Personal Finance Lessons – Part 2
Personal Finance Luminary Interview-Rob Pivnick (part 2)
Welcome to Part 2 of Personal Finance Lessons from Rob Pivnick. Make sure to read Personal Finance Lessons – Part 1. This part of the interview gets into the topics of how couples handle money and investing.
Want to become inspired to improve your money life? Read about influencers who are changing the financial literacy and education landscape. Learn personal finance lessons come from an attorney turned financial educator.
Personal Finance Luminaries is a series highlighting individuals in the money education and information sphere who work to improve the financial lives of individuals in the U.S. and worldwide. Become educated, enlightened and inspired as you read about Rob Pivnick, attorney and author of What All Kids (and adults too) Should Know About . . . Savings and Investing.
Please check out the list of former personal finance luminaries, they include authors, personal finance website publishers, and well known podcasters. Each one of the luminaries offers a peak into what makes them tic and how they are working to improve the financial lives of others. These personal finance lessons will get you thinking about how to further your money savvy.
How would you teach better personal finance lessons and money habits?
Unfortunately, for some reason, money remains a taboo topic in most households. I don’t understand that. As I’ve mentioned, school classes, books, learning, etc. – none of those work without continued practice and discussion.
For young adults, parents must have open and engaging discussions with their children about finances, budgets and spending. Even if those discussions don’t directly involve the children, simply having the discussions in front of the kids lets them know that we all have to make decisions and budget around their wants and needs. They learn by osmosis.
All the better if parents can involve children IN the discussion as well.
Hands on learning works also – parents should take their kids to the bank, have them open up accounts, deposit their allowance and give them limited control of their money. Children should learn as early as possible that they have to make decisions and prioritize their wants and needs. Even for kids a quickie written “budget” of sorts that includes whatever money they make from allowance, chores and gifts on one side, and all the toys, video games, phone, etc. they want on the other side will help them make these decisions.
If my kids want a new video game, well . . . they better trade in the old ones they don’t want or do extra chores to pay for it. My oldest is getting his first phone for Chrismukkah (that’s a combination of Christmas and Hanukkah, we celebrate both . . . ha!) and he already knows that he’s contributing to the monthly bill. It’s quite alright for them to want things and not get them.
After all, that’s life, right?
For older savers who are “beyond” allowance and hand holding, budgeting is probably the best place to start. It’s as hands on as you can get and, by definition, teaches them how to budget. Start with allocating a minimum 15% (if they can afford it) to saving/investing and go from there. But taking that first step is what is needed to get started down the path to financial independence.
Two Important Personal Finance Lessons
1. Those who write down their savings goals are 33% more likely to reach them.
2. Among adults, those who actually have a written plan/budget save 2.5 times more than those who have no written plan.
How do you and your spouse handle your finances? Do you have any particular rules or strategies?
I can’t say that we have any set specific rules . . . but that’s only because we are so open about our communications surrounding finances and goals.
We both max out our 401(k) plans. We both contribute the annual maximum to an IRA. Those are pretty much the first line items in our budget, and most of the rest gets used!
My wife still has her separate bank account so I don’t have to see all her “consumption,” which is probably a good thing. As long as we meet our savings goals as mentioned then I’m content.
I will say, however, that it is shocking how many books, articles, web posts, etc. are out there on the topic of discussions with one’s spouse; and “How To” have these discussions. Unfortunately it still remains a “taboo” topic, and to no one’s surprise, one of the leading causes of divorce.
Any personal finance lessons for couples to successfully manage their money?
To succeed (and I’m no expert, I am just parroting the real expert opinions), couples need to:
1. Be open and honest about their goals.
2. Have discussions about big spending decisions.
3. Not ever surprise your spouse with a large financial commitment – make those decisions together.
4. Honestly, discuss budgets (especially around the holidays).
5. Have a standing monthly money discussion to eliminate surprises, manage expectations and avoid uncomfortable spending decisions.
I will add that I’m a big fan of each spouse having their own account as part of the budgeted amount – the other spouse doesn’t get to see or question what is spent from that account. I really think that helps. I know, personally, that helps me because as long as I get to max out both of our 401(k) plans and we contribute the maximum to our IRAs each year, I’m okay with the rest getting consumed.
My employer is going to a high deductible health plan next year, so I get to open a Health Savings Account. HSA’s are great retirement vehicles because they get triple tax advantages (tax free contributions, tax free growth and tax free qualified withdrawals) – and some employers contribute to the employee’s account also.
What is your family investment portfolio asset allocation?
Excluding the 529 college savings accounts . . . it’s very aggressive (I’m still young and don’t see the need to scale back quite yet, but I’ll freely admit I could stand to have more bonds)
41% domestic large cap
21% international/emerging/frontier markets
11% domestic mid cap
11% domestic small cap
5% fixed income (split between global and high yield domestic);
5% real estate
It doesn’t add up to 100 percent because I have a few tilts (which, I admit, goes against the efficient market hypothesis) for commodities, domestic technology and domestic financials. I suppose at the end of the day while I’m a believer in the EMH, allowing a small portion of one’s portfolio to be used to play strategic tilts does make it less boring and keeps investors engaged.
And thank you for asking me this question . . . it forced me to rebalance according to my long term portfolio allocation!
What are your personal thoughts about investing risk?
I think young people are in a great position to consciously take risk. Historical equity returns have outperformed historical bond returns, so young adults and millennials should be equity heavy.
Financial planners may not recommend this, but a twenty something (or not even yet 20 years old) does not need any fixed income. Sure they are taking much more risk, but their horizon is so far into the future that for long term retirement savings, at that age, I will continue to suggest to my kids that they stay 100% invested in stocks. You can see from my allocation above, I still think the same way. It will be a sad day when I actually have to start reallocating to fixed income!
I think for retirement savings, people must take a long term view of the markets. Forget the short term volatility and keep your eye on your goals. If your goals are for long term savings, then forget the daily, weekly, monthly and even yearly swings of the market. Getting caught up in that leads to emotional investing which, we know, is a recipe for poor returns (well, sub-market returns).
Any final personal finance lessons, tips, or suggestions for those wishing to improve their financial IQ?
Start now. It’s really never too late to become a proper steward of your finances. Especially for the younger generation, doing so will result in an easier path to financial independence. For older investors, while you may not have the benefit of having started to invest early, every single one of the takeaways from my book and the good habits Barb and I have discussed are applicable.
Simply reading about financial literacy isn’t sticky, as we discussed. But picking up a book and putting the ideas into practice can and will make a difference.
Invest for the long term. Ignore market swings. Don’t try to time the market. Don’t chase returns. Limit fees. And . . . block out the chatter from the financial news. Don’t believe the hype!
Make certain to read Personal Finance Lessons – Part 1 for more from Personal Finance Luminary Rob Pivnick
Rob Pivnick is an investor, entrepreneur, attorney, residential real estate investor and financial literacy advocate. Rob has both a law degree and an M.B.A. from SMU in Dallas, TX. He is a member of the board of directors of the Texas affiliate of the national Council on Economic Education. Professionally, Rob is in-house counsel for Goldman, Sachs and Co. and specializes in finance and real estate. Rob is married with three children.
Rob’s book, “What All Kids (and adults too) Should Know About Saving & Investing,” targets young adults/millennials with vocabulary words, fun facts, “Did you Know?” sections and 14 key takeaways. Statistics, charts and graphs from expert sources bolster the information. It aims to help students develop proper habits for saving and investing for long term. Not get rich quick. Chapters include budgeting, debt, setting goals, risk vs. reward, active v. passive strategies, diversification and more. Visit www.whatallkids.com for more information. Twitter: @RPivnick