Few things cause more fights and sleepless nights than fears about finances, but with curiosity and attention, money can become more of an opportunity than a source of stress. Kathryn M. Brown, co-founder and principal of Morton Brown Family Wealth, is here to demystify money matters for those of us wondering how to save and invest for a prosperous future.
Why Is Money Such a Fraught Field?
Because most people don't receive consistent education on how to manage money, we're left to form beliefs and feelings about it in a haphazard fashion. “We learn about finances from the people around us,” Brown says. “How our parents manage or don't manage money, experiences that we have had or we have heard of others having. People are looking around to see what everyone else is doing.”
Along with this anecdotal data, talking about money is almost taboo. Without clear and open conversations, we concoct our own assumptions and anxieties.
To get a grip, start with your budget. “You don't have to track down to the penny,” Brown says, “but understand what's going into your bank account each month and what's going out.” A general rule is that if you can set aside and invest 10 percent of your income throughout your life, you'll have a great jump-start on retirement.
Understand Stocks and Bonds
Basically, buying stocks is buying part of a company, and their worth is tied to the company's success. “If it does well,” Brown says, “you earn money alongside the company. If it goes out of business, you could lose your investment.” Bonds, meanwhile, are loans to companies, municipalities or governments that pay you back interest with the promise to ultimately return the principal in full. Bonds are typically less risky, but the trade-off is a cap to your earnings potential, as compared to stocks.
Putting your money into a broad mix of these minimizes risk. Your strategy can start out with more stocks as you're trying to grow an aggressive portfolio and then shift to more bonds as you're entering retirement.
Why Just Saving Isn't Enough
Cash is vital for your everyday operations and provides a bucket for emergency use. However, if you're stashing away more than six months of expenses, it's probably time to start investing. Cash will lose relative value over time with the onset of inflation. Compound earnings on invested money accrues to reap greater benefits over long periods of time, which is an antidote to the devaluing dollar. The good news is: time is on your side!
Give your money the chance to grow by first capitalizing on opportunities for free money. “Make sure you're contributing enough to your employer's retirement plan to maximize any matching contributions they may offer,” Brown says. “It's usually an easy place to start.”
Dip Your Toe In
Beyond emergency savings and your employer-sponsored retirement plan, it may be time to start working with an advisor or a robo-advisor. Some firms require a minimum investment, others don't. Large custodians like Charles Schwab, Fidelity and Vanguard offer options for advice, whether you are starting with zero or a million dollars.
“As your investments grow, typically the complexities in the rest of your financial life grow as well. At that point it may be time to engage with a dedicated financial advisor, ideally a Certified Financial Planner™ that can holistically guide all the financial facets,” Brown says.
Regardless of what stage you're at, a great tip for staying on track is to set up systematic investments to pull automatically from your paycheck or savings account, for both convenience and peace of mind. “If it's not there to spend,” Brown adds, “you're less likely to spend it.”
While it's good to check on what your money is doing periodically, remember it's a long game. Don't get caught up in the day-to-day ups and downs: keep poise on the path to prosperity.
No Stupid Questions
If you still have a lot of questions, great! That's what advisors are for. “I try to ask as many questions as possible and encourage my clients to do the same,” Brown says. “A good advisor should be ready to recognize a client's anxiety and really talk through it with them.”
Don't be afraid to ask, “If I invest this, how can I get it back?” Set up your apps or portals so you can see what your money's doing and understand how you can pull it out if you need to. Feel free to ask the tough questions: What happens if you lose your job? What happens in the event of a market sell-off? What is going on with Bitcoin?
There are answers behind the fog of financial confusion, and with a little research and good advice, you can start putting your money to work for you.
The Expert:
Kathryn M. Brown, CFP®, ChFC®
Co-Founder & Principal of Morton Brown Family Wealth
