Afford Anything - How I Paid Off Thousands in Credit Card Debt - with Laura Adams, from Money Girl Podcast

Episode Date: May 14, 2018

#129: Laura Adams grew up in an upper-middle-class family in South Carolina, and her parents supported her through college. She attended her top-choice school, met her husband while they were still students, and enjoyed a charmed life. When she graduated, she continued to live at a lifestyle to which she felt accustomed. She rented a beautiful apartment. She took vacations. When she felt lonely, she comforted herself with shopping sprees. Unfortunately, her spending habits weren't aligned with her meager post-collegiate, entry-level income. Laura quickly found herself buried under thousands of dollars of credit card debt. She began feeling anxious about the debt. Fortunately, Laura channeled that anxiety into action. She cut back on discretionary spending. She watched her monthly mortgage payments fall. She focused on ways to earn more. Every time she'd free a small chunk of money -- a hundred here, a hundred there -- she made an extra payment on her credit card balance. Eventually, Laura wiped out her debts. She decided to become a "serious student" of finance. She returned to school for an MBA, where she noticed that many of her classmates were intelligent, hardworking students who were superb at managing corporate balance sheets, but terrible at managing their own personal finances. She decided to spend her life solving this problem. In 2006, she began writing about personal finance; in 2007, she started a personal finance podcast; by 2008, she was invited to join the Quick and Dirty Tips Network as the host of the Money Girl Podcast. Her podcast on personal finance has been downloaded more than 40 million times. Laura has also authored several books on money management and appeared on more than 1,000 media interviews on NBC, FOX, Bloomberg and more. How did Laura transition from wearing "financial blinders" to a renowned financial expert? What advice would she give to anyone who's trying to overcome the "ostrich," head-in-the-sand mindset around their money? What important money issues are we not talking about enough? Find out in today's episode. For resources mentioned in today's episode, go to http://affordanything.com/episode129 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a trade-off against something else, and that's true, not just for your money, but also your time, your focus, your energy, your attention, any resource that is scarce or limited. So the questions become twofold. Number one, what matters most to you? And number two, how do you actually behave in a way that reflects that?

How do your actions align with your priorities? figuring out the answers to this is a lifetime practice, and that is exactly why this podcast exists. My name is Paula Pant. I am the host of the Afford Anything podcast and the founder of Afford Anything.com. On this podcast, every other week we interview somebody who describes their relationship and their experience with money. Sometimes these are academics who have approached the topics of retirement or investing from the ivory tower angle. And sometimes these are ordinary people. with ordinary stories to share. Today, we have Laura Adams joining us.

Laura is the host of the Moneygirl podcast, a show that has been downloaded more than 40 million times. It's an extremely popular financial podcast that gives specific actionable tips. And so today, Laura is largely recognized as a finance expert, but she hasn't always been good at finance. In fact, when she graduated from college, she went pretty deeply into debt, or at least relatively deeply compared to her income. And the debt that she found herself in, it wasn't student loans, it wasn't medical bills,

it was purely the result of not watching her money carefully enough. It was purely the result of shopping too much or renting apartments that were a little bit nicer than what she could actually afford. And so Laura, in today's show, shares her story of how she got out of debt, began paying attention to her finances, and turned her life around. in essence, she describes her transition from someone who once had financial blinders on to somebody who is now a widely recognized money expert. Without any further delay, here is Laura Adams on how she paid off thousands in credit card debt and then transformed her relationship with money. How are you?

I am so good. And I want to thank you for having me on the show. I've been enjoying it from afar as a fellow financial podcaster. I don't listen to a whole lot of other financial shows, but yours is one that I like to pop into and listen to. So, congrats on all your success. Oh, thank you. Just to pat my own back or toot my own horn, what is it about the show that you like or what particular episodes or topics or themes do you enjoy? Yeah, I think I love listening when you interview other people who are in the space and just hearing their stories and how they got involved in, you know, whatever mission they were on, retiring early or investing in real estate, whatever it is, I think hearing people's stories is really fun. That's something that I don't get to do a whole lot of on my show. Awesome. Well, that leads right into where I was about to take this, which is, I'd like to hear your story, because before you were Money Girl, you were a woman in debt. Yeah. Which is how a lot of those stories began. So tell us about that. Tell us

about the 18-year-old you? Yeah, well, you know, I came from a family that was, I'd say, upper middle class. I was fortunate enough to be able to go to college 100% on my parents and, you know, really didn't have a lot of financial responsibilities as a young person. I worked a little bit in high school here and there, part-time, pretty much just for fun and for experience. But when I got out of school and finally was in the quote real world and on my own, it was a bit of a shock to me. And my parents were very good about letting me stick on the auto insurance and, you know, kind of keeping me attached a little bit. But eventually when I was on my own and especially right after getting married, got married pretty young. And we were really figuring it out together.

You know, I had some debt that I had accumulated after going out on my own and not earning enough to maintain the lifestyle that I had been accustomed to at home and feeling like, oh, well, you know, I can go on a vacation or I can get an apartment that I want, even if I really can't afford it, there was this sort of gap in my brain between what I thought I should have and what I could actually afford. And so it took me a while to realize that, you know, those have to be in alignment. You've got to either step up and, you know, earn enough to pay for the things that you really want or you really have to cut back. And so that's something that my husband and I made a mission to do together.

We decided that we were just going to really go hard at the credit card debt for a couple of years. And we got it paid off. And it felt awesome. That was just an amazing experience that we were able to accomplish. together. So that kind of gave me a spark and an interest in personal finance that began really early. And I've always been somebody that loves managing money. I remember being like 15, maybe 16 and asking my mom for a checking account. Like I wanted to have my own checking account and manage my own money, even though I didn't really have a whole lot of money. I was very interested in controlling it myself. And I think if

I had had maybe a little bit more guidance to do that very early on with some really strong tips. I may not have gone into debt as I did, but I think everything happens for a reason. So I'm glad that I had those early experiences and those lessons taught me so much. And then when I got into school, I really focused more in finance. Later on, I ended up getting an MBA. and that's really where my interest in blogging and podcasting came from. I was in an MBA course with a lot of very successful people who were either multiple masters or were sea-level executives in their company,

but they were really struggling with their personal finances. A light bulb went off in my head, and it made me realize that you can be very smart, you can be very educated, academically very educated, and still be terrible with your personal finances. I realized that if I could help people get a grasp on even just basic personal finance, that it could really go a long way. And so after I got my MBA, and by the way, I had like one personal finance course in my master's program, which I really had wished that we had gone a lot more to the personal side. it was very heavy in corporate finance. So when I got out, I really wanted to begin a process for

helping myself remember everything that I had learned. You know how if you don't use something, you know, you're just more apt to forget it. You know, they say you don't use it, you'll lose it. And I was determined that I was not going to lose so much of all the incredible information that I had just, you know, sort of stuffed in my brain over the past couple of years in my master's program. So blogging for me was a way to begin reminding myself of the key lessons that I had learned. So let's go back into your story and talk a little bit more about the credit card debt that you were in because I'm interested in the evolution of Laura Adams. Do you remember the moment when you first had a balance on your credit card that was higher than

what you could pay off in a given month? Did that happen in college? Did it happen right after you graduated. That happened right after I graduated. So when I started living on my own, one of my favorite things to do was to go shopping. My husband and I were dating long distance. He was still in college. And so there were a lot of weekends where I was kind of bored, you know, and I was missing him. We weren't together. And going shopping was this, this pole for me. It was, it was. It was, It was part entertainment, part sort of soul filling. It was something that I was able to get a very quick kind of joy out of. And obviously, not a long-term joy.

You know, shopping never fills that gap and that hole that you feel, you know, when you're in some kind of emotional despair. And I think a lot of people try to fill either unhappiness, depression, despair with shopping. And it never works. But I think that's where it started for me. So feeling like, oh, my gosh, you know, there's this balance. And I remember a couple of times my parents would bail me out. You know, maybe for Christmas I'd say, well, I'd really like you to, you know, help me with my credit card debt. And maybe they'd help a little bit that I remember at some point when I was finally on my own, it was like, wow, you know, I can't get ahead of this.

And so that was a really scary feeling. And, you know, looking back, the total wasn't that much, respectively, you know, now. But to me, back then, even a couple thousand dollars on the credit card that I couldn't pay off felt like just this huge mountain. So that was definitely something that I carried into my marriage. So, you know, it's like 23, 24. And I think by the time my husband and I were the same age, I think by the time we were about 26, we finally had a grasp on it. But the early 20s definitely had me feeling really out of control with credit cards. Do you remember how big your balance got at its peak? I think the peak was probably

$5,000, maybe $6,000, which for a lot of people they may think, oh, that's not very much. But when you're, you know, you're just out of school and you're not, you know, maybe you're only making $25,000, dollar straight out of school. You know, that was in the 90s. It felt like an immense amount of money that, you know, it was almost insurmountable to me. It really wasn't until my husband was like, you know, we're a team. We're going to get this done. We're going to go back and we're going to make this happen.

He really was instrumental in getting the laser focused on making just incremental, small increases in the payment every month. Let's pay a little bit more, a little bit more, let's cut back a little bit more. And that combination of cutting back and being able to pay more and more, obviously, you know, that's the secret to getting ahead of your credit card debt. What were some of the things that you cut back on? What were some of those incremental changes? And did you have any type of internal or mental resistance to making any of those changes? And if so, how did you work through them? Oh, I'm sure I had all kinds of mental resistance to it. But I think for us, the feeling was if we could get ahead of it, that meant we could do so many other things.

You know, I think we felt like if we could get the credit cards paid off, then we could really use our money toward things that we really wanted to do, like making real estate investments or just other goals that we had for retirement. So for us, it was a feeling of this is not just something that we need to do because the credit. card debt is looming, but it was, this is our long term, this is part of our long term financial mission and objective. So we really were thinking very long term. And I think when you do that, when you have long term thinking, you're able to really overcome obstacles in the short term. So making, you know, those sacrifices. And for us, it was probably things like eating out, cutting back on that and cutting back on clothing purchases, realizing that. And realizing that, hey, you've got plenty of clothes in your closet.

Why don't you just find something that you've already got to wear instead of feeling like you have to buy something new for some event? So that combination of we can cut back and if we do this, that's going to allow us to achieve our long-term objectives, which are much more important than these short-term desires that we might have. In the examples that you cited, like cutting back on clothing purchases, shoes purchases, those types of discretion. expenses. One of the thoughts that strikes me when I hear that is that as a amount of money per month, I couldn't imagine that that would be any more than a couple hundred dollars a month. Was that enough to make progress? It was. And we also had a great situation with our housing. We had an adjustable rate mortgage, which ended up going down in the payment, which was obviously nothing

that we plan to happen, but interest rates went down, and our monthly payment went down as well by a couple hundred bucks. And so that freed up some discretionary money as well. And I remember also focusing more on our income, you know, how can we earn more? And my husband, he was changing jobs. He had the opportunity to go to work for his father's company and real estate. And so he kind of started a new career that was able to give him more earning opportunities. So a combination of earning more and cutting back was really the secret for us. What were some of the biggest lessons that you learned during that time in terms of motivation, in terms of overcoming your cognitive biases, in terms of reframing your thinking? Is there anything that stands out to you in terms

of how you thought differently as a result? Yeah. And I do think that really tracking our finances. I've always been somebody, as I mentioned, that likes to manage money. I like to see where things are going. And I was pretty obsessed with budgeting and categorizing and really watching income and outflow. And I think that helped as well, you know, really looking at what can I change. You know, some things maybe I don't have as much effect over like utilities or housing. You know, if you've got those as low as you can go, what are the discretionary? purchases that I can change. So I think taking more control, and that can be in a lot of different forms, that can be actually sitting down and creating a budget and feeling like you've got a plan,

and also thinking about the discretionary items, you know, what do you have control over the most? What can you really do day to day to make a difference? So I think there is a shift that happens when you just start to take control and you realize that no one is coming to rescue. you. You know, mom and dad were not coming to rescue me. I had to really figure it out. And having a partner, too, I think, you know, having my husband who was as equally dedicated to getting our finances in control and having a great financial future, you know, working with somebody and being able to collaborate, that's so important, too, to have that positive feedback and reinforcement. One other thing that I wanted to ask about, you mentioned that when you were in your MBA program,

you noticed that there were a lot of people who were good at managing corporate finances or business finances, but they weren't as good at managing their own personal finances. Why do you think that many people have a disconnect between the two? Yeah, it's really interesting. I think that for a lot of people, the corporate side of it is very academic. You know, it's something that they're doing in service of their company. they understand it on a, you know, a macro level. Bringing it down to personal finances for some people is a lot more difficult. And I do think that there are some complexities that some people may not be able to

grasp like a retirement account. You know, there are a lot of rules and regulations that keep people from using tax advantage accounts, for instance, if they really don't understand them or they don't understand how a 401k works, they may not participate. I really did see that a lot of people had an incredible amount of debt, and a lot of it was also folks that had been in multiple master's programs and had been through a lot of schools. So they had a lot of student debt. Many of them have just kind of thrown up their hands and given up. And, you know, and they really felt like, wow, if I just keep going to school and, you know, keep on learning, somehow, somehow this will all figure itself out.

Like there was this hope that eventually it would just work itself out. And who cares what the situation looks like now? My finances are in a mess. But someday, somehow, it'll just work itself out. So I think for a lot of people, there was a lot of just burying their head in the sand about it and really not wanting to confront it. And how do people come out of that? You know, there might be some people who are listening to this right now who either know somebody who's burying their head in the sand or who, if they're really quiet and they really reflect, they themselves might also be burying their head in the sand a little bit. How do you overcome that? Yeah, I do think you really have to identify priorities and figure out what does your life look like in five, 10, 20 years. Where do you want to be? If you are okay with where things are now and not making any changes, then okay. But if you really do see a different future for yourself than you have now, you can only get different results by doing different things now. So there are a lot of people who it's going to take them a long time to finally realize that, wow, I should have been investing for retirement over these past 10, 20 years. You know, certainly getting rid of student. debt and focusing on debt is key. But if you're not investing at the same time, then you're going to be behind, you know, and you may be in a situation where you really can't catch up or it's going to be really painful to catch up for the retirement that you want. So I think looking at

the future and sort of figuring out where you want to be and then working backwards from there, that's really the best way, I think, to kind of give yourself a reality check and make sure that you are on the right path. So for many people, you know, I think it really does come down to making some sacrifices and just making sure that you are saving and investing on a regular basis. As you know, it doesn't take a whole lot to achieve some pretty nice results if you are investing on a consistent basis. So proving that out to people and showing them, hey, even if you put away $500 a month over decades, you're going to have a pretty nice retirement nest egg. That can motivate people. in a really significant way.

We'll come back to this episode after this word from our sponsors. Pop quiz, take a guess. What do you think is the national average interest rate on a checking account? Well, according to the FDIC as of February 7, 2018, the national average interest that you could earn in a checking account is 0.04% APY. That is not a very high number. If you're looking for a higher interest rate, check out Radius Bank. Their radius hybrid checking account offers a 0.85% API on balances of $2,500 and up.

That's 12 times greater than the national average. And that rate doesn't expire. A lot of other banks have these flashy introductory rates that expire after 6 to 12 months. But that rate is not going to expire and it's not going to get capped on the maximum balance that you can have in there. Radius hybrid checking is a free high-interest checking account. It combines the high-interest earning power of savings with the flexibility of checking. And it doesn't kill you with fees. There's no monthly maintenance fee.

There's no minimum balance requirement. Your first order of checks is free. And you can use free ATMs worldwide. To open an account, go to radiusbank.com slash Paula. That's Radius Bank, R-A-D-I-U. U.S. Bank.com slash Paula. Again, to open an account, check out radiusbank.com slash Paula. Do you want to eat at restaurants less often or spend less money on takeout?

Check out Blue Apron. Blue Apron's mission is to make home cooking more accessible. And they do this by delivering to you recipes with step-by-step instructions plus the exact ingredients that you need. so that you're more likely to be able to make meals at home rather than come home from a long day of work and be like, oh, there's nothing in the fridge, let's just order take out.

Blue Apron is committed to a sustainable food system. They send only non-GMO ingredients and their meat has no added hormones. They offer eight different types of meals that you can choose from every week and there are always three vegetarian options every single week. That's one of the things I really like about them.

I'm not a total vegetarian, but I don't eat a lot of meat. and through them I get a lot of vegetarian variety. Plus, I can always get one meat dish a week if I'm in the mood for that. Right now, Blue Apron is offering a special deal for Afford-Anything listeners. You can get your first three meals free by going to blueapron.com slash afford. Again, check out this week's menu and get your first three meals free by going to blueapron.com slash afford.

That's blue apron. slash afford. On the topic of investing, one topic that you recently covered are investing rules to follow even when the stock market drops. And I thought this was particularly timely because there are a lot of fears right now around what might happen. Are we going to have another recession? We've experienced a protracted bull market. How long can it last? So let's shift the conversation and talk about that a little bit. Yeah, so I think there are a lot of folks who are really freaked out about the stock market. You know, we've seen a lot of volatility. And there are a lot of young people who are really holding back because really all they've known is volatility in the market. And that can be difficult,

and I get it. It's difficult to overcome that fear when you've got money kind of safe and sound in a bank account and putting it into the market seems like, you know, just rolling the dice. The issue that most people are facing is that if they are just sitting on their money in the bank, and while that may feel great, the problem is inflation is eventually going to eat away that balance. And so if we look at the inflation rate, which has historically been around 3%. If you are not making at least 3%, that means you're actually losing money. So what I like to tell people is that not investing can actually be the riskiest thing you ever do. I think another issue that keeps people from investing is feeling like they are gambling or kind of rolling the dice,

when the reality is you've got so much control on the level of risk that you expose your investments to, you know, there's this spectrum and you can kind of move the slider any point that you want from, you know, very, very safe to very risky. And knowing that you've got control over that and helping people understand that it's not rolling the dice, that certainly all investments can lose value. But if you are looking at a diversified portfolio, you're going to have average returns that can, you know, definitely exceed 7, 8%. So we need to take a long-term approach. We need to take a long-term view. And if you have that in mind and you're willing to not get obsessed over the day-to-day market fluctuations and really keep a long-term view, it's very easy to experience some very significant growth in your investing accounts over the decades. And you've got to start. You know, you've just got to get your toe in the water. And I encourage people to start with small amount.

especially if they're skittish about getting in the market, start small, start slowly and build your way up, start increasing those amounts over time. That will build your confidence and show you that, you know, there is growth and that you've got control. I think opening the account, getting started, that's kind of the hard part. And then once you've done that and you feel comfortable with the process and whatever platform that you're using, you feel comfortable with that, you can get in there and manage it and make any changes that you want, either to the allocation or the amounts that you're investing. So getting started is key. So I like to help people feel confident about getting started because in a lot of cases, just that initial momentum is not there.

And so once you can kind of get over that hurdle and just get the account open and started, they see, wow, this is pretty easy. And I do have a lot of choices. There is a lot of flexibility. And once you feel confident, then you can just keep going. Do you recommend that people start investing while they're still in debt? I do, and it's kind of a controversial issue, but I do think that if you don't start, even just with small amounts, you're losing time. And that time can never be recouped. You've got to pay off the debt at the same time. So I like to think about them as parallel tracks that you're on and working on obviously, you know, your highest, typically your highest interest debt.

is the one that you want to work on first, keeping all of your other minimum payments going, but trying to focus on the highest debts, highest interest debts first, while also getting what you can put away in some type of investing account. Hopefully it's some type of tax deferred tax advantage to account if you've got a 401k at work. That's a great place to start. And of course, if you're getting matching from an employer, that's something you just really have to take advantage of. That's free money. So that's a great place to start. If you are, you know, no matter what type of debt you may have, what kind of payments you've got,

getting involved at work, and putting in at least the amount to max out the match. And if you don't have a retirement account at work, or maybe you're self-employed, an IRA or Roth IRA, that is another great place to start. And even just putting in even $20, $25 a month, something, is enough to get the habit going. And once the habit is there and you've got the automation set up, hopefully in your accounting, maybe a bank transfer from your checking into your IRA or your 401K is always automated from your paycheck, once that's in place, you don't even have to think about it.

And then before you know it, you've got this nice little nest egg over here, but then you also are still working on paying down debt over here. and you've got both of those working in tandem. How do you determine how much money? If you have debt and you're also trying to invest, how do you determine the split? Let's say you've got $1,000 a month to put between both of those combined. Where is the line drawn and how do you make the decision? Yeah.

So I would look at what is the interest rate that you're paying on your debt. If you've got a very high interest rate, let's say, you know, a payday loan or something that's really, really high. You want to attack that more aggressively. So I would say it would probably be more like an 80% to the debt, 20% retirement split. But if you've got debt, that's fairly reasonable. You know, you've got, let's say, you know, an auto loan that's 7, 8%. I would go probably more like a 50-50. If you think about being able to at least get an average return on your investments that are anywhere from 6 to 8 percent, you know, if you're also at about that same amount in your debt, I would think about it as 50-50. But if your debt is much higher than what you can be

earning on your investments, you definitely need to attack that more aggressively. And then for those debts that are lower than what you're typically earning from investments or that have tax advantages, like a mortgage, you know, some amount of student debt interest is deductible. Those debts are the ones that you want to think about as you're kind of lower on the priority. They're at the bottom of the ladder. And for those, I would really encourage people to either not send extra money to those debts, continue paying them on time and focus more on the retirement accounts, or if you've got, let's say, a student loan that's really weighing on you, even if it it's a very low interest rate.

You know, maybe you would want to put a little bit more toward that and less on the, on the retirement. But I encourage people not to pay off their mortgages ahead of schedule. In general, those debts are very, you know, very affordable. They're not costing you a lot in interest. And so using your extra funds to invest is going to serve you much better than paying off the mortgage ahead of schedule. And do you encourage people to take out 30-year mortgages?

or 15, or do you have a preference on the two? Yeah, it really depends on what your goals are. In a lot of cases, if you are somebody who is, let's say, growing a family, maybe you've got a small place now, but you know in maybe a year or two that you're going to want a bigger place, or you know for sure that your income is going to be increasing, you might even consider an adjustable rate mortgage. You'll probably be able to afford more house with that. And if you're in a good area with good resale value. You know, it's a good market in general. You're going to be able to sell the home and move on when you're ready. But if you're somewhere that you really want to stay around, you know, you know that you want to put down roots and you've got a home that you think you really want

to be in for, I'd say, more than five or six years, a fixed rate mortgage is great. It's a great way to lock in your payment, a great way to make sure that inflation, you know, is not going to affect you compared to renting and perhaps having payments go up, having an adjustable rate mortgage, as long as you have a, you know, you know what the cap is and you understand how much it could increase, it may still be a good deal. But in general, if you know you want to stay somewhere long term, I encourage people to go for the 30-year mortgage. And then if you want to pay it off earlier, if you want to pay it off as if it were a 15-year, you've got that option. Other than mortgages, are there any other debts that you encourage?

people to not pay off early and or if a person is currently debt-free but they're thinking about getting into debt? Is there any type of debt other than a mortgage that you think, yeah, that would be all right? Yeah, I mean, I do think that student loans are debts. Typically, we can pay off on time and not ahead of schedule unless you've got an outrageous amount of student loans. And that's simply because the rate is typically low and a portion of it. You've got about $2,500 a year in interest that's tax deductible. So for a lot of people, it's kind of a difficult debt because a lot of people just say, oh, I want to be done with that.

I don't want to have my student loans anymore. And I get that. If it's really weighing on you and you want to pay it off ahead of schedule, then certainly work that into your budget. But you can also look at it relative to your other debt and say, hey, this is a low rate. This is something that's not costing me a lot. And so if I can use it. use my extra money for other purposes, like saving an emergency fund or going ahead and putting more

money toward retirement. You know, that can also be a really smart move. We'll come back to the show in just a second, but first, payroll and benefits are hard, especially for small businesses. If you're running a small business, you don't have the time to become an expert in things like taxes and regulations. And old school payroll providers just aren't built for the way you work. Inter gustav. Gusto is making payroll benefits in HR easy for small businesses. Their modern technology does the heavy lifting. In fact, four out of five customers reduce payroll errors after switching to Gusto, and 72% of customers spend less than five minutes to run payroll.

Nine out of 10 users also say that Gusto is easier to use than other payroll solutions. And PCMag and fit small business have called Gusto the best payroll for small businesses. The thing is, most small businesses don't have an HR expert, but you don't need to use one if you've got Gusto. With great software and great service, you can focus on your business, not on payroll and paperwork. To help support the show, Gusto is offering our listeners an exclusive limited time deal. Sign up today and you'll get three months free once you run your first payroll. Just go to gusto.com slash Paula. that's gusto g-u-s-t-o.com slash paula p-a-u-l-a.

Again, to get three months free after you run your first payroll, go to gusto-g-o-com slash paula. That's gusto.com slash paula. You know, the world just wasn't built for the self-employed. Lots of services, like banking, retirement planning, and accounting services, aren't built for people who are freelancers or who are self-employed, but fortunately, FreshBooks is. FreshBooks is cloud-based, simple, easy-to-use accounting and invoicing software

that is designed for the solopreneur. When you log in, it answers the one burning question that you really want to know, which is, how's business? The notification center is like your personal assistant. It tells you what's changed since you last logged in, and it tells you what you need to deal with, like overdue invoices. And speaking of overdue invoices, if you have a client that's late on making a payment, FreshBooks will automatically send them a late payment reminder so that you don't have to have an awkward conversation.

If you want to give them a try, FreshBooks is offering an unrestricted 30-day free trial, and there's no credit card required. So just give them a try. To claim it, go to FreshBooks.com slash Paula. And when they ask, how did you hear about us? type in afford anything. Again, for a 30-day free trial, go to freshbooks.com slash Paula, P-A-U-L-A. And when they ask, how did you hear about us? Type in, afford anything. What financial issues do people not talk about enough? What is it that is important yet under the

surface of awareness? Oh, I would say, certainly, you know, thinking about the future, a lot of people do know that they need to be saving more for retirement. Very few people are prepared for retirement. There's, you know, many surveys, statistics out there that show people are really behind the eight ball when they get to retirement age. And I think there's this sort of this feeling that I'll be okay if I've got Social Security and I'll be okay if I've got a little bit of money in the bank. But the problem is that even if you've got a pretty big nest egg, if you look at the time that people are living in retirement, you know, as we're aging longer, we might literally have 40 years in retirement. I mean, I have relatives and friends that have

lived to be over 100 years old. And if you think about retiring in your 60s, that's a heck of a long time to make your money last. So thinking about, and particularly for women who, you know, tend to outlive men on average. We're getting healthier and healthier, and medicine is getting better and better. So this is a problem, particularly for women who may not be as prepared. They may not have as big a nest egg as they need to make sure that they're not going to outlive their money. So I think that's an issue that people probably need to be a little bit better prepared for. And I'd love to see women just, you know, really aggressively saving for retirement and going into it, with a very healthy nest egg.

Are you familiar with the growing movement of people who are pursuing early retirement? And do you have any particular thoughts or ideas about that? Oh, I love it. Yeah, I think it's fantastic. If people make that early retirement a goal and really pursue it aggressively, I mean, there's no reason why you can't retire, you know, in your 30s, 40s, and pursue any number of lifestyles that might appeal to you. So I think it's fantastic.

And if people can get inspired at an early age to do that, you know, I think if like college students had more examples and role models of people that were doing that, we'd probably see a lot more young people saving aggressively and really taking control of their finances because it's very attractive and it's a lifestyle that so many people would aspire to. What are your feelings around insurance? What types of insurance should the average person have and what can we do away with? Yeah, there are lots of insurances that people really don't need that we're kind of made to feel like we do need. But for the average person, certainly, you know, the property lines, auto and home are things that we can't typically get away from. You know, if you drive a car, you've got to have insurance.

If you own a home, unless you're, you've paid cash for it. You definitely need insurance. And you probably need insurance even if you did pay cash for it. But health insurance is an insurance that I think everyone needs. There are so many young people that don't think they need coverage. They really feel invincible and they feel like, well, I'm healthy. Why should I pay for it? That's such a big mistake as we know getting into an accident or getting an illness that puts you in the hospital can just end up in

outrageous bills. Medical bills are one of the number one reasons for bankruptcy. So we do all need to have health insurance, even if it's a catastrophic coverage, something that would really just be there in the event that you had a serious illness or a serious injury. So I would say anybody who's listening who does not have health insurance really needs to think twice about that, not only for your health, but for your future financial security. So I want to see young people really making that a priority and working into that into their finances. And once you've got some type of a family, you've got a partner, you know, you have kids or adopt, you really need to also think about life insurance. A lot of folks are doing without it. And this is also an issue that affects women.

because there are a whole lot of women who don't have coverage, either because maybe they take time out of the workplace to take care of kids. No matter what you are doing, whether you're working full-time or you're at home, the role that you play as a mother is expensive. You know, if that role were taken away, if a mom dies and dad's got to go out and buy health care or rather buy child care for the kids, that's expensive. that's expensive. And so all of the caregivers and the breadwinners and a family should have life insurance because they've all got value. So that's a policy that's so inexpensive. If you're in good health, you can get a term policy for half a million dollars for just a couple hundred dollars a year. So it's typically a lot less expensive than people think. And renter's insurance, that's another policy that I think many young people overlook and older people too.

I say young people just because the majority of renters tend to be in their 20s and early 30s. And renter's insurance is a really inexpensive policy. You can get a great coverage for less than $200 a year. That's going to cover you if you've got anything stolen, if you have any liability issues. A lot of renters make the mistake of thinking that their landlord is going to take care of them. And the reality is the landlord's insurance covers the property. It does not cover your belongings. And that comes as a shock to many people. They don't realize that until after something terrible happens and all of their belongings are either destroyed in a disaster

or they've been stolen or vandalized. If you think about what it would cost you to replace all of your belongings, you know, everything in your closet, everything in your kitchen cabinets, furniture artwork, it's typically a lot more money than many people would have in their checking account or want to spend to replace. So renter's insurance is a big bargain that I recommend everybody take a look at. Other than that, you know, looking at disability coverage, that's another important coverage that we tend to overlook. But statistics show that we're more likely to become disabled before the age of 65, then we are to die before the age of 65. It's a terrible thing to think about. But when you do have a sickness or an injury that keeps you from working, the average

length of time that you're out of work is something like close to three months. If you think about going without income for that length of time, that could really set most people back, you know, in a big way financially. So disability insurance is another really smart policy to have. And a lot of these policies, even if you get them through work, they are typically not enough. You know, it might be a little bit of life insurance, a little bit of disability, but it may not really be enough for the amount that you and your family need. And then, of course, if you lose the job, then you don't have that insurance anymore. So I encourage people to look at these policies as individuals, in a to what you're going to get from your group policy at work.

Well, that more or less covers all of the questions that I wanted to ask. Is there anything that we haven't discussed that you'd like to emphasize? I think that if people can make learning about money fun and work it into something that you enjoy, that's really the key to helping you get ahead, whether it's listening to a podcast like yours, you know, reading a book, a quarter about finance. Taking a class, if you can work it into your life and kind of incrementally build your financial awareness and skills, that's one way to kind of just create a new mindset for yourself. And I like to think about micro habits. What are small things that you can do that incrementally

build your skill set? And if you feel that you're just not where you want to be with your finances, either on the income side or the expense side, take small steps, you know, think about what incremental small changes that you can make to your life on a daily basis that will move you a little bit closer to your goals. And that's typically the easiest way to get from point A to B without feeling like you're making huge sacrifices or jarring your lifestyle in a big way. So I would encourage people just to think about small microchanges that you can make. to your finances that will improve your situation and move you closer to your goals.

What's an example of a micro change or a habit change that you have made in the past year? Yeah, for me, I would say that I am always looking at additional ways to earn. I tend to, the older I've gotten, I've kind of shifted from cutting back on the expense side to really focusing on the income side. So working on additional streams of income, increment. in small ways. That's been a big way for me to improve my financial life and just see a lot of success from increasing just the variety of income sources. But for other folks, you know, maybe they want to think about on the expense side, what can they do, you know, and that may mean shifting slowly

to a more minimal lifestyle. You know, it could mean downsizing in your house. housing. It could mean going from owning two cars to one car. It could mean taking in maybe a roommate for a little amount of time in order to get ahead financially. Some of those may seem like big changes, but if you can make any small change over time, you know, when you have an opportunity, let's say you're moving from one apartment to the next, can you go from a three-bedroom to a two-bedroom or a two-bedroom to a one-bedroom? sometimes making these changes slowly over time can really pay off. And I think going to a more minimal existence pays off in a lot of ways. You know, not only can you cut back financially, but it also cuts out what you have to think about.

You know, it cuts out a lot of the financial hassle, if you will, you know, the fewer accounts and things that you have to manage in your life. the less you can manage, the less bandwidth it takes. And that allows you to free up your mind to focus on other things, maybe the income side of the equation. So any small changes that you can make, getting you a little bit closer to your goals. And it's something I would encourage people to talk to their partner about if you share financial goals with a, you know, a partner, a spouse, or even just a friend that you're working on the same types of goals together. Brainstorming, you know, what can you do? what are small things that we can do on a daily basis that move us a little bit closer.

Those can really pay off and kind of be fun to work on at the same time. Nice. Well, thank you, Laura. Paula, thank you for having me. It's been a pleasure. Thank you, Laura, for telling your story. What are some of the key takeaways? Number one, we often spend not because we need something, but because we are trying to fill an emotional void. Laura described how when her husband was away, she was lonely. He was gone all weekend and she needed something to fill that space. And so rather than dealing with her loneliness in healthy ways, such as reaching out to friends or taking up a new hobby or getting involved in volunteer work, rather than doing that, she decided to fill that emotional void by going shopping. And that was what led to her credit card debt. You know, shopping never fills that gap in that hole that you feel, you know, when you're in some kind of emotional despair. And I think a lot of people try to fill either unhappiness, depression, despair with shopping.

And it never works. But I think that's where it started for me. This is common. Laura's story is not unusual. Most of us, when we buy something, we buy it because we have some type of a void that we want to feel. fill, some sort of a need that we want to fill. There's a famous marketer named Seth Godin, who often talks about the idea that when we buy things, what we're really buying is a story. If we buy a Lamborghini, we're actually buying the story of, I'm successful, I'm fancy.

If we buy an eco-friendly product, we're buying the story, the self-image of I'm the type of person who cares about the environment. Now, this isn't a bad thing. These stories that we purchase are part of how we define who we are. For better or for worse, our purchases do shape our self-identity. Because the way that we spend our money always reflects our values. I identify as somebody who really cares about animals and as a result, I spend the extra money on cage-free eggs, both because it's something that I value and because that's the story of myself that I want to believe. I want to believe that I am the type of person who is always looking out for the well-being of animals. And I will spend extra on products that are cage-free or that are not

tested on animals as a result of that aspect of my identity. So it's not bad to identify with your purchases. That is inherently part of what the buying experience is. That is aligning your spending with the reality that you want to create. But be very conscientious about what that reality is. Recognize that that's what's happening every time that you make a purchase. and ask yourself, am I really making this purchase because it reflects my values, or am I only making this purchase because I'm trying to fill some type of a void? In Laura's case, she wasn't spending because she valued appearance. She was spending because she was alone. And so the takeaway in your own life is to recognize the difference between the two.

So that is core takeaway number one. Takeaway number two. Nobody is coming to rescue you. No one is coming to rescue you. You know, mom and dad were not coming to rescue me. I had to really figure it out. We are often taught the mythology that somebody will come and rescue us. There will be a knight and shining armor. There will be a prince charming. Your parents will bail you out. Society will bail you out. The government will bail you out. Somebody. We are often taught to look for that savior who will come by and rescue you and make everything okay. And Laura had to accept the reality. as we all do, that that just isn't going to happen. If you want to improve your own life, it's up to you to do it. Nobody else cares as much about your life as you do,

and nobody is going to be there to bail you out when you hit on hard times. Even if you do have a family or friends who love you, ultimately, the healthy thing is for them to set boundaries and for you to be in charge of your own life. There is a difference between loving and enabling. So that's key takeaway number two. If you want to make a change, it's up to you. to make that change. And there are many of you who might be listening to this right now who are

thinking, oh, well, Paula, but I'm in a terrible situation and it's not my fault. And you know what? That might be true. Maybe you've got serious medical debt or maybe you got scammed. Maybe any number of atrocities might have happened to you that put you in a position that you have to dig yourself out of a terrible hole. And maybe it's true that it's not your fault, but it's still your responsibility. It's not your fault, but it is still always your responsibility. So that is key takeaway number two. Takeaway number three, be cognizant of risks, including and especially the risks that many people aren't talking about. Statistics show that we're more likely to become disabled before the age of 65 than we are to die before the age of 65.

That's a scary thought. And it's not something that a lot of people talk about because who wants to talk about the possibility of being disabled? That sucks. That's a depressing topic. And as a result, it doesn't make for good headlines. Nobody's going to click on that. So we don't see the internet headlines about it. We don't see the podcast show titles about it. We don't see magazine headlines about it or book titles about it. Because those types of conversations don't sell. Those headlines don't sell. But the topic still matters. It's still relevant. So if there's a takeaway that came from that, it's pay attention to the dangers and the risks that others aren't talking about because whether or not we're talking about them, those dangers are still there. And then the final takeaway that we got from today's conversation is that if you want to save money, there are two approaches. Number one, you could cut back on discretionary spending. This approach has the lowest barrier to entry because it's something that you can do immediately and there are hardly any obstacles. So, for example, cutting back on shopping for clothes or for shoes, cutting back on restaurant dining, that is relatively speaking pretty easy to do and you'll see immediate results.

And so due to that accessibility, that's often the first place people look. But in addition to that, you can also make big systemic changes to your life. It could mean going from owning two cars to one car. It could mean taking in maybe a roommate for a little amount of time in order to get ahead financially. These types of changes going from two cars down to one or downsizing your home. These are a much bigger pain in the butt to do, ending your lease and packing up and moving into a smaller apartment or selling your house and packing up and moving into a smaller home. Yeah, that takes a lot of time and a lot of energy, but bigger efforts lead to bigger results. So if you're looking for ways to save money, maybe it's not an either or, maybe it's a both and.

Start immediately with the small stuff that gives you instant payoff and then look for bigger things that you can do that lead to those bigger systemic ongoing results. That is our show for today. Thank you so much for tuning in. If you would like to support this podcast, here are three things you can do. Number one, subscribe to this podcast in your favorite podcast player. Number two, please head to afford anything.com slash iTunes. That link will redirect you to a page on iTunes where you can leave a review. These reviews are also super helpful for helping other people find this show. So please leave us a review.

And while you're there, please upvote any other reviews that you find helpful. And number three, please tell a friend. Thanks again for tuning in. My name is Paula Pant. I'm the host of the Afford Anything podcast. I'll catch you next week.