Recreate A Habit Of Saving, Says Finance Expert
VIVIANA HURTADO, HOST:
Next, a conversation about money and what to do when you barely have enough. Though the economy is officially in recovery, a lot of people are still feeling the financial squeeze. The unemployment rate dropped to 8.2 percent in March, but according to the Gallup Poll News Service, more than twice that number of people are currently underemployed. That means millions of Americans are collecting a paycheck, but there's very little, if anything. left at the end of the month. And under those circumstances, it's tough to figure out how to rebuild a financial plan.
That's where Louis Barajas steps in. He's a financial and business life strategist, author of several financial advice books and our frequent guest on matters of personal finance. Welcome.
LOUIS BARAJAS: Thank you, Viviana.
HURTADO: Louis, there are so many Americans who say that the economy is so tight right now, they can't possibly think about saving money. How do you respond to that statement?
BARAJAS: Well, it's absolutely true and I see it on a day-to-day level, that people are still living paycheck-to-paycheck and even though the economy's getting better, it's not recovering as quickly as we thought it would.
So I always say that planning now is more important than ever. People always talk about planning when they have money. I tell them, you know, you don't ever want to go to the doctor when you're feeling better. You go to the doctor when you're feeling sick. And it's really important right now that people sit down and really plan their financial future and even their day-to-day, how they're spending money.
HURTADO: And for a lot of people, there's that day-to-day. All they think about is the end of the month and they maybe do have a little bit left over at the end of the month. Is it better, with that money, Louis, to pay off any extra credit card debt you might have or start a savings account?
BARAJAS: Well, it's important to sit down as you do your planning and also to prioritize what's important for you and take a look at how, you know, you're doing with your debt. If you're in control of your debt, it might be important to really start putting a little bit of money away, what I call into a confidence fund, because one of the things that gets us through these humps when we're going through difficult times is when we actually think about having some kind of perceived progress, we're moving forward.
But, also, at the same time, if you feel that your debt is out of control or you're paying high interest rate charges, it's more important to do that because, if you save money in a bank account right now, you're only going to earn half of one percent, while if you start putting more money away towards the credit cards instead of just making the minimum monthly payments, you're saving yourself at least - you know, it could be 20, 25 percent of interest.
HURTADO: You know, one thing, Louis, my dad - my whole life, I can just remember - giving us the advice. You have to save. You have to save. And for so many years, it seemed that the standard formula for a lot of people is put away 10 percent. Just pretend you don't have it and put that away in a savings account. Is that a realistic figure nowadays?
BARAJAS: Well, it is, Viviana, and it's important to live within your means and it doesn't have to be 10 percent, but what you really need to do is - I think what your dad was trying to tell you is to create a savings habit. And even if you start out with 1 percent and then increase that 1 percent every year, habits will change your life and it can change them for the positive or the negative. There's a lot of people out there who have a habit of spending money.
In this economy, I meet people who are, you know, households with two or three kids who are earning only $30,000 or less in a household and they're living paycheck to paycheck. But I'm also meeting people who are earning $150,000 a year and still living paycheck to paycheck.
So it's important to just kind of live within your means, put some money away and the best way, Viviana, is to do it through automatic savings, having just a little bit of your money that's being deposited into your checking account going straight into a savings account.
HURTADO: If you're just joining us, this is TELL ME MORE from NPR News. I'm Viviana Hurtado. We're talking about rebuilding your finances during the economic recovery. Our guest is Louis Barajas, a personal finance expert.
And so, Louis, one of the things that you were talking about was living within your means. For some Americans, they're just getting back into the workforce after being unemployed for a while. So if they've gotten behind on their bills or raided their savings, what's that first thing you would advise that they do to get out of the financial hole?
BARAJAS: Well, the very first thing, again, if they have any kind of plan and they're paying down their debt, the most important thing is to create what I call the confidence fund, and the reason for that is that they've now gone through a recession in which they've been out of a job for some time and they've lost a lot of confidence. So what's happening is a lot of people have learned that they've lost a lot of skills in the job market or they're going to have to get new skills. And by saving money in this confidence fund, they're going to look at it as a way that I'm going to be able to use some of this money to invest back into myself, to get the necessary skills into the new global economy that is going on right now.
HURTADO: And some of these new skills have allowed people to strike out on their own. They've lost their jobs and they've decided that they're going to go into business, they're going to hang their shingle out. They're freelancing, they're working as contractors, as temps, but this also means, Louis, a whole other level of independence as far as restructuring your own finances.
So can you give us some tips? What are some of those things that people overlook, as far as savings when they set out on their own?
BARAJAS: Right. And, Viviana, I've seen this more than ever before this particular year, where a lot of professionals who are underemployed, and now have become consultants, are now charging their clients money to do whatever they do. And they realize that at the end of the year - the year has come now and they're filing their tax returns right now. Right? The deadline's coming up very soon. And they realize that they should have saved some money to pay the taxes that are owed on that money. And so that's something they're not doing. They're not doing tax planning.
The other thing is that a lot of them, because they're working part time and have gone on their own, have lost job benefits, for example, health insurance. And also, they just can't even afford health insurance, and so they have to figure out different ways to make sure that they're covered. And there are ways. You can get major medical deductible plans where you can buy a plan that will cover you for the major things like cancer.
And so it's important, I go back to seeing a financial planner, particularly a fee-only planner that's not selling products, that can take a look at your situation and then guide you because you now are really self-employed and it's really important to take into account not only these things, but other things, like for example, you're no longer putting money away in a retirement account, and that's something that's important that you've got to focus on for the long term.
HURTADO: A lot of good advice for people who are surviving this recovery. Louis Barajas is a financial and business life strategist. He's written several books, including "Overworked, Overwhelmed and Underpaid." He joined us from Costa Mesa, California.
Thank you for your time.
BARAJAS: Always a pleasure, Viviana.
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HURTADO: Coming up, grab your popcorn. We have front row seats to the 19th Annual New York City African Film Festival.
MAHEN BONETTI: It shows the vibrancy and also the production that is coming out of the continent.
HURTADO: More on some of the top movies coming out of Africa. That's up next on TELL ME MORE from NPR News. I'm Viviana Hurtado.
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HURTADO: She might be a little bit country and a little bit rock 'n' roll, but musician Dayna Kurtz draws inspiration from some unusual places on her new album, "American Standard."
DAYNA KURTZ: American Standard was the brand of toilet in the bathroom at the recording studio.
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HURTADO: A special performance chat with Dayna Kurtz. That's next time on TELL ME MORE.
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