NerdWallet's Smart Money Podcast - Bill Disputes, Managing a Raise, and Smart Saving Early

Episode Date: July 6, 2023

Learn how checking your bills can prevent you from overspending, how to manage a raise and how to build wealth early. 01:14 This Week in Your Money: Sean Pyles and Liz Weston discuss how you can prevent overspending by double-checking all your bills and share how doing so saved Sean more than $100 on just a single bill. They also discuss some surprising ways bills can demonstrate that you’re getting shortchanged. 07:58 Today’s First Money Question: Smart Money co-host Sara Rathner helps Sean and Liz answer a listener’s question about how to prioritize spending and saving after a significant salary increase. The hosts dive into the 50/30/20 budget, how to combat the temptation of “lifestyle creep” that comes with entering a new income bracket, and methods for setting financial goals and establishing a path to meet them. They also look at how to prioritize debt repayment and retirement savings when you're in your 40s or 50s and your budget may be more stretched. 24:07 Today’s Second Money Question: Personal finance Nerd Kim Palmer joins Sean and Liz to answer a question from a 16-year-old listener about how to get an early start on setting up a bright financial future. Kim discusses options for starting to save early, the time value of money and when it may be worth considering switching banks. In their conversation, Sean and Liz discuss: bills; automatic bill pay; medical expenses; prioritizing spending and saving; credit card rewards points; budgeting; managing lifestyle changes; reaching financial goals; time as a monetary resource; fractional shares; compounding interest; emergency funds; retirement planning; money management; and budgeting, investing, and building wealth for teenagers. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Hey, Sean, when you were 16, what were you doing to build wealth? I can confidently say that I was doing nothing at all to build wealth. Well, today we'll give a 16-year-old listener some ideas for how they can start to build wealth early. You'll also learn why you should double-check all your bills and how to prioritize your spending and saving when your income increases from a pay bump. Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Liz Weston. This month, we're bringing back some of our most popular money tips from the last couple of years. So if they sound familiar, no, it's not just you.

Today, you'll actually hear two terrific money questions from listeners. The first one is how to manage a change in your income. And the second is about how to build wealth while you're young. But first, here's a story we did about why you should always double check your bills. And yes, that means all of them. And listener, if you changed any of your money habits around checking your bills after you heard the story the first time we ran it, then please let us know. We'd love to hear your story.

Leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or email a voice memo to podcast at nerdwallet.com. Okay, on with the show. For medical bills, restaurant tabs, and even your insurance, it's worth giving everything you're expected to pay a little more scrutiny. Sean, this was inspired by a recent bill you received. You want to tell us about that? I recently received a bill for $100 more than it should have been. And that

inspired me to dig into what was going on and realize that I'm actually being charged for more things than I really should be. So let's start with this bill. Basically, I have the same medical appointment every four months. It's pretty standard. And every time I have it, it's covered by my insurance, even though I have a high deductible health care plan. For the latest appointment that I had, I received this bill that was for over $100. And I looked into it a little bit. I called the billing department. I called my insurance company. I had a lot of back and forth. It turns out that they coded the wrong appointment. The code that they use was one number off from what they

typically use. After talking with them for a long time, took over two hours to get this whole thing sorted out between all of the phone calls, they ended up reissuing the bill to my insurance company and it was covered. And if I hadn't done that, if I had just accepted the bill and thought, oh, bummer, got to pay this bill, I would have been out over 100 bucks that I really didn't have to pay at all. Medical bills are notorious for being incorrect for charging you things they shouldn't have charged you. It's worth being pretty punctual about this as well. The moment I got the bill, I knew it was not right. And so I called and I dug into it. And it was resolved within a day,

which is great, but it also can be a lot more of a lengthy process for those who aren't as well-versed in how to do this. Anytime you get a bill for any sort of medical expense, it's worth asking a couple of questions, just making sure that the billing code is correct and that you are being charged what you're supposed to be. And I'm a huge fan of automatic payments. I have almost everything on autopay. But the downside of that is you can let things slide. Cable bills, internet, and satellite radio are really notorious for jacking up the price after they've given you some kind of teaser intro rates. That can wind up being hundreds of dollars that you don't need to spend. And somewhat similar to my experience with the medical bill, I also recently had a prescription that because I'm on this high deductible plan was not covered by my insurance. So I talked with my medical office and they said, oh,

just charge it through GoodRx. Here's the price that I'm seeing. I've talked about GoodRx before, but I'd never actually used it. So I finally signed up and I was able to save half off what the pharmacy was originally asking me to pay. That's something about those high deductible plans. They really inspire you to look around for some savings. But that's where the health savings account comes in pretty handy. So I could have just expensed it. But again, I'm trying to have as much money in there as possible so I can invest it. One of the things you can do to make sure that you're not overpaying is keep an eye on your transactions, whether you auto pay or not, making sure that you review your transactions. I try to do it like every month or

so. And our app, the NerdWallet app is a really good way to keep track of a bunch of different accounts at once and look at those transactions. Is that something you do or is that something you have to remind yourself to do? So I am a big weirdo who pays off my credit card almost daily because I used to have credit card debt years ago. And it's something that has stuck with me, this almost hawkish approach to making sure I'm keeping my spending in check. So I look at it more than maybe I should, or most people would even want to, but it helps me know that what I'm paying is what I should be paying. I actually had another similar experience to this touching on the whole aspect of making sure you're getting billed correctly at restaurants and bars, where I was recently going through my credit card statement, and I saw a charge for a bar that I went to,

I only had one drink, but I was charged over $70. And I realized that my friend was trying to close out their tab, everything they had been charging wound up on my credit card. So we had to sort it out. It was fine in the end, but it's a reminder to double check everything you're being charged because that really stood out. And if I hadn't double checked and looked at this closely, I would have been paying that. And that's not something you want to do. No. As much as I love my friends, I don't want to shell out $70 for their tater tots and beer. Another thing that I've been thinking about, I recently discovered that Target and Best Buy in

particular have excellent price matching policies. So if you're looking for something and you see that it's a little bit more at Target, but it's easier to shop at the Target because it's in your neighborhood and you don't want to rely on shipping or something like that, you can say, hey, here's what I'm seeing at this other retailer. Can you price match me? And they pretty much will. Another area folks should look into if they don't want to be overcharged is their car insurance. While a lot of people will just be tempted to sit with their same car insurance company year after year, one analysis found that folks could save an average of $560 by shopping around for car insurance. Okay, that's some serious cash. And I know we've talked about this before, but again,

it's something that's really easy to leave on auto pay or leave on automatic and not realize that you can save a ton of money with just a little bit of effort. Absolutely. And the nerds on the insurance team found that the ideal cadence for shopping for car insurance is once a year. Okay. I think I can manage to do that. Yeah. Just set aside an hour, maybe even less on a Sunday afternoon and just knock it out. Liz, I know you recently had an experience not getting the credit you deserved for credit card purchases and points. What happened there? Yeah. Well, the big one has to do with a voucher for a trip we had to cancel in 2020. And it's a fairly substantial voucher. It's like for $2,500.

Oh, wow. Yeah. It's like I can't find it on the airline site and customer service is so backed up. I actually got an email when I inquired about it. It's like, why isn't this voucher on my account? They say they'll get back to me in 10 weeks. Excuse me? That's kind of an outlier, but I've noticed when you sign up for, say, money back offers on your credit card, like you can get $50 off if you spend $250. Half the time, I have to go to the customer service line and say, hey, I didn't get credit for this particular purchase. So again, the credits are inducing you, those offers are inducing you to spend money. If you do it, make sure you follow up and make sure you got that money. Yeah. Make sure they're following through on their word. Because they don't always do so. And again, we all get busy and it's easy to let it slide, but

this can add up to real cash. All right. Well, I think that about covers it. Let's get on to this episode's money question. This episode's money question comes from a listener's voicemail. Here it is. Hi, guys. Thank you for doing the podcast. I really appreciate it. I have a question about prioritizing. and I am about to have an over $200,000 pre-tax income after basically never having a salary before. I'm starting at a big law firm and I have about $100,000 in debt from grad school, which has, I think, a 6.8% interest rate.

And I just have no idea whether to start by putting any of that excess income into a 401k, into a Roth IRA, or going against my student loan. What's the smart order to go in here? Thank you. Bye. To help us answer our listeners' question, we are joined on this episode by our Smart Money co-host, Sarah Rathner. Hey, Sarah, welcome back on. Thank you. It's fun to be on the other side of the proverbial microphone today. Yeah. Well, we are going to grill you, so I hope you're ready for it.

Oh, boy. Our listener is about to experience a sudden and dramatic change in their personal finances. And I think that they should probably take some steps to set themselves up for success and make sure they're managing their money properly going into this new phase of their life and their career. And where do you think they should start? Well, one, acknowledge that this is a very nice problem to have. Congratulations to our listener for getting this job offer coming out of law school. That's a big deal. So you should be proud of yourself. Whenever you experience even a somewhat major life change, like an income increase or decrease or new job or relocation for work or anything like that, it's a great time to ask all of these questions. All the questions that

this listener is asking are great. And you never really want to go into these situations just thinking that I can just keep managing my money the way I did before because things are different. So it is good to take stock of what you're doing currently, if it's working for you, what more could you be doing with your new situation? And earning $200,000 a year, even if you have substantial grad school debt, it's the kind of thing that can give you a really nice head start in life if you play your cards right. That's what we're here for. head start in life if you play your cards right. That's what we're here for.

We're here to help you with it. Right. Well, one thing I was thinking is that it would be helpful for them to take stock of their income and expenses, basically getting a grip on their new budget. One tool that we like to recommend is the 50-30-20 budget where half of your income goes to cover needs. That's rent. 30% goes towards wants, that's kind of fun things like travel, and 20% goes towards debt payments and savings. And with a pretty hefty income that our listener has, I think they should be able to use this pretty well. Something that's a big adjustment when you're new to working is figuring out how much you cost.

Because your life might have been very different when you were a student. Maybe you were being supported financially by family, or you were working part-time while in school, living with roommates. Living off of ramen noodles. Living the broke student life. And now you are out into the world, potentially kind of taking the reign of your finances on your own for the first time possibly. And so figuring out how much do blueberries cost, you know what I mean? It's the little things you need to know. And that's going to take some time. But it's okay to take a couple of months and just sort of observe your spending and formulate a

budget based on where your money is going and then also where you wish it would go if it's not going where you want it to go. Well, and if somebody is jumping from being a broke law school student to having $200,000, it's going to be really hard not to go nuts. Buy a new car, get a great apartment, buy clothes, do everything. Yeah. Like, listen, I know you want the Tesla. Okay. Talk for a second. You don't need the Tesla yet. This is not Tesla time. Also, there are plenty of other great cars besides Teslas. Let's say that too. I mean, if you aspire to a Tesla, do it. They're beautiful. But it is just important to recognize where you are, especially when you're going into big law. The lifestyle creep temptation has got to be significantly higher than it is in other industries,

because it's one of those industries where depending on what firm you work for, what city you live in, how you look matters. It matters to clients, it matters to the partners. And how you look, it's how you dress, it's what you drive. It's how you arrive. You know what I mean? Do you golf on weekends? That's a very expensive hobby. Do you ski? I don't know. These are people who do things like this. And you are entering this world. And if this was not part of the world that you grew up in, it could be a real adjustment too. Yeah. Well, yeah, that also brings me to the point that I think our listeners should think about their financial goals and they can set them for one, three, five years down the road, and then actually establish a path toward meeting them. Yeah, that's really big. The listener in their

question asked about retirement savings and they asked about student loan debt. But there's a lot of other things you have to plan for in life. You're not just paying off your student loans and retiring. I would hope that you do other things and those other things are going to cost you money, like potentially buying a house or traveling. Or maybe you want to help family out financially. Maybe you want to have children eventually if you are working in a big law firm. Child care is definitely going to be something to budget for because you work long hours. There's a lot of life that happens in between grad school and retirement.

So it's important to list out what those things are for you and then begin putting some numbers behind them and begin making some monthly savings goals for those things. We should also make the obvious observation that you don't net $200,000. And when you're up in that stratosphere, you might be a little shocked at how much comes out in taxes. So figuring out what your after-tax income is going to be will really help with the 50-30-20 budget, but it will also help you right-size some of your expectations about how much you have to spend for an apartment, how much you have to spend for a car. One tool that might be helpful is having a savings bucket strategy that

I'm super fond of. And Liz, actually, you turned me onto this. For me, I have half a dozen different savings accounts with different goals attached to them. And I have a certain percentage of my income go into them each paycheck. So that way I am saving toward different goals. One of them is just fun money. And that is my general bucket of cash that I have for things like travel and gifts for friends and restaurant night outs, things like that. So you can have fun with this. But I think it's important to give every dollar a purpose. Yeah, that's super helpful. And when you name your goals, I think there's studies that back up the fact that if you have a named goal, you save more more quickly than if it's just this is my savings account. It's for saving.

It can help gamify it because you're seeing how much more you're getting each paycheck. Yeah, right. Yeah. And that way you can say like, hey, in five years, I'm celebrating a milestone birthday and I want to take a big vacation and I'm going to budget five grand to do that. Okay. So you have to save a thousand dollars a year towards your vacation, divide that by 12, set that money aside, make an automated transfer into your vacation account. And when you're ready to book, you have the money. You don't have to take on debt to take that trip. And you're doing more than one thing at a time.

People can get really focused on, I'm going to pay off all my debt and then I'll save for retirement. No, you do it at the same time because you want to take advantage of the time value of money and multitasking is the way to go. But there is also a balance between multitasking and prioritizing where you put your money, which is a good question that our listener had. So Sarah, what are your thoughts on how to prioritize different financial goals and ways to direct money? All right. There are the big goals like retirement, buying a house, getting married, things like that. Retirement is big. Everybody has a different vision of what they want their retirement to look like. But there will be a point in your life where you can no longer work. So even if you want to work until you're 80, your body might have other ideas and you'll

have to do it earlier because of medical issues. That's unfortunately really common. You do need to plan for an eventual time period where you're not working anymore, where you might have higher medical expenses, things like that. And so you're young, you're just out of grad school, you're just getting started. And Liz mentioned the time value of money. Getting started early means that you can save less every month and end up with more money when you're in your 60s or 70s than if you wait until you're in your 40s or 50s and try to catch up. That's how compound interest works. The more time you give it, the better off you're going to

be and the less aggressively you'll have to save. And when you're in your 40s or 50s, you might not have the money in your budget to save that aggressively for retirement because by then you might have kids in college and your vacation home and your fleet of Teslas or whatever. And you're just not going to have as much money every month to put into your retirement account. And so start early when your life is a little simpler and just save, save, save. But prioritization can also be a matter of personal preference too. Maybe our listener really doesn't like having that six-figure student loan debt hanging over them. So that might be something they want to prioritize just because psychologically that would benefit them.

Honestly, that's what I did with my student loans. I thankfully did not have $100,000 in debt, but I did have debt. And every year before tax time, you get a letter in the mail that tells you how much interest you paid over the year. And I remember I was making my minimum monthly payments every month. And then I get this letter and it tells me how much I paid in interest. And that letter made me mad. I just spent this money to literally just have debt. And I was upset. I took a hard look at my budget and I was like, how much more can I put toward this every month? And I put like an extra $40 a month toward the principal for a while. And when I got down to the last $1,000, I paid it all off. If having that

number hanging over your head annoys you or makes you angry, that's a good thing. That power, you can put that anger to work. Even if you can put an extra $25 to $50 a month into the principal, it's something. It will chip away at that debt that much faster. If you get an annual bonus, for example, from your law firm, a lot of law firms do that. It could be that you set aside a certain percentage of your annual bonus and put it toward the principal of your loan just to chip away at that faster. So that's another way that you can prioritize that debt. The interest rate they're paying makes me think that they probably got federal student loans. It's probably graduate plus loans. And if that's the case, they're probably going to get pitched to refinance

those loans into private loans just to lower the interest rate. And I'd be really hesitant about doing that just because federal loans have a ton of protections, as we know from the pandemic pausing the payments for so long. If you lose your job, if you have any kind of economic setback, you've got some flexibility there. Whereas private student loans don't have that as much. If they do happen to be private student loans, then refinancing can be a great idea because it just lowers your interest rate and you're not losing anything. But you do lose something very substantial if you're trying to refinance federal student loans. And this is relatively high rate debt, and I doubt that they're getting any kind of tax break on it. Usually we say, don't worry about

your student loans, let them ride. You got more important things to do with your money. But in this case, I endorse paying some of that down. That brings me to another question from our listener, which is, what is the quote unquote smart order to do things in? That's a million dollar question, isn't it? Yeah. I think the answer is that there maybe isn't one specific, perfect smart order to do things in. Yeah, I think it's very individual. With most people, you got to prioritize retirement because most of us are going to get there. Most of us are

going to need the money and it takes a long time. That's an expensive goal. But if this debt is bothering you and you want to pay it off faster, that would be the next thing for me. Obviously, if something's a top priority, and this listener mentioned retirement and debt, sounds like that's on their mind. That could be a good place to start getting yourself set up so that you have your automated payments into your student loan. So you know that money is going out every month on time. If you want to add to those payments and overpay your loan, to some extent, go ahead and do that. You also automate your retirement savings if it's through your employer that comes out of

your paycheck automatically. When you start your job, there'll be some paperwork to fill out, but get that going. Don't delay. Get that money into your retirement account, select your investments, and just let that money in your bank account every month, that's when you can really start thinking about, okay, well, this is what I have left. What do I want to do with it? And that's where that 50-30-20 budget comes in. And what you want to prioritize can change from year to year. You might prioritize living super cheaply so you can save up for travel. But then the next year, you finish your trip and you're like, I hate my apartment. I don't want to live with roommates anymore. Now I want to prioritize finding an apartment that's just mine that maybe is a little bit nicer. That's going to cost you more money. Leave room in your plan for those changes because you're at a point in your life where a lot's going to change from year to year. You kind of touched on getting things set up to begin with. And I think that's something that is very smart to do first, if possible, because there's a certain

amount of administrative overhead involved in setting up your savings accounts, as you mentioned, getting your retirement savings and contributions and investments all organized. And that might take a good Sunday afternoon set aside to dive into. But then once that's done, you pretty much have it going in the background and your money is going where you want it to. Yeah. You revisit it every couple of years, but for the most part, those things can run on autopilot for a while. Right. All right, Sarah, do you have any final thoughts for our listener? Well, it's just like we said, this is a huge change for you. You're going from being a student to making a substantial annual salary, which is amazing. And this gives you options. Don't sleep on how well you can set your life up with this income. This is a really great time to sit down and make a plan for yourself and really think about where you want your money to go, how hard you want it to work for you. I mean, like you do work for clients as a lawyer, right? So think of it as if you are your money's client and it's got to work for you or else you're going to

fire it. Well, you can't fire me, but you know what I mean? I'm trying to make a metaphor here. Just go with it. But really, the people I know who have made it to their mid-30s and later, who are financially comfortable for where they are in life, are people who didn't ignore this stuff when they were in their 20s. They're the people that used that time to set a good foundation for themselves. People who just kind of like winged it. They're like, I make money, I spend money, whatever. It's all in my checking account. I don't know. They're the ones who are hitting their mid 30s. And they're like, why can't I afford a house? I don't have a retirement account. Should I have a retirement account? Yeah. Yeah, you should. Because, you know,

yeah, we're millennials. We're not going to have any social safety net, right? And you do need to save for these things. That's the advice I would give to you as somebody who's been out of school long enough and who has friends in the same boat to see all the different choose your own adventure paths people have taken. I would say, use this time wisely. You can still have fun. You can still do all the things you want to do. Yeah. But you could do it because you know you're also doing the things you have to do. That is an excellent point, Sarah. Well, thank you so much for talking with us. Thanks for having me back, guys. Before we get into the next money question, I wanted to mention that this is probably not the first time you've heard us suggest the 50-30-20 budget, and it probably won't be the last.

The tool is a handy framework to get a grip on your spending so you can be more intentional about directing your income. If you haven't already looked into it, then I hope you do now, or, you know, maybe the next time we bring it up. And we definitely will. Okay, now let's get on to the next money question. This episode's money question comes from Luca. Here it is. Hi, Wallet Nerds. I have used NerdWallet for quite some time and recently discovered your podcast,

and I am a very big fan. I have a few questions I would like to ask of the show. I'm 16, and as you can tell by me emailing you, a very big fan. I have a few questions I would like to ask of the show. I'm 16 and as you can tell by me emailing you, a personal finance nerd. I want to know if there's anything I can do now to help my financial future. I have a job, IRA, checking slash savings account, and I am an authorized user on my parents' credit card. Is there anything else I can do? Because I am a personal finance nerd, I also like looking into various accounts. I am not very satisfied with my current bank and want to switch.

Are there any cons to having multiple accounts? What about closing old accounts? I feel confident in my ability to manage them and keep track of my money. Thank you very much. Sincerely, Luca. I love Luca. Luca is our kind of nerd. Getting an early start with investing is always good, but getting started

as a teenager, that is huge. Those extra years could more than double the amount that Luca can put aside for retirement. This is awesome. Anyway, to help us answer Luca's question, on this episode of the podcast, we're joined by one of our own personal finance nerds, Kim Palmer. Welcome back to the podcast, Kim. Thank you so much for having me. Our listener, who is the youngest that we've ever heard from, is looking for some advice about how to jumpstart their financial future. What do you think? First, I think we have to acknowledge that they're off to such a strong start because so many people aren't even thinking about money yet. I think it's really great that they're already so far ahead. There's one area actually that they didn't mention, and that is spending. I think it

might make sense to take a deeper dive into how they're currently spending money. One thing I've noticed is that once you get in the habit of saving and of spending less than you're earning, it's easier to maintain. What a perfect time to start that habit when you're a teenager. One tool we love at NerdWallet is the 50-30-20 budget. And that basically allots your take-home income into three different categories. You have 50% going toward needs, you have 30% going towards wants, and 20% going towards any debt payments and savings. Now, as a teenager, everything might not apply to you there. For example, you don't probably have rent right

now or more. But I think it's a useful tool just to start thinking about where your money is going. I also think our listener should appreciate the really unique opportunity they have by starting building wealth so young. You know, there's the saying that youth is wasted on the young. And for so many, so is their time horizon for saving for retirement and investing. But I think that Luca might be an exception to this. And as you kind of nodded to Kim, because they're starting so young, they don't have as many financial obligations, like they probably don't have student loans or a car payment or rent. So they can maybe fudge the 50, 30 or a car payment or rent so they can maybe fudge the 50, 30, 20 to make it so that they can save a lot more right now.

I think that is a great idea. When it comes to investing, you do have to be 18 to actually go ahead and open up a brokerage account. But it can definitely be something that you do along with your parents. And as Liz mentioned, when you do start investing early, you have a head start. You have so much more time to grow your money. One thing I like to do with my kids is go through a company like Stockpile and buy fractional shares of really big companies that you're already familiar with. For example, with my kids, they can take $25 and buy Netflix or Disney and see how the stock fluctuates. And I think it can just be a way to kind of get your head around what investing feels like, see if you like it.

Yeah, because one of the problems with getting started with investing is that sometimes the buy-in is really high, like shares of companies that kids know and recognize might be, you know, $100 or more. And that's not easy to get started with. Or if they're looking at mutual funds, they can have an even higher minimum investment. So these fractional shares are a good way to get an early start. But they will have to be 18 to open one of these accounts. How can they get around that? Is it that they'll open one with their parents? And are there also any other limitations that Luca should look out for because they are still under

18? There is definitely a limitation in that you have to be 18 to open some of these accounts. But the easiest way around it is if you do have the help of your parent, then they can do it for you or you can do it jointly. Liz, do you think I'm missing anything else you should be thinking about? You got to consider financial aid. If you think that you're going to need financial aid to go to college, then you don't want to have this money in the child's name. Or you can do kind of a workaround, which is to open a Roth IRA. Now, there are contribution limits to those, but Roth IRA and other retirement money is not counted

in financial aid formulas. So that's a way to get around that concern that your holdings could interfere with how much financial aid you get. One thing I keep thinking about is how lucky Luca is to have parents that have encouraged their kid to start building a solid financial foundation really early on. Adding them as an authorized user on the credit card, for example, will give Luca an early start on building good credit. Kim and Liz, I'm wondering if you can share any other tips that you have as parents for how parents out there can help their kids get started like Lucas parents did. Well, I think it's like most things with parenting is that you start talking about it early and often. So it's not a subject that's being brought up at the last possible minute. When you take your child shopping, you can talk about the cost of things

and how you decide what to buy and what not to buy. With our daughter, as soon as she was recognizing that money bought things, which was very early, like three years old, I want to say, that's when we started her with an allowance. And that's very early, but we had some good experiences with it. That's something to consider. And she seemed ready, right? Oh, yeah. Well, we've talked about this before. She was ready to save. She was ready to spend. She didn't understand the sharing part. Why should she have to share her money? Then as she got older and she got jobs and started her own little business, we would match her earnings with Roth IRA contributions. Oh, that's cool. That is very cool. You know, my parents did the exact same thing and I really think it helped me. I think it helped me learn

how to save. One thing I've noticed with my kids is that from a very early age, like toddlerhood, they start asking for things and they have no qualms about spending your money. The good thing about that is that it gives me a chance and parents a chance to say no and to explain the whole idea of scarcity. We can't have everything we want. That's really the basis of learning how to budget right there. As they get older, it morphs into a more complex conversation. For example, with my 12-year-old, we can have a more nuanced discussion about saving and putting money aside so you can afford something bigger. And I think as the kids get older, you can start having those more

nuanced conversations. But it really starts, I think, around age two. Luca is also wondering about switching banks. Kim, what do you think they should know when they're shopping around? It's a really good question to look into switching banks. Kim, what do you think they should know when they're shopping around? It's a really good question to look into switching banks. A lot of people are afraid to switch banks and they just go with the flow of their current bank, even though they're not happy. I really encourage this line of thought to look at if another bank could serve your needs better. What you want to do when you start thinking about opening a new bank is first see what would be a good fit. That starts with some online research. Where can we make sure we're paying as few fees as possible? Where can we earn the highest APY? Where can we get the most for our money? Once you do that comparison and

you choose a good fit with your new bank, you just go ahead and you transfer any money that you have into the new account. You close your old one. And it's really not as complicated as I think a lot of people worry that it is. Or as a lot of banks might want you to think it is to switch banks like that. I did this in the past year. I had had a goal for a while to go from the big national bank I'd been using since high school to a local credit union in the Pacific Northwest. And it took me a while to actually muster up the energy to do it. And it took me five minutes. It was shockingly easy. Yeah, I think it's more complicated when you have more bills to pay, especially if you're auto paying through your bank account.

So you may need to keep your old account open for a while for those to clear. But if you're somebody like Luca, who's just starting out, you can choose whatever bank you'd like. And an online bank might be a good fit because they tend not to have minimums and a lot of fees. You can choose whatever bank you'd like. And an online bank might be a good fit because they tend not to have minimums and a lot of fees. You can start with a small amount and build from there. But again, they'll probably have to have their parents help to open any sort of account like this. Luca is obviously in pretty good shape today and is already saving for their future. Kim, what else should Luca consider going forward? Well, I think it really all goes back to getting in the habit of saving money. I think some of the habits that they're establishing now really will last possibly their whole life. Of course, as a teenager, you might not have the same priorities that you will have in

your 20s or 30s or beyond. So I think when you're focused on saving and you have that savings cushion, it helps you have that flexibility. So wherever you turn, whatever priorities emerge over the next decade or two decades, if you have that savings habit, I think that gives you such a strong backbone to rely on. Yes, absolutely. And I love the fact that you talked about the importance of saving while you're young, because a lot of people just keep putting it off, thinking, well, in the future, I'll have more money. It'll be easier in the future. It is never easier in the future. It's start now, do it now, and you'll have a lot more flexibility down the road. Well, Kim, thank you so much for talking with us.

Of course. Thanks for having me. So Luca gave us a chance to talk about the power of compounding, which is another of our favorite topics, and how an early start can make a huge difference in how much you can save over time. But we don't want people to despair if they're coming late to investing and wealth building. We want them to have some kind of hope. Right, because even small changes can make a big difference over time. Just getting a handle on your budget can be a great first step. And that's all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Remember to follow our show

on your favorite podcast app to automatically get new episodes. If you're listening on Apple Podcasts or Spotify, then tap that five-star button to rate the show. We really appreciate it. This episode was produced by Liz Weston and Cody Goff with help from me. Kaylee Monaghan mixed this episode with additional audio editing by Cody. And a big thank you to the folks on the NerdWallet copy desk for all their help. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds!