Executive Vice President and Chief Consumer Banking & Strategy Officer, FIRST FINL BANCORP INC/OH
Amanda & Brandon Neely | How To Save Money
Amanda & Brandon Neely | How To Save Money Learning how to save money is a big part of living a 'rich life,' but it's not about ...
About Amanda Neeley
Amanda Neeley, Executive Vice President and Chief Consumer Banking & Strategy Officer at First Finl Bancorp Oh, has appeared on podcasts discussing personal finance strategies, particularly promoting the "Bank on Yourself" approach using whole life insurance policies. In a September 2020 episode of "Banking On Yourself | Manage Your Money The Grandma Way," Neeley described whole life insurance as providing a "nice solid foundation" for personal finances and business ventures. She stated that about half of Americans had whole life insurance in "grandma's day" and that insurance companies invest primarily in investment-grade corporate bonds held for long periods. Neeley also noted that her commission on such policies is 50 to 70 percent less than typical life insurance agents and less than the 1.5 percent fee for assets under management at investment firms. In a December 2019 episode of "Amanda & Brandon Neely | How To Save Money," Neeley co-hosted a discussion on saving money in what she described as "grandma's way," focusing on building wealth through whole life insurance rather than traditional savings. She stated that she considers herself "better than debt-free" after using a loan from her whole life policy to pay off student loans, with her cash value continuing to grow. Neeley also said the strategy works like a Roth IRA, allowing tax-free access to funds if done correctly, and that many businesses fail because owners run out of money, suggesting whole life insurance can provide a foundation for business success.
Transcript (18 segments)
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Narrator0:03
A hearty welcome to Grandma's Wealth Wisdom with your hospitable hosts Brandon and Amanda Neely. This is the only podcast for strategies to grow your wealth simply and sustainably like Grandma UQ's. Without further ado, here are your hosts.
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Brandon Neely0:24
Hey, I'm Brandon, and welcome to Grandma's Wealth Wisdom, where we work with you to build wealth grandma would be proud of.
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Amanda Neeley0:32
And hey, I'm Amanda. The title of today's episode is 'How to Save Money Now.' That might make you think that this episode features grandma clipping coupons or using one of those applications on her Chrome extension like Honey or Wikibuy to score deals online. Well, that is not what this episode is about. When we talk about saving money on the Grandma's Wealth Wisdom podcast, what we're actually talking about is speeding the piggy bank, but on a much, much, much larger scale that bypasses the piggy and the bank. It's a common confusion that we want to clear up and bring some helpful perspective towards on how to save money in grandma's way.
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Brandon Neely1:19
So first of all, why even save, Amanda? Like, the personal savings rate is pretty bad. So why?
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Amanda Neeley1:30
Well, now let's dig into that personal savings rate, and that will help set up the story for why we should save, or why saving is a good idea. So the Federal Reserve's economic research, they have a bunch of statistics about things, including the personal savings rate, and they have data all the way back to 1960. The highest that they record in the personal savings rate is 17.3%, and that was in May 1975, just after we came out of a major recession where there was high unemployment and high inflation at the very same time back in 1974-75. Then similarly, when you look at this graph they have, the personal savings rate also saw an increase just after the 2008-2009 recession, and it peaked at 12% in December 2012. Now those are the highs. You look at the lows, the lowest since 1960 was in July 2005, and it was a meager 2.2%. Now the latest data, as of when we were looking at their website, the Federal Reserve Economic Research website, they had January 2019, the personal savings rate at 7.5%. So there's no secret that Americans save less than we did in the past. There are various explanations for the causes. One popular reason is that we're paid less than we should be given the cost of living and inflation of basic life and needs and health care, for example. Another popular reason is that we live in a culture that values consumption, and we're told all the time that we need to spend to keep the economy growing. Right, Brandon and I, we don't pretend to know the reason the personal savings rate is so low and why it's declined in a lot of ways. What we do see every day is the way people have to live their lives because either they weren't able to or they did not prioritize savings. We see the impact of that savings rate on people's lives every day. It's especially striking when compared with the 10% of monthly income going to non-mortgage debts like car loans, credit cards, student loans, and personal loans.
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Brandon Neely4:03
Yeah, so again from the Federal Reserve Economic Research, they have that Americans on average are required to pay 10% of their income on personal debt, while we're only saving 7.5%, and again that's on average. I found some other statistics that talk about how 40% of Americans are actually spending up to half of their monthly income on debt. So imagine that you get your paycheck and immediately half of it goes away to car loans, credit cards, student loans, personal loans, all that kind of thing. 40%, that's high.
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Amanda Neeley4:41
Yeah, that's a lot. 40% of Americans, they just see half of their income going away toward debt. And on the flip side, if you look at the savings rate, there's 21% of Americans that aren't saving anything. Like their savings rate is zero. 21%, one out of five, that's pretty significant. And the reason I bring that up is because while we're talking about the 10% average going towards debt and the 7.5% on average going into savings, those are averages. They don't actually mean that much. There are people that are paying way more toward their debt, there are people that are saving zero. Just like we've talked about in previous episodes how average rates of return don't actually matter that much, same thing when you look at statistics. Averages are hard to really know what's going on. So let's get back to the question: why save? Brandon, set us up for this.
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Brandon Neely5:35
So in reality, we finance everything that we buy. Either we take out loans because we didn't save for that thing, like college or the car or whatever, or we paid cash and lose the interest we could have earned had we not spent that money in the first place.
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Amanda Neeley5:59
Yeah, so let's break that down into some numbers. Let's just take a $20,000 car. If you went out and purchased that car and took out a car loan and you paid a 7.5% interest rate, the interest on that car loan is going to be a little over $2,000 just in the interest payments as you pay back that car loan. So the true cost of the car isn't the $20,000, it's actually over $22,000. It's 10% more because of taking out that loan. You're going to have to make that monthly payment every month, pay that extra interest. Now on the flip side, you might say, well let me save for that car and then I'm going to pay the $20,000 and pay cash for that $20,000. Now there's still a higher cost to buying that car in terms of what the cash could have grown to over time. So let's say you're 35 when you buy that car. Let's say you instead of buying it, you kept that $20,000 just in a basic money market account that had a 2% interest rate, which is generous right now, a lot of people are seeing less than that. So let's just say you did that from when you're 35 to when you're 65. That $20,000 could have grown to $36,424. So that means the true cost of that $20,000 car is actually the $36,000 that that $20,000 could have grown to had you not purchased the car. That's what we mean when we say that we finance everything we buy.
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Brandon Neely7:30
And what if there was a third way that didn't involve paying interest to a financing company and didn't break the compound growth of your savings? There is a third way, and we're gonna definitely share that. But first, I'm gonna make a very important point. Grandma always said eat your vegetables. She loved making home-cooked meals with healthy food and from scratch desserts. Would you create a diet of fast food or cookie cutter financial products that made you fat and bloated with fees, or would you like wholesome, time-honored wealth strategies served with balance and trust? Get started with your healthy money planning by downloading 'Wholesome Wealth Recipes.' Your moola cookbook is waiting for you at grandmaswealth.com.
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Amanda Neeley8:22
And what is that point, Brandon?
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Brandon Neely8:24
The point is that there is a difference between needs and wants. I first heard this idea from a guy named Lauren Michaels Harris. And if you're like me, you might cringe when someone tells you to ask yourself, 'Do you need it or do you just want it?' Or it might actually sound like this in your head. It feels like grandma. It's kind of like the tonality that takes in my head, at least. And you might even think, 'Me ask grandma would ask this kind of question,' encourage you to be thrifty, you know, don't buy what you don't need and so forth. Welcome, Anthony says that to me all the time, right? Not like that, though. I like that. But anyway, here's what grandma would really say about needs and wants. She gives an example like when a baby cries, do the parents say, 'Go find what that baby wants?' You know, 'Hey Brandon, go find out what he wants?' No, the baby needs something. They need food, their diaper needs changed, they want to take a nap. Babies don't cry because they want something. They cry because they need something. This is something we get to deal with quite regularly right now with our 11.5 month old, who will now no longer be a baby pretty soon by the time this airs. And what we're fighting is, as he transitions into a toddler, he's starting to cry because he wants something, not because he needs something. And he's using the cry to get what he wants. But typically, babies cry because they need something. But what about adults? Just like toddlers, we sometimes cry because we want what we want. And maybe we can't always get what we want. And that's where the power of needs and wants comes in. So think in your head right now, is something you want? Let me give you some examples. Maybe it's to lose 10 pounds, to purchase a home, to pay off your student loans, to get a better job. You know, something that you want. You don't need things like this, but they are wants. And we all have them. What have you got? Something you've had a want for?
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Amanda Neeley10:20
Yeah, I mean, I want to lose weight. I don't need to lose weight, but I want to. They might be good ones, but they are still wants. I need to lose that weight? But it will make me look good. It will help me feel better. I don't know, all kinds of stuff.
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Brandon Neely10:39
Yeah, once you have that want in your head, here comes the power question to ask: What do I need to do to get what I want? People should be writing this in a journal or something.
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Amanda Neeley10:51
Yeah, answers might be something like, 'I need to make a grocery list and only get what's on my list if I want to lose 10 pounds.' That helps me a lot because she's in charge of the grocery list, and I want other things that sometimes undermine the 10 pounds thing that I want. It's like I want ice cream, you know, that kind of thing. But she reminds me what I really want. And not that I don't need it. That's where I hear her voice sometimes. But really now, I just do the grocery shopping so that we don't have that conversation. Let's go to the next example. Maybe it sounds like this: 'I need to save up a $10,000 down payment by saving 10% of my income since I want to purchase a home.' Or, 'If I want to pay off my student loan, I need to talk with Brandon or Amanda to find out how they did it.' Or, 'If I want to get a better job, I need to update my resume and start looking for companies I'd like to work for.' Those are some stereotypical examples of what people are like. 'Do you really want it, or do you need it?' or whatever. Let's say you want the latest iPhone, or you want to get a latte each morning. And you say that's a priority for you. I say if that's the priority for you, then good for you. But let's say this: how do you know what you need to do to get what you want? You might say, 'If I want a latte or an iPhone each morning, I need to increase my income from my side hustle.' Maybe that's your reward as their income increases. That might be a great way to look at it. So here's that question again: What do I need to do to get what I want? So wants are not bad things. Most of the time, behind those wants are needs to get what you want. Look for what you need. So to really bring this home: you want to save money. You can't afford to lose. There's a big difference between saving and investing. Triple underline that. There's a big difference between saving and investing. Listen really close. Brandon's gonna say here: keep your money in a secure place where it can grow. If you're investing, you're putting your money at risk. That's what an investment is. We titled this episode 'How to Save Money.' We're not talking about how to invest money. That's a totally different topic. According to grandma, you want to save money first, set up a strong foundation, and then look at investing once your saving strategy is in a solid place.
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Brandon Neely13:30
Yeah, so now we can get into the part of the issue of how to save money when you know that we finance everything we buy, either in terms of paying for our past purchases in the form of debt, or by using cash and giving up opportunity cost. And then you realize, okay, I want to be saving, and I know my future self is gonna have needs and wants too. Then you need to set up your savings strategy and implement it now. What we're about to share with you is going to sound too good to be true. Just put that out there. It does sound too good to be true when you first hear it, but we can tell you from personal experience that we've seen this is true over the last over five years that we've been using the strategy, and it really does work. So here's how it works. You save, you put your money into a safe place where it's gonna grow with some guarantees behind it backed up by some really great long-term company. And then when you need to buy that thing you've decided you're going to pay off, like student loans, or you're going to buy that car, whatever it is, instead of using your cash, you actually use your cash as collateral to get a loan from a different source, a different fund basically. And then your cash still continues to grow. Let's say it grows at a 5% rate, that's about average, 5% APY. And then your loan, let's say it's at a 2% APR, where you are paying a little bit of interest, but it's only 2% while your cash is still growing at 5%. So you're netting still 3% growth on your money. So that sounds pretty cool that you can buy that thing that you want or need, it doesn't matter, and still not lose the growth that you could get on your money in the process. Sure, you want to still buy responsibly. You don't want to spend outrageously just because you can. You want to only buy things that you would buy anyway. But it's a great way to save money and still buy the things that you need to buy or get out of the debt that you want to get out of, or whatever it is. That's what this third approach is, where you're not breaking the power of compound interest, even though you are paying cash for things that you want to get now. Saving is important. I'm saying this to the young people who are listening to this podcast, the young people, saving is important. As I talk to older clients, they wish they would have saved earlier and longer because they're in a place where their future self, their now, their past self, but now their current self has these needs and wants, and they're not able to accomplish the things that they need because of what they did in the past. So your future self has wants and needs too. So take care of your future self. Save in a way that won't break compound interest. So if you want to learn more, contact us at grandmaswealthwisdom.com and click 'Request a Meeting.'
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Amanda Neeley17:00
Yeah, I just add here, there are only 200 individuals, men and women, who can help you with this third way that we're talking about, where you don't break the compound interest, you're still able to purchase. 200 people in the US and Canada, and Brandon and I happen to be two of them. We're specifically called 'Bank Yourself Authorized Advisors,' which is really cool. Yes, so make sure you're working with someone who has the training and the accountability to set this up and know how to do it in the right way that's going to benefit you over the long term. Again, that website you go to is grandmaswealthwisdom.com, click 'Request a Meeting,' and you can set up an intro call, 15 minutes, just see if we'd be a good fit to work together, get all your questions answered, all that kind of stuff. So again, saving is not even an important strategy, it is needed for our wants and our needs. So next week, or next episode, we're going to be talking on an important subject: What if you could buy your wealth instead of building your wealth? Let's say you're already wealthy. What if you could double your wealth instantly? Would you want to know how? Join us for the next episode to hear how you can buy your wealth. Until next time, keep building your wealth simply and sustainably for your own future and the future of our grandchildren's generation. The topics presented in this podcast are for general information only and not for the purpose of providing legal, accounting, or investment advice. On such matters, please consult a professional who knows your specific situation.
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Narrator18:44
This is the Podcast Factory.