Rachel Podnos O’Leary (00:03:47):

I got into financial planning kind of accidentally. I majored in political science in college. And I had no idea what to do with that, so I went to law school like many other political science majors. And then Law school just never really clicked with me. I didn’t enjoy it. I never found any particular area of the law that was that interesting to me. So after I passed the bar, I moved up to DC from Florida, which is where I was in school. I was just hoping to get into something more kind of non-traditional. There’s a lot of that up here. And I ended up at an investment management firm.

Rachel Podnos O’Leary (00:04:25):

I was very green. I didn’t know anything about investing at all, but I really enjoyed it and found it interesting. So I became a certified financial planner, and I’ve been working in finance ever since then. I love it. I think it’s so rewarding, interesting, every day is different. And earlier this year, I published a book called 21st Century Wealth. And that’s kind of my take on just a high-level roadmap for millennials who want to achieve financial independence.

Robert Leonard (00:04:55):

Well, first off, congratulations on the baby. I have a two and a half, I guess almost three-year-old. He’ll be three next month. I’ve been down that path. I know what five months is like, and I know what that first, I mean, really six months to a year is like, so I know what you’re going through. But Congratulations.

Rachel Podnos O’Leary (00:05:11):

Thanks. Yeah, it’s been quite the journey so far. I look forward to all the fun ahead.

Robert Leonard (00:05:17):

You mentioned that you wrote a book and you make a point in your book that millennials face a very different financial landscape than older generations, especially baby boomers. What are some of the key differences between millennials and their parents? Why are those differences important?

Rachel Podnos O’Leary (00:05:33):

I do. I talked about that in the book. And you know, it’s broadly discussed today, it’s such a hot topic amongst baby boomers and millennials, us and our parents. But there are some big differences. So baby boomers generally kind of became adults in the 70s and 80s. And when they were entering adulthood, the cost of living, in general, was much lower than it is today, especially when it comes to housing and education, which, as we all know, have been two of the major kind of pain points for millennials.

Rachel Podnos O’Leary (00:06:06):

The stereotypical baby boomer backstory is, go to college, get a four-year degree, whatever that is, get a stable, decent-paying job, immediately buy a home and start a family. And then you enjoy one of the periods of greatest economic growth in US history. And two decades of high GDP, and wage growth, and good stock market returns, low unemployment. That’s kind of the typical baby boomer coming into adulthood and on experience. And we can contrast that with the experience of most millennials, which is a little different.

Rachel Podnos O’Leary (00:06:47):

Most of us came of age in and around the Great Recession. And there was a lot of economic uncertainty, obviously, during that time and following it for a long time after. And we faced some really tough economic trends as we were entering adulthood. High unemployment, tuition inflation, and a growing reliance on student loans that went hand in hand with that, changes in the need for skilled workers and stagnant wages, increases in the cost of health care, increases in the cost of housing, just kind of the perfect storm of things that we kind of came up against.

Rachel Podnos O’Leary (00:07:23):

I do think it’s important to acknowledge those differences, because that experience really has, in some ways, shaped the millennial generation, it’s shaped the way we see ourselves, and it shaped our worldview. There’s this idea of the American dream that each generation builds a better life for their children than they had themselves. And I think millennials, this may be changing, actually. But I think historically, Millennials have been a little cynical when it comes to that idea. And they feel that maybe that’s not a possibility for them. I actually disagree. I do think it’s a possibility. And that’s kind of the message in my book. But I do think that the coming of age into a period of economic uncertainty, I do think that really had a profound effect on the millennial worldview.

Robert Leonard (00:08:11):

I recently saw a picture, I think it might have been on Twitter, but it was a comparison of a single-family house, nothing super fancy, it was a starter house, it didn’t have the location or anything, but it said it was roughly $135,000 in the 90s. And then it said today, it’s worth about 490,000. And then below it, it had the average starting salary for a teacher in the area back in the same time period of when the house was originally priced at 135,000. And they said that the salary was about 60,000. And then they said fast forward to today, the average salary for a teacher in that same area is only 64,000.

Robert Leonard (00:08:46):

So you can see that the wages only went up from 60 to 64, but the house went from 135 to 490. So clearly, there’s a big disconnect between the cost of houses and wages increasing. And I think this can be it’s not just the cost of houses, I think the cost of a lot of different goods and services, as well as assets, have been significantly outpacing the increase in wages. And I think that’s the best way to just summarize everything that you just mentioned. And it’s tough to come into for millennials.

Rachel Podnos O’Leary (00:09:13):

Yeah, absolutely. I think that’s a great example. And you know, now, we’re seeing, even more, it’s in the news every day and housing prices are just absolutely insane right now.

Robert Leonard (00:09:25):

So rather than focusing on how millennials, maybe, were dealt a bad hand, what can we do as millennials to overcome this and achieve financial independence, anyway?

Rachel Podnos O’Leary (00:09:34):

I agree that I do think millennials were kind of dealt a bad hand. But I don’t think that means that we’re doomed, because we’re very young. And time is on our side. And time is really one of the greatest resources and assets that a person can have when it comes to building wealth. And we’re still so young and our life expectancy is, I don’t know, but I’m guessing it’s pretty long. So we have a lot of time to build wealth. And if we start now, I think that’s entirely possible. With even just moderate savings, I don’t think we have to do anything crazy to play catch up. But if we start now, I think we’ll end up in a good place.

Rachel Podnos O’Leary (00:10:12):

I talk in the book about how there is this kind of us versus them narrative, millennials and baby boomers and millennials kind of look to the baby boomer generation and say, you had it so good, you’re so lucky, it’s not fair. And looking at the baby boomers now, actually, they’re facing a retirement crisis. They did. They weren’t given a good hand. But they made a lot of behavioral mistakes, kind of in general, they weigh under-saved. They put a lot of faith in other institutions to provide for their future, whether it be social security, or a company pension, or a municipal pension. And long story short, they just are way under-saved, and they’re retiring.

Rachel Podnos O’Leary (00:10:53):

Every day, more and more of them are entering retirement, a lot of them are going to live another 30 years, they’ll be in retirement for 30 years. And they frankly don’t have the savings to continue their lifestyle for that time, probably not even close to it. So I kind of look at that and say, we really shouldn’t be envying them. Instead, we should say, okay, what can we learn from that? And how can we look at what they did and behave differently so we end up in a better place than they are now? And of course, a lot of this is generalizing. But we kind of have to do that when we’re talking about such large groups of people. But I think generally that’s all true.

Robert Leonard (00:11:32):

I hear a lot of different definitions and meanings of financial independence thrown around. So I want to know what you mean when you say financial independence. What is financial independence to you?

Rachel Podnos O’Leary (00:11:43):

Yeah, it is something that’s discussed a lot and it’s something I thought a lot about when I was writing the book. For me, financial independence means that you have a liquid net worth that is large enough to sustain your chosen lifestyle for the duration of your life without reliance on income or credit. Or you could say, streams of passive income, strong streams of passive income that are enough to continue to sustain your lifestyle. Either way, that’s what it means to me. And I think the core of that idea is that you’re not beholden to anyone else for your own survival. And you don’t have to work in a job that you don’t enjoy. You kind of don’t owe anything to anyone. Your time is your own, and your money is your own.

Robert Leonard (00:12:31):

Oftentimes, I hear wealth or net worth being confused with income. A lot of people believe just because they make a lot of money, meaning that they have a large income, that they’re wealthy and on their way to financial independence. That’s not necessarily the case. And actually often isn’t the case. Talk to us about the difference between wealth and income.

Rachel Podnos O’Leary (00:12:52):

That’s exactly right. I think a really good kind of explanation of this is it comes from the book, The Millionaire Next Door, which is a pretty famous, old personal finance book. And in the authors of that book, when they were researching for the book, they found that there were more millionaires living in blue-collar neighborhoods than in white-collar neighborhoods. And they determined that that was because people in white-collar neighborhoods despite their higher incomes, were more likely to spend their money on luxury items and wealth signifiers to the point where they weren’t building wealth. And people in blue-collar neighborhoods were just saving a lot more and building wealth.

Rachel Podnos O’Leary (00:13:36):

They decided that people tend to fall into one of two groups. They are either under-accumulators of wealth or prodigious accumulators of wealth. Under-accumulators of wealth are people that have low net worths relative to their income. And prodigious accumulators of wealth are people that have, sorry, the opposite, high net worths relative to their income. And I see this all the time as a financial planner. I’ve seen people who make less than $100,000 a year become millionaires just through kind of consistent and disciplined saving and investing. And I’ve seen people that make a million dollars a year who barely have a positive net worth because of excessive spending and debt.

Rachel Podnos O’Leary (00:14:21):

Having a high income, I think, for most people does make it easier to save any given amount, especially a high amount. If you’re a high earner, you should be able to cover basic living expenses and most emergencies that pop up and still have money left over to spend and save. If you’re a lower earner, that is difficult. But that doesn’t change the fact that everything I’ve seen everything I’ve read, whether you’re a high earner or a lower earner, behavior is really the number one differentiator for those who build wealth. It’s not income, its behavior.

Robert Leonard (00:14:56):

I’ve shared this story a couple of times on the show, but I really like it. For anybody that hasn’t heard it, actually, when I worked … Back when I was a little bit younger, I worked at a credit union in college. And I was one of those people that sit in the offices as a financial service rep. And so I used to have people that would come to me for various different reasons. Sometimes it was for loans, but other times it was for reimbursements of insufficient fund fees. And the number of times that I’ve had people come in and sit down in front of me and ask for their $30 overdraft fee to be reimbursed to me with a new iPhone in their hand, a new purse, or I see them drive up outside through my window in a nice new BMW or something fancy was way more common than people that didn’t seem like they had money. And the other piece was too.

Robert Leonard (00:15:40):

And when somebody sits down to work with me, I, of course, had all their bank account information up in front of me, so I could see what they had. And maybe that’s not a full picture of everything that they owned. But very frequently, it matched to exactly what you just said, the people that looked like they have money very rarely did, and the people that didn’t look like they had much usually had the most sitting in their bank account.

Rachel Podnos O’Leary (00:15:59):

I totally believe that. They are the Millionaires Next Door.

Robert Leonard (00:16:03):

That’s one of my favorite books, too. So I know that book very, very well. You’ve created a five-step plan that you call a Personal Financial Audit that you say can help anyone get onto the path of building true financial freedom. Walk us through the plan and describe the steps involved.

Rachel Podnos O’Leary (00:16:21):

Okay. I’ll just start by outlining the five steps. So the five steps are confronting your financial reality, educating yourself, goal setting, making a plan to achieve your goals, and then finally, ongoing tracking of where you are relative to the goals. And so to kind of just walk through those one at a time. The first step is confronting your financial reality. And high level, the end of that step basically means you know your net worth and you know your cash flow situation. I don’t know, that might sound really simple, especially to people who listen to this podcast, which I would guess are not your average people, probably they’re more highly financially literate, maybe they have a financial plan, they know their net worth.

Rachel Podnos O’Leary (00:17:05):

But I will tell you, most people do not know their net worth, they have no idea where their money is going. And that is a huge problem if you’re trying to have a plan for going forward. It’s not knowing where you’re starting. When I sit down with a client for the first time, I ask, how much do you have? How much do you owe? How much do you make? How much do you spend? And how much do you save? A lot of times answering those questions takes some digging. But once you can answer all of those, you get a great idea of where you are. And so that’s really the first step. The next step would be educating yourself.

Rachel Podnos O’Leary (00:17:41):

So if you know your net worth, you know where your money is going, but you don’t know anything about investing, and you don’t know anything about debt reduction, or cash flow planning, or insurance, all these kind of really important parts of a good financial plan, you’re going to have trouble making a plan to go forward in any sort of productive way. So however you do it, maybe you substitute hiring a financial planner for this step, which is something a lot of people do, they delegate this step. You need to make sure you find someone ethical, who would be a fiduciary, who only gets paid by you and isn’t getting paid to sell you products.

Rachel Podnos O’Leary (00:18:18):

But for most people who want to do it themselves, I would say you need to read a book, go online, there are a million resources out there. I try in my book to kind of have the middle, kind of the meat and potatoes personal finance stuff that covers all these topics. And I tried my best to kind of say, if you just read this book, you’ll probably have a high-level understanding of all the things you would need to know if you’re an average person to write your own financial plan. So in one way or another, educate yourself. That’s the second step.

Rachel Podnos O’Leary (00:18:50):

After that is goal setting. Any good financial plan is based on goal setting. I really do believe that goal-based financial planning is the most effective and the most motivating way to plan for people. I think that for most millennials, your goal should be a very high net worth, that should be kind of your large macro goal. Now specifically what your net worth target should be, that’s highly personalized. That kind of depends on what does your lifestyle cost? Do you have a family? A lot of things. But I do think that should be kind of the macro high-level goal. And then as you drill down, you’ll have to set more micro, immediate kind of prerequisite goals to getting there. So that’s the third step.

Rachel Podnos O’Leary (00:19:38):

The fourth step is making a plan to achieve the goals. That’s just writing out a financial plan, a detailed, multi-step financial plan for hitting the kind of more micro prerequisite goals along the way to achieving a high net worth. A net Worth high enough to give you financial independence. The last step is just ongoing tracking. That’s really important. Your financial plan, it shouldn’t be a static snapshot of one day in your life, of one static moment of your finances. A good plan kind of evolves and keeps up with your life. We have kids, we switch jobs, we move, we buy houses, we sell houses, and on and on and on. And every time something like that happens, that touches on your financial life in a big way, and your plan should take that into account and evolve.

Rachel Podnos O’Leary (00:20:30):

So I think at least every year, if not more, you should be revisiting your financial plans, sitting down, and taking stock of everything. Going through that, if you want, the five-step plan that I have, starting with revisiting your net worth, revisiting your cash flows, revisiting your goals, and then seeing where you are and seeing if you need to change the goals or move the goalposts, whatever it is.

Robert Leonard (00:20:54):

What are your favorite tools or resources for continuing that ongoing tracking?

Rachel Podnos O’Leary (00:20:59):

I think that’s highly personal. I am not a nitty-gritty budgeter. Personally, I tend to be more high level and I have my own financial plan format that I use for my family and for clients. But I think for a lot of people who are doing it themselves, I think a good budget software is incredibly helpful for a lot of people. Like a budgeting software and a net worth tracker, whether you do it in a spreadsheet, which is really common, or whether you use some sort of aggregator, those are really popular. You can link all of your accounts and kind of see at any given point in time, what are your assets? What are your liabilities?

Rachel Podnos O’Leary (00:21:41):

I think it just depends on what kind of person you are. Are you an engineer? Are you kind of like really into the dollars and cents? Or is that just going to make you not even want to look at it? Because you’re more of a big picture person and you kind of need like…yeah. I don’t want to recommend any specific software, because the truth is, I haven’t liked any of the ones I’ve tried, which is why I have my own financial planning format that I came up with myself.

Robert Leonard (00:22:08):

I think that’s fair. I mean, I use this thing called, basically a to-do list. And I’ve looked all over the internet, I’ve bought, even like, these journals that have to-do lists, and none of them were just right for me. And so I ended up just creating my own. I probably tried a dozen different ones. And I eventually said, all right, I just need to create my own. And I did that. So I totally know where you’re coming from. For software, I personally use Mint. It’s not perfect. It works really well for me, I like it. But I don’t use it exclusively. Similar to you, I ended up creating my own Google Sheet that I use kind of as a pair with Mint. But overall, I generally like Mint, Personal Capital is pretty good as well. Those are just kind of the two that I’ve used in the past.

Rachel Podnos O’Leary (00:22:47):

I’ve also used Mint before and it’s not bad. I think it would be a great tool for ongoing tracking for a lot of people.

Robert Leonard (00:22:56):

Very recently, one of my all-time best friends, who I actually lost touch with a little bit over the last year or two, reached out to me because he started to get interested in investing in personal finance. He never had any interest in it before. And I’m not really the type of person to push a conversation like that, so it just really never came up when he and I would hang out. But fast forward from when we used to spend a lot of time together to today, he’s interested now and he wants to learn more, so he reached out to me. One of the things we talked about was how much money is needed in retirement.

Robert Leonard (00:23:30):

We talked back and forth about his amount for a few days. And then one day he came back to me and he said, my parents’ financial adviser told them they need $200,000 to retire. Maybe lifelong pensions are involved and other sources of income. And I know his parents, so I don’t really think that’s the case. But generally speaking, very, very rarely do I think that would be enough money for retirement. So I was quite surprised to hear that his parents’ financial advisor would tell them that. Being a financial advisor, specifically a certified financial planner, what advice can you give someone who’s trying to determine how much money they’ll need to live their chosen lifestyle after retirement while maintaining financial independence?

Rachel Podnos O’Leary (00:24:11):

I agree with you. I think barring substantial income streams from other sources that if all they have to live on in retirement is $200,000, I would say they’re in big trouble. I can’t imagine a financial adviser that would say that to somebody. So one way of kind of gauging the adequacy of retirement savings is this financial planning rule of thumb, it’s called the 4% rule. It’s pretty popular. It’s bandied about on the internet. It’s been around for a while and like many things in personal finance, people argue about it, they iterate on it, they go back and forth. I think it’s a really good rule of thumb and it really is a rule of thumb. We’re not trying to write in concrete a target retirement lump sum, and then assume that someone’s going to save that exact amount and take exact withdrawals every year for the rest of their lives.

Rachel Podnos O’Leary (00:25:06):

But I think it’s a good rule of thumb for kind of roughly gauging the adequacy of a retirement portfolio. So the rule, the 4% rule, it basically says, if you have a lump sum invested in a balanced portfolio, it can sustain withdrawals of around 4% for roughly 30 years without a high risk of being depleted. And so you can kind of take that and extrapolate. So for this couple with their $200,000 lump sum, a 4% withdrawal would be $8,000. So per that rule, they could withdraw roughly $8,000 a year for 30 years. And 30 years is kind of, I think, what we assume is a conservative estimate of retirement. If you retire in your 60s, you live till your 90s. So more or less, that’s why we make that assumption when using that rule.

Rachel Podnos O’Leary (00:25:59):

Now, if you have a longer period, a longer life expectancy, or you retire early, or whatever it is, then the rate you could withdraw, while not running a risk of running out of money is lower. They call that the safe withdrawal rates. So for roughly 30 years, your safe withdrawal rate is 4%. If we’re talking about a period of 40 or 50 years that this lump sum needs to last, then the safe withdrawal rate might be 2 or 3%. If it’s a shorter period of time, let’s say you’re only going to live another 10 years and you’re certain of this well, then maybe you can take out 6%. But it’s just a good way of gauging. Yeah, $8,000 a year is not going to cover very much. So I don’t know where their adviser got that number, but I disagree.

Rachel Podnos O’Leary (00:26:45):

Now, they might be like a lot of baby boomers who are going to live mostly off of Social Security. That’s the majority of baby boomers, they have very little saved. And they’ll live off Social Security for the rest of their lives. And for a lot of them, that’s going to be tight, because they’re used to spending more in their working years. I do think that this is a really good example of how people tend to way overestimate how far a lump sum will stretch. Using the 4% rule, you tell someone a million dollars, if you have a million dollars saved at retirement, which is a lot, that’s a lot of money for the average person, you can spend $40,000 a year from that. Most people find that shocking. If you’re the average retiree. They’re like, a million dollars, I probably could spend way more. But that’s just how the math works. I hope they have other streams of income.

Robert Leonard (00:27:34):

When you say you could spend $40,000 a year, I agree that that doesn’t sound like very much in comparison to the amount that you have saved. But now I wonder, do we need to think about this from a different lens. Maybe you’re at retirement, so maybe you don’t have a car loan anymore, your car’s paid off, maybe you don’t have a mortgage anymore, because maybe your house is paid off, you’ve been paying it off for 30 years over a mortgage, you don’t really have to save anymore, right? Because you did all your saving, and now you’ve hit your target, so you don’t have any savings. So now I mean, really, you have $40,000 free money to spend every year when you don’t have to really consider those items.

Robert Leonard (00:28:08):

It’s definitely not as much as you think when you have a million, but you take out all your biggest expenses and that’s a little under $4,000 a month to spend. I think that’s a decent amount relatively because I think that’s the piece that people miss is that they might not have a car payment, they might not have a mortgage, et cetera. If you still have all those things, then yeah, $4,000 probably isn’t a lot. But when you have roughly $4,000 a month and you don’t have all those expenses, it could be enough for some people to live on. Right? Is that at least how you’re thinking of it? Are people usually having their cars and mortgages paid off? Or are they not?

Rachel Podnos O’Leary (00:28:38):

They should. We never recommend that someone retire if they have debt. You should be debt-free at retirement. You shouldn’t be retiring with a mortgage. If that means selling your house and moving, okay. But I think to your point, that couldn’t be enough for some people. I have kind of extended relatives, they’re retired teachers. And they’ve been living for a long time on roughly 40, $50,000 a year and they save. They don’t need to save but they save. They lived in a relatively inexpensive part of North Carolina and had no mortgage, drove old cars, didn’t spend frivolously and they did fine.

Rachel Podnos O’Leary (00:29:19):

I think it really depends on the person. I think it depends on what kind of lifestyle you are accustomed to. If you’re someone that was making 80,000 a year and spending most of it or let’s say you were making 100+ and spending a substantial amount, and now you’re expected to live on 40, that might be a different scenario. I also think it really matters where you live, [the] cost of living. Here in DC, the cost of living is incredibly high. But where I grew up in Florida, it’s much lower. So I think someone there would certainly be able to live comfortably on $40,000, whereas up here it would be tricky.

Robert Leonard (00:30:03):

I’m going to assume that the million dollars or let me say the 40,000 that you withdraw using the 4% rule is after tax. So let’s just say that that’s all out of a Roth account. When I was making 120,000, I don’t have a W-2 job anymore, but when I did, at one point in my career, I made 120,000. And I lived in New Hampshire. I worked in Massachusetts. Massachusetts has income tax. Every month, the amount of money that I had leftover after taxes and 401(k) was about $4,300 a month. And I had a mortgage and a car loan and all of that at the time.

Robert Leonard (00:30:35):

So when you think about that, even though I made 120,000, my net pay, like actual cash, was a little over 4,000. Whereas what we’re talking about now is almost 4,000 a month. I mean, it’s really not that different between a $120,000 salary and a $40,000 net pay that you’re getting from your retirement accounts because you don’t have to pay those taxes anymore. We’re assuming that those have already been paid. And you don’t have all these other bills?

Rachel Podnos O’Leary (00:31:01):

Well, yeah. And that is a huge consideration, is this post-tax money or pre-tax money, for a lot of retirees, almost all their retirement savings are in pre-tax accounts, like a 401(k) that maybe they’ll roll it over to an IRA. And then you say, and every dollar he withdraws taxable income. If having an after-tax would be much better from a cash flow perspective, that’s a really big consideration.

Robert Leonard (00:31:26):

Why do you think misunderstanding the amount of money needed in retirement is such a common mistake people make, especially when we have a rule like the 4% rule.

Rachel Podnos O’Leary (00:31:34):

I just think financial literacy is not that common. Like I said, when I first started working in finance, I didn’t know anything about it. I knew nothing. I didn’t know anything about investing. I was a lawyer. I think that that’s very common. Some of the most well-educated people I know really don’t know much about personal finance. And we see all the time in our firm, we have really bright clients come our way. And they have been taken advantage of by a wayward financial advisor who is just selling them financial products they don’t need and ripping them off. And they’re shocked to find this out, they had no idea.

Rachel Podnos O’Leary (00:32:19):

I think we should teach financial literacy in high schools. It’s one of the most practical things that a person could possibly learn if you want to set people up for later in life. I don’t know why we don’t do that. I think some high schools probably had that. But where I grew up, it certainly wasn’t a thing. Yeah, I think that there’s just a really low level of financial literacy in general amongst people here in the US, no matter how educated they are in other things.

Robert Leonard (00:32:47):

Many people look at retirement as one of their major goals. But you actually have a different outlook on it. Please explain how you view the goal of retirement and why shifting someone’s mindset about retiring might be a smart decision for millennials who want to achieve financial independence.

Rachel Podnos O’Leary (00:33:04):

So I think that is a big kind of distinction, probably, between the baby boomers and millennials. At least millennials, I know. I myself, I never think about retirement. I just feel like, if I ever do retire, it will be really far off for me. And most of my friends, they’re so focused on raising their children and paying off their mortgage or student loans, or whatever it is. Retirement, it’s just such a distant thought for them. Of course, there are exceptions. There’s the whole FIRE movement, which I think a lot of millennials are part of that that they’re like hyper-focused on retiring. But the baby boomers, they lived for retirement. That was always the big thing. Retire at 65 or retire the day that you’re eligible for your full Social Security benefit, at your Social Security retirement age, whatever that is.

Rachel Podnos O’Leary (00:33:59):

That was always kind of the end-all-be-all goal, kind of regardless of what else was going on in their financial lives. It was just, I am retiring at 65 on the dot. No matter what. I think there’s a lot of questions for them. It’s okay, are you going to have financial stability for the next 30 years, or whatever your life expectancy is at the date of your retirement. But that really hasn’t been a big part of the conversation. I think another question is, what are you going to do with your time after that? We work with a lot of retirees and what we’ve found is that, for a lot of people, just stone-cold retirement is not what it’s imagined to be. People need a purpose.

Rachel Podnos O’Leary (00:34:46):

So when people bring that up to us, young, healthy people who are able-bodied [say], “I’m going to stone-cold stop working at 65 on the dot. We say, “Okay, what are you going to do? Are you going to golf every day? Are you going to pursue another hobby? Are you going to travel? What are you going to be doing with your time?” And a lot of people actually do know, and they’ve been thinking about this for a long time, and they have it all planned out. But for a lot of people, that’s kind of food for thought. And they think, “You know what? Maybe full retirement isn’t what I need. Maybe what I want is the option to retire.” And my dad, there’s the FIRE movement, Financial Independence, Retire Early, those people I guess might spend 40, 50 years in retirement. And my dad instead says FIRO, Financial Independence, Retire Optional.

Rachel Podnos O’Leary (00:35:37):

And I think that’s just a much better goal for most people. Is not to be so hyper-focused on this date in which you can retire, but to focus on the data which you will have the option to retire. And then reevaluate whether full retirement, just stone-cold stop working, stop having an income is right for you. Or maybe you want to switch careers and do something that’s a little less lucrative, or a little more of a passion project, or whatever it is. But I just kind of looked at the baby boomers and I think this hyper-focus on just retirement in and of itself without kind of looking at things more broadly, it’s kind of misplaced.

Robert Leonard (00:36:19):

It was created a little bit as a joke or completely as a joke. But it illustrates this point exactly. I saw a picture on the internet the other day, and it was this older couple, they were definitely probably in their 60s, if not 70s, retired. I believe they were on a roller coaster or some sort of like log ride at an amusement park. And it looked like they were sleeping on the roller coaster. And the caption of the photo basically said, “This is why I don’t want to wait until retirement to enjoy my life.” It’s a joke, right?

Robert Leonard (00:36:48):

It’s funny, it makes people laugh. But it’s true. And I think a lot of millennials are realizing that they don’t want to be 50, 60, 70 when they finally decide to go travel the world or go do all these other things that they want to do. And I think that’s partially going to change this definition of financial independence or FIRE or even just retirement, in general, I think it’s really going to change.

Rachel Podnos O’Leary (00:37:11):

I totally agree with that. I think it’s just a more moderate approach. It doesn’t have to be work the whole day, your whole life, and then you stop stone cold at 65. Instead, maybe you just work a little less, but for a longer period of time, take more time off when you’re young and able-bodied. I mean, if it’s possible for you, but don’t plan to just stop at any given point in time, especially when you might live another 30 years. I certainly think that the idea that we shouldn’t be hyper-focused on retirement. I think that really ties in with living more today.

Robert Leonard (00:37:47):

I know for me, personally, I’d rather take off a couple of Thursdays and Fridays and a Monday, quite a few times throughout the year, when I was working my W-2 job, and then work until 70, as long as it’s something I like. Rather than, like our baby boomer parents did, work full 40, 50-hour a week until they’re 60 and then quit, just like you said. I think there’s a lot of people that agree with that. I think they’d rather take more time off now. And then just work a little bit later because they know. And I think that partially comes down to being able to know that there are a lot more things that we can do these days that we actually enjoy working on, rather than back then, you were an accountant for 40 years, and then you retired. Or you were an engineer for 40 years, and you’re tired. Now, people can pretty much do anything they want, and so I think that’s changing it as well.

Rachel Podnos O’Leary (00:38:36):

Absolutely. I think that’s a really big generational difference between the baby boomers and millennials. I think we kind of look to our parents in kind of that classic approach and said, that’s not for me, I want to travel. Now, I want to have fun. I don’t want to be chained to my desk for 60 years and then golf twice a week for 30 years after that, or whatever it is. I think that a more moderate approach is certainly going to be more sustainable for us. I think just having a little more balance. I think that’s the way to go.

Robert Leonard (00:39:08):

Millennials are frequently told that they should aim to save a certain percentage of their income based on their age. For example, if they’re 25, they should save 10% of their income. Or if they’re 30, they should save 15%. For many people, this kind of advice just isn’t really actionable. What do you tell people who are struggling to increase their savings rate?

Rachel Podnos O’Leary (00:39:29):

I like to advise that [inaudible 00:39:33]. I don’t believe he’s well known outside of financial planning circles. But he’s kind of like the rock star of the financial planning world. And he frames this in a really good way. He kind of has made the point that for a lot of people, their savings rate is not a decision that they make. It’s a default result of what’s leftover at the end of each month or a year. And so for someone in that situation, telling them, “Save 15% or save 20%.” That’s just not actionable for them, and it’s not helpful. And instead for those people, it really helps to kind of shift focus to their spending rate, rather than their savings rate, and kind of look at their spending rate, because that’s kind of more within their control and say, “How can we decrease your spending rate?”

Rachel Podnos O’Leary (00:40:22):

So there are really three ways to do that. One would be to have them spend the same amount while earning more. Maybe they get a side hustle, increase their income in some way. They could spend less while making the same amount. Or they can spend less while making more, which is obviously the most powerful of the three strategies. And how they go about spending less, the specifics of that, what they’re going to cut, that just depends on the person. How they’re going to go about increasing their income, I don’t know. That’s up to them. But I think the important thing here is that you focus on the spending rate.

Rachel Podnos O’Leary (00:40:58):

And then kind of within that, there is a debate of, well, is it the latte factor? Should they stop having takeout coffee on their way to work? Is it the little things or the big things? I’m kind of solidly in the camp of focusing on the big things like housing and transportation. I think little things are important for happiness. I think for a lot of people if you tell someone, “Live in an expensive house, but you can’t have takeout coffee, or whatever it is. You can’t buy lunch a few times a week,” I think that for a lot of people that kind of, I don’t know how to put it, that can basically lead to frugality or fatigue, I think. Where it’s just not sustainable. They’re not happy. They feel deprived, so they don’t stick with it very long.

Rachel Podnos O’Leary (00:41:46):

Whereas it’s really easy to decide, you know what, I’m going to live in a less expensive place, I’m going to drive a less expensive car, make one or two bigger decisions that kind of take away a thousand little decisions that you would have to make, and then you can continue to enjoy little pleasures in life and kind of have more normality. So yeah, I think my advice to people who need to focus on their spending rate, for most people, to sum it up, it would be to focus on the big things. Look at your really big costs. And is there any way you can move the needle on that? And if so, that might be all you need to do.

Robert Leonard (00:42:20):

I know that these savings rules were created to be helpful, but do you think it’s possible that they’re actually doing more harm than they do good? And similar to the savings rate rules, I hear people talking about different benchmarks of net worth that people should have by certain ages. Are these types of benchmarks hurting more than they’re hoping to?

Rachel Podnos O’Leary (00:42:39):

I think the saving and spending rules, like if you’re in your 20s trying to save 15%, if you’re in your 30s, trying to save 20%, whatever, I don’t think those are doing more harm than good. I mean, I could certainly see an argument that could be made against them that they’re not totally productive for everyone. But I think that they can be useful for kind of setting a minimum bar and giving some context to cash flow planning. I think without some sort of rules, we’re just kind of operating in the dark.

Rachel Podnos O’Leary (00:43:11):

Now for net worth of benchmarks, I think that’s kind of a different issue. I think that that is whereas telling someone to save a certain percentage of their income, you wouldn’t kind of say that to a broad swath of people. But I think telling someone, okay, you should have X net worth by X age, I just think net worth targets should be so much more individualized than that. It really depends on how much you want to spend, and what your lifestyle is, and what your cost of living is, and where you live and all these things. I think that is a much more individualized thing. I don’t think you can generalize as much about that.

Robert Leonard (00:43:50):

I’ve asked this next question of a few guests in the past, but longtime listeners of the show know, I love to get different viewpoints on the same topics, so we can all learn different points of view. So should millennials prioritize saving and investing over reducing debt? Or should they focus on their debt first?

Rachel Podnos O’Leary (00:44:08):

Well, I’ll say right off the bat that if you have access to a workplace retirement plan that offers you a match for contributions, that’s free money. And I would say most people, if possible, regardless of the debt situation, unless it’s really bad, should certainly invest enough to get the match. Let’s say they’ll match your contributions up to 3% of salary, or 5%, whatever it is, then you should contribute at least that much because it is free money. And if you invest it well, it will grow nicely over the long term and set you up for the future.

Rachel Podnos O’Leary (00:44:48):

That aside, the way I kind of like to look at this question of debt reduction versus investing is by asking a few questions. So if you have debt, the first question that I would ask is, does it bother you? Does it keep you up at night? Are you a really debt-averse person? I know a lot of people like this, having any debt, even at an incredibly low-interest rate, it keeps them up at night, and they just can’t deal with having it. If that’s you, I would say, pay it off. It doesn’t matter if it’s a 1%. And I know a lot of people will disagree with me on this. They would say, that doesn’t add up.

Rachel Podnos O’Leary (00:45:25):

But I really think peace of mind is priceless. I think at the end of the day, we’re trying to optimize for happiness here. And if you’re staying up at night over this, I think pay it off. That’s number one. Now, if you have debt, and it doesn’t keep you up at night, it doesn’t really bother you that much, the next question is, is it high-interest debt? Or is it low-interest debt? So what’s high interest versus low interest, we could debate about this. But for the sake of coming up with a framework, I like to say, if it’s at 4% or less, I would call that relatively low-interest debt. And anything above 4%, I think we’re starting to get towards what I would call higher interest debt.

Rachel Podnos O’Leary (00:46:07):

So if you have debt, it doesn’t bother you and it’s low interest, aka, roughly 4% or below, then I think an argument can be made for investing, taking extra cash, and investing because with debt at let’s say 3.5%, I think it’s likely you might make a better return than that by investing extra cash in the stock markets over the long term. But if we’re looking at higher interest debt, so let’s say you have student loans at 6%, I think it’s a lot less likely at that point that you are going to do better. I mean, you probably still could, but it’s a lot less likely that you’ll do better over the long term by investing extra dollars than you would by putting them down on the debt.

Rachel Podnos O’Leary (00:46:50):

And the thing about putting money down on debt is that every dollar you put down gets a guaranteed return. So any dollar you put down on debt at 6%, that’s a guaranteed return of 6%. Whereas returns when you’re investing in the stock market and real estate, whatever it is, they’re not guaranteed. And so that’s kind of the way I look at it is these four questions. One, does it keep you up at night? Well, okay, so it’s not for questions. But the questions are, one, does it keep you up at night? Two, what’s the interest rate? And kind of going through the matrix within the answers to those questions.

Robert Leonard (00:47:27):

And that’s exactly how I think about it. One of the coolest parts about having the podcast is I’ve met a lot of really awesome people. And I’ve met somebody that I consider a friend, and he is completely Dave Ramsey style, zero debt. No matter what the interest rate is, no debt, no debt, no debt. And I’m just not that way. Personally, I have a car loan. It’s at like 1.25%, or like 1.5%. And I can never get myself to pay that off quickly. Like, I’m obviously making the monthly payments that I’ll pay it off eventually. But I can’t get myself to pay that off rapidly because it’s just so low. And I know, if I had $50, it’s better invested than it is to pay down that loan.

Robert Leonard (00:48:03):

So for me, I generally don’t get kept up at night for debt. I’m pretty conservative as a person. But just having a little bit of low-interest debt like that, I don’t have anything above 5%. Even my mortgage is 2.25%. So like those types of things, I just can’t imagine paying that down early. So for me, I don’t lose sleep at night, so I’m fine with having the debt. But I totally understand that it’s a lot more psychological than I think a lot of people think. And I know for me, for a long time, I didn’t think about the behavioral or psychological piece at all. I just said, purely, if I can invest higher than that rate, then I’m investing. And if I can’t, then I’ll pay it down. But then I learned of the more psychological approach that you mentioned. And I think that’s really valuable. And I think a lot of people need to definitely take that into consideration.

Rachel Podnos O’Leary (00:48:50):

Yeah. I mean, at the end of the day, I think the quantitative part is important, of course. But it’s not just a quantitative decision, there’s qualitative factors at play, too. And I think happiness should always be a consideration when you’re thinking about things like this.

Robert Leonard (00:49:08):

I love listening to podcasts, reading books, articles, and really all kinds of things like that. But I’ve learned over the last few years that it’s more important to take action on those things than it is to consume more of those things. So before someone listening to this episode continues on to the next episode in their podcast player, what is one action they should take after listening to the show?

Rachel Podnos O’Leary (00:49:30):

I would say, I guess broadly speaking, I would say start now. Start now getting on the path to financial independence kind of broadly. I would say the first thing that you should do, if you haven’t already, to get on that path is figure out your net worth, figure out where you are. Take a look at everything. And I think for a lot of people, that’s the best place to start and go from there.

Robert Leonard (00:49:52):

As we wrap up the show, I want to give you a chance to tell the audience where they can go to connect with you, learn more about all the concepts we talked about. Where’s the best place to find you?

Rachel Podnos O’Leary (00:50:02):

I’m not super active on social media, but I do have a Twitter. You can find me on Twitter @rachelpodnos. I’m also on LinkedIn, Rachel Podnos O’Leary. And my firm’s website, so firm is Wealth Care, LLC, and our website is www.wealthcarellc.com.

Robert Leonard (00:50:22):

I’ll be sure to put links to all those resources in the show notes below. Rachel, thanks so much for joining me.

Rachel Podnos O’Leary (00:50:28):

Thank you.

Robert Leonard (00:50:29):

All right, guys. So that wraps up my conversation with Rachael Podnos O’Leary. And as I mentioned in the intro, we do have two guests in today’s episode. So this back half of the conversation is going to be with Clay Stackhouse. Clay, welcome to the show.

Clay Stackhouse (00:50:44):

Hi, Robert. Good to be with you all. Thank you.

Robert Leonard (00:50:47):

Tell us a bit about yourself and how you got to where you are today.

Clay Stackhouse (00:50:51):

Yes. So I had a great, very exciting career in the Marine Corps. I was in the Marines for 25 years, actually. I’m a retired Marine Colonel. So I’ve actually been a member of Navy Federal since 1986. So I certainly know Navy Federal’s membership. I did a bunch of combat contingency stuff. I flew helicopters. I actually flew Marine One for President Clinton and President Bush. I had a great career. And when it was done, I tell people, “I’m done chasing bad guys. And now I wanted to help the good guys.” So as a retired colonel, I figured you know those people I’ve worked with all that time in the military, I figured I could help financially.

Clay Stackhouse (00:51:34):

I snatched lightning by getting with Navy Federal right when I got out of the Marine Corps. I’m the regional Outreach Manager in Florida, Alabama, Mississippi, and Louisiana. I work out of Pensacola, and basically, the people we’re talking to today, honestly, a lot of millennials who are just getting into the military or recent veterans and their families about their finances. I’m a certified financial education instructor. And I talk to them about maybe [inaudible] and how we can help them. So it’s been very rewarding. And I’ve actually learned a lot doing it as well, which I think we’re going to cover some of the topics here today.

Robert Leonard (00:52:11):

Well, first and foremost, thank you very much for your service. I greatly appreciate it.

Clay Stackhouse (00:52:15):

It was my pleasure. Tell you the truth, very adventuresome.

Robert Leonard (00:52:19):

How did you get interested in finance? I mean, there are so many different paths you could have gone when you get out of the military to help people. So why finance?

Clay Stackhouse (00:52:28):

That’s a great question because that touches everybody, right? And through all that time, in the Marine Corps, honestly, I saw some really good guys. We’d go on deployments, sometimes marriages didn’t work out, or sometimes they’d have things repossessed, and I’d see them get into financial difficulty, and it would really affect their careers and their lives. So I know that it’s something everyone wants to be financially sound. I mean, if you have your finances squared away, there’s a calmness that comes over you. And you’re able, actually, to function better. I think I’m a better husband. I like doing this job with Navy Federal, and my finances are squared away. And it’s really a pleasure.

Clay Stackhouse (00:53:13):

Honestly, I go into a lot of different places, say, in rural Mississippi, or Louisiana, and I talk with some of these kids. They’re 17, 18, 19, 20, who’s never had anybody sit down with them and say, “Do you know what a credit score is? Do you know what makes up a credit score? Do you know why you don’t want to run up credit card debt, but you still actually need a credit card in order to create a credit score?” Those things no one actually ever has talked to them about. So Navy Federal helps do that all the time.

Clay Stackhouse (00:53:44):

But I’m actually the voice who goes out there, and I’m able to sit down with them and help them. And it helps me sleep at night, to tell you the truth, that I’m helping those people who say they’ll support and defend the Constitution against all enemies, foreign and domestic. For me, that’s less than 1% of the population. I put my life on the line with people like that, and so I think they deserve good financial advice. So we’re really happy to give it to them.

Robert Leonard (00:54:09):

I think that’s a piece of finance that is often overlooked. People that go into careers that aren’t finance-focused, they don’t think about how finance impacts the rest of their lives. I mean, you mentioned you’re a better husband, you have a happier life. That’s because you don’t have the stress from finance. If you don’t have your personal finances in order, there’s a stress even if you’re not thinking about [it]. Let’s just say you’re at a family barbecue, and it’s there, it’s in you, subconsciously you know, and it’s just you don’t have that burden waiting on you.

Clay Stackhouse (00:54:34):

That’s absolutely true. So why not attack it? Attack it with knowledge, with a good education about your finances, and just some basic good practices. So Navy Federal is military veterans and their families. So I talked to a lot of people who aren’t military, but like my brother is in the Navy, they would tell me, so they’re in our field of membership. We’re actually the largest credit union in the world. The credit unions, obviously, are banks, banks that are in business to make money. We are in business to help our members. It’s financially like-minded people who make a financial family. That’s a credit union. Navy Federal just happens to be the largest credit union in the world because we serve the United States’ military veterans and families.

Clay Stackhouse (00:55:21):

So when I think about who we’re helping, and I sit down with them, and I talk to them about some very basic things, like, get a financial organization that you trust, a lot of them don’t … Well, I know Jimmy works at a bank downtown. How about them? Well, that’s not really what I’m talking about. I’m talking about, get a savings and a checking account, and then pay yourself first. Think of that. Especially if you’re in the military, the first day you get in the military is the least you’re ever going to make. Because you get more seniority, more time, and grades, you get more designations, and you get paid for that.

Clay Stackhouse (00:55:54):

So I say even a small allotment into a savings account for you or for your children is going to yield great big dividends along the way. So what I’d say to these millennials is get into those habits early on. And by the time you’re a 53-year-old man like I am, you’re going to be able to relax and reap rewards, I think.

Robert Leonard (00:56:18):

One of the very first things that happened in my personal financial life was that my grandma helped me open a bank account at a local credit union when I was only 14. I’m not sure if she chose the credit union because she knew the benefits of them over banks, or if it was just because the company that she used to work for at the time had their own credit union. That tiny little detail has had a massive impact on my life because I ended up working at a credit union years later, really has just molded everything that I’ve done to this day. What I didn’t realize until the last few years is how few people actually know the difference between credit unions and traditional banks. So I want to start by talking about that. What are the benefits of credit unions over banks, and what makes them different?

Clay Stackhouse (00:57:05):

I alluded to that a little bit earlier, when I said banks are in business to make money. And that’s no joke. You’re going to look at fees and things like that in a bank. Like in 1933, Navy Federal was a bunch of Navy officers in DC who got together, and they pulled their resources. And first, it was just those guys, but they pulled the resources so that everybody there was in that financial family. Now we’ve grown over 10 million members. It’s a much larger pool, but we’re still just drawing from the same pile of money. It’s everybody’s in this together, so that everything that we do is to serve our members.

Clay Stackhouse (00:57:42):

So the idea of charging fees on accounts seems counterintuitive because if you’re helping everybody and it’s just one big pile of money that you’re working with, you wouldn’t want to do that. That’s not helping your members. All of our accounts yield interest, actually. I’ll tell you, in the Marine Corps, so I thought I was doing pretty well. I was deploying, but I wasn’t focused on my finances like I am now. And I have since moved my savings and checking accounts into different accounts, where I have to keep a little bit higher balance in the account, but it yields much more money. It’s things like that, that a credit union is going to help you do and look out for you.

Clay Stackhouse (00:58:25):

Maybe Federal has free financial counseling. You can call a person, make an appointment, and it’s just free, and they’re on salary. So they’re not there to kind of just break through a bunch of Navy Federal programs. They’re there to look at your finances. I did that when I got out of the Marine Corps. And I did, I rearranged a couple of things to give me a little bit more peace of mind. But it’s that financial family, which I’m glad to hear that you took advantage of and your experience with a credit union sets us apart.

Robert Leonard (00:58:55):

Yeah. I believe the credit union that I’m part of these days is like the fifth or maybe sixth or seventh largest in the world. So not quite as big as Navy Federal, but they’re up there. And you mentioned it doesn’t really make sense to charge fees to their members, because credit unions are owned by their members. And so if the institution charges a fee to their members. They’re essentially…that money that they make is going back to the members. So it doesn’t really make sense. For personal institutions, they’re typically, not always, but a lot of them are publicly traded. They have shareholders.

Clay Stackhouse (00:59:26):

So it does make sense for them to charge fees.

Robert Leonard (00:59:30):

Exactly. One of the requirements, though, of joining a credit union that banks don’t have is that you usually have to fit into the credit union’s field of membership. You probably have touched on this with the Navy Federal helping the military members. Explain to us what a Field of Membership is, how it works, and why it’s needed.

Clay Stackhouse (00:59:51):

So if you’re financially like-minded people, a credit union, you’ve probably heard of teachers’ credit union or [inaudible 00:59:59] agencies. So we just happened to be the greatest military, in my opinion, in the history of the world that we serve, the American military, veterans, and their families. So if you think just of that group, Robert, 250,000, people just transition out of the American military each year. So in four years, a million people are new veterans who either… they were eligible for our membership while they were in the military, or learning about our membership as they transitioned out.

Clay Stackhouse (01:00:30):

So a lot of people wonder about…if the size of a credit union is going to be a detriment to them because they serve specific groups of people. We just happen to have a very large group of people, which puts us over 10 million members and the largest credit union in the world. So I think you kind of get the best of both worlds with Navy Federal.

Robert Leonard (01:00:52):

One of the common criticisms that people seem to have with credit unions is that they’re local, they’re small, they’re regional. Typically, if they travel or anything like that, that they’re not going to have a branch where that person is going to be. And so I like to explain to people that there is shared branching, which allows you to go into very many credit unions across the country and still access your, basically, your credit union’s account. So when I travel, I go into a credit union that’s local to where I am, as long as they’re part of the shared branch network, which a lot of credit unions are, you’re able to access them.

Robert Leonard (01:01:29):

So it’s actually not any different than being part of Bank of America, or TD Bank, or any other massive national bank. I mean, I know a lot of people use online-only banks and still have great success. So a credit union is definitely no worse than an online-only bank or even the big banks from the perspective of having branches.

Clay Stackhouse (01:01:51):

I deal with that a lot. Before I go into like a Monroeville, Alabama, or some areas in Mississippi where they belong to a small financial institution because their parents did and their parents did. And I tell them, pretty soon you are going to be an international man or woman of mystery. And you’re going to find yourself in a place like Kuwait, or Germany, or Korea, and Navy Federal is going to be able to help you there. So that’s a jump. But once I get them to understand that, again, it’s very rewarding.

Robert Leonard (01:02:26):

As with nearly any business or industry, there are some that are better than others. If someone listening to the show today is interested in joining a credit union, what are the things they should look out for? What red flags do they want to be aware of?

Clay Stackhouse (01:02:39):

So trust. And when you say trust, it’s not like I know, Jimmy, because he works at the bank. I’m talking about [how] online security is a huge deal. You can research financial institutions. We talked about fees. You don’t want an institution that’s going to charge you fees. I do all sorts of research beforehand for an institution like Navy Federal, they’re pretty well known. I think you may be alluding to a smaller financial institution, maybe closer to home, or something like that. But yeah, word of mouth, especially, we did talk about the fact that people’s finances affect everyone. So if there’s something going on that’s not good, you’re going to be able to find out, probably.

Clay Stackhouse (01:03:19):

So look into them prior and establish some trust, and know that they have not only an online presence but an online security apparatus that’s going to keep your finances safe. The amount of interest that you’re going to yield. You can go on navyfederal.org and look how much more I went from everyday savings to a money market savings account. So I’d ask your listeners [to] go and take a look and see the two rates. And you can see how much more I’m yielding in that savings account. Now, and I’m embarrassed to tell you, I have to keep a higher balance like I alluded to, which I’m able to do now. But I was going to be able to do that for a while. I was still in the Marine Corps. But I just wasn’t looking online at the financial opportunities that Navy Federal gave me. So I’d say continue to check.

Clay Stackhouse (01:04:11):

Quarterly, I go back. Look at specials that they’re having, running any number of things like move credit card debt from one institution over to this, I know we’ve run things like that before. But there’s any number of different promotions we do at Navy Federal and different organizations do, ensure you’re taking advantage of those things. So I guess what I’m saying, Robert, is be engaged with your finances. Don’t just let it happen to you. But be engaged because it’s something that is not going to go away. I can’t wait till I’m 62, I’m not going to have to worry about money anymore. That’s just not going to happen. So continue to stay engaged, set that good foundation when you start out so that you have options as you get older.

Robert Leonard (01:04:56):

I think it’s pretty clear that you and I both love credit unions. I’ve mentioned that I use them for all of my personal banking, and I use them for my businesses as well. But I admit they’re probably not perfect for everyone. So who might a credit union not be well for?

Clay Stackhouse (01:05:12):

If you want to get charged higher rates, and you want your financial institution to make money off of your accounts instead of treating you like a family member, it’s for that person, in my opinion. So I’m wholly and completely biased for credit unions. You’re not really going to be able to give me any argument why I wouldn’t stay with them. So people who aren’t looking for the best. How’s that?

Robert Leonard (01:05:42):

I know we have quite a few service members and family members of service members who listen to our show, so I’d like to talk a bit about the specifics of personal finance for military members. What is unique about personal finance for military members?

Clay Stackhouse (01:05:57):

Yeah. So now that Robert is hitting at the 10 ring with who I talk to. When I go talk to these new soldiers, sailors, airmen, and Marines, about, okay, now I’m in the military. I’m getting paid on the 1st and 15th of every month. I have my medical taken care of, I have my dental taking care of, you have a room and board taken care of. So making that adjustment, not only the adjustment to the way you live your life, but financially, you need to break from being a civilian, and all the different things that you thought you needed, as a civilian, and start thinking a little more simply.

Clay Stackhouse (01:06:36):

So I talked about that first thing, and they usually help you when you first get into the military, finding a financial institution you can trust, because we don’t want our servicemen to be in financial difficulty if it makes them an unhappy force. So we usually get that squared away. Once we do that, we need to establish the accounts we’re in, which is pretty simple. A good checking account and a good savings account. But once we do that, we just get a budget. Now, here’s the thing, and it’s not rocket science. But you have to sit down and figure out how much is coming in, and how much needs to go out. Avoid the credit card debt, avoid the credit card debt, it’s terrible. It’s just terrible.

Clay Stackhouse (01:07:18):

Once you get that good budget going on, and you, I always say pay yourself first. So you have some allotments going in, and you get those accounts to where they need, that last step for me is to start to invest. And investing is any number of different things that revolve around risk. But if you can’t pay your bills, from the beginning, if you’re worried about paying the light bill and putting groceries on the table, then investing seems like a bridge way too far. So if you ensure you know what’s coming in, and you know what you’re spending your money on, you make that good budget, where you’re sending an allotment to an account. You get it to us say it’s three months pay, is what I say in there, use the 80/20 rule.

Clay Stackhouse (01:08:02):

So I’m living on 80% of what I make and I’m saving 20%. So if I’m putting that 20%, let’s just say into a good savings account at Navy Federal that yields interest, you want to get that to a certain amount, and then you can start talking about investing in. Like I said, we have a free 888-842-6328. You can call that and you can get free investment advice. And then now we’re cooking with gas. Because at that point, they’re going to say, okay, what kind of risk do you want? Do you want high risk or low risk? Millennials can’t afford to have some risks. So let’s start having fun with investing money.

Clay Stackhouse (01:08:41):

All that comes though, after you make a solid foundation of knowing what’s coming in, trusting that financial institution, and creating a budget. Are these things really exciting? No, not really. But it’s something you need to do. Because once you get toward the other end of it, and I can call my father and talk about what investments he has, what he recommends. I do kind of enjoy that because we’re on that end of it. But you build the house on a solid foundation, and that’s getting that thing you can trust, the right accounts, and a good budget from the beginning.

Robert Leonard (01:09:16):

What challenges do servicemembers face when building savings that civilians don’t necessarily deal with?

Clay Stackhouse (01:09:23):

Well, the moving constantly. It’s called PCS, Permanent Change of Station. Moving is difficult. It incurs costs, often. Well, I saved a lot of money when I was deployed, but remember, usually, especially in service like the Marine Corps, one family member is deploying and the other family is still at home. So keeping that functioning while one family member is gone. And even though I was saving a lot of money, like when I was in Iraq, we were getting shot, we weren’t taking any liberty, so I wasn’t going to restaurants, obviously, or anything like that.

Clay Stackhouse (01:10:04):

But my family was back in North Carolina and they were still living their lives. So the family separation, moving a lot. All those things provide challenges. But overwhelmingly last, I wouldn’t have stayed in the reins for 25 years if I thought the rewards did not outweigh the challenges. I certainly just enjoyed it. And it’s nothing that can’t be overcome, you just need to be aware of the challenges. And like you did everything else in the military, face them head-on and overcome them.

Robert Leonard (01:10:37):

At least in my experience, credit unions are typically quite a bit more open to working with newer borrowers for car loans and credit cards. Talk to us a bit about how credit unions can help people get started on the right foot using these types of products.

Clay Stackhouse (01:10:51):

So I alluded to family. So you’re in a financial family. Once you make all the requirements for membership, we feel like, at Navy Federal, because you’re a military veteran or family member, we kind of don’t find that a very…, well, I think it’s easy for us to be able to approve loans very quickly. As a matter of fact, I just got…it was my get-out-of-the-service gift to myself. I bought one of these big four-wheel drive pickup trucks that I’ve wanted since I was a kid. And I just decided, you know what, I’m going to buy this now. And because I’m done with Navy Federal; I’m in this credit union that considers me their financial family. I call them and I think I was approved. I don’t know. It was like 15 minutes or something like that. So it is easier because we consider that financial family.

Robert Leonard (01:11:43):

I remember when I worked at the credit union, I actually was the one deciding these loans. I was the loan officer. So I was doing the underwriting. And I had some friends that were underwriters at financial institutions that were not credit unions, and we would talk about different requirements and things like that. And it seems that credit unions tend to have a little bit more, I don’t want to say relaxed, but for lack of a better word, relaxed lending guidelines than do regular financial institutions.

Clay Stackhouse (01:12:11):

I keep falling back on this idea of a financial family. And Navy Federal actually is the only trade union I’ve ever been with. I’ve been with them since 1986. So that’s what I can speak for. And I certainly do. It’s that feeling of family, they want to help me financially. And they’ve shown me that over and over and over again. I’m not a member of them who’s generating a dividend that they can give to their shareholders. I’m in their military family. And because of that, I think that that truck loan I got was like a no-brainer, it was an easy thing to get accomplished.

Robert Leonard (01:12:45):

There are two things I want to note about that. One, it was quick because of everything you just mentioned. But it was also quick because you had your personal finances in order. I mean, you talked about it, you have to have a strong personal financial base, you have to have a strong credit score, et cetera. If you didn’t already have those things, it doesn’t matter what financial institution it is, it’s not going to be quick. But you did those things ahead of time, so that helps you be able to do that.

Robert Leonard (01:13:05):

And the second thing I want to mention is we’re talking a lot about Navy Federal here, which is a field of membership of the military. But there’s a lot of credit unions, and you mentioned teachers, police, I mean, there’s a bunch. We have one here where I live in New Hampshire that’s just for New Hampshire residents. And so there’s a bunch of these different types of things. So don’t think that you can’t be in a credit union if you’re listening to this, just because you’re not in the military or you have no family members that are in the military. There are likely credit union options in your area that you would fit into the field of membership.

Clay Stackhouse (01:13:33):

Right. And that’s a great point, Robert.

Robert Leonard (01:13:36):

When it comes to financial planning, everyone’s situation is different. And being in the military adds an additional variable to that equation. What considerations must be taken into account about financial planning for servicemembers?

Clay Stackhouse (01:13:50):

Family dislocation, obviously, and the deployments. I think you have to ensure like, say you’re a single person, and you’re going to Afghanistan for a year. What are you going to do with your car? Are you going to sell your house? Were you renting a house? Do you need to rent that house out? If you do rent that house out, do you have somebody who can look after it for you? There are a lot of things like that, which overwhelmingly have to do with the deployment. So filling in for those things, it can be a good thing.

Clay Stackhouse (01:14:22):

A lot of the recruiters I deal with are like sergeants first class, which is an E-7 or staff sergeants which are an E-6, which have been in the military say 10,12 years and had several duty stations, and a lot of them own in places like near Fort Rucker or around Jacksonville where there’s big Navy bases, have bought properties and then rented them out and use them as an income generator. A lot of those have done that.

Clay Stackhouse (01:14:52):

So it kind of goes both ways with the…there are things that you need to do to prepare for it like storage, but there are also things where you can reap benefits. Like the house I’m in right now, I bought in 2007, which was when I was stationed here in Pensacola for a while. And then we moved in, rented it out for a little bit. That was tough when we did that, and now we’re back in it forever. So it kind of goes both ways.

Robert Leonard (01:15:18):

What made that experience tough?

Clay Stackhouse (01:15:20):

When you rent a property, you just hope that the renters are going to take care of it the way you would. This is a house built in 1903. And my wife loves it dearly. I love it. But my wife really loves it. We were lucky. We had military people in here, actually. And both of them took care of it very well. So my worry was unfounded.

Robert Leonard (01:15:44):

For anyone listening to the show today, whether they’re a service member or not, what are your top budgeting tips? How can a credit union be used in conjunction with those tips?

Clay Stackhouse (01:15:53):

So, especially for millennials, stay away from the credit card debt. I’ve alluded to the fact that you have to get with a financial organization that you trust. Robert and I are both very high on credit unions. So look into that, check into them, ensure it’s the right one for you. Okay? And then get into the right accounts. Navy Federal is going to have several different checking and savings accounts that you can set up. So that’s fine. Study them online and ensure you’re doing the right thing. Then you have to set up that budget. Know what’s coming in, know what’s going out. Okay. And you got to stick to the budget. And then once you do that, look into investing.

Clay Stackhouse (01:16:33):

Google Clay Stackhouse. I think the article I wrote is Financial Fundamentals Will Always Work. Because I went around all of these different young people and talked to them. I realized, those are some things that a lot of them honestly didn’t know and no one told them before. And they were just kind of stumbling through their financial life without actually taking control of it. And I don’t think it needs to be as complicated as a lot of people think. It’s really simply not spending more than you make sticking to that budget, and your credit card debt can spiral out of control. And overwhelmingly, when I talked to a 20, 21, 22-year-old, there’s some, Clay, how do I get rid of the credit card debt?

Clay Stackhouse (01:17:18):

You know what, that’s okay, it’s never too late. Once you acknowledge that happens, guys, it’s just getting down to a budget. It’s just stubby pencil work. It may take longer, you may have to spend less and save more for a period of time. But it’s a simple equation, which will eventually get you out of that debt by following that budget. And then if you’re a Navy Federal, you can call that financial advisor and say, hey, look, man, I’m in terrible credit card debt, what do I do? We have delinquency control counselors. There is help. So get that good financial institution, get into the right accounts, create that budget, stay out of credit card debt, and then begin to invest. Okay?

Clay Stackhouse (01:18:03):

Now, credit cards are something you’re going to need to generate a credit score. I use the gold rewards card. I get triple points back on restaurants and fuel. And that’s virtually all we use the credit card for. And then every time we get a statement, we just pay the credit card off. So we’re continuing to show potential lenders that we are good for credit, which drives the credit score up. But don’t get into credit card debt because that can vary.

Robert Leonard (01:18:36):

As we wrap up the show, I want to give you a chance, Clay, to tell the audience where they can go to learn more about you and the various topics that we talked about today.

Clay Stackhouse (01:18:44):

Navyfederal.org is 24/7 online. There’s a ticker up top that enumerates all of our products and services, which I think is very self-explanatory. It will also show you all the different types of things that maybe we’re running for the summer or any kind of promotion we have. And at the bottom, there’s that 888 number. 888-842-6328. That’s a 24-hour phone line manned by Navy Federal employees who can answer questions for you. A lot of the things I’ve written, I’ve done different financial podcasts. I love doing these. I’ve enjoyed doing this with you today, Robert.

Clay Stackhouse (01:19:25):

And Clay Stackhouse, just if you Google that, you can get a whole bunch of different things. I’ll tell you about saving while you’re moving, I’ll tell you about if you’re getting out of the military, what cities to go to, what careers to go to. The bottom line is I like helping the people who I spend my life with, and that’s those military veterans and families. I like helping them financially. So all that is out there. It’s pretty easy.

Robert Leonard (01:19:50):

I’ll be sure to put links to all those different resources below in the show notes. I’ll also put links to some other credit union-related resources that I’m familiar with myself. Clay, thanks so much for joining me.

Clay Stackhouse (01:20:03):

Awesome. Great for having me. You all take care. Bye-bye.

Robert Leonard (01:20:06):

All right, guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (01:20:13):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.