ye to the world of FIRE (financial independence/retire early)! There’s a whole world of people out there with your mindset. Specifically, Frugalwoods, Mr. Money Mustasche, and Our Next Life. You can go down the rabbit hole from there :) For books, Vicki Robin “Your Money or Your Life” is the one I always see recommended.

      Generally speaking – keep your expenses low and invest in low-fee index funds (not trading individual stocks – which is fine for fun, but not for the bulk of your portfolio. Vanguard and Fidelity are good options).

    • Erika says...

      Check out “Your Money or Your Life” by Vicki Robin. I’m not in the same boat as you at all in regards to money (but you go! Seriously, kick ass.), and this book seems to have a pretty wide reach. I’d love to see my husband and I retire around 55, and this book was helping me wrap my head around expenses and investing.

    • Amanda says...

      Depending on your modified adjusted gross income, you can contribute up to 5,500 /year to a Roth IRA, in addition to your 401k plan. However, the minimum age to withdraw from this account type is 59 1/2 so you may want to take that into consideration if you’re looking to retire early. The benefit though is that you can claim this on your taxes so you’re taxable income is reduced. You may even be able to move to a lower tax rate overall depending on your income minus 401k, Roth IRA, and other pretax contributions. This would leave more room for saving now so you can leave your job earlier . Good luck!

    • SN says...

      I have a similar question; I know it’s a privileged place to be, but my husband and I have a comfortable income, no debt (live in a big city, so we rent), max our 401(k) and put away a chunk of our income into building our savings. How should we invest after we make out that 401(k)? What other things should we be doing with our money?

    • Amanda says...

      Not you’re – YOUR taxable income. I just pet peeved myself…oh man. And that’s what happens when you listen to podcasts while typing.

    • christina says...

      +1 this post – my husband and I worked really hard to get the emergency fund, have no debt except for our house, we save the recommended amounts for retirement, do a little traveling, etc. But we constantly ask what we should be doing with excess. Max out retirement contributions? Put all the extra towards paying off the house? Save more for daughter’s college? What’s the max we should have in liquid before we start investing (OUTSIDE of our retirements)?

    • Brianna says...

      For those of you who have paid of debt, are maxing out 401ks, and generally kicking butt in savings – congratulations! We all hope to get there one day.

      My advice would be to immediately find a financial advisor you like and trust. The first chat might feel like an interview but remember that it goes both ways – you are interviewing THEM for the PRIVILEGE of helping you with your finances. The relationship has to be comfortable and compatible – imagine you’d want it to be like your favorite friend you can text whenever you need anything. Your FA should be your financial BFF. They’ll be able to recommend the right thing for you, your budget, and the extra money you’re able to save. There are some truly awesome savings/investment vehicles out there and they’ll be able to help you find the right one.

    • Joanna Goddard says...

      oh my gosh, thank you for the head’s up! i asked her for a different recommendation and am changing now.

    • Daisy says...

      How about Bogle heads? They have a website as well as a book. They are extremely conservative when it comes to finances, but you could pick up a few pointers about finances.

  72. Rachel Jaiven says...

    Topic request: How do you know how much you really need for retirement? I hear big numbers and hope to get there, but how do you know if it will be enough? Budgeting, planning, how does it work?

    • Kirsten says...

      Oh wow definitely second this one. We are finally at a point where we’ve paid off some debts and are trying to think more big picture about savings for things like retirement and I feel so clueless! I can’t find anywhere that gives cold hard numbers!

  73. t says...

    salad and finances! we are adulting hard today.

    • Alexandra says...

      Hahhhhahhah !!!

    • Nadine says...

      Your comment made me laugh until I cried. Thank you!

    • K says...

      Hahahahaha

    • Alexe says...

      Ahahaha!

  74. Ariel says...

    Get the company match, at a minimum! I manage our company’s benefits and we allow even our interns to join in on our 401k plan. I know when you’re only making a little bit a month it seems like such a waste to even give a penny of that away for a hypothetical future, but it really is free money! When you get to the point you can, try to max out the IRS cap. It really does make a difference in the long run and the automatic contributions really make it so you don’t miss the $$$ each paycheck.

    I would also add to Paco’s advice to make sure you know what your company’s vesting structure is. That doesn’t change the essential advice (take the free money!!!), but knowing it now means you won’t be surprised when you actually go to exit the company.

    • Emily L says...

      Yes, agreed! At my first company I wasn’t vested until 3 years in (for those that don’t know, it’s the point at which you can keep their match) which played a roll in how long I stayed. My next two companies didn’t have any vesting requirements.

  75. Abby says...

    Can Paco (or a smart reader) clarify while life insurance? My husband owns a bit of it as it was sold to us as an ‘investment’. True? I’m a little bit embarrassed by my lack of understanding on this one.

    I agree with another commenter above – I’d read Paco’s column far more frequently than monthly!

    • Emily says...

      Our financial advisor recommended WHOLE life insurance as an investment as well (not purchased through this person, so I feel good about the ethics of that recommendation). While it can be expensive, but it’s truly an investment rather than a traditional term plan, depending on your situation.

      I was a bit concerned at that broad explanation of insurance, since whole can be a great option for some folks. But I understand she’s trying to speak to a really broad audience :)

    • Rashmik says...

      So life insurance can be one of the below:
      1. Plain vanilla term life insurance: you select a time period for which you want coverage and pay the premiums accordingly. If you pop off during this time, your nominees receive the sum assured. The sum assured should be at least one year of salary (thumb rule) and more depending on your financial conditions (loans/number of children/ dependent parents). At the end of time period, the coverage expires and that’s the end of it. You don’t get any money back.
      2. Insurance sold as ‘investment ‘: this is where there is a cover for death along with an investment component which earns you a return at the end of the time period. However, these are pricier than vanilla term insurance and in most cases you would get a higher return were you to invest elsewhere (stocks or mutual funds) because insurance companies charge high service charges.
      Hope this helps :)

    • KL says...

      I’d read it WAY more than monthly, too! And I’d be interested in some “deeper”, more intensive and advanced discussion on finances, especially from Paco!

    • Emily says...

      Whole life is an expensive investment option for most people—high fees and relatively low return. It might be good for people who need permanent life insurance, such as to cover the care of a disabled child, or for high-income people who have already maxed out contributions to their 401(k), IRA, etc.

  76. Stella says...

    I love that you are doing a finance column. The only thing that made me raise an eyebrow was the section on insurance. While I 100% agree that for the VAST majority of people, whole life insurance is a mistake, I can’t agree with the wish-washy sentiment about term insurance. YES, most individuals will lose the game because that’s how insurance companies make money, but there is something to be gained from the peace of knowing should something happen, your children are taken care of. I feel it is irresponsible to not strongly consider term insurance if you are a single parent, or if only one parent is providing the income. I have stayed at home for 10 years, should anything happen to my husband it would be difficult for me to provide the resources immediately to support my children. Term insurance bridges the gap until our savings covers those needs. Of course this is taking into consideration all of your current needs are met first (a home, food, etc), but I place term life insurance very high on the list of financial priorities. Not too much, just enough to get by and take care of any NEEDS (not wants) of minor children.

    • Joanna Goddard says...

      oh i think she’s highly highly recommending term insurance for 85% of people, and saying that the others might need whole insurance. she’s very much pro insurance!

    • I read this and was left feeling similarly unsure if Paco thought it was a good thing too. Really interesting column though :)

    • Cameron says...

      I’m a young widow – my husband suddenly died 5 months after our son was born. I encourage all families (especially those with young children) to look at life insurance and have a plan – without the life insurance I shudder to think where I would be. And he was perfectly healthy at 33. It can happen to anyone.

  77. Sarah H says...

    Ditto!

  78. Hannah says...

    This is so helpful! Can we see something about paying off debt (credit cards, student loans) vs. putting money into savings?

  79. Lindsey says...

    I really appreciated the life insurance question and answer!! Also curious about:
    1. What do you think about those free financial consultant services that banks offer? Is it too good to be true?
    2. What do you think about Dave Ramsey and his financial system?
    3. I have a savings account and a retirement account. But am I supposed to be saving some other way?!
    Love this column! THANKS!

  80. Irina says...

    My husband and I have a ton of credit card debt, due mostly to medical issues. We try very hard not to incur more debt and are implementing some cuts to our monthly expenses as well as finding ways to increase our income. However, even just the minimum payments eat away a very significant chunk of our income each month (we pay a bit more than the minimum each month but can’t afford to pay much more). And, with no savings, unplanned expenses like car repairs and vet bills have to go on a credit card.

    Any suggestions for what we can do to get ourselves out of debt? We already took out a debt consolidation loan for approximately half of our credit card debt. (I did the math, and taking out a loan for the full amount of our debt would have resulted in monthly payments that would not be manageable for us; plus the interest rate was going to be almost as high as our credit card interest rate, so it didn’t make sense to do that.) I also utilize balance transfer offers occasionally.

    It stinks that we’re spending our “best” years (30s/early 40s, no kids) living hand to mouth when we could be, say, traveling or investing in home improvements.

    • Michelle says...

      Have a look at borrowing from your 401k.

    • Irina says...

      I will definitely explore borrowing from our 401K, thanks, Michelle! Unfortunately, the amount currently in there is less than our total credit card debt. And, it’s actually not a 401K but a 403B (I think) although I don’t know if it makes a difference. Still, worth looking into. If we get rid of our credit card debt now, it will allow us to start building up our savings again.

    • j says...

      i would not recommend borrowing from 401k. most of it withdrawn will be lost through tax penalties for early withdrawl. suze orman fan here. medical debt and credit card debt can be rid of through bankruptcy in a pinch though not an ideal scenario i realize. your retirement is protected from bankruptcy and these savings need time to grow to safe guard our futures. i too sometimes wish my financial reality was different, i just took a 20k pay cut switching jobs to stay in my desired community. however, it helps me to remember everyone has their own constraints and if we aim to work within instead of against it can be possible to achieve our goals. :) good luck.

  81. Emily says...

    GET YOUR EMPLOYER MATCH ON YOUR 401K!

    If you skip it, you’re turning down free money. Also, by starting early, you’re building a good habit and benefitting from compound interest. If you’re in your 20s, putting just a little aside can turn into a sizeable nest egg over 40 years. And it’s really not that match. Let’s say your paycheck is $1000. Setting aside 6% of that is just $60!

    Even when I was an 18 year old bank teller, I contributed enough to get the maximum match. And I try to use my annual raises to increase my contribution, instead of getting into lifestyle creep.

  82. I have no questions but just want to thank you for introducing Paco to us! I love that she is also a musician and has a non-profit. You go, girl!

  83. LOVE this column and super excited about future installments!

  84. jen says...

    Great column Paco – please have her more often. My financial advisor said the same words…protect against loss, not gain. It has served my husband and I well. Recently was trying to explain to a friend that was sold a “gain” insurance …not sure she completely understood. Reason to find the right financial advisor…or as mine likes to be called…life planning advisor. She helps us with our finances, insurance, wills, POAs, 401K contributions…and goals for short term and long term as we change jobs, etc. We interviewed 5-7 different advisors until we found the one that most matched our ideals and understood our financial goals. Lots of work…but it has paid off in the 10 years we have been seeing her.

    • Alli says...

      Any chance this financial angel is in the Bay Area, or does online consults? :)

    • Maggie says...

      I am a Cerified Financial Planner in the Midwest.
      There are a lot of qualified advisors out there! Every single comment above are things your advisor should be answering and providing guidance on. People need to ask around for referrals and take a couple of (free!) first meetings until you find someone you click with. At this point in my career, I basically feel like I sit down with long time friends all day and provide them with guidance in life, which happens to include a lot of major financial decisions and questions. So glad this important subject matter is being addressed on CoJ. Your financial health is right up there with your physical and emotional health (and often very much so intertwined). Go get personalized financial advise just like you would go get an annual check up with your doctor. It’s an adulting thing ;)

    • Roons says...

      HI-Would you be willing to share more about how you interviewed the advisors? Did you already have your financial goals set before the interview process? Did they help? I know I need help, I’m very wary of the sales aspect of financial advice.

      Love Paco-I too, would love to see this more frequently

  85. Amy says...

    Regarding term life insurance: My husband and I have similar incomes and one child. We each have a 20 year term life insurance policy with enough coverage pay off our home mortgage (biggest debt and monthly expense) plus a little more. This is lower than the amount recommended by most “experts” but works for us. The rationale is that the surviving person (so morbid) could comfortably continue to support our daughter (including college) with his/her current income if there was no mortgage payment. Ironically, as we pay down the mortgage over the years, the value of our policy as we would intend to use it increases!

    • Emily says...

      Same here! Sometimes I worry that we’re underinsured, but at the end of the day, I’m comfortable with the decision we’ve made.

  86. Lu says...

    Loving me some Paco! More please! Gimme gimme!

  87. gfy says...

    I also love this column, but the answer to Q#2 did not answer the question for me. Is it or isn’t it a good financial decision for a newborn?

    To put a finer point on it: Is there a better way to invest the same amount of money that one might spend on a term life insurance policy or is that the best possible gift for a new baby? I would consider an index fund, for example (are the potential rewards in 20 years better than a life insurance policy one may never use? or worse?), a college fund, etc…Thank you!

    • Sydni Jackson says...

      Agree that this question was not directly answered

    • Kirsten says...

      I was so tickled that she picked my question to answer but yes–I am still wondering about what you articulated in the second half of your comment! Obviously it matters less for us, since we’ve already received this gift, but I’m so curious to know. Maybe it’s just a risk calculation–potential market volatility that might pay off versus a for-sure reduction of loss in the case of something catastrophic?

    • Lu says...

      Something to consider – money in your child’s name may disqualify them from financial aid for college.

  88. Danielle says...

    I love that COJ is including a column like this. One thing I would comment is that so much content for money, finance and investing is often more accessible for people with “a lot” of money. I’d love to see some advice for folks who are on seriously modest incomes. I was in no position to even have a savings account until my late thirties and that was with little debt. The class divide between financial knowledge seems to grow bigger all the time. People who have money make more and people who don’t well, don’t.

    • Amber says...

      THIS! What Danielle said :)

  89. Kelly says...

    My job matched my ira contribution at my first job up to 3% so I put that money in to earn this so-called “free money”. After I left that job, I couldn’t keep contributing to the company plan and what little money was in there was eaten up over a few years by “maintenance fees”. First jobs out of college don’t pay very much, nor do people tend to stay in them long enough to put away a real nest egg. It retrospect the whole thing felt like bad advice and I would have been better off having that extra income for a slightly better quality of life on my meager salary.

    • Rae says...

      Rolling over your 401k (whether roth or traditional) into a low-fee IRA is critical if you leave a job and go to another that does not have a 401k. Vanguard has extremely low fees for IRAs and is a great option for rolling over an old 401k. Your previous company did not want you to stay on their 401k plan and basically passed on a ton of fees to you in order to get you to leave. This was my experience working in HR. Companies often do not want you to stay on their 401k plans once you leave the company and will pass on fees to you after you have left that they were paying for you when you were employed at the company.

    • Emma Bee says...

      Eek, you could have rolled that 401k into a fee-free Roth IRA or a different employers 401k!

  90. Elizabeth says...

    YESSSSS all Paco all day!

    For real though, I think part of the reason this feature is so great is that it’s not too long and doesn’t run too often. It makes a daunting topic easier to dive into. I’m so glad Paco is here!

    Finally, I would also love some info on the merits of paying off student loans early. I paid $4k in student loan ***interest alone*** last year.

  91. Charlotte K says...

    Never had an employer match until well into my 30s. TAKE the match, kiddo. Compound, compound, compound. Also it may be taken out pre-tax so you won’t be paying tax on it until you are older and your tax bracket is probably lower.

  92. Tal says...

    This column is great! Paco, I would really like to hear more about your opinion of term life insurance. It’s something my parents have been begging us to get once we had children. What is enough savings to exclude thinking that term life insurance is necessary for funding two college educations etc. in a worst case scenario? And what is the right amount of term life insurance to consider?

  93. anne says...

    I love this column! I would like to second the call for some info about student loans… If I can, should I pay extra? Or is it smarter to put that money into some sort of investment situation knowing that I won’t get a better rate of return right away, but over time it would grow? I am just getting out of graduate school and have my first proper job with actual money and am kind of freaking out that I’m going to screw all of this up! I basically just had enough money to live off of for the past 7 years… what do I do with extra now, betting that I’m going to be single for the long haul here, so that I can still do what I want to do with my life?! Can you tell I’m a little bit panicky here??

    • Lindsay says...

      My non-expert advice: if your investment has a lower interest rate than what you are paying in interest for your student loans, place the money towards the student loans. Otherwise, you’ll be paying more interest on your student loans than you’d make on the investment. But it is recommended to have some money stashed away in a rainy day fund before you start putting extra funds towards paying down debt (beyond the monthly payments). I recently paid off my student loans, and it feels incredible! I saved enough in savings for me to justify paying beyond the monthly payment. Then slowly and slowly, I watched the principal lower (and it started to feel a bit like a challenge on how much I could save that month so I could lower that principal). But an end is in sight! You can do it!

    • writergirl says...

      Yes!! I’m 12 years post graduation and my husband is 10 and two years (undergrad and graduate, respectively) and we are still knee-deep in student loans. Any advice would be helpful.

    • Jenni says...

      I second this! Like you Anne, I am also just our of grad school. One year total so far after five years of undergrad and grad. I did get a six month grace period before I had to pay back loans though, which was helpful to use the time to check out payment plans. Maybe you have the same grace time too? I want to know what would be better- saving less now and paying off more of my student loans, or paying the recommended amount and saving a couple hundred more each month, or something else? I am only 6 months in to paying off a 10-year plan so this would be a useful question to have answered by Paco. I know the readership of Cup of Jo might be much older than my 23-year old self so perhaps it could be tailored to what advice parents of college bound students could give if their child (or themselves) takes out school loans?

    • Alex says...

      They should write about this. But in the interest of time my advice to you as a CPA is 1. Pay off any credit cards first and foremost (while making the minimum payment on your student loans). 2. Put away money for savings simultaneously to paying off your loans, a small/moderate amount so if you want to also put a slightly larger payment to your student loans too. 3. Put that savings or a portion of it in an ETF. I believe e trade and some other accounts are free or like ridiculously low fees and you need 1k to start an account. For comparison, acorns says they’re low fees and they down low (1$/month/ but these others are much lower even. Seriously. 4. I wouldn’t fret too hard about paying off your student loans faster unless you can do it significantly faster/reduce the time by several years. My reasons for this is it’s simply good common sense to have a savings and it’s common sense to invest it in reliable funds. Student loans are gargantuan and it can be overwhelming to try to pay those off faster and if all your money is going there first you will not have any cash/fluid assets to back you up when you need it. Hope this helps :)

  94. I haven’t been commenting much lately, but I couldn’t stay silent on Tony Robbins: https://www.scarymommy.com/tony-robbins-me-too-sexual-assault-survivor/.

    Second, I’m a freelance who is barely making enough to pay the bills, let alone save anything. How can I prepare for retirement when I’m not even living paycheck to paycheck because there are no paychecks? There’s just income periodically.

    • Joanna Goddard says...

      thank you for sharing this! changing the book advice now.

    • Erika says...

      Maybe a % system? So each time you get paid, even if it’s 5%, you just transfer it into a savings account. And then after a pre-determined amount of time, look into transferring that money into an IRA.

      It’s a daunting process, but this might be a good first step?

  95. Liz says...

    When I moved to the city in 2019 I made barely a working wage for NYC but I did take advantage of the 401K and only contributed to getting the max matching which was half what I was putting in. After 4 years I quit that job and started a new account with a new company and forgot about it. In total, I contributed $14K, less than $300 a month average. Looking at my account balance today it’s at $60K…. take the FREE MONEY and let the fancy finance people grow it for you. The whole compounding thing really does work.

    • Joanna Goddard says...

      that’s incredible, liz!!! good for you!

    • s says...

      Ummm time traveler? We are still in year 2018.

  96. Shirley says...

    Love this column and Paco! Just to throw in my 2 cents regarding the 401(k)- I used to work in HR and benefits- start EARLY- compound interest works in your favor, so the earlier you start, the more money you will make in the long run. If you wait until your 30s you will need to invest ALOT more money than if you had just contributed 3-4% starting in your 20s (or as Paco suggested, the minimum that your company matches). I was lucky enough to heed this advice, and I now have around $300k in my 401(k) as a 41 year old. This includes some very generous matching and pension plans, but there is NOOO way I could have saved up this much had I not started in my 20s. Best thing I ever did in regards to finances. Even starting with a minimal salary (mid-$30k) I saved the company’s matching- you will never see it anyway and it’s better to pay yourself first! Also- you will turn 40 in the blink of an eye and don’t want to regret not saving $ for retirement that is right around the corner!

    • jane says...

      Here is my question riffing off this theme: If you did not contribute in your 20’s or even 30’s, can doubling or tripling (actually, just tell us how much would it take, in a chart maybe) the contribution in later years make up for it? Thanks!

    • Veronica says...

      THIS! Just google “retirement savings 20 vs 30”. Check out the charts – even saving a tiny bit each month starting at 20 will hugely pay off! Don’t wait!

  97. Sarah says...

    Paco,
    Thank you for your awesome column! I also wish it were more often than once a month!!

    What are the most common financial mistakes or scams people fall for? I pride myself on my financial health, but I’m terrified one wrong move can jeopardize everything I’ve worked hard for.

  98. Charlotte says...

    Thanks for the book recommendation, I just reserved it at my library. It sounds like the intro to investing that I’ve been looking for too!

  99. Anne Kofmehl says...

    Love this new column! A couple topics I’d love to see tackled in a future post:

    1) student loan debt–I’ve got loads (both private and federal) and probably could be managing it better, but I don’t know where to begin.
    2) finding a financial counselor–my husband and I are newly wed, though we’ve been together for a while (5 years, lived together for 3), and are starting to merge our finances more than we have in the past. One of our goals is to seek the advice of a counselor on topics like investment and the above mentioned debt. Any tips for finding a good one?

    Again, I am so glad to see this topic have a dedicated space on a blog like this. Money matters are tough and the more we normalize the conversation around these topics the better!

    • Sara says...

      You can check out AFCPE.org to find an accredited financial counselor (AFC).

    • Kathryn Farwell says...

      I’ve been working with the Financial Gym for the past 4 months and can’t say enough about them. The benefits well out-weigh the monthly cost, especially when I take into account the financial strides I’ve made since I’ve joined. Bonus points – they’re a female-founded startup.

  100. Essss says...

    I really love the book The Index Card for an accessible overview of investing, and other financial rules of thumb!

    • Lizzie Cogan says...

      Yes! “The Index Card: Why Personsal Finance Doesn’t Have to be Complicated” so clarifying and simple.
      From an excerpt of a review on Amazon:
      …4-Never buy or sell individual stocks. 5-Buy inexpensive well-diversified indexed mutual funds and exchange-traded funds. 6-Hire a fee-based fiduciary (avoid commission-based financial salespeople). 7…

  101. Allison says...

    If I want to work with a CPA or a financial planner, how do I find a good person? My friends are not really able to invest money at the moment, so I don’t have anyone to ask for a personal recommendation. What kinds of questions should I ask at our first meeting to evaluate their expertise? I’m looking for someone who can look at my husband’s and my retirement contributions/accounts and evaluate if we are saving enough for retirement.

    • Veronica says...

      I second what Allison asked! Do I just google “fiduciary” and call someone who says they are one? When does someone need a CPA vs a Financial Planner? (For me, I’d want general advice on how much to invest and where, both within my retirement and for other investments and to look at our overall financial picture and make recommendations based on our goals.)

    • Maggie says...

      A CPA is an accountant. They mostly help with things like taxes and payroll. Some CPAs also provide financial planning, but not all, and for some, it’s ancilliary to their accounting practice.
      A CFP is a Certified Financial Planner. You can go to the website and search for CFPs in your area. By definition of the designation, they are held to a fiduciary standard.

  102. Tricia says...

    I <3 Paco. That is all!

  103. AzureSong says...

    You should at least contribute up to the matched amount. In the future, try to increase to the government cap.

    If you are an income earner, I would look into getting a 20 year term life insurance on you too. If you are not an income earner, it might not be necessary.

    • RBC says...

      Yikes! Non-income-earning parents contribute *significantly* to the finances of the household. What happens if the stay-at-home parent dies? At minimum, child care costs will skyrocket (unless you’re lucky enough to live in a country that has government supported childcare…) The main income earner may also find that their income decreases as they have to dedicate more time to child care and household responsibilities. My husband and I have 4 children and I’ve gone through periods of working full time, doing a masters degree, part time work, and several mat leaves (thanks Canada) over the last 8 years. My husband has a much higher earning potential than me (MD VS. My non-profit work) so he has a $1M policy – but I still have $. 5M. I will note that our premiums are the same becasue I have a health condition – mine is congenital so it getting the policy earlier wouldn’t have made a difference – BUT getting life insurance whole you’re younger and healthier is easier and cheaper! Also, maybe it’s different in Canada, but the standard term I was offered is 25 years.

    • Savannah says...

      My expertise is low but I have a stay- at-home mom friend who has a policy while her kids are young because paying for a full time daycare is pricey if something happens to her! Add cooking and a cleaner if other parent is unwilling or unable and that money would get spent right up!

    • jones says...

      If you are not an income earner and have kids you should think seriously about a policy too. The income earner would likely have to adjust work or hire help if their spouse passed away.

    • Cynthia says...

      We took out an insurance policy on myself when I was a stay-at-home mom. If something had happened to me, my husband would have had some money for daycare.

  104. Michele Fruits says...

    Paco is a great addition to an already entertaining blog. Thanks!

  105. Lisa says...

    Great article! I am a physician and pay for disability insurance, and I too have to remind myself that insurance is to protect against loss, it is not for gain. I can’t wait until I have enough saved so that I can cancel the policy!

    • Louisa says...

      This gives me another question for Paco: wth is disability insurance, why do physicians need it (I think I know the answer), and do I?

  106. Carrie says...

    I feel awe struck over the accountant I work with, like everyday. She is so money/ImportantLifeStuff-wise, much like the cool chick you just introduced us to. I can’t think of a better skill to have besides, perhaps, having a kick ass singing voice. Now back to re-reading this post a few more times so I can glean as much wisdom from it as possible ;)

  107. Taylor says...

    My only complaint is that this is a once a month column! I’d love it to be once a week or twice a month! I have so many money questions!

    *runs to buy the Tony Robbins book*

    • Cara says...

      Ditto on this!! Once a week! All the financial help we can all get.

    • Lynn says...

      Agreed!

    • yes please to once a week! love that a popular blog like yours is featuring finance, Joanna. It’s so necessary and we can’t get enough help. Wish they taught managing your money in school

    • Lynn says...

      What was the name of the Tony Robbins book that Paco initially recommended? The recommendation was edited due to some readers objections