Time For a New Personal Finance Playbook

A recent Wall Street Journal article titled Your Parents’ Financial Advice is Kind of Wrong painted a grim picture of how the rules around personal finance have changed over the years. The main idea is that the personal-finance playbook followed by past generations (like your parents!) that encouraged taking on “good debt” for school, buying a home, and then saving enough to send your kids to their dream college while also saving for your retirement doesn’t add up for many people the way it used to.

While a lot of points the article raises are valid (for example, tuition costs have made college prohibitively expensive for many), all is not doom and gloom when it comes to building wealth. There are many positive changes technology has made possible that can improve your finances.

Technology has changed almost everything about the way we live our lives, and it only makes sense that the way we think about money and personal finance should change as well. 

Below are just a few of them that we are most excited about with many more out there and many more to com.

We can earn money in different ways that work for us

How we earn a living has shifted and expanded as has the way we think about work.

We skip around. We take breaks in our careers. We start companies. We side hustle. We want to work on our terms in our way. We don't need a 9-5 job and a company willing to employ us to earn an income. According to one study, the freelance economy is growing three times faster than the traditional workforce in the United States. What was once considered a fringe employment model has now become mainstream. And in 2018 there were 30.2 million small businesses in the U.S., with nearly half of those being home-based businesses with no additional employees.

We value the ability to control our time. One of the most common reasons people drive for Uber is to make more money for themselves and their families. But the next set of reasons are about flexibility: they get to be their own boss and control their schedule to better balance work with life and family. And it’s not just Uber and Lyft providing more options to earn money on our terms. More specialized platforms like Upwork, Feastly, and Udemy tap into unique skillsets and make earning more money from the comfort of our homes realistic and worthwhile. 

These new work models bring unique challenges and considerations with a lack of provided benefits and not always having a steady stream of income being two worth calling out. But having more options than ever when it comes to earning money means that we can decide how we earn money to take care of our families and do the things we love. 

Automation makes debt management and saving easier than ever

For both debt management and savings, using technology to optimize and automate helps take decision-making out of the equation.

Managing debt and saving money is not easy, and the advice we got about the discipline needed to pay off debt and save money still holds. But technology removes the work that used to come with having that discipline, freeing up our time and providing confidence and reinforcement that we are on the right path.

Debt consolidation is not a new concept. What has changed is the many ways in which we can automate the payoff and reduce the stress that comes with it. Consolidating debt can help lower interest rates and automating monthly payments lets us avoid late fees and helps us pay off loans more quickly. 

And automatic saving tools take away the stress and hassle of having to figure out every month how much money we can be saving. Recurring contributions and automated cash sweeps into investment accounts help your money work hard for you without having to lift a finger. Even better if those savings are waterfalled across accounts to help lower your taxes as well.

Simply put, automation helps us create the habits which in the past were time-consuming and difficult to do ourselves.

For example, people participate much more in 401(k) plans when enrollment is automated. According to research by Vanguard, employee participation exceeded 90% in plans with auto-enrollment, compared with around 50% when people had to opt-in. Nearly double the % which is going to show what a difference automating a savings decision makes. Tools that help us automate the decision making around goals like emergency funds, IRAs, 529 plans, and long term savings accelerate savings rates and help us grow our money quicker. 

Investing those hard saved dollars has never been less expensive and more accessible

The world of investing has never been so accessible and it’s easier and cheaper than ever for most people to become investors. 

Saving money is the first step in order to have something to invest and the hurdle to investing those hard-earned savings used to be pretty high.

In the past, people couldn’t buy or sell a stock without paying 100s of dollars so trading relatively small amounts of stock would result in commissions worth several percent of the overall investment. Discount brokers like Charles Schwab and E*Trade brought commissions down significantly and introduced the option to trade directly online without having to go through a broker which led to the beginning of many changes in the brokerage industry. And as of last year trade commissions to buy stocks online went down to $0 at many brokerages.

With investing being one of the most powerful tools available to grow money this change has transformed the way we think about saving. You can now set up an array of accounts in minutes instead of requiring days or weeks of paperwork. You can now dedicate accounts specific to the particular goals that matter to you. And for each of those accounts, investment strategies that manage risk unique to your goals are now at your fingertips.

You don’t have to just park your short term savings in a bank account

Saving money isn’t always a problem, but deciding how to invest that money can be much harder.

Even just a few years ago, one of the reasons it didn’t make sense to invest smaller amounts of money was because any gains earned on the investment would probably be eaten up by the cost of investing - buying and selling the stock. For those who haven’t invested before there are now plenty of ways to start investing with small amounts of money. Many new (and older) brokerages want to make investing as simple and accessible as possible with easy set-up and low costs.

This democratization of access through technology and reduced costs means that there are other options for growing smaller, short-term savings besides low-yielding CDs and bank accounts. We can access higher yield investments directly rather than the low rates that banks are willing to provide for our cash.

Advice and advisors are accessible

One of the greatest advancements technology has brought to personal finance is the ability to automate parts of investing where in the past the only two options were to do it either do it yourself or pay someone a lot of money to do it for you.

DIY tools like Robo advisors have broadened access to basic investment strategies and advice. They're great when you're just getting started because they take the guesswork and timing out of the equation, they stick to the plan, they rebalance at set intervals, based on predetermined risk tolerance, and they help save us from making costly mistakes. For those of us who have straightforward needs and lower interest in actively managing investments, Robo advisors can offer an alternative solution and they do it all online with lower fees than in the past.

Robos aren’t the right solution for everyone, especially once your financial situation begins to increase in complexity (looking at you marriage, kids, and equity incentives). Partnering with an advisor offers valuable benefits that a Robo solution alone does not provide, but many investment advisors charge high fees and have large investment minimums. Fees can exceed 1% – 2% of your portfolio and minimum investments can start at $1 million or more. 

While working with an advisor is often still reserved for the very rich, technology has created a path to deliver affordable, dedicated financial advice as a fiduciary without mandating million-dollar minimums. Let us know if you want to find out more.

There has never been a better time to create a new personal finance playbook. 

Technology has fundamentally transformed how we earn, save, and invest our money and the help we can get doing it in ways our parents could never have imagined.

We will continue to follow our parents’ path for the things that still hold - like keeping our debt low, being disciplined about saving, and investing our hard-earned dollars thoughtfully. That path is timeless. But we have a new partner to walk that path alongside us. One that embraces all the innovations that can help us chart our own financial journeys. That combination will help us each go a little bit farther.