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Transcription
Maria Aspan:
I was tired. Didn't really look at the receipt as I was paying and used my debit card to pay, and a few days later, I checked my bank account, and I noticed that the taxi cab had overcharged me. It was like a $15 fare, and there was something like $50 taken out of my bank account.
Bobbi Rebell:
You're listening to Financial Grownup with me, certified financial planner, Bobbi Rebell, author of How to be a Financial Grownup, and you know what? Being a grown up is really hard, especially when it comes to money. But it's okay, we're going to get there together. I'm going to bring you one money story from a financial grownup, one lesson, and then my take on how you can make it your own. We've got this.
Bobbi Rebell:
Hello Financial Grownup friends. We have all been there. We're tired. We just want to get home, and we don't want to look at the bill all that closely. Sometimes, we don't even look at the bill at all, and then we sign, and then of course, we don't even keep the receipt, but for our guest, that had consequences one time, and it was a big learning lesson.
Bobbi Rebell:
Welcome everyone. Special thank you to our new listeners. Thanks for checking out the show. I would love to hear how you heard about us, so please DM me, and let me know on Instagram at BobbiRebell1, on Twitter at BobbiRebell, or you can email at hello@financialgrownup.com.
Bobbi Rebell:
Now, to our guest. Maria Aspan is an award winning journalist and the editor at large of Inc magazine. Her new book is called Startup Money Made Easy, Answers to all your Questions about Starting, Running and Growing your business. Great material for business owners, but also a lot of eye-opening info for all of us just to apply to how we access money for anything that we need in our lives. Maria also shared a great money story that may surprise you with how it played out. Here is Maria Aspan.
Bobbi Rebell:
Hey Maria Aspan, you're a financial grownup. Welcome to the podcast.
Maria Aspan:
Thank you Bobbi. It's so much fun to be here.
Bobbi Rebell:
Congratulations on your new book. You are editor at large at Inc, and you have a new book, Startup Money Made Easy. Inc answers all your financial questions about starting, running and growing your business, and what I love about this is that it focuses on something a lot of people ignore in books for entrepreneurs. They focus on the building of the actual service or product, but a lot of the times it comes down to money.
Maria Aspan:
Yeah, I mean money is just such a part of every single decision you make throughout your business from startup, to growing, to selling it and retiring. So, we really tried to take just sort of an accessible and fun approach to something that can seem really daunting and somewhat like financial and high tech. We just tried to make it very easy, and if possible, fun.
Bobbi Rebell:
Well, it's definitely exciting and fun when you're successful at raising money, but we're going to talk ... We're going to pivot a little bit and do your money story, which has to do with spending money and how you facilitate that. A lot of people are very wary of credit cards these days and for good reason. There are a lot of dangers of credit cards, but you actually had an experience earlier in your life where you learned the merits of credit cards. Tell us your funny story Maria.
Maria Aspan:
That's right. I am a financial reporter who is very pro credit card. To your point, debit cards, they allow you to control your spending and to budget more, but as I also discovered when I was a 20-something who had actually just started reporting on credit cards and debit cards, you don't have a lot of protections with debit cards when somebody uses your cards for fraud, and this was a kind of everyday story. I was coming home from a work event. I had taken a cab. It was the end of the night. I was tired. Didn't really look at the receipt as I was paying, and I used my debit card to pay. And a few days later, I checked my bank account, and I noticed that the taxi cab had overcharged me. It was like a $15 fair, and there was something like $50 taken out of my bank account from my debit card.
Bobbi Rebell:
They were hoping you wouldn't notice that, of course.
Maria Aspan:
Again, financial reporter. They picked the wrong person.
Bobbi Rebell:
Well, I think they probably picked many people, but they finally picked the wrong person and got caught.
Maria Aspan:
But what was really infuriating was that I complained to my bank. My bank was like, "Well, do you have the receipt? Because otherwise, we can't ... It's your word versus theirs, and we can't give you the money back." Didn't have the receipt. Lost that $50. I realized then that I had to start applying some of the lessons that I'd been learning about the credit card industry, that even though it's really easy to get in over your head with credit cards, they're also basically an interest free 30-day loan if you pay them off at the end of the month, and any money that gets taken out is the bank's money, not yours until you pay that bill.
Maria Aspan:
So, I actually had ... Recently, I had signed up for like a free trial month for a subscription service, one of those fashion subscription services, and I canceled the trial at the end of the month, and they didn't process it. A few days later on my credit card this time, a bill for $175 showed up. It was like, "Wait. No. I didn't. I did not spend $175 on that."
Maria Aspan:
But this time, I was able to complain to my credit card company and actually to the subscription service. They reversed the charge, and it was credited back to my account before I had to pay any bills, so I never had to put out that money even though they overcharged me. The bank had it covered.
Bobbi Rebell:
Right, because credit cards work very differently from debit cards in these kinds of situations.
Maria Aspan:
Yes, and they basically are a loan, and the credit card company is the one who's fronting you the cash, and also the credit card company has more obligations to cover you in the case of fraud. Whereas with debit cards and bank accounts, there are many fewer protections for consumers in the case of fraud.
Bobbi Rebell:
And I think that's something that's got lost in all the backlash about credit cards is that while debit cards do offer a lot of benefits, especially for young people that are first learning to manage their money, there are limitations. There's also a big danger to debit cards.
Maria Aspan:
There is, and there's also the fact that using a debit card doesn't necessarily help you build credit, which can be important when you're working up to getting a mortgage or car loan or in the case of a lot of the entrepreneurs that we talked to, a business loan. If you're using a credit card and paying it off every month and creating a record and a credit history, that can really help you down the road in getting a cheaper loan when you need it.
Bobbi Rebell:
So, what is the lesson from this money story for our listeners?
Maria Aspan:
Apply for a credit card and use one responsibly. I will say that I try to put pretty much all of my spending on my credit cards, but I also set up a lot of alerts. I check my balances. I have alerts set up so that I get a text message if there is an online transaction or a foreign transaction or a transaction above a certain amount. So, I'm just alerted if I'm in New York, but suddenly my credit card is buying $500 worth of material in Russia, it's a sign that something is wrong.
Bobbi Rebell:
I think that's a big sign. Absolutely.
Maria Aspan:
And of course, I pay it off every single month. Then I would say that's probably the biggest lesson about using credit cards is don't use them to get into more debt than you can afford to repay regularly.
Bobbi Rebell:
Absolutely, and also they're a way to track your spending and know what is going on. You can quickly scan and know what you spent versus if you're using cash, then you have to actually write down what you're doing. The credit card takes care of that for you. So, I think that's a good benefit as well.
Maria Aspan:
Actually, since we're coming up on tax time, I should say that it really makes doing my taxes easier because at the end of every year I download my credit card's annual report, and I just have a list of all the different expenses that I made, which is something that paying in cash doesn't give you.
Bobbi Rebell:
And they also categorize them, which is nice, which is something entrepreneurs can really use. Let's talk about your everyday money tip cause it's something that's for happy occasions but can be a challenge for many people.
Maria Aspan:
Yes, so my tip has to do with my friends getting married and all of the fun events that happen around other people's weddings, but also all of the expenses that are incurred. A few years ago my circle of friends started getting married. I started being asked to be in weddings, which of course involves bridesmaid dresses-
Bobbi Rebell:
Which you always wear again.
Maria Aspan:
Which you always wear again.
Bobbi Rebell:
Always, always.
Maria Aspan:
Always so flattering and made out of such great material and totally worth the $300 or so.
Bobbi Rebell:
It's a lot actually. I haven't been a bridesmaid in a while, but 300 bucks is a lot of cash for an often one-time wear.
Maria Aspan:
It really is. And even if they're only one-time wear, they're made out of this cheap, gross fabric that's just not super comfortable even for that one night.
Bobbi Rebell:
[inaudible 00:09:11] your friendship.
Maria Aspan:
Definitely, and not to mention all of the wedding showers and the bachelorettes and the gifts, and these are all wonderful things that I'm happy to help my friends celebrate, but to your point, testing the friendship. They get to be very expensive, and there was one year when I had three or four such weddings sort of staring me down at the end of the summer, and I realized that this was going to be several thousand dollars that I didn't want to have to pay for all at once, so I set up a separate online savings account and just put $50 a week into it towards weddings. I think I started this in January. By the time September came along, that didn't necessarily cover all of the expenses, but it helped cover a lot of them, and I felt absolutely no guilt cleaning out that savings account to cover all of the bills from these different weddings.
Bobbi Rebell:
It cushioned the blow.
Maria Aspan:
It really did, and now, I've kept that savings account up. I've been a bridesmaid less, but now I've renamed it vacation weddings. So, I use it for like plane tickets or fancy meals out every once in a while and it's a lot of fun.
Bobbi Rebell:
And guilt-free. Let's talk about your book, Startup Money Made Easy, which as I said at the beginning, I love because it focuses on the fact that a lot of entrepreneurs really spend the majority of their time dealing with getting cash to fund the business. Even though they may romanticize the idea that they're going to be actively running the day to day business, that often takes a back seat to the need for cash. And what I found interesting that you talk about here is the fact that many entrepreneurs are limited in their options and often end up getting money through means that are really not the best.
Maria Aspan:
Right. One of the things that we find when we talk to entrepreneurs at Inc is that even though venture capital gets all of the headlines and [inaudible 00:11:05] backed startups in Silicon Valley are the most prominent ones. Most of the entrepreneurs we talk to use their savings or ask friends and family members or use credit cards or tap their retirement accounts to get their businesses off the ground,
Bobbi Rebell:
Which we think of as almost, "Oh, you shouldn't do that." The truth is that is the reality and that many people do that. And we hear ... For every story that we hear of people that cashed out their 401k and took out a second mortgage on their home and then they made it big, there are a lot of people that do that and then suffer the consequences.
Maria Aspan:
We absolutely don't recommend cashing out your 401K, but it's very much often what happens. And the other thing is just we talked to many more entrepreneurs that just use regular loans versus [inaudible 00:11:49]. So whether it's credit cards to go back to the beginning of this, or applying a bank loan, which can be ... It can take so much time and be so tedious with paperwork, but it's like the best interest rate you're going to get anywhere versus a credit card or an online loan. Or asking friends and family for money is another way that a lot of people gather the money together to get their business off the ground.
Bobbi Rebell:
So, is that your advice for entrepreneurs? Where is the best way to fund your big idea?
Maria Aspan:
I would say my first piece of advice would be to figure out how much money you need, and it may not be very much. We've talked to a lot of entrepreneurs who start their businesses for less than $5,000. But figure out roughly how much money you need. Maybe write a business plan. It's not fun, but it'll help you get your plans in order, and then figure out how you can gather that money together. You might want to work on your business part time until you figure out cash flow and the business is making enough money to support you because that's the other thing that we find when we talked to a lot of the CEO's of the most successful private companies in America. We pull the Inc 5,000 CEOs every year. Only 28% of them said they started paying themselves a salary immediately upon starting their business. 31% waited for a year before they started paying themselves. So, if you can't afford to go a year or more without paying yourself a salary from your business, maybe don't make it a full time endeavor until you've got it all figured out.
Bobbi Rebell:
Wow, lots of great advice and great advice in the book, Startup Money Made Easy. Tell us where people can find out more about you, the book and all that good stuff.
Maria Aspan:
Thanks so much Bobbi. You can find the book on Amazon, Barnes and Noble, Audible. You can go to StartupMoneyMadeEasy.com to find a whole list of sellers, and you can find me on Twitter or at my website, MariaAspan.com, and my Twitter handle is the same.
Bobbi Rebell:
All right, friends, let's do this. Financial Grownup Tip Number One. Choose the lesser of two evils. I agree with Maria, and absolutely I do not recommend cashing out a 401k, but if you are going to go for that cash in that retirement account, and I'm reminding you that is for your retirement, but if you're going forward anyway, look into borrowing from the 401k instead of just taking the money out. You can usually borrow up to $10,000 or 50% of the vested balance up to $50,000. At least with a loan you are paying interest to yourself. Just be aware that if you leave the company, you have to repay it, and the time you are paying back the loan, by the way, even if you're still at the company, many companies don't allow you to also contribute to that 401k. So then, that is a lost opportunity cost because those years when you're focused on paying back the loan, the loan money's not earning interest and growing for your retirement, and you're also not putting new money into the 401k for your retirement. So, try not to do it at all, but if you're going to it, the loan, depending on the terms that your company allows in line with the IRS rules, probably better than just taking the money out. But try to not do it.
Bobbi Rebell:
Financial Grownup Tip Number Two. If you set up a separate account to save for events like weddings or for vacations as Maria does, be sure to automate the deposits so it actually keeps happening.
Bobbi Rebell:
All right, before we wrap up, I want to invite all of you to check out my new podcast with my friend, Joe [inaudible 00:15:19] of Stacking Benjamins. It is called Money in the Morning. We take two recent headlines, talk about what we can learn from them to improve our own personal finance situation, to improve our own lives, and to learn from it about investing, about saving, and all that good stuff. And we keep it light by taping it live on Facebook, complete with audience participation.
Bobbi Rebell:
So, I hope some of you will join us. You can see a taping. Get the information by going to facebook.com/Istackbenjamins to check it out. We will leave a link in the show notes, and yes, it is taped live. So, what we do is we do not edit it at all. Whatever happens during the live taping, all my mistakes, are all out there. So, if you listen to the audio on whatever channel you listen to podcasts on, whatever app you listen to podcasts on, please be forgiving, laugh with us, learn from us, and most of all, just join us for the fun. We really would love to have you.
Bobbi Rebell:
And with that, everyone can learn something from Maria Aspan's book, Startup Money Made Easy. So, please check out the book. Big thanks to Maria Aspan for helping us all get one step closer to being financial grownups. Thanks guys.
Bobbi Rebell:
Financial Grownup with Bobbi Rebell is edited and produced by Steve Stewart and is a BRK Media production.
