In this episode of Motley Fool Answers, the team shares some of their best tips for automating your financial life. They cover everything from insurance to retirement accounts and bills to budgeting. To help you get started, two special guests also share their favorite apps that can help you set aside savings or reduce the fees in your retirement account, possibly saving you thousands of dollars.
A full transcript follows the video.
This viceo was recorded on Jan. 3, 2017
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. He is also the advisor on Motley Fool's Rule Your Retirement newsletter.
Robert Brokamp: Happy New Year, Alison.
Southwick: Happy New Year!
Brokamp: Yay!
Southwick: It's 2017 and we're going to take on this year like a champ. Every week we're going to discuss small ways to be wealthier, happier, healthier, and more productive in the coming year, and today we are tackling wealthier with a step-by-step guide to simplifying your finances through the mini-miracle of automation. We'll also answer your question about which stocks belong in a Roth versus a traditional IRA and review a few money-related apps. All that and more on this week's episode of Motley Fool Answers.
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Southwick: All right, it's time for Answers, Answers and today's question comes from Brian. Before I get into the question I should probably point out that we have a special guest in the studio today.
Brokamp: One of our favorite special guests.
Southwick: One of our favorite special guests is Megan Brinsfield. She is, of course, a planner with Motley Fool Wealth Management (a sister company of The Motley Fool).
Megan Brinsfield: Thanks for having me.
Southwick: Oh, of course. All right, so, here we go. Like I said, the question comes from Brian. Brian writes: "My question is this. Which stocks are best suited for a Roth IRA and why? I currently have a Roth IRA that I started this year and I have a traditional investment account that I have used for about seven years now. I wish I had started on the Roth earlier knowing what I know now. Anyway, I'm in the process of building out both accounts but want to know what I should put into each. Thank you and stay Foolish!"
Brokamp: Brian, that's a great question. In your question you said that you have a traditional investment account. I'm not sure if that's a traditional IRA or just a regular brokerage account, so I'm going to answer it from both angles.
Southwick: Ooh!
Brokamp: So first of all, if you have a regular taxable brokerage account and some sort of a retirement account (it could be a Roth, it could be a 401(k), it could be traditional) what you want to do is essentially rank your investments in terms of how much they are taxed and put the ones that are taxed the most in the retirement account. So that could be, for example, if you do a lot of short-term trading. Not something that we generally recommend...
Southwick: Yeah...
Brokamp: ...but if you have short-term capital gains, that will be taxed at your ordinary income tax rate which is higher than long-term capital gains. Maybe you have investments that pay significant dividends. You'll have to pay taxes on that, especially if they're not qualified dividends like the dividends that come from real estate investment trusts. Those are better investments to have in your retirement accounts, as opposed to a stock that doesn't pay a dividend and you just hold on for many years. That's pretty tax efficient.
Now, what if the question is between you having a traditional IRA and a Roth IRA? The big difference, there, is how they'll be taxed when you take the money out. Traditional, you'll pay taxes. The Roth is tax-free. That makes the Roth better, so that's the one you want to grow the most. So roughly speaking, you want to put the investments that you expect to have the highest returns in the Roth. If you own cash, bonds, and stocks, then it's sort of easy to say that you probably want to keep the stocks in the Roth.
What if you just own stocks? That's a little tougher because you don't really know which stocks will be performing the best. If you did, you'd make a lot of money...
Southwick: Yeah, call us with the stock.
Brokamp: ...and you could take over our show. So if you are an experienced investor, you could look at the stocks that you own and say, "OK, I expect these ones to perform better, so you put those in the Roth," or you could rely on history. History says things like small stocks outperform large stocks, although that's over the long term. Depending on what kind of stocks you own, it could be a high-growth-oriented type of stock. You'd put that in the Roth. Something like that.
Brinsfield: I also like to think about time horizon as well, just because Roth accounts don't have that required minimum distribution when you turn 70 1/2 the same way traditional IRAs do. So really the Roth should be the last resort money that you have. And so you touched on it a little bit, but you should be willing to hang on to stocks that have more volatility in that Roth account so you can weather the storms of up and down and really hold for the long term in that account.
Brokamp: The studies that have looked at order of withdrawals in retirement, if you had several accounts, generally indicate you should deplete your taxable accounts first, then your traditional tax-deferred, and then your Roth. So that gets to what Megan was saying in terms of you really want to put the stuff in the Roth that you're not going to touch for a long time.
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Southwick: Like I said, we have a special guest to kick off the first episode of the year. It's Megan Brinsfield!
Brinsfield: Hurray! Happy 2017.
Southwick: Happy 2017! So you are a financial planner, and you have tons of designations. What are some of your designations that you stick after your name?
Brinsfield: I'm a certified public accountant, which is really popular at cocktail parties.
Southwick: Yep.
Brokamp: Is it really? Like surely people must come up to you with their questions.
Southwick: They must have questions.
Brinsfield: People have a lot of preconceived notions about what a CPA does. Everything from like auditing, or banking, to taxes and various financial matters. But yes, a lot of people confuse the designation CFA and CFP. CFA is like a three-year test and requires a lot of like karate and a little kung fu...
Brokamp: Yes, bond convexity and things like that.
Brinsfield: I did not do that. I did the CFP exam, which is certified financial planner and that is a broad-based exam that includes a number of fields like retirement planning, and taxes, investments and...
Brokamp: Estate planning...
Brinsfield: ...estate planning.
Brokamp: ...cases.
Brinsfield: And Bro and I get together and occasionally just bask in our CFP credential.
Southwick: So you, two, at least have each other to talk to at cocktail parties.
Brokamp: We do. We do.
Brinsfield: Exactly.
Brokamp: I don't know about the year you took the CFP exam, but I only 50% passed it when I took it, so it's not exactly easy.
Brinsfield: Right. It's not a cakewalk.
Southwick: Well, we asked you on the show because not only are you smart with the money, you are also a pro at automating your finances, so that's why you're here. You're here to share what you do and why you do it because it turns out automating is awesome.
Brinsfield: It is, and it's alliterative.
Southwick: We'll put that on a sticker. Automating is awesome! So talk a little bit about why automating is so great. I've heard different reasons like it helps get your behavioral finance issues off the table so you don't defeat yourself, like we are prone to do.
Brinsfield: Yeah.
Southwick: Like what do you see as the best benefits of automating?
Brinsfield: That's definitely part of it. I remember a news story. You hear about Steve Jobs or Barack Obama wearing the same thing all the time...
Southwick: Right!
Brinsfield: ...and that concept of decision equity. That I only have capacity to make so many decisions in a day. I want to reduce the decisions I have to make on meaningless things, and although your money is very meaningful, it should be a place where you can make one important decision and automate those decisions over time. And that's what I found to be probably the most compelling factor for why I automate my financial life.
But there are also other benefits, like having greater predictability in recurring transactions month to month. And then finally, if something gets me out of my normal routine, I know that my money is taken care of. That I never have to worry about my mortgage being paid.
Southwick: If you're on vacation, or whatever.
Brinsfield: Right. One of my parents got sick earlier this year, so [when I'm] running to the doctor I don't have to check my online bill pay or anything. I know it's done.
Southwick: All right, let's follow the money, here, because we're going to provide a step-by-step guide for where you can automate your money along the way. So first, even before your paycheck gets into your grubby, little hands, what can you automate?
Brinsfield: The most popular thing that you can automate through your employer is retirement plan contributions. Most employers have a retirement plan like a 401(k) or a 403(b) that you can contribute to, and you never see that money, which makes it very easy to let go of. And especially when your employer has a matching program where you can really get $1.30 or $1.50 for every dollar that you contribute, that's a pretty easy decision to make.
Southwick: Also, insurance? Some insurances you can have come out of your paycheck?
Brinsfield: Absolutely. A lot of workplaces also offer full-time employees, and some part-time employees, actually, health insurance benefits. That money comes out of your paycheck before taxes, and so it's cost saving as well as convenient. I know here at The Motley Fool we have a partnership with an insurance provider. I have my auto insurance, and homeowners, and umbrella insurance (all those fun, exciting things) come out of my paycheck when we get paid and I don't have to worry about it. And that's something that a lot of people actually can get caught up on, because insurance usually you pay twice a year...
Southwick: Easy to miss.
Brinsfield: Yeah, it's easy to miss. It always seems to come at the worst time. Oh, I got my tax refund and now I get to pay my insurance for the year.
Brokamp: And particularly life insurance. If you went through some sort of a process to get approved for it and then you let that lapse because you forgot to pay the policy, you've got to go through that process all over again. You're going to be older, so it's going to cost more, and you might have gotten some new health problems along the way. That's actually something that's happened to me in the past. I did not automate the payment of my life insurance policy. I missed it and I had to get a whole new policy.
Southwick: So then is the best step to take your HR director out for a cup of coffee and talk to them? I imagine every employer is different with what you can automate before it ends up in your paycheck.
Brinsfield: Absolutely. I know when you first start at an employer, that's where you usually make all the decisions. They hand you a thick stack of paperwork and that's where you make your elections for the year. It's easy to breeze through that and just take whatever the first option is or the default, but the HR folks are really there to help you in making those decisions, or at least explain the decisions that you have in front of you.
So I always tell people to take the time to actually read through that, even if it takes an additional week. Usually you have a week or 10 days before you have to turn that paperwork in -- as long as you get it in before your first paycheck -- so taking the time to review that. If you have a spouse, compare and contrast. Who has the better benefits? Make sure that you're optimizing that.
Southwick: But for anyone who is not taking on a new job in the next couple of weeks, is a lot of this tangled up with open enrollment season? Or is it something that you can just go and change and make sure you've optimized it at any time?
Brokamp: It varies. I mean things like healthcare and flexible spending are often open enrollment type issues. Some workplaces will facilitate that you contribute to a 529 college savings plan, and that's something you can opt into at any point.
Southwick: Rick would have been interested in that.
Rick Engdahl: I got that covered.
Brokamp: That's right.
Southwick: I know, but you could have had it covered a lot sooner. Man, if only we knew someone who helped put together our benefits packages and stuff.
Brokamp: Hypothetically speaking.
Southwick: (Whispers) It's Bro!
Brokamp: It's kind of an ad hoc basis. It's not an official basis.
Southwick: All right, let's move on. Now that the money has been pulled out (everything that you want to automate before you get your paycheck), your money heads into your bank account, and here's where you start automating your budgeting, correct?
Brokamp: Right. What a lot of people do, when it comes to budgeting, is they look at how much they are spending and then see how much they have left over and save that. And what I've tried to do is reverse it, and that is figuring out how much I need to save to accomplish my goals, which for us are mostly related to retirement and saving for college for our kids. And then when we were saving for a new car, saving for that, as well. Get that money out of our checking account first and then you can spend what's left over.
And so those are big goals, but you can actually break it down even to smaller goals. For example, we all just got through the holidays, somehow. We probably all spent more money than we expected, and maybe to some certain degree more than we had, so one thing you can do is take a look at how much you spent over the holidays, break that up by the number of paychecks that you have (like at The Motley Fool we have 24) and you can sock that money away separately, a little bit each paycheck, so that once the holidays come around next year, you'll have the money.
It could be for your emergency fund. I quote an article a few years ago from a financial planner who wanted a new bike. It was a very fancy bike, so she set up this whole separate account so that a little bit of money from every paycheck was going into that one account just for the bike.
Southwick: So basically you go to your bank and say, "I would like to open up 10 separate bank accounts, and I want $10 to go here every paycheck, and $13 here?" Is that how it works?
Brinsfield: Yes, that's what I personally did. But having the online bank accounts, it's easy to duplicate savings accounts and have each one with its own distinct purpose. There was actually a study at one point that said if you can log into your account and see a photo of what you're saving for next to your account, you're more likely to save the money for that. So you log into your college savings account and you see your smiling children. Or maybe an empty house depending on where the dollars are there.
Southwick: It's a new craft room! Sorry, junior.
Brinsfield: Yeah, you're more likely to save in that event. I personally have each savings account labeled as what I'm saving for.
Southwick: All right, Megan. What's your weirdest account that you have set up that you're saving for?
Brinsfield: I have a recurring deposit into an account to pay for my future wedding.
Southwick: Oh! That's smart!
Brinsfield: It's fully funded, so don't tell my boyfriend.
Southwick: He's going to be so happy.
Brinsfield: He's so excited, right? No, he'll run away and I don't want that.
Southwick: He'll be lucky to lock you down.
Engdahl: Are you dating somebody who doesn't listen to this show?
Brokamp: I think that's a deal breaker.
Southwick: It's funny how it kind of sounds like a digital version of the good, old-fashioned envelope method.
Brokamp: That's exactly what it is. And most people operate out of their checking account, and if you get that money out into these other accounts that you don't look at on a regular basis, you feel like you don't have that money, so you're less inclined to spend it.
Southwick: So generally speaking, we're talking about budgeting into accounts like emergency, travel funds, investing, buying a new bicycle. Basically anything.
Brokamp: Saving for a new car, whatever.
Southwick: Anything you want to save for.
Brokamp: Yup.
Southwick: All right, now let's see where the money goes. So once we've automated our budgeting, the money needs to go out to pay some bills. Womp womp. Do you guys also automate your bill pay?
Brokamp: Yes, definitely for the big bills. The regular payments like the cellphone. Things like that. Credit card payments. And in some ways we do it where it is automatically billed to the credit card, and then we use our bank account to pay the credit card off, so that way we get the credit card points.
Southwick: Hey, who doesn't want some points?
Brokamp: That's right. And for every opportunity I can, I get some sort of notification that the bill is coming due and it's been paid. So I'll get a text from T-Mobile, my cell service saying the bill has been paid every time it gets paid off.
Brinsfield: I do the same thing with my cellphone. My mortgage. Just those regular, recurring bills knowing roughly exactly -- roughly exactly -- how much they are. It's pretty predictable every month, and so it's easy to automate those things. And for my credit card I don't automate the whole payment. I make sure I'm meeting the minimum payment each month so I don't get a ding on my credit report, but I do like the opportunity to go in and review the credit card statement before I actually put that money down. And it's so variable every month. After the holidays it could be a lot more than my normal spending.
Southwick: I think that's a thing that scares people about automating their bills, is that suddenly T-Mobile is going to bill them a bajillion dollars and they're going to miss it...
Brokamp: Right.
Southwick: ...and they're going to start losing all of this money to reckless billing, I guess.
Brokamp: Well, that's part of it. I recently had the experience of going to Florida to see my relatives over Thanksgiving and then about a week or so later, someone in Florida was charging things to our credit card. And because we have so much set up on automation, I actually didn't catch it immediately. It was American Express that caught it and called me, and it might have taken me longer. So I think that is something to consider, and depending on how much automation you do, you can sign up for things like gym memberships and things like that you totally forget about because it's constantly being billed, so you still have to take a look at it.
Southwick: Now that we've paid off all of our bills, let's talk a little bit more about monitoring and automating our monitoring. And here's where Rick gets to come in, because Rick, somehow we decided you were the pro at monitoring your bills.
Engdahl: I don't know why. It's the last thing I like to do.
Southwick: Well, that's just it!
Brokamp: That's it!
Southwick: The point is that you don't like doing it, so you automated it.
Engdahl: That is very true. I just set it up so that I get emails whenever anything happens and usually I just glance at the email and say, "Yup, that looks normal," and I delete it. And that's all there is to it.
Southwick: So you don't even have to go and say, "Yes, approve pay." It's just like, "Hey, you're paying this."
Engdahl: For the most part. If I see something that looks weird, then I'll go check it out and say, "Hey, well that looks weird."
Southwick: So did you use like Mint? At what end of the process do you set up the alerts?
Engdahl: I do it through my credit union account. It does the same thing that Mint does. I use to use Mint. That works fine, as well. I found that Mint sent me a lot more emails about things I didn't care about just because it tries to help you in ways that you may or may not want to be helped. With a bank account, it was much more just whenever a bill comes in, or a bill gets paid, or an account hits a certain dollar limit, or whatever you set up, you get that email. And every bank is going to be different, of course.
Brokamp: That last one is important with the whole goal-based investing. Like you've decided, let's say, you're going to kick off 2017 by saving more in your 401(k), and saving for next year's holidays, and saving for the vacation now. You're getting all this money taken out of your checking account, so chances are if you don't then look at your checking account, you might get close to overspending, because now you have to get used to this new amount in your checking account. So you have to set up some sort of alert that says to you, "You're pretty close to whatever set amount."
Southwick: Running out of money.
Brokamp: Exactly. And that says to me that whatever you're doing, you need to slow down a little bit and wait until the next paycheck.
Brinsfield: And the first time you put your automating through your paycheck, you have to allow a little bit of buffer for errors so that your checking account doesn't go low or negative.
Brokamp: Right.
Southwick: Yeah.
Brokamp: But the good thing about the goals-based budgeting is the reason that money has left your checking account is because you are funding your goals. So then it's OK to spend what you have left over, because you've taken care of the important stuff. You just have to have some sort of alert to let you know that you're getting too close to a balance that's uncomfortable or inappropriate for your situation.
Engdahl: Could I just throw in, here, that you guys or money expert types are making maybe this sound complicated. Like this is a really sophisticated way to do your money. The real benefit of this whole automation thing is that if you hate dealing with money, it just all happens. If you set it up once and forget about it, it's really easy. And for people who don't like to think about money all the time, this is the one for you.
Southwick: Right. The one thing that's going to make your life in 2017 a lot easier.
Engdahl: Or if your kid's graduating from college, or something, you help them set this up so that they don't have to have a headache about money all the time. It just happens.
Southwick: And then you're good for the year, to some extent.
Brokamp: Right. And probably for at least a year, and every year you should evaluate it. If you're saving for college or saving for retirement, you want to make sure that you're saving enough and all that stuff. But if you do set it up, that is the benefit for the most part. You're on cruise control for a good year or so.
Southwick: Just crank up the radio. Listen to your tunes. Drive down the highway. You're crushing it in 2017.
Brokamp: That's right.
Southwick: Everything you accomplished in the first week of January. Boom! Well, then let's talk about where automating maybe doesn't work out so well.
Brinsfield: Yeah, there could be a few instances where there's a pain point here or there. Not everything is set up for autopilot. There are certain companies, or online platforms, that only let you schedule a certain number of automatic payments. It requires you to check in every six or 12 months to reset that automatic payment, so you're not getting 100% cooperation from all the other parties that you need to pay or save for. Bro mentioned checking in once a year, but if your circumstances change by quite a bit (maybe you have a compensation adjustment), it sounds really nice, but it can lead you to actually spending more because you haven't targeted that additional money to go into a savings account of some kind.
Another downside is that some things that can be automated come with a cost premium. I had mentioned paying my auto insurance, for example, through my paycheck, which is really convenient. It equates to maybe $100 more that I'm actually paying for the premium every year, but it's worth it to me to know that it's taken care of and I don't have to worry about it, rather than saving that $100 and being more stressed about it. So there is a balance, there.
And then finally, if you think about all of this, (the systems working perfectly in unison), it really makes it hard to switch a bank account, or switch your primary credit card to something else, because you really don't know all the ways that automation is affecting that account until you...
Southwick: Like the whole machine just falls apart.
Brokamp: Yeah.
Brinsfield: Right.
Southwick: So I guess make sure that whichever bank you go with to set up your accounts -- make sure it's one that you are really, really happy with.
Brinsfield: Right. This isn't something that you would set up for the purpose of getting a $100 bonus deposit and then have to redo it at another bank a few months later.
Southwick: This is your forever-bank. Aw!
Brinsfield: And the bank will be happy to know that, as well.
Southwick: Right, yeah. Maybe mention that to them and then maybe you'll get, I don't know, a free mug.
Brokamp: A toaster. Do they give out toasters at banks anymore? I don't think so.
Brinsfield: Pens. Pens and lollipops.
Southwick: I'll take a pen.
Engdahl: You're not supposed to keep the pens.
Brinsfield: They've got so many of them.
Engdahl: It was not a gift.
Brokamp: And this chair. I'm taking this chair, too.
Southwick: To be fair, I paid for that pen. I have paid dearly for that pen. I deserve a pen. Well, I think that covers it. Hopefully we've convinced some people to take the plunge and automate their finances as much as possible. Do you think we did it?
Brinsfield: I hope so.
Engdahl: New Year's resolution checked off the list for a lot of people, I bet.
Brokamp: That's true.
Southwick: I hope so. Well, it's going to make their lives a whole lot easier in 2017. One less thing to worry about if you just take some time and set this all up. Like maybe you can take an afternoon or day to get this set up?
Brokamp: Probably. Especially if you are incorporating all your finances, I think that's a great idea. To just take a whole day to take care of it all. It may not sound very fun, but you'll feel a heck of a lot better when you're done.
Southwick: Yeah, future self will thank you.
Brokamp: That's right.
Engdahl: And about a year ago we learned that after you take a day to do something like this, you get to treat yourself.
Southwick: Treat yourself!
Engdahl: Go out to dinner. Do something nice.
Brokamp: That's true.
Southwick: We did talk about that. So, all right. Go automate some stuff and then take your favorite self out to dinner. Megan, thank you for joining us. It's always nice to have you in the studio.
Brinsfield: It's a pleasure. I'm glad I get to kick off 2017 with you guys. My favorite people.
Southwick: Thank you.
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Southwick: This month I've enlisted the help of a few guinea pigs. Do you mind me calling you guinea pigs?
Rathner: It's on my email.
Southwick: OK, great. To try out a few apps to help you manage your life in a series we're calling There's an App for That. Not terribly creative.
Brokamp: Very clever.
Southwick: Whatever, all right. So today we're going to talk about some apps to help you manage your money. Joining me is Naima Barnes. She's a financial planner with Motley Fool Wealth Management (a sister company of The Motley Fool) and Sara Rathner, a friend of the show, a Fool, and a money savant.
Rathner: Sure.
Brokamp: Totally agree with that.
Rathner: Oh, well, if Bro says it, it must be true.
Brokamp: It's true. We've worked together. I know.
Southwick: So staying on the topic of automation, Naima, you're going to go first. You looked at an app called Digit.
Barnes: Yes, I did.
Southwick: What does Digit promise to do for you?
Barnes: So Digit promises to save mindlessly for you, so they move over money a little bit, either every day, a few days, depending on what your spending looks like. So it could be anywhere from like twenty cents up to fifty dollars. So far I've saved about $480 with them...
Southwick: Wait. What? When did you set it up? How long have you been doing it?
Barnes: I've had it for the second go-round at least since I moved here, so about a year.
Southwick: Wow!
Barnes: And just mindlessly moving over money every few days.
Brokamp: Basically it analyzes your spending habits and your income habits, right?
Barnes: Yes.
Brokamp: And says, "OK, we think we could safely move this amount over to this other account."
Barnes: Yeah. And the really cool thing is that they send you a text message every day of what your balance is, and then you can reply back with some keywords like "how much have I saved already? Can I add more?" And they'll do that for you.
Southwick: It's smart enough to protect you.
Barnes: Yeah.
Southwick: So you hook it up to your savings account? Your checking? What accounts do you hook it up to?
Barnes: You hook it up to a bank account -- a checking account -- and then it will move money into their own little savings account, which is FDIC insured, which is really cool. And from there it will move money over, periodically. You can withdraw it at any time, and they will also cover overdrafts, which is also nice.
Southwick: Is it a free app?
Barnes: Yes, it is free on Android and iPhones, and you can sign up either on their website to use through the text message or through the app.
Brokamp: You can transfer money just by texting them, right? It's pretty easy to move money from the Digit account.
Barnes: Yes, very easy.
Brokamp: And they don't pay interest, but they pay like a bonus every three months.
Barnes: Yeah. So if you have at least $100 with them, for every $100 you have with them for three months they'll give you five cents. Which is pretty cool.
Southwick: I'll bet. So bottom line -- do you like it?
Barnes: I love it.
Southwick: Oh! Not to the like. A love! Awesome. All right, so that's Digit. And it's Digit or Digits plural?
Barnes: It's Digit. Digit.co is the website.
Southwick: All right, cool. So Sara, you looked at PersonalCapital. Now PersonalCapital I think of as being a robo advisor, but the app does a lot of things, right?
Rathner: Yeah. I would describe it as a combination of -- like if you've used Mint.com or Mint -- budgeting plus eventual financial advisement/investment management. It works at most levels, so it can be what you want it to be and what you're willing to pay for. So the app is free. Signing up for the site, and creating an account, and attaching various accounts to your account is all free, but then I think what happens is once you hit a certain net worth minimum (and I'm not sure what that number is), the sales calls begin.
Southwick: Oh!
Brokamp: I think it's $25,000. I think you have to have at least $25,000 for them to manage your money.
Rathner: Right. And so I did get a sales call and they wanted to set me up with a 20-minute phone call with a financial planner, and I had to be very nice. And then I had to get slightly less nice because they were pretty insistent and I was just like "I have financial planners in my life," because I work at The Motley Fool and we have those resources, here, and I can just walk down the hall and ask Bro a question or ask Naima a question or something like that.
And so I didn't personally want to take advantage of that. I'm sure plenty of people would love the opportunity to work with a company that has this really great interface that can give you advice about how you should allocate your money but also manage your money if you would like to pay a fee. I'm just more of a DIYer, so that wasn't something I wanted to take advantage of.
Southwick: But you did take advantage of one aspect, and if I recall you were very pleased.
Rathner: Yes. So the app is pretty cool. I would say if you want the whole enchilada, you should just go to the actual website and log in, there, because you'll see all of their features. One of the ones I really liked was the 401(k) fee analyzer because it looks at all of your retirement account holdings -- so not just your 401(k), but it will also look at your IRAs, too -- to give you some numerical data, because I feel like some of your listeners would want actual numbers to go with this.
Assuming I max out my 401(k), which I do, and I get a 7.5% return by the time I'm 67 (which is in 35 years and I receive a $4,800-ish match from The Motley Fool every year), before my Roth IRA and my 401(k) combined, I would have lost 10% of my earnings to fees by the time I retired at 67, which is over $0.5 million...
Barnes: Whoa!
Rathner: Yeah. The thing is you see that 10% and it doesn't seem like much, and then you put a number behind it.
Southwick: Number and time.
Rathner: Time.
Southwick: Time times fees can be quite sobering.
Brokamp: Right.
Rathner: Right. And then they give you this thing like this number equals X number of years of your retirement that you could have funded with this money, but instead you paid fees on your investments. So then I redid my 401(k) allocations, because I have skills, and there were a couple of allocations that I had, had from a couple of years ago that I was able to pick options that were similar but had lower expense ratios. (If you want help with this consult a financial planner), but I just did it myself.
And so I was able to bring the fees down on my 401(k). And here's where the numbers get really tiny, but have a big impact. I think I was paying like 0.22% in fees on average, and I brought it down to 0.20%, which does not seem like a lot. However, I said before I was going to lose 10% of my earnings to fees in 35 years, and now I will lose 7% of my earnings to fees, which is just under $400,000. It ended up being a difference of $156,000 in fees, so that could probably fund my retirement for like three years.
Southwick: Right. So because of the PersonalCapital app, you were able to rejigger your 401(k) and basically have $150,000 more dollars for your retirement.
Rathner: Yup. And I did not pay a dime.
Southwick: The CliffsNotes.
Brokamp: The word on the street is the difference between Mint and PersonalCapital, Sara (and you let me know if you agree with this), is that Mint is better for people who are really looking to get control of their spending. It's more budgeting oriented. PersonalCapital is better if you are more interested in sizing your portfolio and retirement planning.
Rathner: Yeah, you could attach your credit card accounts to your PersonalCapital account and it will analyze your spending categories for you. I chose not to do that, because I didn't want to use it as a budgeting tool. I found for me it was more helpful as a snapshot of where I am in time and also as a way to see what small changes I could make to make a big impact on my earnings in the future. It really just took me like 15 minutes.
Southwick: Cool! So bottom line, PersonalCapital is cool to find you money. Maybe not so cool with the sales calls that follow up.
Rathner: I'm not a huge fan of sales calls.
Southwick: Not that anyone is.
Rathner: Not to knock PersonalCapital. Like you have to make money, somehow, so I get it. And if people need help, then they're doing a good thing. But I personally did not want that feature, so I did not take advantage of it.
Southwick: And you don't have to, because the 401(k) analyzer was free, right?
Rathner: Mm-hmm.
Southwick: All right, yay! Well, that's it. That's it for There's an App for That.
Brokamp: Thanks, guys.
Southwick: Thank you so much for joining us. All right, well that's the show. I want to thank Sara, and Naima, and Megan for coming in and helping us kick off 2017. And I don't know. How would you describe the way they helped us do it, Bro?
Brokamp: Fantastic style.
Southwick: All right. Our email remains [email protected]. Join us next week as we tackle another way for you to take control of 2017 and make it fantastic. What? What did you say?
Brokamp: Fantastic style!
Southwick: Oh, it doesn't make any sense. I don't know why I'm laughing. All right, whatever. The show is edited with fantastic style by Rick Engdahl. Uh, stay Foolish everybody and have a great 2017!
