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📚 Top 10 Gen Z Money Tips with Professor Brett Killion 💸
653 Plays7 months ago
Watch this Episode and Subscribe on YouTube
🤑David Baughier chats with Brett Killian, an associate professor at Lakeland University, to discuss essential money lessons for Gen Z. 💸📚
Brett shares his expertise in personal finance, drawing from over a decade of experience teaching college students. 🎓
Discover practical strategies for minimizing student debt, building wealth, and making informed financial decisions that set you up for a successful future. 💡💼
🔑 Key Topics Discussed:
⇨ Brett Killian's top money lessons for Gen Z
⇨ Habits and investing strategies of millionaires
⇨ Practical ways to minimize student debt, including college hacking and gap years
⇨ Importance of "Pay Yourself First" strategy and automation in saving
⇨ Efficiency in managing the "Big Three" expenses: housing, transportation, and food
⇨ Clarifying the differences between saving and investing
⇨ Understanding and building credit scores responsibly
⇨ Basics of insurance and the importance of term life insurance over whole life insurance
🕒 Timestamps/Chapters:
0:00 - 📘 Introduction to Money Lessons for Gen Z
5:03 - 💼 Millionaire Habits
10:12 - 🎓 College Debt Hacks
20:45 - 💸 Pay Yourself First
25:52 - 🏠🚗🍴 Budgeting: The Big 3
34:09 - 💰 Savings vs. Investing
38:35 - 📈 Simple Investing Tips
44:45 - 📊 Credit Scores Explained
56:26 - 🛡️ Insurance Basics
59:55 - 🏡 Homebuying Tips
1:01:17 - 📖 Personal Stories and Financial Decisions
1:14:09 - 🎓 Impact of Financial Education on Young People
1:14:21 - 📋 Summary of Financial Topics Covered
🔗 Brett's Links:
📚 NextGen Financial Freedom Blog: https://nextgenfinancialfreedom.com
🔗 David's Links:
💰 Free Money Course: https://www.fiology.com/free-money-course/
🍏 Forget About Money on Apple Podcast: https://podcasts.apple.com/us/podcast/forget-about-money/id1730601757
🎧 Forget About Money on Spotify: https://open.spotify.com/show/5BQTKUPL6IHtXCEJTY9jYo
📝 Episode Highlights:
💡 Brett's essential money lessons tailored for Gen Z
📈 Insights into the habits and investing strategies of millionaires
💸 Practical tips on minimizing student debt through college hacking and gap years
🏡 Strategies for managing the "Big Three" expenses: housing, transportation, and food
💰 Understanding the "Pay Yourself First" strategy and the importance of automation in saving
🔍 Clarification of the differences between saving and investing
📊 Building and maintaining credit scores responsibly
📜 Basics of insurance and the importance of choosing term life insurance over whole life insurance
#️⃣ Hashtags:
#GenZMoney #BrettKillian #MoneyLessons #FinancialLiteracy #StudentDebt #InvestingTips #PersonalFinance #CollegeHacking #PayYourselfFirst #FrugalLiving #CreditScores #InsuranceBasics #TermLifeInsurance #FinancialEducation #SmartInvesting
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Transcript
Introduction: Brett's Top 10 Money Lessons
00:00:00
Speaker
Today, Brett Killian, an associate professor at Lakeland University who has taught personal finance to college students for more than 13 years, shares his top 10 money lessons for Gen Z. Here we go.
00:00:14
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. Today we have Brett Killian. He is a personal finance instructor at Lakeland University in Sheboygan County, Wisconsin.
00:00:30
Speaker
He's taught this class at the collegiate level for 13 years. And prior to that, he taught it at a high school level for eight years. We are very fortunate to have him here today. And today we're going to talk about the 10 money lessons that Gen Zers need to know.
Sheboygan County & Student Financial Backgrounds
00:00:47
Speaker
Welcome Brett.
00:00:48
Speaker
Yes, thanks for having me, David. I'm excited. So where's Sheboygan County? Great question. OK, so in Wisconsin, there's Sheboygan County and Lakeland. We're not supposed to exactly say this, but we're right next to a cornfield. What is better to say to our prospective students that were conveniently located halfway between Green Bay and Milwaukee, and we're within a 20 minute drive of world renowned companies like Johnsonville, Sargento and Poland. So, yeah, we'll say halfway between Milwaukee and Green Bay.
00:01:17
Speaker
Go Packers. Go Packers. I have no idea if they're going to be good this year or not. We're hoping so. We're hoping so. So is that the main attraction for that area, that region? Yeah, up in Green Bay, where I live, Packers is definitely number one. Usually other newscasts will start with some sensational stories, the top story. And for the Green Bay, it's what Jordan Love had for breakfast this morning.
00:01:42
Speaker
Nice. Well, I do look forward to the football season. I like the college football season and NFL. It's always representative, at least in the South, it's representative for like families getting together and kids playing out in the yard and like the changing of the seasons. It's pretty cool. I look forward to that every year. And it's a little bit sad when it stops, but then you got baseball season right around the corner. And then you got the forever basketball season that I don't know why the playoffs, I don't know whether playoffs have to last like four months just on its own.
00:02:11
Speaker
And we have some TV money, I guess.
00:02:14
Speaker
Brett, you have taught personal finance to Gen Zers for, actually, I guess they wouldn't always have been Gen Zers. Maybe you've seen some overlap of the generations in your 13 years of teaching this course, but I imagine that you've got some insights to young people that I don't necessarily come in contact with every single day as just a regular guy floating out in the world. When it comes to money, what kind of attitudes and ideas do they walk into your classroom with?
00:02:44
Speaker
Yeah, great question. I think it's all over the place. You've got some of the college students I see in front of me, they might have had a personal finance class in high school. And I'm very proud that in Wisconsin, in the last couple of months, Wisconsin is now going to make personal finance or graduation requirements starting next year. So some students have had a base knowledge, but many others haven't. And they might have come from a house where either their parents didn't talk about money, or maybe they've seen that the bad money habits from their parents and what they made.
00:03:12
Speaker
So I've got a wide spectrum of ideas coming into my class as far as those that have some money knowledge and those that might have zero or might have gained some bad money habits from what they've seen from their child. What percentage of your students are actually motivated? They're taking the class so it shows some motivation.
00:03:32
Speaker
But whether it's your particular finance class students or the college as a whole or the university as a whole, what percentage of young people are actually interested in this?
00:03:43
Speaker
I'm not sure about an exact percentage, but I would say the majority. I would dare to say almost all of them. The one nice thing about coming into my class is that no matter what major they are, they could be a business major, graphic design, history. What we teach in this class about money management is something that they're going to have to see in their life really throughout the rest of their lives versus maybe another class where they just look at it as
00:04:06
Speaker
let me just get through this semester, let me get my A or B and move on, where when they walk into my class, hopefully they realize that every single day they walk in, they could learn something that could change their lives going forward. And in your 13 years of teaching this course, you've seen a lot of money concepts and you've not only understood it yourself, but figured out how to message it so that the students actually receive it effectively. And today we're going to talk about
00:04:32
Speaker
10 money lessons for Gen Z.
Key Money Lessons for Gen Z
00:04:35
Speaker
1. Habits of millionaires. 2. College hacking. 3. Pay yourself first. 4. The big three. 5. Savings versus investing. 6. The kiss philosophy to investing. 7. Understanding credit scores and their impact. 8.
00:04:56
Speaker
basics about insurance, number nine, buying a home, and number 10, the relationship between money and happiness. So let's get right into it. Number one, the habits of millionaires.
00:05:08
Speaker
Yeah, so actually, the first two classes of the entire semester, I don't have my students read the book, The Millionaire Next Door, but we go through the CliffsNotes version of it. And The Millionaire Next Door is written in the mid to late 90s, one of the most respected, best-selling personal finance books of all time. And I want to kick off the class with these lessons because oftentimes they come on in and they see what they think millionaires look like from what they see in movies or TV shows.
00:05:35
Speaker
What I like about this book is that the gentleman who wrote the book studied well over 10,000 millionaires and asked them, what made you become wealthy in the first place? So if they learn the habits of millionaires, they can apply those in their life to build wealth over time. So just going through some of the habits of millionaires that I teach with my students, one of the lessons is that income is not the same thing as wealth.
00:05:59
Speaker
And what the author mentioned in his book is that he said, in the studies that I have conducted since the late 1970s, I have found that realized income explains only 30% of the reason of the variation of wealth. So at least the more income you make, it would be easy to become wealthy, but just because you have a high income doesn't automatically make you wealthy because you get to blow it all. So that's one thing we try to get across right away.
00:06:23
Speaker
Number two, and this is a final exam question that I give them that I just gave them a couple of days ago, is that according to millionaires, a cornerstone to becoming wealthy is watching what they spent being frugal. So oftentimes when they see TV shows or movies, they see millionaires driving in sports cars or having these huge, big mansions. But in reality, it's watching what they spent.
00:06:45
Speaker
And I like a couple of the statistics that he mentions in the book, as far as, for example, approximately 40% of millionaires, when they buy a bottle of wine, they buy a bottle of wine of like $10 or less. Or 70% of millionaires never owned a boat, and 64% of millionaires never owned a vacation home. The Haven, in his follow-up book, Stop Acting Rich, which was written in 2010, he asked millionaires, in the last year, what are the most common stores you've bought clothes or shoes at?
00:07:12
Speaker
And the responses from the men in the top five was Kohl's, Target, and Costco. And the top five for the women, it was Macy's, Target, and TJ Maxx. So not the typical high-end stores that you might think of as far as like a million. So that's number two is watching what they...
00:07:29
Speaker
Number three, millionaires believe in investing. They invest typically somewhere between 15 and 20% of their gross income in new stocks or mutual funds. And they're not like day traders because college students, they think investing is about stock picking, buy, sell, try to get rich quick. But the millionaires, they do a more of a buy and hold strategy with their investments.
00:07:53
Speaker
So that's number three. Number four is millionaires don't drive away their wealth, where you might think a millionaire is going to buy a brand new car like every two or three years and buy a luxury vehicle. But it's interesting in the book that he mentions that about 37% of millionaires, the last car that they bought was a used car, not a brand new one, but a used car in his follow-up book.
00:08:14
Speaker
that it was written by his daughter just in the last couple of years, they list the top brands of vehicles driven by millionaires, number one Toyota, number two Honda, and also in the top five with Ford and Chevy. So not so much the big luxury vehicles that we're used to. The fifth lesson is millionaires purchase their home wisely.
00:08:32
Speaker
One of the quotes in the book that really hits home with me is the author says, I believe the greatest detriment to building wealth is your home and neighborhood environment. If you live in a big house in a pricey neighborhood, that can be a big detractor as far as you building wealth over time. So one guideline that they give in the book, and I'll share a different guideline a little bit later on, but they mentioned that don't buy a house that has a market value of more than three times your annual gross income.
00:09:00
Speaker
So if you have a husband making 50,000, their partner making 50,000, 100,000 gross income, that your house shouldn't be more than $300,000, according to the guideline in that book. And then the last one is choose the right occupation. She mentions that about 20% of millionaires are retired, but those that are not retired, the number one occupation is being self-employed or being a business owner. And I know in the financial independence community, we talk about side hustles or starting your own business.
00:09:29
Speaker
And it doesn't have to be that. It could be, I guess what we call non-sexy occupations like being an electrician or a plumber, but you're working for yourself. But choosing the right occupation and oftentimes that could be eventually having a side business or being self-employed would be the last money lesson.
00:09:45
Speaker
So you mentioned that young adults can get into some trade skills and start their own business, but doesn't that go against sort of the general traditional knowledge of everybody needs to go to college? And you're an instructor at a college. So do you find that there's a push-pull between what your
00:10:05
Speaker
advocating for them to do and what they're actually sitting in the classroom doing as far as trading money and time for a degree that may not actually pay off for them if they can just get rich by starting a side hustle and or a business in the trades.
00:10:20
Speaker
Yeah, great question. I try to be honest with my students, and even though I'm a college professor, sometimes I might have those conversations with them telling them that maybe college is not right for you, or maybe it's not right for you right now. In fact, in one of the books, the required books that I have them read, there's a chapter titled College Hacking, or just skip it.
00:10:40
Speaker
So even though I'm an advocate of education, education doesn't have to be in a college classroom. It could be, it could be a podcast. It could be going to conferences. It could be other, maybe going into LinkedIn and taking their free mini courses. So for those that want a college degree because they want to pursue an occupation that requires one, great. But I agree with you that college is not for.
Strategies for Debt-Free College
00:11:01
Speaker
Which takes us to number two, college hacking. Now you have, of course, all of your students are in college.
00:11:08
Speaker
and they got there either through loans or grants or other means. Do you want to share some of the techniques that help your students graduate from college with little or no debt?
00:11:19
Speaker
Yeah. So just in my class a couple of weeks ago, I got my students into small groups and I asked them the question, what if you were forced to get a bachelor's degree, but you couldn't borrow money whatsoever? How could you actually do that? And they got into their small groups and they talked it out for about five or 10 minutes. Then we came up and these were some of their examples along with mine as well, but they came up with some good ideas as far as cutting the cost of college or being able to graduate debt free.
00:11:46
Speaker
So one of the obvious ones is taking advantage of grants, you know, if you're from lower income or scholarships. But maybe some of the non obvious ones could be maybe you start your college journey going to a local community college, which is much cheaper. You're not living in the dorms and therefore you're saving money the first couple of years there. We have a lot of students at Lakeland who are commuter students where they don't have to pay the fees for a meal plan or residence halls. So maybe finding a local college and driving there.
00:12:15
Speaker
Another one, you know, oftentimes when people say, oh, you work at Lakeland University, so you teach at a four-year college. I actually don't like the phrase four-year college. Like, why does college have to be four years? You know, why couldn't it be three years? Because you're taking maybe 18 credits, certain semesters, maybe you're taking advantage of internships that you can use for academic credit, or you're taking advantage of summer classes where you can chop off a year or even a semester where you're not paying that tuition.
00:12:44
Speaker
or the flip side of it is maybe you go to college longer but you have a full-time job and then maybe go to college at night or maybe do some online classes. I know one of my early influences in personal finance was listening to a gentleman by the name of Clark Howard and I believe that's how he went to college was he went to community college and then went to night school while he worked during the day.
00:13:06
Speaker
So that's another one. There are some colleges out there, and Lakeland is one of them, that if you're a full-time worker at the college, you get free tuition. And I had a student several years ago where she was a typical college student during the day, but she worked full-time in our food service. She actually even played on our soccer team, but she went to Lakeland, graduated in three and a half years, but she didn't pay any tuition whatsoever because she worked 40 hours full-time for the college.
00:13:33
Speaker
That was another example of being able to not have to pay tuition for college. I just had a student come into my class two weeks ago saying, hey, Professor Killian, great news. I'm going to be an RA next year, which an RA stands for residence assistant, where now, for the last two years that he's going to be a Lakeland, he's going to get free housing and also a free meal plan.
00:13:55
Speaker
And I'm like, Evan, do you know how much this is saving you? He's like, I never did the math on this before. And we counted it up. And this is about $20,000 worth of housing and food that he's going to get in his junior and senior year just becoming an RA versus just living in the dorms and paying Lakeland to live in the dorms as well.
00:14:12
Speaker
And then another thing, this varies by state, but I know in Wisconsin for lower income households, there's something out there called the Wisconsin Promise. And that means that if you're AGI on your tax return, the year before you enter college is 64,000 or less, then you get four years at a UW school, University of Wisconsin system school, tuition free for four years.
00:14:38
Speaker
I think I don't live in Tennessee, but I've heard that Tennessee, you can go to community college for two years for free as well. So you might have to look at your own state's guidelines, but those can be ways where you could not have to pay as much tuition as what you normally would.
00:14:52
Speaker
Have any of your students actually made changes based on that exercise that you do in the classroom? Good question. I mean, we just did that recently within the last couple of weeks, so I'm not sure. However, I did have a different student I talked to three days ago that said she was ready to leave Lakeland and go back to her home in Illinois and go to school there. But she also got a residence assistance position. And now she's going to stay at Lakeland because of, again, the free housing for the next couple of years.
00:15:21
Speaker
And does your college administration have any issues with you having this conversation with students or have you gotten any backlash from families who maybe contacted the school or you that says, hey, why is this instructor telling my kid college might not be right for them?
00:15:35
Speaker
No, they have not had that whatsoever. In fact, I would think that they would appreciate that I'm kind of looking out for them and knowing that they're leaving Lakeland with very little or zero student loan debt. In fact, I'm the academic advisor for all of our on-campus accounting majors, and I've been running statistics the last couple of years. And in the last three and a half years, about 30-ish, 35% of our accounting students graduate debt-free.
00:16:04
Speaker
And the median student loan debt, now remember Lakeland University, we're a private college, so when you look at our sticker price, it looks intimidating. However, you know, we've got scholarships and so on that can help reduce the cost. But in our last three and a half years at Lakeland, our accounting majors, their median student loan debt has been $15,000, which is actually much less than the Wisconsin average of $30,000. So I would
00:16:27
Speaker
I believe, and actually the college has publicized this on our website, so I believe they appreciate me trying to reduce the cost to them. So when they leave, they can say that they got a bachelor's degree from Lakeland with very little student loan debt, as much as possible.
00:16:42
Speaker
I guess one other tip I'll throw out there that our students came up with in that group activity is taking a gap year. Like who says that right after high school, you have to go to college like three months later. In fact, my wife, she took a gap year between her high school and going to college as well. And maybe you take that year to reflect, maybe you take that year to save up some money so you're not having to take out a whole bunch of student loan debt right away on like number one.
00:17:07
Speaker
Yeah, I'm a huge fan of the gap year. I tried to encourage my daughter to do that. She opted to go to college immediately, but I did attempt to encourage her to take a gap year. And I think, I still think that it would have been a good move for her. So I'm a big fan. And what's, especially in hindsight at our age, we're like, what's one year?
00:17:24
Speaker
one year to prevent you from or at least to battle those societal pressures of graduate high school, go to college. Like, yeah, you're right. Like, why does it have to be like one month next month? It doesn't have to be that way. It's like college is going away. College is always going to be there.
00:17:40
Speaker
And then whenever we do this activity, I'm a horrible artist. I can't draw anything, but I tried to draw something on the whiteboard and I asked one of my students, what am I trying to draw here? And she was like, is that a box? I'm like, yes, that's a box. That's good. So then I draw a little stick figure outside of it. What am I trying to draw? And they're like, oh, think outside the box. I'm like, yes, OK, thank God. My art skills are not that horrible. But when we think about college, let's just think about things a little bit differently versus
00:18:07
Speaker
As soon as I'm done with high school, when we go to college, it has to be four years. And I have to take out student loans in order to pay for it. We got to think just a little bit differently for these Gen Z's.
00:18:18
Speaker
So for the listener, I was invited by Brett and his team to come or to be a virtual mentor to one of his students. And one of his students brought up that he was being offered, and this is the first time Brett's hearing about this, I believe, but that he was offered to stay at Lakeland and get a master's degree in human resources or something very closely related to human resources. He wanted to graduate and go work in human resources. I believe he already had
00:18:44
Speaker
a some kind of temporary job for coals or something like that in the area. And so then I started asking like, okay, well, do you need a master's degree to do a job in HR? Because now you got to look at two to three years. I'm not sure exactly how long it takes to get a master's there in that particular subject. But so he had never even thought about like the trade off that he was making.
00:19:08
Speaker
And I was like, are you sure you need a master's degree to do a job in HR? Have you gone on Indeed and more contacted companies to decide whether or not it's a requirement and is it worth your life energy and possibly money? He said he'd already started incurring credit card debt. And I said, do you expect to continue to incur credit card debt over the next three years? So let's look at these. And he said, yes. I said, okay, let's look at these factors and decide, great, they're gonna give you a degree, but even a free degree, is it worth your time?
00:19:36
Speaker
for what your personal goals are. So I don't know that he had ever thought of it like that, but based on your look right now, I probably won't get invited back to talk to your students. It was a good conversation. It was a good conversation he and I had.
00:19:51
Speaker
Actually, that's a very similar conversation to some students that I have in my office where when they're about to graduate, they're asking about going for an MBA right away. And oftentimes I'll tell them, you know, maybe if you have the money or if maybe your parents are footing some of the bill, fine, or if you just want to get it done with, however, maybe a better strategy is get some, start making money.
00:20:12
Speaker
start getting your student loan debt paid off if you have student loan debt. And then hopefully, it's a very good chance you're going to find an employer that's going to help pay for most, maybe if not all, of your tuition going to the MBA program. So maybe you're working full time, maybe two or three years from now, and your employer says, hey, as long as you earn an A or a B in these classes, we'll reimburse 50 or 80 or 100%. So I'm right with you on that one.
00:20:36
Speaker
But you don't stop there. You go on to teach them many other finance principles. And one of the ones that is the most popular that we're all aware of is pay yourself first. So at what point in your course, is this near the beginning when you're talking about investing or is this just how to mentally prioritize the way you think about
Saving & Investing Principles
00:20:56
Speaker
money? Where does pay yourself first come into your course?
00:21:00
Speaker
Yeah, so this comes incredibly early on. We talk about practical saving strategies. I mean, one saving strategy we mentioned is maybe you pay in cash with a lot of things and then you save the change, you build up the change in like some type of jar, and then that could be like some type of like goal you might have.
00:21:17
Speaker
But another one, my favorite one is the pay yourself first philosophy and making sure that you do it automatically. So we do that within, we talk about that within the first like two or three weeks of class. And even what I do is I'll pull up Lakeland University, our direct deposit form right up on the screen, and I'll show them whether it's Lakeland or pretty much any employee that they have, as long as they're getting paid electronically, that they'll have a little checkbox that says, hey, out of everything that you're going to give me in my net pay,
00:21:46
Speaker
Just start small. I know they're broke college students, so we're not going to ask them to pay themselves first, like 50% of their income. But maybe just start small. Maybe tell your employer just to transfer. Let's just start with $5. Put $5 into my savings and then put the rest in the checking.
00:22:03
Speaker
because oftentimes I think the hardest thing for both you and I and college students is just getting going with this philosophy. If it's less intimidating, if we have students automatically paying themselves first five or $10 a paycheck that at least gets the ball rolling and has them doing it.
00:22:20
Speaker
So whether it's a direct deposit or an activity that I do in my classroom is that I take out my phone and I have them time me. I'll ask a student in my class, hey, time me and see how long this takes me to do. I'll log in to my banking app and then I'll log in.
00:22:37
Speaker
And then I'll see how fast it'll take me to do an automatic transfer from my checking to my saving like once a month. And I think they timed me at like about 40 seconds, like the last time I tried it. I'm trying to get a little faster at this by logging into my online banking. Hey, let's do a recurring transfer every month on let's say the 10th of the month. Let's just say $10 and the bank is going to automatically zap my checking account and put it into my savings. And now if it's done automatically,
00:23:04
Speaker
I know college students are busy, I'm busy, you're busy. So if we try to remind ourselves to do this, it's just not going to happen. So if it's a small amount and it's done behind the scenes without even you remembering that you set it up, so let's say the 10th of the month, that gets the ball rolling. So start small and then gradually you can increase that. Yeah, I am a huge advocate of automation.
00:23:27
Speaker
And kind of a blanket rule at all levels that I kind of share or encourage other people to do is start small if you need to. Because there is that, if you haven't done it already, there's that belief and I hear it all the time. Well, I got bills. I don't have any extra money. I'm going to miss it. I've got to eat, that kind of thing. However,
00:23:49
Speaker
The reality is if you start small, you're just not going to miss it. It's going to be, especially if you automate it and it's not a conscious thing, it's something that's going on in the background, you're not going to miss it. You'll adjust your spending or you may not even, it might not even be a conscious thought until you check your account once later and you're like, oh, okay, it's working. I've got a couple of hundred dollars saved up at least. Things are going well. And then every six months after that, just set a Google mail reminder or
00:24:16
Speaker
whatever the Apple calendar thing is, whatever it is, just to go in and up at 1%, whether it's a contribution to our 401K. I know we're talking about college students here. So in the college student case, it might be just to a savings account or to a money market for Vanguard or Fidelity, whatever it is that you've maybe got them set up in.
00:24:33
Speaker
But yeah, I'm a huge advocate. And I think that's one of those first hurdles that if we can get over that, the rest is like, it's so much easier to to introduce the next topics and the ways to think about money, because they're already their their confidence is already built that they're actually building a net worth and creating it. And even more importantly, at this point in the game, they're young, and they're establishing the habit that's going to result in them being wealthy or at least much better off than they otherwise would be.
00:25:03
Speaker
You know, the one thing I pride myself on in our class is that I try to bring in different resources and not just use like one book is like the gospel. So we'll do, you know, a little bit of, for me, Sadie, I will teach you to be rich. We'll do a little bit from the financial independence community. We'll do a little bit from all these different resources, but it seems like the constant out of all of them is the philosophy of paying yourself first. And like what you said, starting gradually, starting small,
00:25:31
Speaker
I first learned about that from listening to Clark Howard many years ago, or one of the required books they have to read in my class called the automatic millionaire. They described that in I think chapter one, where you start with maybe like 1%. And then maybe six months later, you go up to 2%. And eventually you might work your way up to in saving and investing 15, 20, or even more percent.
00:25:52
Speaker
So I know college students have their own challenges while they're in college, but taking that college student once they graduate and they're about to step in ideally to a job that pays them more money than they've ever had before. And that brings us to the idea of the big three, which for those who have not heard of the big three is the concept that we spend most of our money on the three biggest expenses and those expenses are housing, transportation, and food.
00:26:21
Speaker
What do you do to teach them to think through those filters before they decide, I want that penthouse downtown that's, you know, taken on my budget, or I want 10 acres and I have to drive three hours to work every day? How do you get them to think about those things upfront as far as efficiency, logistics, and time is a big issue here too of a resource? How do you get them to not just look at money, but look at time as a resource through the big three mindset?
00:26:51
Speaker
Yeah, so I think a couple things. One is just sharing some personal stories. So I know when I graduated from college many years ago, I saw all of my other friends graduating from college and getting a brand new car. And it's like, oh, I guess that's what you're supposed to do. Let's just go ahead and get a new car. And one of the philosophies that we try to incorporate throughout the class is just think a little bit differently.
00:27:14
Speaker
Or also, if everybody else is doing things that you think are normal, just ask yourself why they're doing that. What's the reason why others are doing it? Why does everybody do a 30-year mortgage? Why does everybody do a five-year car loan? Why does everybody buy a brand new car when they graduate from college? And not just doing that because everybody else is doing it.
00:27:35
Speaker
I'll try to bring in guest speakers. And one example that this year was that the brother from Brad Baradun who does the ChooseFI podcast, he came in and he shared the story that one of his biggest financial mistakes early on was at age 25 was buying too much of a house too early. And that was taking away like more than half of this income. So he was trying to share some of those personal stories early on just trying to hit home versus just reading it in a book.
00:28:03
Speaker
But I do remember listening to this on a podcast on my ride to work a couple weeks ago, and then I shared it with my students, is that this person said the most valuable thing they learned from their college professor was the first two or three years out of college still live like a college student, just to avoid that lifestyle creep.
00:28:23
Speaker
So I know when I was in college, living in a dorm room that was incredibly small and living with a roommate, you don't have to buy like your dream home within the first couple of years after college. You don't have to buy like a luxury vehicle right afterwards as well. I do like one of the phrases from Ramit Sadhi where he says that there are a couple of things in life that once you buy it, it's incredibly hard to go back. And one of the things that he mentions is a house.
00:28:50
Speaker
if you buy too much of a house too early, it's very hard to change and kind of like downgrade from there. I think part of it is just from, um, I think a lot of it is just from a psychological standpoint where there's a little bit of shame where if you buy, let's say too big of an apartment or too fancy of an apartment or a house early on, and then you downgrade, you know, if some of your friends or family are asking like, Oh, why did you change, you know, apartments or houses? It's hard to say, well, I couldn't afford it anymore.
00:29:18
Speaker
So just starting out early in life that you can gradually build up your lifestyle, but at least the first couple of years, you know, live like a college student. And one example from a student that graduated a couple of years ago, she decided that once she graduated, even though she had a really good paying job in an accounting department in a suburb of Milwaukee, she decided to live with her parents for the first like year, year and a half.
00:29:42
Speaker
And I got an email from her several months later saying, hey, Professor Killian, because of the personal finance class that I took with you and some of the lessons that I learned and because of living with my parents, I was able to pay off my $26,000 and spend the loan debt within six months after graduating.
00:29:58
Speaker
And because she did that, she felt the freedom to leave her really good paying accounting job, to pursue her passion, move down to Costa Rica, and help run a resort at a place that she stayed at during one of her study abroad experiences.
00:30:17
Speaker
which her salary was more than cut in half, but she had that freedom to pursue her dream. Because if it didn't work out, she could always come back to the States and go back into the accounting or finance profession. But because she lived at home early on and was debt free, that allowed her to pursue her dream. And I guess just the update on that is she's going to get married this summer. She's now a travel agent down in Costa Rica.
00:30:43
Speaker
And she's building a, I'm sorry, she's building a house for cash right now. And that's how good she's, how sad she is in her late 20s. Well, that's got to make you feel very proud and very rewarding from an instructor or a facilitator or just a mentor standpoint. So congrats to you as well.
00:31:02
Speaker
Yeah, I'm just thinking that if she would have done what the typical person does, hey, let me get an apartment, let's live alone and let's buy a car and start making car payments, that maybe she wouldn't have had the comfort level to leave that job and go pursue her dream.
00:31:19
Speaker
So the big three are housing, transportation, and food. It's very challenging for people, I imagine, coming right out of college, even with a decent salary. We all have to eat. We all need a place to stay. We all need transportation in some form or another, whether that's public transportation or buying our own vehicle. But if we think about all those things ahead of time, we can design a life that's logistically not too stressful. You can live close to where you work. You can meal prep.
00:31:48
Speaker
If you live close to where you work, you can reduce transportation expenses, whether that's using public transportation, walking, or at least saving money on gas and wear and tear of your vehicle. So I don't know that I even thought about all these things until I was well in my 30s as far as really thinking about what that means to my bottom line.
00:32:09
Speaker
And you're already saying that through your course, these students are getting the benefit of thinking like that so much younger. And it's not just a money thing either. It's a life, like efficiency type of thing. Because if you find yourself in a commute that's an hour and a half each way to save a couple bucks on your mortgage, well, that's life energy too. And increase money on your wear and tear of your car. Gas prices these days, it's over, it's like $5.30 here.
00:32:37
Speaker
So it's not, you've got to look at all the expenses and don't forget that your time is valuable as well and give that, give your time of value and consider that in your, in your decision making. Yeah. Let me just touch on even like the eating out part of it too is, you know, the, the obvious, you know, um, advice would be don't eat out as much. However, when I tried to frame that with my students where, you know, obviously they're in their early twenties, they are going to go out with their friends.
Credit & Insurance Essentials
00:33:03
Speaker
But maybe just giving them the slight like mental change where instead of going out all the time and spending money on expensive food, plus drinks where they jack up the price on drinks, plus, you know, tax and gratuity, maybe instead just have more of like people coming over to your place and people making food or whether it's like a potluck type of thing, you know, BYOB or bring your own milk, whatever you drink, that's fine. But, you know, just making finding ways to still have have
00:33:33
Speaker
have fun with your friends, have those social interactivities, but it doesn't have to be out at an expensive restaurant. It could be just hanging out at your own apartment or at your own place. Yeah. So once they're established in their young adult lives and they start making money, how do they decide what saving is and investing is? Because even at our age, and we have conversations and we're in our forties, I'll have conversations with people and they'll say, I'm a good saver.
00:34:02
Speaker
Well, to me, that doesn't mean a whole lot, but to them, they may not understand that whole next level of what to do with their money. Which brings us to number five, money lesson savings versus investing. How do you teach them the difference?
00:34:17
Speaker
Yes, so I try to delineate with a timeframe as far as five years or more or five years or less. So we try to mention that saving is for any type of money goals, five years or less, whether it could be for a wedding, down payment of the car, vacation or so on.
00:34:37
Speaker
And when we talk about saving, one of the common themes throughout our class is that it's OK to have a basic savings account at your normal bank. That's fine. It's OK. But we recommend over and over and over again that probably the best place to put your short term savings would be in an online high yield savings account.
00:34:54
Speaker
And we mainly do that for two reasons. First of all, number one is just the interest rate. Instead of earning like a whopping like 0.2% on your savings account at your brick and mortar bank, you could be earning as, at least as of today, as, as of this podcast, you know, four and a half or 5% on an online savings account.
00:35:11
Speaker
But secondly, you've got that little bit of friction between getting at your money where in order for somebody to withdraw money from an online savings account, they can get out that money pretty easily. They might not be able to get at it for maybe 24 hours or maybe like two business days, which now if you have an impulse buy, it gives you a little bit of time to rethink if you actually want to buy that item or buy that experience.
00:35:34
Speaker
So I believe the best place for college students in Gen Z for their short-term savings would be these online savings accounts. And a lot of them have these things called subaccounts or what they call buckets, where you can have, let's say 10,000 in your savings, but then you can have these subaccounts where maybe 3,000 is your car replacement fund. Maybe 2,000 is your emergency fund. Maybe another 2,000 is for your vacation fund.
00:36:03
Speaker
But I really like these online savings because you can break them up into these different sub-accounts. Now, some students, they don't like that. They start quitching a little bit. Like, that's way too confusing and that's fine. But the other students, they actually kind of like that little breakdown and gives them a motivation to save for certain goals if they have those little sub-accounts.
00:36:21
Speaker
So the savings for five years or less, we really encourage the online savings account. In fact, there's a time in class where I have to take out their phone and I have them download the app to one of these online savings accounts. As an instructor, I can't force them to sign up for one, but at least if they have it on their phone, maybe a couple of days later, they look at that app and they're like, oh, what? Maybe it's time for me to just sign up for this online.
00:36:45
Speaker
So just giving them the first step of actually downloading the app to encourage them to maybe try that and then your future. And then as far as investing, investing would be for five years or more. And oftentimes, Gen Z thinks investing is, you know, which stock should I pick? It's all about stock picking, which we try to dispel that myth as far as like, no, it's not about putting all of your money in Tesla. We talk more about investing strategies a little bit later in the class.
00:37:12
Speaker
But finding long-term places, whether it's a 401k, where you can take advantage of the company match, whether it's a Roth IRA, where you can grow tax-free earnings. But those are the two main long-term savings accounts that we focus on in class for our college students. And I know that you can't make them do investing or during the class.
00:37:38
Speaker
However, have you had any students go from zero to by the end of the semester or however long your classes that you teach? And you're just like, whoa, you did all that in the last handful of months?
00:37:51
Speaker
Yes, I haven't had a situation where I've seen like how much they've saved, but I've had students come up to me afterwards saying, oh, I started contributing to my online savings account, or I just opened up my online savings account last week. And at least just that first step, because oftentimes, whether you're listening to a podcast or somebody talking or a conference, you get really motivated in the moment. And then you tell yourself you're going to do it. And then a couple of weeks go by and you never do, where
00:38:18
Speaker
Hey, if you have this app on your phone and maybe it just gives you that little like mental, like one less step for you to actually start doing that for yourself. And so saving is one thing and then investing is something else. What do you teach them as far as your philosophies on investing?
00:38:35
Speaker
Yes, so unlike me and you, where we get geeked out on this stuff, and we can talk about finance all day long, some students are like that. And other students, it kind of reminds me of JL Collins when he talks about his story with his daughter saying, dad, I know this stuff is really important, but I just don't want to have to think about it.
00:38:53
Speaker
So to get started with investing with students, I think if you make it as simple as possible, so I kiss principle, keep it super simple, it gives them a better chance to actually start doing it young and light. So the two main philosophies that I teach with my students, one is very consistent with the financial independence community, and that's investment index funds.
00:39:17
Speaker
And actually, that was a final exam question that I just got done grading last night was, hey, what are the two main reasons why you should focus on investing in index funds? And one of them is the lower fees, where you're being charged much less fees through those index funds. But the other one is that most of the time, most of the time, those index funds beat those managed funds. We have that super expert portfolio money manager trying to pick winning stocks and bonds like every single day.
00:39:45
Speaker
And oftentimes it's just the benchmark is the index that beats those managed funds. In fact, it was about three weeks ago I shared with my students an article from the New York Times that, and I forget exactly when the article came out, but it was within the last two years, where they did a study asking which mutual funds
00:40:04
Speaker
over a five-year period, beat the index, and according to the article, the answer was not one out of 2,132 over a five-year period. Now, I think they eliminated some things like sector funds in there, but as far as like your typical, you know, like growth funds or value funds or dividend-paying funds, the index fund, over the long term,
00:40:29
Speaker
almost always wins and you can be charged much less than fees. So we either mentioned, hey, index fund investing, whether it's a total stock market index fund, or I do have some students in there that are just nervous about investing. So I know in the financial independence community, it's all about investing in a total stock market index fund, especially when you're young. But there are some students that just to put their minds at ease, I mean, maybe they find, you know, some type of index funds where maybe 75% of stock and 25% is a bonded
00:40:59
Speaker
So that's one way to go about it. Or the other super simple strategy is just picking a target date fund where maybe these Gen Z students think they might retire in the year 2050 or 2060. You just pick that one fund. It starts out more aggressive in stocks.
00:41:17
Speaker
And as you get closer to that target date, it shifts a little bit more into bonds. But it's maybe not the 100% best solution, but if it gets a young person to start investing right away by thinking something super simple and just get the snowball rolling down the hill with that compound interest, those target date funds is an incredibly, keep it super simple way to get them going in their early 20s.
00:41:40
Speaker
When you're teaching them this aspect of investing, I'm assuming that you're going through expense ratios and things like that because even target date funds, depending on what company you go with or what target date fund, they have a variety of expenses as compared to your traditional broad market low cost index fund like VTSAX or FZROX.
00:42:01
Speaker
Yes, that's correct. In fact, we try to encourage them more on the index fund approach, but even the word index fund, it's hard for a college student to kind of re-explain what the heck an index fund is, but they can explain it. So if it motivates them to just get going now, then I think the target data fund is like the second best option.
00:42:20
Speaker
For those college students and I also do an activity where I show them. Hey, let's let's have this student invest in this index fund. Compared to this other student that invest in this managed fund and he goes through a financial advisor that charges a 1% asset under management fee.
00:42:40
Speaker
and let's do that throughout the course of 40 years. And even Luis that you met with, you met with Luis a couple of days ago, one of my students, I used him as an example saying, hey, Luis, just this one decision you have, it was an astronomical amount of money. It was like an extra 600,000 compared to Travis in my class, just because you picked a low cost index fund and you did it on your own versus picking a managed fund with this financial advisor that charges you a 1% fee over these last 40 years.
00:43:08
Speaker
This brings us to number seven, which is I'm not really sold one way or the other on this one. Understanding credit scores and their impact. Now, for me, I think there's two camps. Maybe you can shed some light or additional insights. We understand people
00:43:26
Speaker
en masse abuse credit. So I'm of the belief that it's less important than people think at young ages to establish credit because the chances of creating a bad habit and getting into a hole are not worth the risk.
00:43:47
Speaker
Now, I'm not naive. I understand people can use credit in many, many ways. So how do you temper those two ends of the spectrum of like, let's develop some credit, let's get a credit history so that when the time comes, you've got, you can take advantage of lower interest rates on car loans or mortgages or personal loans or whatever it is. How do you message that to them, the dangers while starting them on that path to establishing credit?
00:44:17
Speaker
Yeah, that's a tricky balance between the two. And even back when I was younger, I remember walking on our college campus and at the time I was like, oh, sign up for this free t-shirt and we'll give you a credit card. And it's like, oh yeah, I could use a t-shirt. I'm a broke college student. And then you get that credit card in the mail two weeks later and it's like, I'm never going to use this thing. And then all of a sudden your first quote unquote emergency pizza party comes up. It's like, okay, I'll just do it one time. And then you do it another time. And that's how you kind of get trapped. So the balance between the two, I think I encourage my students
00:44:47
Speaker
to start building credit history that if you do a credit card, just start with one. We go online and we even look up things on like NerdWallet or other websites as far as best credit cards for college students. And you can maybe find one that gives you a little bit of cash back depending on like what categories you might spend on.
00:45:06
Speaker
But just start with one and start with a low credit limit. I know part of your credit score is based on your debt, the credit limit ratio, but you also don't want to have a credit card, you know, with a high credit limit early on where you might abuse it. So start with one credit card. And even so, I had a student this semester saying, hey, is it OK if I start with one of those, those secured credit cards?
00:45:28
Speaker
meaning that you actually deposit, let's say, $500 with a credit card company, and then that's your credit limit. You're allowed to charge up to that $500 to start building your credit history. So starting with one, finding one that is good for a college student based on their spending habits through one of those online websites.
00:45:48
Speaker
And then just making sure you find one that is not allowing you to go deeply into debt because it has a higher credit limit. I think that's a good start. And then the number one biggest commandment with credit cards is just make sure you pay your bill off on time all the time.
00:46:03
Speaker
Now, I say that and I remember now I'm having a flashback to when I was younger, where after I graduated, there was a time where I was asked to stand up in three different weddings in the same summer. And I'm like, I don't have the funds to be able to do this. So I don't really encourage this with my students. I don't try to advocate this too much. But if you do have a higher credit score, you do qualify for those better credit card offers where maybe you get a zero percent APR for the first 12 or 18 months.
00:46:33
Speaker
And I remember back at that time, I ended up taking out a credit card that had a 0% APR for a year and that allowed me to kind of get through and go through those weddings during that summer period of time. But overall, make sure that you start with one credit card with a smaller credit limit. You pay that bill off every single time and on time each month.
00:46:54
Speaker
Yeah, that's good. Honestly, I never thought about how to mitigate that downside risk, which is just make sure that you keep a low spending limit on whatever card you've got. So whether it be a 500 or 1000, usually you can dig yourself out of that kind of hole. But I too remember being a college student at Vanderbilt and walking through the campus and somebody being there with a shirt and I got a Discover card. And then I discovered that the interest rate like a year and a half later was like 28% or something like that. So I was like,
00:47:24
Speaker
Yeah, I got into some trouble then too. So now we're at number eight. And this is something that I thought very, very little of when I was a young adult, other than auto insurance. But what do you teach college kids about insurance basics? How much do they need to know? What's practical for them at that time? And how do you frame it in such a way that
00:47:51
Speaker
Because as we know now, insurance needs change over time, over your life milestones, over health situations, those kind of things. How do you frame it to them? And what are you telling them to prioritize in the world of insurance?
00:48:06
Speaker
Yes, so knowing that they're college students and some of them don't even know what the term premium or deductible is, I want to meet them where they're at and just start there and just go through some very basics without going incredibly into depth. So just starting with number one, you know, a premium is what you pay in advance to have insurance and deductible is what you've got to pay before your insurance kicks in and pays the rest.
00:48:28
Speaker
And again, another final exam question that they just had a couple days ago was that the higher the deductible you ask for, the lower the premiums you're going to pay ahead of time. And most college students don't even know that relationship between a deductible and a premium. So whether it's car insurance, whether it's health insurance, being able to accept
00:48:51
Speaker
What they believe is the highest deductible they could afford if they get into a car accident or if they end up having to go to the hospital so they can lower those monthly premiums overall. So just having that relationship I think is big for them. Number two is just also understanding that they can stay on their parents health insurance until age 26.
00:49:09
Speaker
So maybe there's a chance on their first job they're able to negotiate a better starting salary because they can tell their employer, oh yeah, I know you're offering me health insurance. I don't need that right now because I'm going to be on my parents for the next couple of years. So maybe you'll be willing to pay me like X amount more because you're not funding the bill for my health insurance.
00:49:29
Speaker
Also, I know a lot of health insurance plans, whether it's through your employer or whether it's through the marketplace, is that they have the categories of bronze, silver, and gold. I even know at Lakeland University, when we have our open enrollment period, we can pick between our bronze, silver, and gold plan. And as having college students understand, a bronze plan doesn't mean it's a crappy plan, and a silver means it's okay, and a gold means it's the most amazing plan out there, because it's all about cost.
00:49:57
Speaker
where a bronze plan for most college age students that are healthy, I would recommend the bronze plan, which means you're paying a lower premium each month, but you have a higher deductible in case there is some type of emergency. So just understanding those phrases between gold, silver, bronze with health insurance.
00:50:15
Speaker
And then one other thing we talk about with car insurance, maybe the biggest piece of advice I can give them is that it doesn't have to be every six months. It doesn't have to be every single year because everybody's busy. But maybe once every two or three years, go ahead and shop around for the best car insurance rates out there. Because it's amazing how much you can cut as far as your car insurance premiums just by going with company A versus company B.
00:50:41
Speaker
My wife and I, we just went through that process within the last couple of months. And just how much we're able to save on our car insurance just by switching providers was a big one overall for the car insurance piece.
00:50:52
Speaker
And then the last thing, we do touch on a little bit about life insurance. We don't go much into depth, but we tell them for most people, for most people, if you do life insurance, which the whole, sometimes I prefer to call it as death insurance, because the whole point of life insurance is that if you buy the people that you count on for your income, they have the financial resources that they need to continue on.
00:51:16
Speaker
For most people, a term life insurance would be the best and not get sucked down this path, especially early on with something called whole life or like cash value life. I remember several years ago, my wife and I, we walked into an insurance company for like a free consultation.
00:51:32
Speaker
And I knew ahead of time what they were going to do. I knew ahead of time what they're going to do on meeting number two. But meeting number one was just getting through our basic financial information. We walked back in a week later from meeting number two. And it's like, hey, let us tell you why you really need whole life insurance. And they went through this whole spiel. And these are the premiums you'd be paying. And by the way, there's this there's this cash surrender value and all these phrases that I even get tripped up on. And for college students, it's like, you know, don't you know, insurance
00:52:02
Speaker
is completely different than your investments and don't get sucked down a path where you've got a slick speaking insurance agent trying to get you into this product where you don't even know what the heck they're talking about but you like you know how they look in their suit and tie so you go ahead and do that. So if you do life insurance you know make sure it's term life insurance and also
00:52:24
Speaker
You know i remember when i was like twenty two or twenty three years old i didn't have a big investment balance but the the investment from those going that i was going with they brought in a like their recent college graduate to talk me into buying like whole value life insurance. No i'm just think i didn't tell this i'm thinking of myself.
00:52:43
Speaker
I'm single and I don't have a wife and kids and they don't rely on my income. Like I don't really need this. And within like the week, I ended up, you know, firing them and going with somebody else. But, um, but yeah, if you, if you do life insurance, eventually the term life insurance is the way.
00:52:59
Speaker
Yeah, whenever I was first got commissioned to the Navy and I was going through SWAS, Surface Warfare Officers School, we had a company come in and I'd already known a little bit about money at this time. So I kind of knew the red flags to see. The name of the company was called First Command. I think they either may have rebranded or they've definitely improved their tactics.
00:53:24
Speaker
to be less illegal. But they've been sued a number of times. But anyway, at that time, when a military person, particularly an officer first joins, they are able to take out what's called a career starter loan. And that could be through Navy Fed or USAA. I think at the time, USAA had the higher one. So it would be like a 1% interest or like a 0%. So it's like free money. And it really was. It was a great, great thing.
00:53:49
Speaker
I think it was just a way to get money on the books for the bank and officers make pretty good income and it's guaranteed all that stuff anyway. First command would come onto base, which I'm not sure who approved this. I don't think it happens anymore. I want to believe that it does not. And they gave us all a talk about investing and insurance.
00:54:08
Speaker
And now in the military, I have something called SGLI, service group life insurance. And even at that age, like you said, your requirement likely for insurance is almost zero. There's reasons you might want to get it, which I understand, but they would try to sell this to you as an investment in the cash value and those whole life policies. And they would do it as an investment with an insurance rider on it.
00:54:31
Speaker
And I had to talk so many people, my peers, out of doing this, because I was like, this is not good. And I think I've saved some people from going down that road of regret, I believe. But it is frustrating to see how companies will prey on young people who don't necessarily know in order to make them make poor financial decisions. And like you, and you're the first person who has expressed it that I've come across with,
00:54:57
Speaker
as emphatically as I do, insurance and investing, two separate things. Keep it that way. Do not have anybody tell you that it's guaranteed money because what people, what they fail to tell you is if it's like they make it seem like you could buy an annuity at some point later and get some income from it. And yeah, that's true. But what they don't tell you is that you could just build that for yourself in a brokerage account or build it for yourself in a retirement accounts, put more money there.
00:55:26
Speaker
and it's basically building your own money making machine. And the difference is if you die, well, you don't necessarily get all those premiums or anything back. So it's great to hear someone else preach emphatically to keep insurance and investing separate. The things that insurance salesman will try to sell you on, you can build on your own and other aspects of your portfolio.
00:55:50
Speaker
So there's no necessity to have any kind of investments per se in an insurance policy or tied to an insurance policy. Yeah, it just goes back to the philosophy of keeping things super simple for investing. In fact, I have a friend of mine that used to work in insurance, selling these type of products to others. And he actually got out of it because he said, Brett, I felt bad selling insurance to people who couldn't afford it.
00:56:15
Speaker
Yeah, well, that's pretty telling. I guess one last thing on the insurance front before we move on is that another thing we mentioned in our class is that even though we there's a lot of focus on life insurance statistics show that there's a greater chance of you becoming disabled and being disabled for a long period of time compared to actually like dying.
00:56:34
Speaker
So we mentioned to our students that if you had to choose between the two, which you don't have to, but between the two, long term disability is more important than life insurance because you have a greater chance of becoming disabled and not being able to work throughout the rest of your life. Now luckily at Lakeland, we
00:56:51
Speaker
Lakeland gives us long-term disability as an employee benefit. So I think if something bad happens to me or a college student crashes in my car, I get injured and I can't teach anymore. I think I get like 60 or 70% of my income coming back to me over the long-term because I was like long-term. So just the distinction between life insurance, but a lot of people don't talk much about long-term disability, which if you work for an employer, maybe see if they offer that to an employee as part of their employee benefits program.
00:57:20
Speaker
Yeah, I'm glad you brought that up because I myself don't know too much about disability insurance or long-term care. I don't even know the verbiage. So I've got some homework to do on my part. Excellent.
00:57:31
Speaker
Number nine is home buying tips.
Housing Choices & Financial Happiness
00:57:34
Speaker
What are you telling college kids? Like buy home, buy rent. I know in my interviews with some of your students, a few were interested in rental properties. So how do you discern between purchasing a home as a primary residence and purchasing rental properties or even if college kids should be doing those things or even in their 20s?
00:57:56
Speaker
This is a big one for me based on our life history. But another question on the final exam that they just took was true or false. The home that you live in should be your biggest investment. And they should have circled false like five different times because oftentimes you hear that in society that, oh, my home is my biggest investment.
00:58:14
Speaker
I'm going to pour a ton of money into my house and buy the biggest house I can afford. And houses just always go up in value. But we try to dispel that myth in our class. In fact, I want to go back to the Millionaire Next Door book where the author says, in his opinion, the biggest detriment to building wealth is living in too pricey of a home and in too pricey of a neighborhood.
00:58:36
Speaker
And one of the best financial decisions my wife and I ever made, we talk about this all the time, is that she bought her tiny, she bought her tiny 600 square foot house, like three months before she met me. And we consciously decided that during the first eight years of our marriage, we lived in that tiny 600 square foot house.
00:58:55
Speaker
Now eventually we moved out after having our daughter and now her being one years old and going all over the place, being able to walk around. But I think that one decision from my wife and I living a very small affordable housing throughout the most of our early part of our marriage, they'd like to set us up for our future.
00:59:14
Speaker
So, as far as a budget, one thing we tell our students not to do, oh my gosh, for the love of God, don't do this, is walk into a bank, ask them how much of a mortgage they qualify for, and the bank telling them, oh, we'll loan you up to this much, and that should be the top of your budget. That should not be the top of your budget. I remember when I was teaching high school and making $30,000 a year going into my bank, and I was thinking of buying a condo at the time, and they're like, oh, by the way, we would let you borrow as much as like this much, and I forget what the number was, and I'm like,
00:59:44
Speaker
Oh my God, I don't think I can afford that, but hey, you bank, you're the expert. So maybe I'll just use that as my budget, which gladly I never bought that con. So don't think that the mortgage should be, your budget should be how much the bank says you can borrow, but rather I like to use the rule of thumb of taking your monthly, I'm sorry, your annual gross income, multiplying it by two and a half.
01:00:10
Speaker
And that is the most mortgage that you can afford. Now I know the book The Millionaire Next Door has a slightly different role saying the market value of the house that you buy should be no more than three times your annual household income. And I've just taken that and modified it by saying that your mortgage should be no more than two and a half times your household gross income per year.
01:00:33
Speaker
And I think there's a reason why they call it a starter hole. I think oftentimes as college students, we want to obtain the same level of lifestyle that our parents took like many generations or many decades to achieve where it's okay
01:00:49
Speaker
So first of all, number one, delay buying a house. It's OK to be a renter for a while. It's OK to live with a roommate or your parents just for a little while and only buy a house where you can actually afford it. But knowing that it is a starter home and you just start small versus trying to think you have to buy your dream home right off the bat in your early mornings.
01:01:09
Speaker
So those are the couple of things that I mentioned to them. And I guess the house that we're living in right now, I'm broadcasting from our basement. Another tip that I give our students, and this doesn't work all the time. We've talked to realtors before, and they say it works sometimes, but not all the time.
01:01:26
Speaker
But when you're giving an offer on a house that's very competitive, it doesn't hurt to maybe write a personal statement to that owner, just telling them who you are as a person, as a family. I'm telling you, I wouldn't be sitting in this basement right now if it wasn't for my lovely wife.
01:01:43
Speaker
where we were about to put an offer on this house and she sat at our kitchen table at the time and she's an excellent writer. She took 20 minutes to write this paragraph to the owners of this house describing our family. My only contribution was I said we should throw in a picture of our family, but we submitted that with our offer letter.
01:02:02
Speaker
And we were told by our neighbors right across the street saying, hey, if you never submitted that letter, you never would have gotten this house because we were one of like 11 offers and ours wasn't even the highest offer. But because they had that emotional connection with our story, they went with us versus maybe the better like financial offers they got for the house. So that's maybe one side note is that when you are purchasing a house and you're submitting that offer, it's not going to work all the time, but it doesn't hurt to maybe write that personal statement apart.
01:02:31
Speaker
Yeah. So how do you frame the rent versus buy? Do you say, okay, here's what people say, the cost of owning a primary residence is, and this is the reality of what it costs to own a primary residence, and this is the true cost of renting. These are the pros and cons, and there's a lot of pros to renting. So especially I think for people in their 20s who may not be on that, they might not be in that job for 20 years.
01:02:57
Speaker
Say they get a job right outside of your Cott Lakeland University, but they don't intend on staying there forever. And now they're tied down for a home if they purchase one. So I believe young people should use flexibility and keep their options open. And as soon as you purchase a house, unless you've also purchased it to be a good rental property, I believe that
01:03:21
Speaker
Renting is just fine and in many cases much better than fine and I encourage that for young adults Yeah, we teach both sides of the coin in our personal finance class and you know going back to You know what Rameet Sadie mentions in I think it was one of those LinkedIn posts as soon as you buy a house and an expensive one It's very hard to go back and I like the flexibility
01:03:43
Speaker
of renting, like you said, I am a college student, I'm starting here, but I might be moving in the next like one or two or three years, and all those extra like phantom costs of like closing costs, and hiring, you know, a seller's agent, you know, that can eat up into like your savings, if you buy a house, and all of a sudden you're moving like, you know, one or two or three years later. So we not only preach
01:04:08
Speaker
buying a starter home in a budget that you can afford, but it's okay, even as all of your maybe friends might be buying houses or your parents keep on asking you, when are you gonna buy a house? When are you gonna buy a house? When are you gonna buy a house? It's okay to wait a little bit longer because oftentimes, if you're paying, let's say $900 in rent,
01:04:30
Speaker
and you have a $900 mortgage. But by the way, you're not including your homeowners insurance, property taxes. Oh my gosh, actually right next to me over here, our sump pump went out a couple months ago. And that was, what, $375 to fix our sump pump versus I loved when I was renting where if my toilet wasn't working, I'd call the property manager, they'd be over within 30 minutes, they'd fix the toilet versus me calling the pump. So
01:04:57
Speaker
there. We do try to mention that, hey, buying a house and buying it too early for too much is not the best, smartest thing to do. It's okay. It really is okay to be a renter. We're at the final one, Brett. Number 10, the relationship between money and happiness. Based on what I've seen, there is a direct correlation between income and happiness up to a point. And I believe that's been debunked or something happened recently. There's another study
01:05:27
Speaker
But what I remember is that up to 70 something, now with inflation, maybe it's 90 something now, I don't know. But up to a certain amount, there is a direct correlation. As your income increases, so does your level of happiness. And then after that number, it plateaus and then actually begins to decrease or level off and then decrease the higher you go, like in the hundreds and hundreds of thousands, which is odd. But what have you seen and what do you tell them?
01:05:54
Speaker
Yeah, so there was a somewhat famous study done, I think it was back in 2010 saying, once your income reaches 75,000, then your happiness is no better than somebody making a million dollars a year. But like you said, that has been disproven or at least debunked in some way, shape or form since then.
01:06:11
Speaker
What the research shows, or at least the research that I've seen, is that it's not so much how much money you've got coming in, it's how you spend that money, whether it increases your happiness or not. And again, this is another final exam question for them a couple days ago, was what are the three main ways that you can spend money to help improve your happiness?
01:06:32
Speaker
And one of them is, I don't want to say the word spending. I want to use the word investing in experiences that you enjoy with others that you love. So for example, instead of thinking happiness is going to come from buying the next generation of the iPhone or buying a huge big screen TV, that happiness wanes after a while versus if you invest money on things that you love, whether it's going to sporting events,
01:07:01
Speaker
traveling. And a lot of people think it has to be something like a big ticket item, but it could be as simple as meeting your friend for coffee every Saturday morning or going out to breakfast. But if you invest in experiences that you enjoy, that's one thing that can help improve your happiness versus spending it on maybe just all material possessions. Or again, going back to a house or a car or something else.
01:07:26
Speaker
The second one is you can increase your happiness by buying back your own time. And I guess there's two different ways that one would be, I like to use the term outsourcing chores that you dislike. Like for example, I think most people don't walk to their kitchen table in March and April saying like, oh my gosh, I'm so excited to do my taxes. Hey, some people would much rather pay an accountant to do the taxes for them. They're glad to pay the accountant to do the taxes for them because they just don't like doing.
01:07:56
Speaker
or one of our neighbors across the street, they have somebody mow their lawn because they just don't like doing the mowing of the lawn. So using money in some way, shape or form, for me personally, I'm not good at fixing things. Anytime I try to fix something, I pick them more. But anyway, it's spending your money on things that you don't enjoy doing. We can improve your happiness and buy back your own time. And even in our financial independence community, where we're trying to achieve financial independence and not retire at age 65,
01:08:26
Speaker
But me being able to retire earlier or taking many retirements or sabbaticals, you're able to save for your future self so you can buy back some of your time in some of your earlier years before maybe your health starts to give out later years. So one is investing in experiences, another one is buy back your time by outsourcing chores you don't like. And the third one is giving.
01:08:47
Speaker
It could be a giving to charity. It could be something as simple as, hey, we know these people have not had a date night for the last three months. Let's just offer, hey, let's give them a $50 gift card to Olive Garden and we will offer to babysit their kids while they go out and have a fun time. That improves your happiness. Scientific science shows when you end up giving to other people as well. But those are the three things that at least I've seen to improve your happiness would be experiences, time,
01:09:15
Speaker
I think this goes back to, again, being intentional. Because if we're not intentional with what we value and then align our resources to do that, then we fall in line with keeping up with the Joneses because that's the easy thing. That's what we're being marketed to all day, every day.
01:09:32
Speaker
And if we're not intentional about how we think about what we value and then how we align our resources to bring more of that into our lives. And when I say resources, I mean time, effort, energy, and money. Time, energy, and money. Notice there's three. It's not just money.
01:09:48
Speaker
So as part of the financial independence community, yes, we do focus on the money aspect of it, but money is just one of the resources that we can use in our lives to build a happy life or whatever we decide is happy. But the very first thing in that step or very first step of that process is what do you really value? And most people can't answer that question, I don't think.
01:10:13
Speaker
because it's not just a simple, I value these three things. It takes time to figure it out because we'll say I value physical health, but then I end up going spending money on a gym membership and then I only go
01:10:27
Speaker
once every two months, well, then that's it. That's a disconnect there. I'm saying I value something, but my actions don't promote that or don't indicate that. So it's a process of what we value now is not going to be what we value 10 years from now, but it has to be intentional. And money is just one of three resources that we funnel through that decision making process or that life design process.
01:10:51
Speaker
And I think that's maybe where we get it a little bit wrong in the messaging. Because I mean, it's in the word financial independence. It means money. It's the very first word. But again, it's about what financial independence can bring you. And that's living in line with your values, whatever those are, and being a happier person, living a happier, more fulfilling life.
01:11:14
Speaker
Yeah, and somebody that I believe you're familiar with as well. I love the phrase, and I mentioned this to my students several times, is from Paula Pant, where her tagline is, you can afford anything, but not everything. So what's it going to be?
01:11:31
Speaker
You can afford going to your favorite concert. You could afford maybe traveling for a little bit, but you can't afford that while you're doing a bigger house than you can afford and a brand new car and everything else. So that intentional spending. I have my students do what's called a design your rich life activity, where they got to focus on what really brings them happiness and joy. But then realizing that you got to cut out and cut costs on the other things that you don't value as a person.
01:12:01
Speaker
Yeah, I think Ramit, you refer to Ramit a few times, but it says, spend extravagantly on the things that bring you joy and be frugal on the rest of it. And cut costs mercilessly on the things that you don't. Much better put than my recollection.
01:12:18
Speaker
And he also, I saw him on, I heard, saw and heard him on a podcast, which is Diary of a CEO recently. And the YouTube thumbnail is, don't buy a house or something like that. And then I listened to it and he, he even rents himself, I believe right now.
01:12:34
Speaker
Yeah, human talks about a story of like something was happening with those windows and there was like water coming and he's like, if I owned a house, I would have spent like thousands of dollars like fixing those windows where for me, it was the landlord that fixed the windows for me and provides them that flexibility.
01:12:49
Speaker
You know, while it's on the top of my head, the one thing I need to mention is in one of your podcasts earlier, you shared your brother talking about the basics of financial independence. And the one thing that caught me and I'm like, I wrote this down. I'm like, I got to share this with people going forward. But at the very end of his presentation, he read, you know, some type of poem or some type of saying.
01:13:10
Speaker
And at the very end, I thought the phrase was like, make sure you play along the way. And that's why I think we need to invest in experiences that we enjoy versus just, you know, sometimes I think the financial independence community gets a bad rap for like sacrificing now, you know, like only eating like ramen noodles and like living in a cardboard box and all don't enjoy things until you reach the end of the planet later.
01:13:31
Speaker
But I think it's important that you have that balance and you play along the way and you invest in those experiences. When we go back to the pay yourself first philosophy, we're not asking or telling people like pay yourself first, like 80% of your gross income. But hey, maybe pay yourself first.
01:13:47
Speaker
15, 20, 30% of your growth income or a little bit more later on. But then the rest of it, make sure that you invest in those experiences and you enjoy life as you go through it. Kind of like with that book, Die with Zero, having those memory dividends because of those pictures that you take on vacation or those memories that you have with your family. Yeah, thank you for sharing that. And I'll let Steven know that he had some impact in his talk. Yeah, absolutely. He's very good at what he does.
01:14:15
Speaker
Well, thank you very much, Brett. We talked about the habits of millionaires, college hacking, paying yourself first. We talked about the big three, savings versus investing, the kiss philosophy to investing, understanding credit scores and their impact, insurance basics, your tips for buying a home, and the relationship between money and happiness. Is there anything else you'd like to share?
01:14:39
Speaker
Just thanks for having me on today. And I thank you for your support and service and volunteering to help out my students the last week. And I think if Gen Z is able to get this information early on, or if you're a parent listening to this podcast, and you can just send them the gift of like sending them the link and having them listen to it. Knowing this stuff now, compared to when I had to learn this a little bit later on in life, can put them leaps and bounds.
01:15:08
Speaker
ahead of others as the start of their life journey overall.
Conclusion & Resources
01:15:13
Speaker
Yeah, and you're going to continue your education, your financial education of our young people through your website nextgenfinancialfreedom.com. Is it a blog? Yes, that's correct. I have started a blog. I wrote a couple articles last summer
01:15:30
Speaker
and then plan on doing a couple more this summer as well. But nextgenfinancialfreedom.com is trying to get money lessons out to young adults. And I offer, whether it's webinars, workshops for employers, speaking engagements. But if anybody wants to find me, they can go to nextgenfinancialfreedom.com, click on the contact page and send an email.
01:15:56
Speaker
Thank you Brett so very much for hanging out with me today and sharing your insights over two decades of teaching our young people financial principles. And thank you all for listening. Take care.