Episode 5: Savings – Common Mistakes

Episode 6 – Savings: Short, Mid & Long Term Saving
June 17, 2019
Episode 3: Spoke Conversations
May 1, 2019

Common Mistakes in Saving Money

Thom Allison and Jessica Kirwin of Allison Spielman Advisors discuss some of the more common mistakes that are made when saving money.

Are you saving strategically? If you are saving money every month – great. However, if you are not saving strategically, you may be in for a nasty surprise when you want to use your savings.

In this episode of the Financial Wheel podcast, my guest, Jessica Kirwin, CFP®, and I talk about common mistakes we see people make when saving money. You will learn the importance of saving “on purpose” and using different savings strategies for different savings goals.


Thom: Welcome to the Financial Wheel Podcast.. I'm Thom Allison your host. The purpose of these podcasts is to equip you to have the right conversations about your money. These are conversations that surely you're going to have with your financial advisor you're going to have with your spouse with your partner but you might have them with your kids. You might have them with your parents with a mentor really with anybody who's going to help you be making money decisions. And we want you to have the right types of conversations because that's what you're going to use to evaluate the plethora of information that's available out there in books on TV and magazines even in podcasts like this one. And the thing about that information is a lot of it's really good information but a lot of it is maybe not so much so. So the first purpose of having the right conversations is to help you decide what's good what isn't good. But even more important than that it's to help you decide is that information that's appropriate for you. There can be some great information out there but it just isn't right for you as an individual. And that's the purpose of these conversations. So today we're going to be getting into a conversation about savings and to help me do that. My guest today is Jessica Kerwin who's a colleague of mine at Allison Spielman Advisors. I think I'll just let Jessica introduce herself.

Jessica: Hi Thom. Thanks for having me. So for those of you who follow Simon Sinek he suggests starting with your why and my why for being a financial planner is that I've seen people let money control their lives. And I decided that I didn't want to let money control my life. And about 19 years ago when I graduated from undergrad I set out on that quest. These things might not have increased my net worth but they've definitely have increased my life satisfaction and I look back on those things and I'm really glad that I made those decisions. Even though they might not have been the easiest choices. I definitely happy with how things have played out. Some examples are. I left a high paying corporate job. I joke that I was having a mid-life crisis when I was 25 years old.

Thom: Well you might as well get started early right. Get it over with. Good strategy.

Jessica: Yeah. So I joke that yeah. Shortly after joining the corporate world I quickly decided that that was not the right place for me. And during that time I met my husband and we decided to join the Peace Corps and it was a hard decision. Yeah my parents were a little bit leery of moving to Honduras and. And also I did have a very good job with yeah lots of great benefits but it just wasn't I wasn't showing up to work every day. Being extremely excited about what I was doing so while we were young and we didn't have a mortgage or kids we decided we were going to learn another culture and another language and and explore another part of the world. So that's one of them. Another one decided to get a master's degree my MBA. I thought that was going to give me the skills to help switch careers. And and it did. It definitely did. It kind of started moving me in the direction and then another example is my husband and I we moved across the country purposely. We wanted to be closer to outdoor activities. We met in Colorado Springs. So we were skiing and camping and doing lots of fun outdoor activities and then between all these different things we kind of got away from that. So when he had an opportunity with a job out here in the Seattle area we moved from Delaware all the way across the country we brought our two cats. So we actually made two drives. And so the last one. Changing careers to have a more fulfilling job. Shortly after my son was born I decided that I was going to become a certified financial planner and so took classes and then the exam. For those of you that might not know it's an eight hour exam to become certified. And then there's six thousand hours of experience. So I went through.

Thom: That's a big commitment.

Jessica: All of those steps with the hope that if I did all of those things I would I would be able to find a job because I was switching from I did project management work. I did work for a financial services firm for five years but I was doing more project management marketing work. And so this was a bit of a change but I did want to do personal financial work so that I could have an impact helping people and have that direct relationship. I really wanted to be able to help people change their lives. So I've been working now with with Thom and Allison Spielman Advisors for over two years and I'm having a lot of fun I love what I do.

Thom: That's great. Yeah. And one of the things that I noticed about what you said is the idea that you're engaging in activities that maybe didn't build up your net worth but they're the things that you wanted to do. So you've really latched on to that idea that the money is there to support your life. Your life is should not be lived for your money. And and that's really key to what we want to do. And that's gonna be a key part of what we're gonna be talking about today when we get into savings that you know you ought to be saving for the things that you want to be doing. And you know and obviously you've done that I mean you had to have put some money aside before you just packed up and headed off to Honduras because you know Peace Corps is not known for being a wealth builder for people by any means you know and to go off and go back to school and get a master's degree. You know that requires a financial commitment that you had to save for so. So you're really a great example of what we're trying to do at Allison Spielman Advisors and what we're trying to do with these podcasts to encourage people to look at money as a tool to help them build the lives that they want to build. So savings are really important. And you know you've you've seen some things you've done yourself and you've through your practice now had a chance to work with some people so you know what I was thinking today might be helpful is to maybe point out some of the common mistakes that we have seen people make and then in the next podcast we can sort of say how do you avoid that. Yeah. So what's a common mistake that you've seen people make.

Jessica: So one. One mistake. Even I am guilty of this is at times not identifying clear and meaningful goals. So maybe they're just saving money because you're supposed to. So saving money is great. I remember when I was you know just out of school got my first job it's like OK I want to get the company match for my 401 k. I'm gonna put that I don't know 8 percent of my paycheck into my 401k So that was good. I started that habit.

Thom: That's great. Yeah. Saving money is always good. Yeah.

Jessica: But you know I didn't have a clear purpose. And like we've talked about when other things come along that maybe make it harder to save or or you have a many goals then it's good to make sure that you've defined those goals so you stick to it. So for example identifying that goal and the timing. So if you're buying a home what is the price range. Do you have an idea for the down payment amount. What's the timing. So are you going to be buying this house in three years or five years. We work with clients all the time about paying for their kid's college education sometimes couples haven't even had the discussion.

Thom: We have run into that and you know you're bringing up an important point there because there is a difference between financial planning and parenting decisions and deciding how much you're going to pay for your kid's college education. That's a parenting decision. And that's you know it's a conversation obviously you have to have. But maybe not one that your financial advisors prepared to help you with. So you kind of need to go in and say OK we want to pay X for our kid's college education and that's fine. And it's the advisor's job to help you figure out how you're going to do that.

Jessica: Right. Just figuring out if they're going to pay for in-state or out-of-state or exactly.

Thom: Well I just wanna make another comment about about this one because sometimes people don't really appreciate how important it is to have those goals. But that's what's going to kind of keep you on track a lot and I'll just give a personal example of this. I decided that I want to go back and get my master's degree and this was at a time before they had what they now call executive MBA is where you could get your MBA while you're still working. I had to quit my job and go to school full time in order to do this. And my parents made it very clear to me they weren't going to help me pay for it so I was on my own for this thing. And so what I needed to do was to save money and and I was actually doing quite well with that just sort of the circumstances of the job I had. In the end it helped that I obviously that I was single at the time so I didn't have a lot of other commitments but I was able to be saving quite a bit of money.

Thom: But I remember clearly one time I was sitting there and I was looking out this pot of money that I had saved up. That was fairly substantial I thought you know I could buy a motorcycle with that and that would be kind of fun. And I even found myself rationalizing in my brain thinking well yeah but I want this money for school but I can always sell the motorcycle right before I go to school and get my money back. The more I thought about the more I realized no school is more important to me than a motorcycle. And that's the real advantage to having a specific goal in mind because when those shiny baubles pop up and they're going to pop up and they're gonna be really tempting it gives you a chance to sit back and sort of thing. Now wait a minute I've got something that's more important for me. So that's really the reason that it's you know while it's great to be saving your savings could run sideways on you if you don't have a specific goal.

Jessica: Yeah that reminds me when when we were getting my husband I. It's a long application process for the Peace Corps and especially if you're married because it's harder to place couples together in a site. So I think it took about a year and during that time you can't join the Peace Corps with with debt unless it's student loan debt depending on the type of loan you can have it deferred. And I had a car loan so it was very clear OK. And this year I got I need to pay this car off so that we can or sell it. I guess we could have sold it but I decided to have the goal of paying it off. And at the same time we were saving money so that when we came back we would have some funds to help us. When we finished our service.

Thom: Yes. That's great. So that first common mistake is that you know people are saving but they're not saving for a purpose. So you want to be saving for a purpose. So what other mistakes maybe have you seen.

Jessica: So another mistake is not prioritizing their goals so maybe there are I don't know they want to take a trip or do a big house project or saving for kids educations. So I think the main thing is identifying what's most important. And then if you are in a relationship working with your partner to make sure that you're on the same page. Because I've even found many times that my husband wants to do. He has his own list of what's in for it and it is my dad and I have mine and I think that causes zero. Does this agreement if if you're not on the same page with some of these larger things that you're saving for and you can sabotage each other. Like if you're not working together in say some o the new iPhone comes out and he wants My husband wants to go get that but if we have a common purpose and we're clear on what goals that we're saving for I think it makes it easier.

Thom: Yeah I mean it definitely does and you know certainly you have to be having these conversations all the time and everybody has their bucket list. Yeah. And so you know which bucket are you going to be filling up first. That's that's kind of what the priority is when we when we talk about this. OK. This is all good stuff. Let's go ahead and take a quick break here and when we're gonna come back we want to kind of look at another common mistake that we see people make and that's saving money in the wrong place.

Thom: Okay great. We're back in the studio now and we're ready to get going. So Jessica want to share a little bit about some of the mistakes you've seen with people saving money in the wrong place.

Jessica: Sure. Well I think the important thing is to identify what type of goal you're saving for so is it a short term goal is it a mid-term goal or is it a long term goal. So for example if you're saving for a trip that you're gonna be taking in the next year we consider that a short term goal. And let's say you decided you wanted to try and double your return in the next year and you put that in in the stock market. Yeah there is a possibility that you might not have as much money in the next 12 months when you need the money. That is not going to be there. So because of this for those short term goals we would recommend something like saving in a high yield savings account.

Thom: Yeah we do have some different recommendations and actually we're gonna get into that and a lot more detail when we get into the next podcast. So the next one is gonna be really focused on short term savings goals and we're going to we're going to talk about how to avoid this mistake at that point. So.

Jessica: So another example would maybe we have seen clients saving for financial independence in their 401k and they have their money all invested in cash and so that would be.

Thom: Not. Not as productive as it could be right.

Jessica: Exactly. I mean especially if you're 30 and you have maybe 35 years till you retire you can bear some ups and downs in the market so you could. Yeah exactly like Thom said Do a little bit better than putting your money in cash.

Thom: Yeah you can. And I think an important point that we need to make sure people understand here because we talk about short term savings and midterm savings and long term savings so let's give some maybe some parameters around that so generally we're thinking zero to two years is short term two to five years maybe maybe as long as 10 years is kind of mid term depending on you know exactly what that goal is and then 10 years plus is is long term and as we're going to be talking about there's different strategies that you want to use for each one of those categories. But I just thought might be helpful to kind of give people parameters what we're talking about if.

Jessica: Well another example would be let's say you have restricted stock units. So those are RSU's some of the companies around here offer that sort of benefit. And if you're leaving your money invested in that and you need the money in a year for a large house project there is a chance that that value could go up or down. And so that would be another example of potentially saving your money in the wrong place.

Thom: Mm hmm. Yeah. So the idea is really just kind of think about the goal. Think about the timing of the goal and then think about the different ways that you can save the different vehicles you can use savings accounts you can use stocks you can use restricted stock options you can use other things and you just sorta want to match that up as best as you can with when the when the goal is going to come along.

Jessica: Right. And we're going to get into more detail in the next three podcasts to specifically share examples and strategies for each of these different lengths so the short versus mid versus long.

Thom: Exactly. So you know another common mistake that I see and it comes back to this idea of vehicles and this one's one's fairly specific actually. And that has to do with the use of insurance products because I want to bring this up because a lot of times we see these things are misused. You know there's a lot of different ways that insurance can be used and sometimes it's used as a savings vehicle under some circumstances that might make sense but not in very many circumstances. So there's a purpose for having insurance. It's a good thing to have but it's there to really provide for the people who are financially dependent upon you. What are some of the ways maybe that we've seen people use this as a savings vehicle rather than as an insurance vehicle. You know there're policies out there that have savings component to them and sometimes people think well you know if I just sort of put money into that then I can be then at some point I can pull that money back out again to use it for a down payment on a house or a car purchase or something like that. And that's really the best use of insurance. Partly because of the fees partly because you know there's some cost involved in actually accessing that money.

Jessica: I think a lot of people are confused with life insurance products because they think oh well I can get life insurance and be saving. But what they don't understand is sometimes the premium will increase when they start getting older and it's harder to keep up with that premium compared to a different policy.

Thom: The policies also will have a fixed premium but like you mentioned the cost of the insurance keeps going up so that more and more of that premium is being used to pay for the insurance and less and less is going into savings. As you kind of keep moving along as well. So they're just really not really good efficient savings vehicles.

Jessica: But that could be a whole nother conversation.

Thom: Well and we're going to do that in the future we're going to have a whole podcast on the proper use of insurance products. We have an expert that we're going to bring in to talk specifically about that. So look forward to that in the future podcast.

Thom: Okay. Well this you know this has been a great conversation and thank you Jessica for helping us out to kind of point out some of the common mistakes that we see people make with savings just as a as a quick summary of the mistakes that we often see is. You know first of all people don't have a specific goal that they're saving for they don't have a purpose for their saving. It's just sort of a general I'm doing it because I'm supposed to which is great that you're saving but just because you're supposed to is not necessarily a motivator when it gets to be tough. So you want to have a specific goal because that's what kind of helps keep you motivated as you moving forward. Another common mistake is that they are saving in the wrong place. So they might be saving in a say a 401k plan where there's restrictions on getting that money out. So now if they want to use that money to buy a car or to take their family on vacation they can't access it because it's just not available so saving in the wrong place is another common mistake. And another one that we see is that they they're confusing vehicles so they're confusing insurance as a savings vehicle for example a related one is they are confusing the amount of money that's withheld for their taxes as a savings vehicle.

Thom: You know the government doesn't pay you interest. The getting two thousand dollars back or three thousand dollars back at the end of the year is not really a great savings plan. It's a lot better to try to get your taxes down to really what you owe and then save that money in another spot. It's a lot better. So those are some common mistakes that we see. But there are ways of avoiding these mistakes. And so in the next podcast Jessica is going to be with me again and we're going to be talking in the next one about short term savings remember that's in that zero to two year timeframe and where the best place is to save it. What are the best strategies to be saving for short term goals. We're going to focus on midterm goals and then we're going to talk about long term goals. And each one of these has different vehicles and different strategies and you want to be using these effectively you want to be having the right conversations to learn more about what we're talking about. Also an opportunity to see a transcript of this because I know you're riding in your car you're working out somewhere so you might be able to take notes. Go to FinancialWheel.net and we will have a transcript of this and additional information that I'm sure you'll find helpful. So we'll look forward to seeing you at our next podcast. And until then, Keep your conversations positive and constructive.


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      Financial Satisfaction Survey


      Directions: The statements below will help you to think about and assess how satisfied you are with many aspects of your financial life. Indicate your level of satisfaction for each statement with stars.
      (1 star = "Not Satisfied", 3 stars = "Moderately Satisfied", 5 stars = "Very Satisfied")

      I am satisfied with...

      1. ...with my ability to meet my financial obligations

      2. ...with the income my current job or career provides me.

      3. ...with my spending habits.

      4. ...with the level of debt I carry.

      5. ...with the “extras” that I am able to buy for myself and/or loved ones.

      6. ...with the level and quality of insurance protection I currently have.

      7. ...with the amount of money that I save and invest on a regular basis.

      8. ...with my current investment choices.

      9. ...that I am on track to build a sufficient retirement nest egg.

      10. ...with the level of employee benefits I receive.

      11. ...with my style of personal bookkeeping and financial record management.

      12. ...with my ability to provide financial help to family members.

      13. ...with my estate plan.

      14. ...with my level of charitable giving.

      15. ...with the level of financial education I have attained.

      16. ...with how I respond emotionally to my personal finance issues.

      17. ...with my ability to communicate about my financial matters.

      18. ...with the feelings I have about my money life.

      19. ...that financial issues do not cause stress or strain in the relationships that are important to me.

      20. ...with the working relationships I have with my financial service providers (i.e., insurance agent, banker, broker, financial planner, accountant).

      © 2002 - 2018 Money Quotient, Inc. All Rights Reserved. This document is available via licensing arrangements with Money Quotient and is protected by federal copyright law. No unauthorized copying, adaptation, distribution, or display is permitted - moneyquotient.org.

      Life Transition Survey


      Directions: In each section, select the transitions that you are currently experiencing and those you are likely to experience in the future. In addition, check transitions in the short to mid-term and long-term columns that you either hope to experience or anticipate with concern.

      Work Life Transitions

      1. Change in career path:

      2. New Job:

      3. Promotion

      4. Job loss

      5. Job restructure

      6. Education / retraining

      7. Sell or close business

      8. Transfer family business

      9. Gain a business partner:

      10. Lose a business partner:

      11. Downshift / simplify work life

      12. Sabbatical / leave of absence

      13. Start or purchase a business

      14. Retire:

      15. Phase into retirement

      16. Other

      Financial Life Transitions

      1. Purchase a home:

      2. Sell a home:

      3. Relocate:

      4. Purchase a vacation home / timeshare:

      5. Re-evaluate investment philosophy:

      6. Experience investment gain:

      7. Experience investment loss:

      8. Debt concerns:

      9. Consider investment opportunity:

      10. Receive inheritance or financial windfall:

      11. Sell assets:

      12. Other:

      Family Life Transitions

      1. Change in marital status (marriage):

      2. Change in marital status (divorce):

      3. Change in marital status (widowhood):

      4. Expecting or adopting a child:

      5. Hire child care:

      6. Child entering adolescence:

      7. Child with special needs:

      8. Child w/pre-college expenses:

      9. Child going to college:

      10. Child getting married:

      11. Empty nest:

      12. Family special event (Bat/Bar Mitzvah, anniversary party, trip):

      13. Helping and/or gifting grandchildren

      14. Concern about aging parent

      15. Concern about health of spouse/partner or child:

      Legacy Life Transitions

      1. Increase charitable giving:

      2. Give special financial gifts to children/grandchildren:

      3. Give parental pension (monthly stipend):

      © 2002 - 2018 Money Quotient, Inc. All Rights Reserved. This document is available via licensing arrangements with Money Quotient and is protected by federal copyright law. No unauthorized copying, adaptation, distribution, or display is permitted - moneyquotient.org.