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As the saying goes, "More money, more problems."
Of course, the problems encountered by, say, a super-rich rapper are different from those of average office drones who finally receive the 4 percent pay bump they've been angling for, but they're no less vexing. Most of us may not have to worry about getting chain-snatched at the Met Gala, but simply navigating the world of personal finance brings its own set of headaches.
We wanted to get some simple answers to a few basic money questions. So we reached out to three local experts: Georgia Lee Hussey, founder of the progressive financial planning business Modernist Financial; Brent Hunsberger, a former Oregonian columnist and certified financial planner with Silver Oak; and Lillian Karabaic, author and host of Oh My Dollar on XRAY FM.
WW: What should you consider when deciding where to keep your money?
Georgia Lee Hussey: The first thing to think about are the legal and financial incentives of the organization you're contributing to. If it's a bank, it would be either a credit union, because they are keeping their money local and their personal loans to individuals and families are going to be within their community, or a B-corp bank, because they are going to have a strong incentive or mandates to loan money to underrepresented populations.
Lillian Karabaic: Don't go to any financial institution that charges you a fee for a checking or savings account. Ideally, the other thing you should look for is not having to pay an [automatic teller machine] fee or getting ATM fees reimbursed, which I think is a really nice perk.
Brent Hunsberger: Generally, credit unions offer the best savings rates because they pay lower taxes. And they're more customer-oriented, too. Some of the bigger banks may offer better mobile and online tools, but you will pay for that with lower interest rates or more transaction fees.
What should I look for in a credit card, and what's the smartest way to make use of it?
Karabaic: In a very general sense, the most important thing to look for in a credit card is one that you are going to pay off every month. Interest rates don't matter if you're going to pay it on time, completely, every time. You don't need to worry about [annual percentage rate]. I would recommend just getting a simple cash-back card, and do it based on what you spend money on. So if you spend a lot of money on groceries or gas, look for one that gives you cash back on that category. If you spend a lot of money on business expenses, maybe get a business card.
Hussey: Credit cards are designed to be oriented to the worst parts of ourselves as financial beings because they make impulse buys really easy. My recommendation is that if you want the points or the cash back, you put some monthly bill-pays on a single credit card that you don't use for anything else and you autopay from your checking account. Then have one other credit card you only use for things you already have the cash to pay for. I don't believe you should use a credit card in the day to day, because the structure is such that it makes you want to spend more money than you have. The points are never worth it—you're going to spend $30 to $300 more than you needed to that month, which is way more than the points are ever going to be worth.
I didn't start saving for retirement until my mid-30s. How screwed am I?
Hunsberger: Well, you're not screwed. You may have missed out on some valuable time, but as long as you continue to at least put enough into your 401(k)4 to maximize your employer match, if you have one, then you're doing your part.
Hussey: I would highly recommend considering hiring a fee-only financial planner. They can help clarify how much you actually need to be saving right now, and they can break it down into small, actionable steps.
Karabaic: The other big thing I see with people that put it off until later is that they started saving in their retirement, but they're not actually investing it. It's just sitting there in cash, and obviously you're not getting the benefits of compound interest. I see a lot of people that are like, "I'm not making good money now, so I shouldn't start saving for retirement." I didn't make good money for all of my 20s, but I had my Roth IRA and put $50 a month in there. At this point, the compound interest means that, based on the average rate of return, I'd be able to support my current lifestyle at retirement age without putting in another dime, because the money that's in there is making more money.
Other than the obvious stuff—health insurance, auto insurance—what insurance do I really need?
Hunsberger: It's probably a good idea if you rent to have some renter's insurance. It's not expensive, and it will protect your belongings in case something happens that's not your fault. I don't believe you need, like, identity theft insurance or some of those you hear offered just playing on people's fears. There are other ways to protect yourself in those regards.
Karabaic: Everybody should have disability insurance if possible. If you are injured or sick and can't work anymore, it will cover your expenses while you either retrain for a job or wait to get on permanent disability. A lot of people think workers' comp is going to cover them, but the vast majority of people who become disabled and are unable to work is actually from sickness, not workplace injuries. One of the other reasons, too, is short-term disability is the No. 1 provider of paid maternity leave in this country. Essentially, disability insurance provides you that option of being able to take some income and have some time with your kid, or recover if you have a c-section or otherwise traumatic pregnancy. And it's surprisingly cheap.
I want to buy a house but can't afford it on my own. What are my options?
Karabaic: If you want to go for some kind of nontraditional financing, like splitting with a partner you're not married to, then one of the big things to understand is that it really depends on who the lender is. Mortgage lenders are still very traditional in the way they approach things. So usually, if you are two unmarried people, both of your incomes will need to be high enough to qualify for the loan. If you are lower-income, which is below usually 160 percent of the median family income, there are a lot of interesting options through the Portland Housing Center. One thing that is available if you are on the lower-income side of the spectrum is buying a house that is part of a land trust. You won't own the land underneath it and it has to be preserved as affordable housing, but it will lower the total cost.
Another weird way to do it, if you want to split a multi-unit with friends, is to actually form a homeowners association. You can form a company, like an LLC [limited liability corporation], that you are equal partners in, for a duplex or triplex or something, in which case you'll be looking at business financing, which is a little different.
Save faking my own death, is there anything I can do to the ease of pain of my student loans?
Karabaic: The best resource I have for figuring out your student loan repayment options is maybe the only good government website, which is studentloans.gov. It has this really great calculator, and it will calculate all the different repayment options. There's a ton of different repayment options, especially for federal loans. There's income-based repayment, which will set it as a percentage of your discretionary income. There is extended repayment timelines there. There's a ton of different options you can do in order to repay your student loans, and you can play around with them.
Hussey: If you have a reasonable interest rate, let's say 5 percent or lower on your student loans, and you're able to deduct that interest and spread out those payments over a long period of time, and the principal is less than, let's say $40,000—I wouldn't worry about it too much. I would just pay your income-based plan. I started out out of college with $30,000 in debt and I'm delighted. I'm like, "Fuck it, I'm going to keep that thing forever."
If I take on a sudden, unexpected expense I can't immediately afford, what options do I have for paying it off without going into debt?
Karabaic: If you have a Roth IRA, you can pull your principal out. It acts as kind of a mini-emergency fund. If you have a large, unplanned expense and you don't have any savings, one option is to look for a personal loan through a local credit institution. Usually, something like a credit union will have low interest rate loans. Another option is the 0 percent initial offer credit card. The big thing there, though, is you will still have to pay a fee. Even though it's 0 percent, they'll usually charge about 3 percent of whatever that loan is. And then additionally, you need to make sure to pay it off before that 0 percent comes up—so within 12 to 18 months. Try to avoid things like payday loan and pawn shop loans, because essentially that's a 250 percent credit card.
Hunsberger: I think your best option there to avoid a loan is probably friends or family. They'll offer you better rates and maybe some sympathy.
Should I invest in cryptocurrency?
Hunsberger: No comment [laughs].
Karabaic: The short answer is "crypt-no." If you want to do it for fun money, sure. But bitcoin should not be your retirement plan. It is a risky market that is highly volatile.
Hussey: Anything you think is a bright idea you should not invest in. To me, investing should be really boring. If it's exciting, you're doing it wrong. Buy a really boring target date fund at Vanguard and just call it fucking good.
Glossary of terms:
Credit union: A member-owned, not-for-profit financial institution that provides many of the same services as a bank.
B-corp bank: A bank that meets a specified set of standards for transparency, accountability and social fairness.
Annual percentage rate: The yearly interest rate—as opposed to monthly rate or fee—applied to a loan.
401(k): An employer-funded retirement plan employees pay into from their wages. Employers may offer to match part of those monthly contributions.
Compound interest: From Investopedia.com: "Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods, and can thus be regarded as 'interest on interest.'"
Roth IRA: An individual retirement account set up independently of an employer in which contributions are taxed as you make them. With a traditional IRA, contributions are taxed at withdrawal.
Target date fund: From Investopedia.com: "A fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal… [where] risk tolerance becomes more conservative as it approaches its objective target date."
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