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Lauren interviews Kristen Robinson from Fidelity Investments

The Financial Diet blog:

6 steps to ditch debt and still save:

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Simple Budget Checkup tool to see how your budget compares to our 50/15/5 rule of thumb:

The power of saving 1% more, can make a big difference, especially starting when you’re young.

Lauren: Hey guys, this is a very special week on TFD and we have an expert interview for you and it's all about investing, saving, and creating long term financial goals for yourself when you have things like student loan debt to worry about. This interview was filmed with the help of Fidelity Investments and we went to their offices here in New York to talk to the experts. So check it out!

Hi, it's Lauren from the Financial Diet and today we're here with Kristen Robinson, she's the Senior Vice President of Women and Young Investors at Fidelity Investment. So my first question for you is what is the biggest misconception that young graduates have about investing?

Kristen: Well the biggest misconception is that they cannot save and pay down debt at the same time. They think it's a very linear process and what we've done is we've put together a point of view that really gives them 6 steps that they can use as a framework when they're thinking about saving and investing at the same time. As well as paying off debt. We recommend that you first off get an emergency savings account together. That's typically 3-6 months of your monthly living expenses so that's item number one. Item number two, and this is really important, if your employer has a 401k plan and has a match program, where you allocate money and then they do as well, you need to at least meet the minimum. Because if you don't you're leaving literally money on the table. 

L: So what are a few fundamental things that you need to start thinking about when you're investing?

K: First of all you need to understand what asset allocation is. Now that may seem like a word that doesn't really... when you think about it, you might think I have no idea what you're talking about, but it's really a very simple concept. It's that you have goals, financial goals, whether it's your retirement goals, whether it's saving for a home, backpacking in Europe, whatever your goal is, and what you need to do is you need to make sure that, there are so many different investment vehicles that you can select, you need to really understand what your timeline is and what your risk tolerance is. And you may be saying "What is risk tolerance?" and what it is that is there's different types of investment vehicles that you can use. So, for example, someone who is young, who is starting out they may go ahead and invest in stocks and bonds, which may be viewed as a little bit riskier where as if you're rounding the corner to retirement, you may end up putting your money, knowing that you're going to need that money in a few years, in different types of investment vehicles. So it really just depends on what your personal situation is, but it's important to identify those two: what is your time frame, and how comfortable are you? 

L: So I am someone who has student loans and I'm about to marry someone who has significant student loans so how can we make investing part of our lives with those student loan payments?

K: Well first of all you need to talk about it. And believe it or not we have actually did a study and we found that many couples do not talk about their money, before marriage, during, and after in some cases. So it really is important to spend the time on the front end, putting together a budget, and getting on the same page. That's number one. Number two is you should really look at your debt after you've done the first two things that I talked about, right? Which is you've established an emergency savings, matching your 401k, and then you need to look at your debt and figure out which has the highest percentage. Typically private student loans have anywhere from 5-12% that you're paying, with regard to the interest rate. And also you can look at your federal loans, which are typically lower, so you should look at all of your debt though, whether you have credit card debt, whether you have student loan debt. Look at it, look at what you're paying in interest and then prioritize your payment plan based on that. You want to pay the highest interest rates off first. 

L: So do you feel like having loan payments makes it difficult for young people to save?

K: It's definitely challenging, but I think that every bit counts, at the end of the day and I'll give you an example. So say that you're a 25 year old, you're making $40,000 a year and you increase your retirement savings by 1%, save $33 a month. If you do that at the age of 25 then when you're retired, you'll actually get about $3,800 a month. So you save when you're 25, $33 through compound interest and growth, it'll actually be $3,800. If you do that when you're 45, now it's never too late, but if you start when you're 45 and again you take, say $58 a month of additional money in retirement, that equals less than $2,000. So the difference between $33 at 25 and $58 at 45 is really significant. So even if it's small, that's my point, just start early. Even 1%.

L: So the younger the better, so that you have more time.

K: Absolutely, yes time is on your side! That's for sure.

L: So how do you advise a young person to structure their savings before investing? 

K: Well we have a budgeting rule of thumb that we've established and essentially we say all of your essential expenses such as your housing, your groceries, your phone, we know that's essential, is about 50%. You should target 50% of your income for all those essential expenses. You should also allocate 15% for retirement. Now that may seem like a lot, but again it's, you know, people are living longer and it's really important to make sure that you're shoring up your future early. And also you don't typically see it. So if you take that 15% out of your check before it even hits your account, you won't even feel it. And then last is the 5%, so we recommend that 5% is really saved to either put into your emergency savings account if you don't have it established yet, or take that 5% and really allocate it to those other financial goals. Such as, maybe saving for a trip, saving for a home, whatever the case may be. And so you have 30% left of your income to pay to additional student loans if you want or additional debt. So you do have a little bit of leeway with that 30% to really chip away at those other financial goals. 

L: So we here at TFD usually recommend about 6-9 months of monthly expenses saved up, would you agree with that? 

K: Yes, generally we actually recommend 3-6 months of monthly expenses, but I think that you can never save enough. 

L: So we had a reader submit a budget, which you can see here, which Kristen has already taken a look at and she's going to comment on where someone can get started in investing. 

K: So I did take a look at it, first of all I love seeing that there is a budget, so that's number one, that's great. So we did look at it and as I mentioned before, our goal is to really to have 50% of your income with essentially expenses. With this budget, it was actually 67% with essential expenses. But that's okay, I mean there's going to be times, right? There's a goal, and certainly they can, you know, work to achieve and lower that. But what we've found that really stood out in that budget is that there is no retirement savings. And so if you think back to our guidelines, 50% essential expenses, 15% for retirement, and so if you actually take that budget, they did have money left. And so, if you actually did take that 15% and put it into a retirement account, there is still $80 left for the month, so pretty good! 

L: So are there any painless ways that you can recommend for someone who already feels stretched thin to make investing part of their lives? Are there any creative solutions that they could kind of start saving?

K: Yeah, there's a few. I think the first one is that automatically deducting money from your paycheck into separate accounts has been very, very successful. So whether you're saving for a home, allocating a certain percentage of your check there, or if you're saving for retirement, just really allocating before you even see it in your checking account has been a very successful way. The other thing that I'll highlight is, and I've heard people do this, is that they take their credit cards and they literally put them in their freezer. And so if you can put an alert on your credit card you know "OK, I've hit my budget right now and I'm just going to put it away" and you're literally putting it on ice. And I haven't done it personally but I've heard that it's a tip that definitely works.

L: So what are some of the right questions that someone would be asking themselves before investing to kind of assess their risk tolerance? What are some of the questions that they would ask their financial advisor?

K: So first of all, really understand what you're saving for and what the timeline is because that will really dictate what kind of investments you should be making. For example, if I'm saving for a home and I've a five year plan to put away money for a down payment, I'm going to invest that in something that's a little bit more conservative than, say, my retirement because with my retirement I know that it's going to be many, many years until I'm retiring. So you really need to understand what your timeline is and then you need to really look at the different investment vehicles that are available and align it to that. Because there's a lot of different options out there and so there really literally is something for everyone, so you really need to spend the time researching, talking to a professional advisor, or many of these employers, they actually have free on-site education that really helps individuals get started.

L: So if someone can't afford to invest today, what would you recommend them doing to find that money by the end of the year? I mean, is there any way that they can cut that they might not have thought about before?

K: Well they certainly can look at getting another job, so that's number one, but many people are working really hard in their primary job so that may not be viable. But the other thing that you can do is really go look at your expenses. Look at what kind of fees you are paying, take a look at those, you should dust those off every year anyway, and really look to see are there opportunities to find additional money. And then also just 1%, even if it's 1% this year, maybe you bring it up to 2% a year, $33 a month is dinner so, you know, just really kind of think about that and prioritize that and I think that you'll end up investing before you know it.

L: So something that we talk about on the site ourselves is that even if you pick up one extra gig a month, like babysitting, waitressing, anything, that alone could be the money that you use to start investing.

K: Absolutely. And then also what's really interesting is that many individuals are actually investing already, so they just think about their retirement savings as savings and not investing, and that is in fact an investment. So what we find when we talk to many people is that they don't even know that they're investing and they are, but what that means though is that they need to check in at least on an annual basis to make sure that their money is allocated properly because things change and they really need to do it. So it's just like going to the doctor, going to the dentist, you know. You need to put it on your to do list to do on a regular basis and really make sure that you're preparing now for your future. Many individuals are not thinking about retirement. To your earlier point, they're coming out with a significant amount of student debt and really just looking to make ends meet. We understand that but what we really need to think about is that even small steps today are going to really prepare you for your future, and quite frankly at the end of the day you deserve it. So think about it now, take action now, and you will be thanking yourself as you get into retirement.

L: Well thank you so much for talking to us today and I think that you've provided us some invaluable advice so I really appreciate.

K: Great. Well thank you for having me.

L: So thanks for watching and don't forget to hit the subscribe button and go to for more. Bye.