"How can I retire by 62?" As a Certified Financial Planner, I often hear this refrain, or some similar variant, from my clients. Achieving a big financial goal of any kind is a lot like weight loss: There are lots of rules to follow and tricks to use, but in the end, it mostly takes hard work, discipline, and dedication to a mind-numbingly boring routine. More than anything else, some major behavioral changes can increase your odds of realizing your financial dreams.
One such change that has completely altered my life and put me on the path to financial independence is the ability to ask questions. It sounds simple, but it's incredibly effective when put into practice. Asking questions can save you a few bucks on a small purchase or add tens of thousands of dollars to your retirement accounts. Let me start with a small and simple example.
A few weekends ago a friend and I were stocking up on snacks at the grocer for our upcoming hiking trip. When we got to the counter the bill came to $100. This seemed high to me, because many of the items we picked up were all on sale. Turns out the sales were exclusive to store cardholders. Being out in the mountains of Virginia, and not my home base of D.C., I did not have the store card. In an effort to get the savings, I simply asked if the clerk would use his store card for me -- and he did! This simple question took $11 of the order and saved us 11%. While $11 can barely buy a good lunch anymore, if I could invest that money in the stock market and get an 11% return, that would be a very appealing opportunity.
Make your questions less stupid
You may be thinking, "You don't need to tell me to ask questions!" That may be true, but it's equally important how how you ask the questions. Recently, my bill payments got thrown off auto-pay. I ended up getting charged a late fee for a missed auto lease payment. In addition, I got charged interest and a late penalty on my credit card bill. I had to call both lenders' customer care lines to ask for a waiver of these late charges. Note the differences in the questions I asked and the responses I got:
- "You overcharged me. Can you waive my fee?" The lease company declined.
- "I see these fees on my account statement that I don't understand. Can you explain what I did wrong that led them to be charged to my account?" The credit card company not only offered answers on how it happened, but also voluntarily waived the interest charges and the late fee!
In the first example, I directly asked for the waiver -- that feels more like a demand than a request. In the second example, I asked how the charge got there and let them offer solutions. How you ask your questions can dictate the flow of the conversation. No matter how difficult it gets, always ask in a nonaggressive tone and play dumb. In addition, be prepared for rejection. As in dating, however, perseverance pays off. Ask again. Ask to talk to someone else. "No" becomes an opportunity to find the person who will say "yes" and help save your hard-earned dollars.
A kitten scratch can be deadly -- to your bank account
As you make a habit of asking questions (in the right way), you will open yourself up to opportunities that create a real impact on your finances. The incident that forever imprinted this on my psyche happened a few New Years ago. Long story short, a scratch from an unvaccinated kitten landed me in the ER for rabies treatment.
Rabies treatment requires a number of follow-up visits after the initial injection. And thanks to my high-deductible health insurance plan, I was on the hook for the first $5,000 of medical bills -- so it was important that I avoid more expensive emergency-room visits. So, to avoid further ER costs, I got my ER physician to document transport of the vaccine to my primary care physician for further administration (cases of rabies are so rare that few medical facilities carry the vaccine). However, the hospital did not transport the vaccine to my PCP as promised, so I ended up back at the emergency room.
In the end, I owed the hospital over $3,000. I paid over $2,000 for my care on New Year's, and I appreciated the care given. But the thought of paying for that second emergency-room visit was grinding my gears, as the hospital had not adhered to our agreed-upon terms. I decided to ask the hospital to waive my service charges for the follow-up injections. I was denied.
Not to be deterred, I submitted my marked-up medical records to the hospital and asked them why I was on the hook for services that should have occurred elsewhere. After a board review, the hospital waived the follow-up care. It took two phone calls and one hour of my time to cut $1,000 off a $3,000 bill -- to save 33% on this expense. I don't know about you, but I don't make that much per hour. The hospital would never have made this deal out of the kindness of their heart. I had to ask, and ask with verve. But it paid off in spades.
Don't accept the status quo
Inertia, or "status quo bias," is the tendency to stick with the current situation. It plays a huge part in deterring people from asking questions. Once you've adjusted to the situation, why bother questioning it?
In their book Nudge: Improving Decisions About Health, Wealth and Happiness, Richard Thaler and Cass Sunstein cite a 1980 study on the investment choices of college professors in their TIAA-CREF pension plan. The study discovered that the median number of times college professors had changed their asset allocation was zero. A more recent Investment Company Institute study found that across the analyzed 401(k) accounts, only 25% of participants had made any changes to their asset allocation. Yes, a full 75% of workers like you and I make no changes to their 401(k) accounts!
If something as important as your retirement savings doesn't motivate you to change your circumstances, it's easy to see why so many companies set bills to auto-renew, claiming it's for your convenience. To get out of your inertia funk and build wealth for yourself, here's an example of a question you should be asking your retirement plan sponsor, your financial advisor, or even yourself: "How can I lower the fees I pay in my 401(k) account?"
The default investments for most 401(k) plans nowadays are target-date funds -- mutual funds that invest you in a mix of assets and automatically change your asset allocation as you approach your target retirement date. Target date funds generally shift your capital from more high-growth investments to more stable, conservative investments as time goes on. The Investment Company Institute found that target date funds within 401(k) plans had a median plan-level average expense ratio of 0.68%, while the asset-weighted average expense ratio for index mutual funds in 401(k) plans was 0.13%. Let's consider a 50-year-old worker who has a 401(k) balance of about $124,287 -- the average amount, according to Vanguard's "How America Saves" study. Let's further assume this person will work for 17 more years and retire at Social Security's full retirement age, adding no additional funds to their account while earning a modest 6% return on their investments.
When this person hangs up their hat for good, they would have about $300,000 if they had invested in the target date fund. If this person had chosen to invest in index funds instead, they would have about $328,000. By simply questioning the default funds in their 401(k), this savvy retiree might have added $28,000 to their nest egg!
Asking questions is the largest contributor to my familial wealth, outside of my employment
How can I make this claim? The experiences and rules of thumb explained in this article have trained me to ask questions that saved me money on meals, cut bills I otherwise would have paid, and landed me big pay raises. Each question has added money to my pocket. These "found" dollars go into the great compounding machine that is the stock market, where the businesses I invest in can grow my wealth exponentially.
To burn these lessons into your brain, let me repeat: Asking questions is the largest contributor to my familial wealth, outside of my employment. So be bold and start asking questions. Spend less mental energy trying to beat a market that is outside of your control and instead add value to your next financial decision by asking questions. Your future self will thank you a million times over as you lie on the beach because your time is your own.