#3 – Savings and Investments: The Rewards of Efficiency vs. the Pitfalls of Shininess, with Steve Mendoza

Savings and Investments: The Rewards of Efficiency vs. the Pitfalls of Shininess, with Steve Mendoza

AVID Alumni
44 min

Keywords
20-30-50 rule, savings and investments, personal finance, financial efficiency, investment strategies, 401k benefits, managing debt, credit card debt, emergency fund, financial education, investment vehicles, liquidity analysis, budgeting tools, financial planning, lifelong learning

Transcript

Steve Mendoza 0:00
It’s called the 20-30-50 rule. You’re supposed to use 50% of your check for your necessities. That’s your rent, that’s your bills, mortgage, food, student loans. Then you have the 30%. So that’s like your fun money—you know, your car, maybe you want to go out, travel. Part of that 30% would also be investments. And then 20% is what you should save.

Dr. Aliber Lozano 0:26
Welcome to AVIDly Adulting, the podcast where we tackle the wild ride of transitioning into your first career and all of the life lessons in between and beyond, when life and career merge into adulting.

Welcome to AVIDly Adulting. I’m your host, Dr. Aliber Lozano, Vice President of Alumni Services here at AVID Center. I, like many of you, am not a fan of getting it wrong, but I am a fan of getting it right, especially when it comes to finances. However, my bank account and credit history might have a different story to tell you, likely not one that’s so good. So what we hear today is to get it right for the first time. When you’re starting your first professional job, what do you do with compensation and benefits when it comes to savings and investments? Our topic today is just that—savings and investments, the rewards of efficiency versus the pitfalls of shininess. To help us explore this topic, I’m joined today by Steve Mendoza, an AVID alumni and an executive director at JPMorgan. Welcome Steve.

Steve Mendoza 0:43
Thanks for having me, Dr. Lozano.

Dr. Aliber Lozano 1:41
No, no, it’s a pleasure. So let’s just start a little bit by getting to know you. Tell us a little bit more about yourself and your journey with AVID.

Steve Mendoza 1:50
Absolutely. So I am an AVID alumni, class of 2010, Mission Hills High School in San Marcos, California. I’ve been an AVID student—well, I was an AVID student from seventh grade at San Marcos Middle School, all throughout high school. Really, really learned a lot, had great moments. I mean, if it wasn’t for AVID, I wouldn’t have been as successful in college as I was. I would not have won the scholarships that I won, and overall, post-college, it really helped me with studying, organization, and really just just keeping a path forward and not getting lost in adulting, right? Because once you leave your parents’ house, once you leave college and there’s no one looking after you, there’s got to be something to help you keep going forward, but keep going forward with with a purpose.

Dr. Aliber Lozano 2:42
And you left home right after college and went clear across the country to Connecticut. I’ll brag a little bit about you. You got into Yale, and in there, you started to learn some of the cultural shifts, and your persistence got you through it. So we’ve been talking a little bit about our story, your story through AVID. Let’s talk about the title of our podcast, because it’s a little bit to have to do with your story, especially when you finished and coming out of Yale. It includes a title, “Efficiency vs. Shininess.” What drove you, pun intended, to that behavior?

Steve Mendoza 3:19
I mentioned something in my quick introduction—that post-college, post-high school, you have to keep moving forward with a purpose. Sometimes that purpose can get a little bit lost. So what drove us to this title is that I wasn’t always as smart or as intelligent with my personal finances, so I made the mistake of letting the shiny new toy, in this case, being a 2017 Camaro, obstruct my path. I bought that when, instead, I maybe should have invested the money, saved the money. Overall, not the smartest thing I’ve done. But I’m happy that I made the mistake when I was young versus when I was older, because then I had more time to really make up for that mistake.

Aliber Lozano 4:05
Your Camaro, my Ford Mustang. The same thing. But you learned pretty quickly from that mistake. Tell us what you did after Yale, and what car, and what you were doing with that car.

Steve Mendoza 4:20
Absolutely. So, throughout my time at Yale, I was set on going to law school. Every class that I took, my major political science with focus on international relations and civil war, was all focused and geared towards going to law school. Well, second semester of my senior year, as I’m studying for the LSAT, I decide that’s actually my mom’s dream. That’s not my dream. I don’t want to go to law school. I don’t want to be a lawyer. But, you know, I’m in my last semester. I’m at the end of my last semester. There is no changing major anymore. There’s no going back. All my internships, everything was focused on legal stuff. So, at that moment, it was a realization that something had to shift. What did I know? I knew international stuff. I knew a little bit about the market. You know, what a stock is, what it isn’t, but I didn’t have a good understanding of what it is that I wanted to do. So, without shame in anything, I drove Uber for three months after Yale. I was one of the first Uber drivers in San Diego. It was a fresh app. It was a fresh new job that was being offered. So, I had my little Ford Fiesta, which I should have kept and never traded in for the Camaro, by the way. So I did that for about six months, actually, while I tried to figure things out, try to figure out what it was that I wanted to do. But at the same time, just having a job where you’re working for yourself also taught me a little bit about what do I have to do with my own finances? How do I keep the most of that paycheck? But also, how do I pay taxes? And how can I also get a little bit more by being able to use gas or miles to get a little bit back.

Dr. Aliber Lozano 6:03
So next time, subscribers, as you’re in an Uber, you never know that that graduate might be maybe pivoting and changing their finances, and you might have a graduate from an Ivy League college. But in all, it’s an honorable job to make sure that you get into the right road to investing in yourself, as Steve did, taking a look at his career and what does he want to do for the rest of his life. You told us a little bit about why you got into personal finance. Why do you think it’s important for you to reach young professionals today to start early in their career, so that they can start investing and saving? What did it teach you that you want to teach them?

Steve Mendoza 6:46
First and foremost, the important thing about saving and investing is going into the future. Looking at points in the future where maybe you’re out of work and you have a safety net. Maybe there’s an emergency and you can’t work, or you have to help a parent, you have to help a family member, and there’s that safety net. As we get older, we’re going to need some money to live off of so that we don’t depend as much on family members or the government. Not trying to get political or anything, but it’s a scary time where social security, health care, Medicare, some of that stuff may go down, may get scrapped. We don’t know. So it’s really important for anybody, especially anyone young and freshly graduated, to start saving. So one of the questions that you had is, how much should somebody invest? How much should they save? In theory, because there is no right answer, Dr. Lozano, there’s not. It’s always case-by-case scenario and it depends. The answer is always, “It depends.” But there’s a theory that is called the 20-30-0 rule. So have you ever heard of that?

Dr. Aliber Lozano 7:51
You’re enlightening me. So I’m not first year my career, but we can always learn something. So tell me more about the 20-30-50 rule.

Steve Mendoza 7:58
Absolutely. So, the 20-30-50 rule, again, it’s high level. Everybody’s life is going to be different. But in theory, it goes with going from the 50 to 30 to the 20. You’re supposed to use 50% of your check for your necessities. That’s your rent, that’s your bills, mortgage if you own, food, student loans, whatever it is. It’s something that’s a necessity. Now I’m putting student loans in there because I feel like you need to pay that off before the interest gets you. That’s my personal feeling. I put that as a necessity because you need to get it out of the way. Then you have the 30%. So the 30% is really what you should be spending, allocating outside of that. So that’s like, your fun money, per se—your car, maybe you want to go out, travel, and part of that also would be investment. So part of that 30% would also be investments, which you add to the stock market, if you open an investment account. If you invest in any of the cryptos or anything that’s kind of the fun money, but you want to mix that in so that you have that 30% available. And then 20% is what you should save. So that’s the money that can go to a savings account or, are you familiar with a CD by any chance? A certificate of deposit?

Dr. Aliber Lozano 9:18
I am familiar with CDs, but I was not, honestly, until a decade ago. So tell us a little bit more about CDs, and we’re going to come back and be specific about savings and specific about investments. Tell us about CDs.

Steve Mendoza 9:30
Yeah, so CDs are very important because it’s a form of savings. So a CD is a certificate of deposit. You basically go to the bank. Instead of opening a savings account, you open a CD. Most of them are minimum, $5,000, sometimes less. And you get a set percentage back, but you can’t touch that money for a certain amount of time. However, you’re gonna get more back on the CD than you would on a savings account. But basically, you’re blending the bank the money, and then you’re going to get more back. So, for example, if you open a CD for $1,000 instead of putting it in a savings account, in a savings account, you might get less than 1% back. It’s still something. It’s still better. But with a certificate of deposit, you could get 5% back, right? But you might have to make an agreement that you can’t touch that money for six months. So the bank can basically use that money for six months. In six months they return it with an additional 5%. So you just made 5% off of that $1,000 by just letting it hang out.

Dr. Aliber Lozano 10:30
And thanks, Steve. I think we’re going a little fast, so I think we’re still driving the Camaro and the Mustang, and not the Fiesta. And so we’re going to revisit some of these points because when you talked to me, I actually learned about a CD, I’m dating myself, when I was young, because I would buy CDs to listen to music. I was not not looking at CDs as certificates of deposit. But we’re going to take a look at that a little bit more as as we go from here. So you’re sharing some really good tidbits that we’re going to take and add to our behavior so that we can be more fiscally mindful and separate that 20-30-50 rule. Your necessities, fun—I like that you said it’s also fun to invest in yourself—and we’re talking about investments, and then, of course, the savings of the 20% when we’re looking at that. So let’s talk a little bit more about savings first. Why is it important to save when you start your first job, even if your salary isn’t that high, and again, you said it, it’s individual by individual. So that high, it’s going to be subjective, right? So why is it important to start saving when you start your job?

Steve Mendoza 11:45
Well, first and foremost, the future. You always need to look into the future, right? Your future finances, you never know what it’s going to look like. You need to be able to have a safety net, and overall, just a nest for when you retire because you need to be able to have resources for you to be able to live off of after you’re 65 or 70 and you can no longer work. But also, fresh out of college, unfortunately, when the market is not doing so well, you’re the first that’s targeted with layoffs. You’re the first one that they let go. It’s an unfortunate truth, and I don’t want to scare anybody listening to this podcast. I hope it never happens because it’s terrible. I witnessed a lot of layoffs back in 2008 when I was in high school, and then I witnessed more layoffs a few years ago too, once COVID was happening. It’s terrible. But the truth of the matter is that it’s the young kids that get let go. So it’s important that instead of going on that big trip to Puerto Rico or Cancun with your friends, because everybody has a paycheck now, and you got your first bonus in March, and it’s amazing, and it’s awesome, and you’ve never seen all that money before, maybe reel it back a little bit and say, “Hey, I should probably save this,” and maybe go to Cancun in four years. Because guess what? Cancun is not going anywhere. It’s gonna be there. Your friends will still be there. And you’re going to be in a lot more comfortable space knowing that you have money in your account four years from now because you made the smart decision to not go on that trip. And I did this a lot too, not just because I drove Uber, Dr. Lozano, but just because I knew that in the future, I wanted to be more comfortable. So one thing that I’ve always lived off of, or a thing in the back of my head is work hard now, so you could have fun later, instead of having fun now, so you don’t work hard later. Our bodies don’t want to work as hard later. When we’re 60 and we’re 70, we should not be working as hard as we are now. This is the time where we should be putting in the hours and the effort and making the money so that then we could have the fun trips to Cancun and Puerto Rico, and guess what? It’ll be a lot better because now you’re going to have a little bit more money in your pocket, too. You’re not going to gonna have to be sharing one hotel room with four people, right? You’re gonna have your own hotel room.

Dr. Aliber Lozano 14:09
Sharing one hotel room with four people. That’s maybe a tip if you’re making a wrong choice, not a bad one early in life. We go to Cancun, then save some by by splitting that cost. But you’ve given us on savings tidbits right now, even when it’s your first job, and some of you have started saving a lot earlier. Steve and myself are first generation college-goers. Our parents didn’t go to college, and so savings and investments, this was not part of our culture. We did not have a network. And so, in now best learning or best practices, you’ve talked about 20 percent, to aim for 20 percent, and it’s those difficult choices. What’s your lifestyle spending, some of that money that can come out of that 30 percent we talked about earlier? You also talked about saving because you’ll need an emergency fund. You’ve talked just about the job market and the realities that sometimes the last one in is the first one out when organizations need to be fiscally mindful and right-size that organization. It may be the cost of you and your your job as you search for something else. So, you’ve taken us through the whys and the savings. Now let’s talk a little bit more about it investing, and we’re going to try to simplify it, because I know that it can be a daunting word is as you’re going into investing, but what are some simple ways to start investing for those who are brand new to it?

Steve Mendoza 15:48
So the number one thing that I say to everybody who wants to start investing is learn about it before you invest money. You said it yourself. It’s daunting. It’s scary. And you’re right. It is daunting. It is scary. I had a savings account, but I didn’t invest. I didn’t start investing or even really putting more money into the stock market until I was 26 years old, and a lot of that had to be because I was a little bit ignorant about the subject. I wanted to make sure that I was comfortable, and that’s just the person that I am. I have to understand something 100% before I go full speed ahead. Unfortunately, I didn’t do that with the Camaro. I wish I would have, but that’s a mistake still. But when you start investing in something you really want to look into, how can it grow? How can it help me in the future? There’s different items, different paths, that you could do to invest. There’s physical investing, which not a lot of us will do, especially as first generation. That’s like real estate and stuff. But if you want to get down to the granular level, stocks. You have investment accounts too, that other people can manage. Specifically, if you have a job, they will have 401K accounts, and I know we’ll speak about that later, Dr. Lozano, but 401K accounts are great because you don’t really have to do much other than choose how much to invest in it. Other things you can do is you can have managed accounts if you don’t feel comfortable doing the investment yourself. That means that you go to a Vanguard, or you go to another broker, and somebody will manage your investment account and make the trades for you. Most of the time, it’s going to be what we call blue-chip stocks. It’s slow growth, but it’s something that you know is going to keep growing and probably pay dividends. We could get to that in the future, but dividends are basically money that you get back as well that you can reinvest. If you’re not comfortable with it, you can always do that. Now know that when it’s a managed account, there is a fee associated with it. So most of the time you might not want to do that. You might want to just do the investments yourself, and that’s okay. You’re more than okay. If that’s the situation, I would say follow the blue-chip stocks. I’m not a financial advisor, so don’t take anything that I say as financial advice. But what I did before I got a managed account, this is what I did, right? Is I followed blue chip stock, so S and p5, 100 spider. So anything that you know the financial advisors are saying that they were doing, I was like, Okay, well, you know, they’re doing great, so I’m gonna copy their strategy a little bit and just follow and learn a little bit. And then, you know, for four years I did my own investments, I did my own trades, but then I got too busy. I got too busy with work. My job doesn’t allow me to trade during the day. I can’t do that. I have a position of influence, they call it, so I have a lot of insider information. So every trade that I make personally, it has to be vetted by my compliance department. So now I have a managed account for investments, but there’s a lot of investment vehicles that anybody can look into. And it’s growing. It keeps growing. We talked about certificate of deposits, but that’s also savings, right? But there’s stocks. I’m sure everybody’s heard of stocks. There’s options, man, now crypto. I mean, crypto is the buzzword right now. Everybody wants crypto, but my advice is, be careful. Be careful. Be smart. Because, look, investment, investing is great. It’s amazing, but there’s always a downside with risky investments. I would say, you know, I’m risk averse. I like to keep my money. I don’t like to lose my money anymore. Then I’ve already lost it, so if anything, I’d rather take like a three to 4% growth year over year, than something that can promise me 15, 20% growth, or, you know, 70% loss. But people are different. They have different risk tolerances, so it depends. But you know, my number one advice is, do the research. Be careful if you go into it, really read up on it, like educate yourself. And I know it’s hard. You’re coming out of college, you have a job, you want to have fun, you probably don’t want to study anymore, but listen, you’re going to be a student your entire life. The if you want to be successful in life, you have to be a student your entire life, even if you be. Become the boss in your company, you have to be a student. So in this case, you have to be a student of your future, and the way that you could become the best student is learning how to make that future better by knowing how to invest into it.

I’m not a financial advisor, so don’t take anything that I say as financial advice. But what I did before I got a managed account. I followed blue-chip stock. So S&P 500. Spider [Standard and Poor’s Depository Receipts, aka SPDR]. So anything that the financial advisors are saying that they were doing, I was like, Okay, well, they’re doing great, so I’m going to copy their strategy a little bit and just follow and learn a little bit. And then for four years, I did my own investments, I did my own trades, but then I got too busy. I got too busy with work. My job doesn’t allow me to trade during the day. I can’t do that. I have a position of influence they call it, so I have a lot of insider information. So every trade that I make personally, it has to be vetted by my Compliance Department. So now I have a managed account for investments, but there’s a lot of investment vehicles that anybody can look into. And it’s growing. It keeps growing. We talked about certificate of deposits, but that’s also savings, right? But there’s stocks. I’m sure everybody’s heard of stocks. There’s options, now crypto. I mean, crypto is the buzzword right now. Everybody wants crypto, but my advice is, be careful. Be careful. Be smart. Because investing is great. It’s amazing, but there’s always a downside with risky investments. I would say I’m risk-averse. I like to keep my money. I don’t like to lose my money anymore, than I’ve already lost it, so if anything, I’d rather take like a three to four percent growth year over year, than something that can promise me 15 or 20 percent growth, or, you know, 70% loss. But people are different. They have different risk tolerances, so it depends. But my number one advice is do the research. Be careful. If you go into it, really read up on it, educate yourself. And I know it’s hard. You’re coming out of college, you have a job, you want to have fun. You probably don’t want to study anymore, but listen, you’re going to be a student your entire life. If you want to be successful in life, you have to be a student your entire life, even if you become the boss in your company, you have to be a student. So in this case, you have to be a student of your future, and the way that you could become the best student is learning how to make that future better by knowing how to invest into it.

Dr. Aliber Lozano 20:10
It reminds us, we always hear, you’re a lifelong learner. So, I like the idea of investing in yourself and you leading with you’ve got to learn about what your options are. Invest in yourself so you can invest in your and your own family’s future. Let’s talk a little bit about we mentioned 401Ks, and that might be part of your compensation package in your job for a for-profit organization. In a not-for-profit organization, which AVID is, it may be a part of your compensation package, and it’s called 403B. The great thing about that, that you and I know Steve, is your organization will contribute above your salary a certain percentage into that retirement fund. Tell us more about if my organization is contributing a certain percentage of my salary into my 401K or my 403B, how much should I invest?

Steve Mendoza 21:13
First of all, on a 401K, 403 B—if your job offers it, do it. It’s free money. I’m not lying. It is free money, especially if they match. Sometimes it comes with something called the vesting period. That’s okay. But if they offer it, do it. Now, why do they do it? Why is it important? A 401K is a type of investment vehicle, investment account. It’s managed. So again, it goes back to what I said. It’s managed. You’re not doing the trades. You’re not doing everything. They have a specialist. They usually have a big broker like Vanguard, Morgan Stanley, a big name managing this, so it’s in good hands. Now, why is it free money? Well, you said they match. So what does that mean? Usually, what happens is, if you have a 401K, your pre-tax, by the way, so not even post-tax. So pre-tax salary gets taken from your check and added to this investment account, and then the company will add additional money to it. They will match it. So a lot of companies today have up to 5%, I think that’s the norm. Some might have higher, some might have lower, but my advice is if your company is matching 5%, what does that mean? That means that you can put up to 5% of your paycheck or of your salary onto that 401K account, and your company will match it. So basically, you’re getting an extra 5% a year on top of your salary, and because it’s a 401K, it’s growing. So you’re really getting more. Now, granted, you’re not going to be able to touch that 401K until you’re retired or else there’s going to be a tax penalty to it. But the point of the 401K is to take it to retirement. It’s a nest. It’s a safety nest. Now, how much? How much should you put in? Again, I’ve said everything with investments and savings is always going to be case-by-case scenario because everybody has a different situation. I say, if your company matches 5% put in 5% and then just drop down that 5% from your 30% in the 20-30 rule. And now you invest 25% in anything else you want. It’s just a different piece of the puzzle, and you just have to really know how to play it, but in this case, it’s guaranteed free money with a 401K or 403B, so do it. I know you want a bigger paycheck. I know you want your paycheck to look bigger. I know 5% being taken out seems daunting, but I guarantee that that 5% being used for something different is going to be worth it in the long run.

Dr. Aliber Lozano 23:45
And this is new language and new practices for first generation professionals, because we haven’t had that history. But it’s also good advice for second and third. We’re in the time period where your organization says it’s open enrollment, and that’s when you’re you’re trying to figure out your benefits, and you’re locked in. But in most organizations, you won’t be locked in, Steve, if you want to change how much you contribute into the 401K or 403B, or not. So you can measure as you go along, whether that 5% of the the 20% or the 30% or the 50% as we looked at it, plays into your risk averse behaviors, or if you are risky. So I do appreciate that language, and like you and me, if you have questions about your 401 K or 403B options, go to your HR Department or your People Operations Department. They’re going to give you their expertise and align to what you’re willing to contribute to make sure you have that work-life balance and practice the theory of 20-30-50.

Steve Mendoza 25:01
And a lot of the times too, on top of that, Dr. Lozano, I want to point out that any company that offers a 401K, I’m not going to say every single one does this, but every single one should. So you should check with your HR department for a portal. They measure your paycheck, your take home pay, depending on the percentage that you add to that 401K, and they also show you what the match would look like so that you could build basically a plan, a year plan, two-year plan, five-year plan, knowing what it looks like. So there should be a portal. I’m not gonna say everybody has one. I’ve been lucky enough where every employer that I’ve worked with, we’ve used Vanguard, Morgan Stanley, and they all have tools. If a 401K is being offered, then there should be tools where you could see how your check looks like depending on how much you’re investing.

Dr. Aliber Lozano 25:55
And it’s important when you’re continuing in your credit history. Steve, I don’t know about you, but when I first started going to college, I was bombarded with credit cards to apply. And it’s important for you to establish a credit card footprint because that’ll determine your interest rates on future credit cards, on buying a car, whether it’s a Fiesta or Camaro or Mustang, whatever you can afford, as you take a look at the theory of 20-30-50. It’ll also determine your interest rate if you get a chance to purchase a home, some of those physical investments that you talked about earlier. But it also, when you want to rent, people will look at your credit history and your credit score, and it’ll give you options for doing that. Let’s talk about the reality of managing debt. Any tips do you have for high-interest debt, like credit card debt, when you’re just starting out?

Steve Mendoza 26:58
So I’m gonna go back to a point that I made earlier with the 20-30-50 rule. I put student loans in the 50% there. I was in a very, very lucky position, where, through AVID and through connections, I was able to win the Gate Scholarships. I was lucky where I did not have to pay off student debt, which is very blessed. But I know that that’s that’s a privileged spot, that not a lot of people have that. From my friends that I’ve spoken to that have had student debt, a few of them have actually already paid it off because they made it part of that 50%. The reason being is that a lot of the times when you pick student loans, you get worse off rates because, like you mentioned, there is no credit history unless you know you have a parent or somebody else that’s going to sign up for that to try and lower it. But it’s still going to be slightly higher than other items that you get loans for. A lot of the times too, unfortunately, with student loans, it’s more variable than fixed. And for those who don’t know, variable interest rate means that it can move depending on the market, the Federal Reserve. So it’s not going to be stable. I would say everybody tried to negotiate for a fixed interest rate as much as possible. Don’t let predatory loan agents try to say variable works. It doesn’t. Going back to your question, Dr. Lozano, if you have high interest debt, I would say, pay it off. And if you have to do that at the risk of cutting down your savings a little bit, so maybe you’re not saving 20%, maybe you’re saving 10% but you’re paying off this high interest loan, in my opinion, it’s worth it, because then you’re not dragging it on for the length of your life. You’re not dragging it on for year after year. And the sad reality is that a lot of these things are compounding interest, too. The longer you have them alive, the longer the more you’re gonna pay. And it’s just, it’s not fair. It’s not a fair situation. I’m not a fan of it. And I’m going to be very open in saying we need to restructure student loans in America. I’m not shy to say that that’s my opinion. But then the same thing goes to anybody who has a credit card, right? The best thing about credit cards, though, is that you could use it and then you could pay it off. You have minimum payments that you can make, but I would say, don’t use the minimum payment because just like student loans, you’re going to end up paying the bank a lot more.

I’m telling you as a banker. I’m telling you as somebody that works at JPMorgan. We like it when you make the minimum payment because you’re going to end up paying us more money in the long run. And look, I realize that in a lot of situations, you can’t always close out that that balance right? Sometimes you got to stretch it out, and that’s okay. But if there’s any advice that I have for any loans, maybe not a mortgage, maybe not a car, because a lot of times those are fixed interest rates, and that’s okay, but anything with a high-interest rate variable, pay it. Pay it as soon as you can. And maybe shave off a little bit of your fun account, as well. They say this, and they make fun of us a lot of the times, because I’m a millennial. I think you might be millennial, too. It’s buy less Starbucks. $7 a day with Starbucks adds up man. If you buy your own coffee, listen, I still drink Starbucks every day, but I buy it at the grocery store because I could buy a gallon of cold brew for $7 and that makes me 14 Venti iced coffees versus one Venti iced coffee at Starbucks, which is $7. It’s funny because people do say, hey, the little stuff adds up. It does add up. And you know, if you shave off some of that fun money, maybe shave off some of your savings at the very beginning, then tackle that debt, it’s just going to be better. And again, I know my position is a little bit different because I didn’t have that student loan piece, but I did have a lot of friends that had to get student loans, and I’ve had them do both, right? I have some that still have student loans because they actually saved the money and they’re still paying it, but it hasn’t dropped a lot. And then I had friends that just did all through their twenties, all they did was just work and pay off the loan. And now everything that they have is investments and savings. They have no loans, no debt whatsoever, and their credit is great. They’re getting great mortgage rates. They were getting great mortgage rates when the when the market was trash, so, good for them.

Dr. Aliber Lozano 31:21
Well, Steve, first of all, I’m going to send you a Starbucks gift card. We’re not being sponsored by Starbucks yet, but hopefully we will, for telling me that I was a millennial. Thank you, but I’m not. Keeping you with the car metaphor. You know, I wish I could go back to the future and be in that car that takes me back to the future, because you just broke it down about the two high interest debts that I had a pitfall into. I talked to you. If my bank account could tell you stories, well, going into credit card debt probably took a good decade for me to get out of it because I was paying high interest on that fun money, using that credit card, both for necessities, for fun, and not paying it off and only paying the minimum at the end of the month. It took a while. In our household now we have a rule—we use credit cards. Rarely does anyone carry cash anymore, and it took a while to get to this place where we pay off the full amount of that month at the end of the month, so our balance is zero. I will tell you there are two or three times during the year where I carry a balance over to the next month, but that is the practice that we have learned so that we can get the points, you have security with credit card with your purchases, but that is a practice. The student loan, you and I are in the same mode with student loans. I could not have gotten to school if I did not have student loans. I could have not gotten my bachelor’s, my master’s, and my doctorate. They were offset with some scholarships and some financial aid, but not fully. So the advice is to go into what’s going to best prepare you, whether it’s a certificate, whether it’s college, any of the options that are going to make you and bring you joy, invest in yourself, and sometimes it does mean taking out a loan, but you heard it from the banker. Focus first on paying that off so that you’re not paying it off for life and not enjoying the things you want to enjoy now and even in the future because that’s hanging in the back of your head, and really, it’s hanging every single month that you have to pay those high interest credit card debt and student loans are something to focus on.

Steve Mendoza 33:41
One other thing real quick, Dr. Lozano, because you mentioned it, is points. So credit cards are not always bad, right? If you’re doing what you’re doing, using the credit card and paying off the balance, you could get points. That’s free money that we’re giving you, because essentially, you lent us money and now you’re paying it. But there’s also different credit cards that offer different benefits to you, like the travel cards where you can, I’m not going to say any names, but you could have a buddy pass like twice a year. My wife and I travel twice a year on my buddy pass because I have a credit card that gives me a free ticket, a companion pass, lots of points, points that you can use on Amazon. But it all comes down to being smart about the balance, right? Enjoy the benefits of the cards. Enjoy them, but be smart about the balance.

Dr. Aliber Lozano 34:31
Enjoy the benefits of a card, but make sure you try to pay off as much of that end of the month, so that you don’t carry it on, that enjoyment doesn’t turn into misery as you’re carrying that interest and that money into the next month. Now, are there any specific tools or apps that can help me or that first-year professional track the spending? Do you know of any that can help us out? Because it’s a lot. So what do I do to manage it?

Steve Mendoza 34:59
There’s a lot. So I’m just gonna say one that I used and that I’m familiar with. It’s called Mint. So, Mint’s a great app. You could track your expenses. You could also track your balances that you have with different credit cards or different loans. It’s a great tool. It helped me a lot. Now, another thing too, and this might be old school, this is just a banker in me. This is the analytical person in me. It’s man, I love spreadsheets. I literally have a spreadsheet or a book, an Excel book on my computer. It’s called Finances. I go through and this is something good that everybody should really do. You should know how much money you have coming in and how much money you have going out. Everybody needs to be able to do that. You should be able to have a budget and understand it. So what I like to do with my spreadsheet is I have my expenses, my mortgage, the food spending, miscellaneous because I have four pets. That’s part of where my miscellaneous goes from, because I never know when one of them is going to get sick. My insurance, my life insurance policy, I have that all, and then I add that in every month. Like, how much is going? What else did I spend? I go into my credit cards and I extract the data and put it into the spreadsheet. That’s me. Not everybody has to do that, but I do want to stress that everybody should know how much money is coming in and how much is going out. If you have more money going out than coming in, you have to readjust that. You have to find out where the leak is coming from, and you really have to fix that.

It really doesn’t take a long time. A lot of us love football. While we’re watching football on Sunday, there’s a lot of commercials going on. Get on your computer and just crunch the numbers. With Mint, it’s a great app. It literally connects to your bank accounts so you could extract that information. It does a lot of that work for you. It’s just having those tools is very, very essential. I didn’t do that all the time growing up. I think it was only til I was like 27 or 28 when I was like, You know what? I really need to get my act together because I don’t know why I only have X amount of money left a month. Where’s all this stuff going to? Well, maybe I was going out to the bar a little bit too much. I don’t know how much the beer is in Texas or California, but when you’re over in New York, it’s an $8 pint, which adds up after a while. So, maybe cut that down a little bit. Maybe you’re spending too much on Amazon. Maybe you’re spending too much on clothes. But you find the leak if you’re doing that analysis and you’re able to really understand what you need to fix in your finances. Mint helps. Excel helps. A lot of the times, your bank also has some apps. Bank of America, I don’t know if people have Bank of America or not. I’m not advocating that you should switch to them or anything. I’ve had them for a long time. They have a tool that does a liquidity analysis. So it tells you how much you’re you’re spending a month, and how much is coming in. So it helps.

Dr. Aliber Lozano 38:13
Lots of terms like liquidity analysis. But let me go back to the app. It’s Mint. M-I-N-T?

Steve Mendoza 38:18
Correct, yes.

Dr. Aliber Lozano 38:19
All right. Great. And then again, you said old school, and you’re using an electronic spreadsheet. Let’s even take it back in old school. Some of us might just need to do pen and paper, but the sound advice that we’re walking off here is you should know how much money is going in and how much money is going out, and you’re going to be in trouble if that does not balance out into your 20-30-50 rule. And like I said, occasionally, once or twice a year, my goal of having a zero balance payout in credit cards doesn’t happen, so you get to pivot and readjust. But that can’t happen all the time because you won’t be able to do it. Steve, we’ve had some really good time here with you. Let’s summarize. As our subscribers are going to walk away with the advice you shared today, what are three behaviors as they’re now into three, they could either be on savings or investments, that we should start doing today or doing better.

Steve Mendoza 39:14
Well, number one is just learn how to save and what you can save. I know I spoke about the 20-30-50 rule, but I also said this differs by individual. Really understand how much you can save without hurting your 50%. The 30% piece, that’s investment, that’s fun, that’s flexible, right? That’s flexible. You can always alter that, but you really want to at least save 20% at the very minimum, and then be flexible with that 30%. Like maybe you have to spend more on the necessities, and then have less fun today and more fun in the future. So that’s number one. Number two is educate yourself. Educate yourself on investment vehicles. Educate yourself on the stock market. Educate yourself on the 401K benefits that your company offers or doesn’t offer, and if they don’t, then look into different savings accounts or retirement accounts for the future. Roth IRAs, IRAs. Those are names I’m throwing out there, but they’re important to learn about. You can have a 401K and an IRA. I-R-A. I didn’t speak about those today, but that’s definitely something you should educate yourself on. And then you know number three is, if you have debt, pay it off as soon as you can because somebody like me, Steve Mendoza, loves it when you don’t at the bank, because we make more money once you make those minimum payments.

Dr. Aliber Lozano 40:41
So I’ve got it. You said it’s “Learn” is their number one behavior. Educate yourself, number two. I thought you were going to give me another one to say, “Study,” but you said pay off the debt. Because you say, as a banker, you like us when we only make minimum payments, because you’re going to charge us more, but be getting more in our interest when we should be investing in ourselves first. We’re not trying to put you out of a job, Steve, but we do like your advice in coming in here and sharing that. We might need a part two to talk about IRAs and everything else you had, but you’re welcome back to be a guest. So thank you again for checking with us and asking us “What’s in our wallet?” And ensuring that it has deep pockets, striking work-life balance for today and for the future.

And for our subscribers of AVIDly Adulting. Remember, do not save what is left after spending, but spend what is left after saving. That’s by Warren Buffett. This reminds us to make saving and investing a priority, treating it as a foundation for financial growth, rather than something we do only when there’s extra. Again, I want to thank Steve for joining us here today, and I want to remind our subscribers be good today, because that’s enough, and let’s strive to be great tomorrow, together. Thank you all for listening. Talk to you next time.

Steve Mendoza 42:12
Thank you, everybody.

Dr. Aliber Lozano 42:15
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