In this episode of The Agent of Wealth Podcast, the Bautis Financial team discusses the fifth book assignment in their monthly Book Club, Stacked: Your Super-Serious Guide to Modern Money Management by Joe Saul-Sehy and Emily Guy Birken. In discussing Stacked, each member of the team discusses their favorite topic from the 14-chapter book, and provides actionable tips for managing financial matters like debt, insurance coverage and credit score.
In this episode, we discuss the team’s favorite chapters of Stacked, on the topics of:
- Credit Cards
- Goal Setting
This is the fifth episode in the Bautis Financial Book Club series. Listen to the other episodes:
- Episode 75 – Bautis Financial Book Club: Atomic Habits by James Clear
- Episode 76 – Bautis Financial Book Club: The Infinite Game by Simon Sinek
- Episode 88 – Bautis Financial Book Club: Elon Musk – Tesla, SpaceX, and the Quest for a Fantastic Future by Ashlee Vance
- Episode 100 – Bautis Financial Book Club: Animal Spirits by George Akerlof and Robert Shiller
Stacked: Your Super-Serious Guide to Modern Money Management | Episode 108 – Stacked: Your Super-Serious Guide to Modern Money Management With Emily Guy Birken | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show, I have the Bautis Financial team with me to talk about the fifth installment in our Bautis Financial Book Club Series, Stacked: Your Super-Serious Guide to Modern Money Management by Joe Saul-Sehy and Emily Guy Birken.
On last week’s podcast, I had one of the coauthors, Emily Guy Burkin, on the show. In preparation for the interview, I read the book and really enjoyed it, so I suggested it for the next book in this series.
There are a ton of personal finance books on the market – it’s really saturated – some are numbers-oriented, others are really dry. This book takes a humorous approach to important financial topics, and it does it really well.
The book is split up into 14 chapters, seven written by Joe Saul-Sehy and seven written by Emily Guy Birken. I’m going to ask Kayla, John and Kyra which chapter they liked the best, and for each chapter each team member will share some of the most important takeaways. Kayla we’ll start with you.
The chapter I liked the most is called “Debt, or Driving a Moped Down a Dirt Road to Hell.” In the chapter, they talked about two different methods for paying off debt, the snowball method and the avalanche method.
Before you start, I loved the story they used at the start of the debt chapter. In it, they talk about college campuses inviting credit card companies to table on campuses, essentially preying on college students to get them started with their first credit card. What they said is that at one point, the government issued the Credit Card Act of 2009, which made it illegal for credit card issuers to set up shop a thousand feet from a college campus.
When I was reading that part, I was thinking about those “Drug Free School Zone” signs, and how there are some similarities with the addiction that comes with both credit cards and drugs. I thought there was some sort of equivalent there…
Yeah, imagine there was a sign on the side of the road that reads, “Credit Card Free Zone?”
Haha, exactly. They definitely did a good job with the humor in this book. But back to you Kayla, how could a debt avalanche or a debt snowball help someone that went into debt?
The Snowball Method of Debt Reduction
In the snowball method, you start by paying off the smallest debt first. Once that debt is alleviated, you move towards the next smallest, and so on. It works like this:
Step 1: List your debts from smallest to largest, regardless of the interest rates.
Step 2: Make minimum payments on all of your debts, except the smallest.
Step 3: Pay as much as possible toward your smallest debt.
Step 4: Repeat until each debt is paid in full.
A lot of people like this method because it gives you a win early on, helping you gain momentum and confidence. Because it takes discipline and time to get out of debt, this might help you stick to it.
The biggest consideration to make with this method is that even though you’re paying down the smallest balances the quickest, it’s not taking math – or interest rates – into account. For example, it’s possible that your largest loan has the highest interest, which accumulates and grows as you’re focusing on the smaller debts that could have relatively low interest rates.
The Avalanche Method of Debt Reduction
The avalanche method is similar to the snowball method, except that it takes the interest rates into account. You start by paying the loan with the highest interest rate first, allocating money towards paying down the highest rates the quickest. It works like this:
Step 1: List your debts from highest interest rate to lowest interest rate.
Step 2: Make minimum payments on all of your debts, except the highest-interest debt.
Step 3: Pay as much as possible toward the highest-interest debt.
Step 4: Repeat until each debt is paid in full.
The advantage of this method is that you will pay the least amount of interest over the term of all of the loans. But a consideration to make with this method is that emotionally, it can be less satisfying or motivating. While it makes the most sense, math-wise, to pay down the loans with the highest interest rate first, it could potentially take months or even years to pay off. It might feel discouraging as you watch your other debts exist and increase.
Another good point that this chapter makes is that to avoid getting into debt in the first place, you need to understand how much you’re making and how much you’re spending – which a lot of people don’t know. Taking the time to break down your expenses, then budgeting into different categories, putting some into savings, some into retirement and developing a spending plan can be really helpful to avoid going into debt.
My favorite quote from the chapter was, “It has to make mathematical sense and be personally satisfying.”
What happens a lot is a person in debt sets up a plan – lets say using one of those methods – but then ends up back in debt, sometimes more. Did the authors make any suggestions for preventing going back into debt?
Yeah. Towards the end of the chapter, they talked a lot about developing budgeting tools to avoid ending up back in debt. When you know where your money is going, it’s easier to not overspend more than you have.
Yeah. You can equate it to someone trying to lose weight: the temptation is always going to be there to go back to your old ways. They used the example of making a lifesize, cardboard cutout of your most disapproving friend. They said to attach a speech bubble to the cutout that says, “Do you really need that?”
Before making a big purchase, it’s an important question to ask yourself. Does it make sense? Is it something you need? This could prevent you from making rash, spur of the moment purchases.
On to you, John. What part of the book did you find the most interesting or most useful?
How to Gamify a Personal Insurance Audit
Because of my background in insurance, I found the insurance chapter fascinating. Let’s be honest, insurance is not a fun topic. But there’s this mindset and approach to insurance that I find very interesting because everybody is different in the way that they look at risk.
The author’s approach was what they call “Insurance Bingo.” I was waiting for the “Bingo” aspect to come together… But really it’s not Bingo at all, it was more of a point system. But a good one, I thought.
I liked the gamification approach to finances throughout the book. In that exercise, you go through a list of different insurance types and score yourself based on the coverage you do or don’t have. I can see how the scoring system provides motivation to complete the activity.
When you talked about the insurance industry, you called it interesting. I think you can take it a step further and call it complex and confusing to a lot of people. It’s one of those things where you hate paying the premium, but if you ever need it, you’re glad that you have that insurance. Did they give any tips in terms of what to do to improve your insurance situation?
Well first I liked that within each insurance category, they provided a story. That really makes it easier for the reader to digest and understand… hearing an example of it in use. Because everyone who drives a car has to have car insurance, for example, it’s the law. But life insurance, for example, is a personal choice. It’s not something that you have to buy.
But when we do find ourselves in the situation where we’re purchasing an insurance product that we don’t need (unlike car insurance or homeowners insurance) we’re typically tempted to find the cheapest policy out there. Without understanding what you’re actually choosing, you say, “I’m not making that much money, so I need to pick the lowest possible amount.”
I think the key takeaway from this chapter is to take a second to understand what coverage you do and don’t have. When looking at your car insurance policy, consider what will happen if you did get into an accident. Understand what would happen if somebody in the car did get hurt. What would that look like? What would it cost if someone sued you for half a million dollars, as an example? Use that example to examine your current coverage. Put yourself in those shoes.
While we are tempted to save money, that could be an extremely costly mistake in the long run.
Yeah, like you said, people like to save money. I also think some people become paralyzed by all the options that are out there. To approach insurance, we should all ask that high level question: What would happen? If this happened, how does this impact me?
If I die and my income is gone, how will my family move forward?
If I become disabled and I can no longer work, how will I pay my expenses?
Start with that, then drill down into the complexities of the insurance and figure out exactly what you need.
I thought one of the interesting tips the authors gave on the homeowner side is to take a video of all of your belongings.
Yeah, I had that written down too. That’s a really great idea. This way if you get robbed, or if there’s a fire, you can reference the video. And they even take it a step further by suggesting the video is on the Cloud so that if the house does burn down, God forbid, you don’t lost it.
But I think the point is that you can take actions now to improve a really bad situation, should it occur in the future.
Yeah. And something else that I liked was their take on disability insurance, which is aptly named the forgotten insurance. The chapter starts off by saying that disability coverage is a must. The authors provide the statistics that show how many more times during your working career you’re likely to become disabled than you are actually dying.
We see it all the time: people focus on life insurance over disability insurance. Because they have children, they want to get life insurance. But they don’t think about becoming disabiled, even temporarily.
Now, disability insurance is priced on the likelihood of it happening, so it is usually more expensive than life insurance, but it’s because disabilities do happen. And if it does happen, you want to make sure that you’re prepared.
That’s an example of why I appreciate this chapter. As a Financial Advisor, encouraging a specific insurance product can seem like we’re tying to sell something. But we are Fiduciaries, and when we think something is truly important for a client, we share the risk with them. I think this chapter does a good job of making readers reconsider the insurance industry as a whole.
Yeah. Alright, Kyra, we’re onto you. What was your favorite topic of the book?
I covered credit, which is similar to Kayla’s section of debt.
I remember being in high school when my parents suggested I get my first credit card. Because it was around the time of graduation, I qualified for a student credit card, and holding that shiny, yellow, Wells Fargo credit card in my hand was so exciting for me.
Our perceptions of money and ideas of what is “right” or “wrong” as a young adult comes from our parents – and other people we surround ourselves with – and my mom and dad must have really spooked me because I only made one purchase on the credit card the entire first year I had it. Which, by the way, I scheduled a full payment for before the transaction had been posted.
Joe, who wrote this section, tells a very different story of his introduction to credit.
He shares a cautionary tale from his time at Military College when he got a credit card and made silly purchases – such as a new sweater and lunch for him and his buddies – and he didn’t realize the money had to be paid back (with interest). He ended up screwing up his credit and having to pay collections, and you can tell that his experience has impacted his perception of credit a lot.
On page 95 of the book, there’s a table that shows how people like young Joe can learn to think about credit differently. On the left side of the chart are the ways that Joe used to think about credit:
“Credit was my crutch.”
“Credit was for allowing me to keep up with my friends.”
“Credit extended my lifestyle”
Then, on the right side, it shows how Joe reframed his thoughts.
Instead of “Credit is my crutch,” it reads: “Credit is a tool.”
Instead of “Credit was for allowing me to keep up with my friends,” it reads: “Credit allows me to increase my ability to profit.”
And, instead of “Credit extended my lifestyle,” it reads: “Credit expands my reach.”
That was good, how he put the positive way to look at credit versus, what some people… And I found a couple things, just like you got a card in college, I got one in college, he got one in college. But what he does, he talks about how credit works and what goes into your score. And ironically, one of the things is how old is your credit, which would lend itself to say that it’s probably a good idea that as soon as you can get a credit card to get it, because that’s one of the things that helps build up your credit score. But then on the flip side, you have to be responsible with that. Like you are with how you use it, unlike how he was.
Yes, and what that really comes down to is understanding how credit works, which many people don’t. I, for one, was too strict to use my credit. Joe, on the other hand, was too loose.
How Your Credit Score is Calculated
So how do we get a better understanding of credit? First, let’s start with identifying how this magical score is calculated. The five main factors that affect your credit are:
- Do you pay your bills on time?
- How old is your credit?
- How much credit do you have available, and how much are you already using?
- What is your credit mix?
- Have you applied for much credit lately?
Of course, there are more detailed explanations of why each of these points matter in Stacked, but let’s keep it moving.
In having any conversation about credit, by far the most asked question is how can you improve your credit? Stacked shares the following tips:
… keep in mind, these tips don’t apply to the credit allstars that pay off their cards in full every month to avoid interest. That is the ideal way to go, but if you can’t make that happen:
Strategies for Improving Your Credit Score
- Sign up for automatic payments of the minimum amount on your cards. This ensures you avoid late and missed payments.
- Whenever you get an alert, use it to pay even more. Additional payments are the only way to significantly pay down your debt.
- When credit card companies offer you more money, take it… but only if you know you can trust yourself.
- Keep your oldest credit card open.
There are a lot more useful tips for credit in Stacked, such as how you can obtain your credit score, how you can create an action plan to pay down debt, and tips for those facing creditors.
In closing, it’s important that you understand how credit works before you begin opening credit card accounts and swiping left and right. Because credit is a tool, it can be super useful for making large purchases, protecting purchases and increasing your ability to profit. This is just a peek into some of the great tips and advice in the book, which I found very useful.
Absolutely. When I was reading this chapter, my first thought was that we should strive to pay off our credit cards each month, so as to not pay interest. After all, the interest you pay on a credit card is probably one of the worst ways to deaden your money. It’s bad debt.
But it’s not that easy for people who have a lot of credit card debt. Those individuals need to create a measured plan, like one of the plans Kayla shared.
Another important aspect of credit is the credit mix. If you only have credit card debt, you probably won’t have an excellent credit score. It’s necessary to mix in other types of debt, whether that’s student loans, a mortgage or a car loan.
And you make a great point, if a credit card company offers you a limit increase, you have to be responsible when taking it. I can see how people get into trouble with credit at this point in their journey, because it’s almost like the credit card company is playing a game where they want you to use credit and pay interest without delinquencies.
Like you said, the ideal situation is to use credit as a tool, and pay it off in full each and every month.
One of the most popular Agent of Wealth Podcast episodes is called “How to Improve Your Credit Score” with guest Nikole Vialet. In the volume of listeners we get on that episode, it’s clear that a lot of people are in need of improving their credit, and we’ll continue to provide those resources.
A New Approach to Goal Setting
My favorite section of the book was goal setting. I’ve always been fascinated about how people set goals, and new methods of doing so. It’s because in my role as a Financial Advisor, it’s one of the most important things I do: talk to people about their goals.
The authors suggest using the method of goal timelining, which basically requires the goal setter to attach a date, year or age to all of their financial goals. Not only is this method great because it helps you see the bigger picture – i.e. if there is an overlap in two of your financial goals that needs to be addressed – but it also gives you a visual.
Emily Guy Birken and I spoke more about this in last week’s episode of The Agent of Wealth Podcast, “Stacked: Your Super-Serious Guide to Modern Money Management With Emily Guy Birken.”
That exercise is also helpful because while people may be able to name a couple of financial goals, they may not think about when they want to achieve them. For example, I would love to buy a house, but I have no idea when that would be. When you actually timeline a goal – setting a desired date, year or age – it makes it more realistic and motivates you to take action.
I definitely agree. It makes it more realistic.
Alright, that just about wraps it up. John, Kyra and Kayla, I’d like to thank you for being on today’s episode of The Agent of Wealth Podcast. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.