Pradeep: so I grew up in a village. My dad's a farmer. My grandfather was a farmer, So I was 10 years old. Uh, my brother was about, 12 or 13 and my parents had, a chance to send me and my brother, to the States
Jamie: Meet Pradeep. He's 35 and works at a large firm in Texas as a tax accountant when he was a young boy in India. His parents made the heart wrenching decision to send their young children away to have a chance at a better life.
Jamie: Pip and his brother left their home and their parents behind.
Pradeep: I don't think it hit me, right, like I'm leaving my parents, whereas my brother really struggled. I think my brother was at an age where he understood, like, hey, you're not gonna see your parents,
Jamie: but at least PDI and his brother were still going to be with family. They were sent to live with an aunt and uncle in Kansas.
Pradeep: they had their small businesses and, on the weekends, we would help out, but money was always tight. There wasn't like overspend of anything. It's just like what you needed, right?
Jamie: Even though money was tight. PDI was astonished by how plentiful everything was.
Pradeep: I was amazed when I first stepped foot in like a, you know, a grocery store like Walmart, we're used to going in, to the market to get fruits and vegetables, here. It's like, what is this? Like, you can just get everything at one spot. It was kind of culture shock.
Jamie: It wasn't until PIP got older that he understood what his parents sacrificed so he could have a better future.
Pradeep: I really, really feel for my mom. I can't even imagine what she had to go through, just to send her boys away. For, you know, for a mother that, Oh,
Jamie: this hit home for Pradeep when as a teenager fighting with his brother, their uncle took them aside the
Pradeep: He's like, do you even understand what type of a situation you're in? Your mother had to put a rock on her heart to send you guys here?
Jamie: Not surprisingly, the whole experience of moving to a new country and finally understanding his family sacrifice affected how Pradeep thinks about money.
Pradeep: No one like really sat us down, but I understood the value of money just because I had started working when I was 16.
Jamie: PDI is engaged to be married and he and his fiance already know that they wanna have kids right away. PDI wants to make sure that his children will have a more comfortable childhood than he did.
Pradeep: I know I could do better. I want to do better I want to provide what I didn't have, if I want to like buy them shoes, if I want to, send them to college, I want to do it with my money where they don't have to worry if they want to go to education, that's fine. They want to start their own business. That's fine. I want to be there to help them. And it's like, I can't help them if I don't put away enough for myself also. So I think that's what motivates me. It's I want to have enough to make sure that what I didn't have, they'll have.
Jamie: and that's where we'll start today. I am Jamie Rowe and welcome to What Should I Do With My Money? An original podcast from Morgan Stanley. We match real people asking real questions about their money with experienced financial advisors here at Morgan Stanley. We work with a range of clients. Some are experienced investors, others are new to working with a financial advisor. On this show, you get a front row seat to hear what these initial conversations are like and get answers to some of the questions you might have yourself.
Jamie: Pradeep is very clear about what he wants to do with his money. He wants to make sure his future kids can grow up without worrying about money like he did, but he's not sure how to make that happen. He has about a hundred thousand dollars in a brokerage account and another a hundred thousand in a savings account as a safety net. It makes sense that he feels protective of his money and his family. After all, he felt like money was always scarce growing up, but as putting as much as possible into his savings account, the right approach for him to take, and are there other financial tools he can take advantage of to help him keep his family financially secure?
Jamie: Pradeep is only just starting his money journey, so he has a lot to consider, but he isn't sure he has enough investments to justify talking with a financial advisor. To help Pradeep understand what his options are, we have Ramiro, a Morgan Stanley financial advisor. While some of our advisors specialize in working with clients who have assets of half a million or more, Ramiro is part of a team that works with folks whose investment portfolios might start as low as $25,000.
Ramiro: My family is from Chihuahua, Mexico, which is about four or five hours south of the border. So they came over to the U. S. in their mid twenties. I was, their first child that was born and raised here in the States. growing up in, A traditional Mexican household money was never a topic of conversation at the dinner table? We talked about everything else but money. It was really a taboo topic, so I didn't really grow up, having a good understanding of how all this money stuff worked, and fast forward to 2008.
Ramiro: My family was greatly impacted by the financial crisis, and I was a kid at the time. I was right around the corner as my parents were having that conversation about, what could we have done differently?
Jamie: When Ramiro was in school, he started to develop interest in learning more about how to manage money, and as he got older, he started taking business and investment classes and eventually became a personal banker.
Ramiro: It's a great place to start building a financial foundation. But after a few years doing that, I felt that I was limited as far as the impact that I could provide. So I figured it was time to challenge myself, learn more and step into the wealth management side of things.
Jamie: Ramiro and Pradeep have a lot in common and a lot to talk about.
Pradeep: Oh man, I have so many questions. I don't know where to start .
Pradeep: Cause you've also known like your parents are immigrants. I mean, we've never really had that money talk I feel like between me and you, like it was just Hey, you gotta be good with your money. You got to take care of this and this, whether it's parents, whether you're a sister or brother, so it's kind of nice to have a conversation that understands that you didn't really have that money talk, right?
Ramiro: Being first generation Americans, We have that responsibility, so I made it a mission to step into the field to be able to help out my parents, my family members. right? We have that responsibility to learn and to really set up, the generations behind us for financial success.
Pradeep: I completely get that. that's exactly what I mean. So the reason, I, started thinking about, looking into getting a financial advisor, because life gets busy and I know that with work, and then, Eventually getting married having kids. I'm not going to be able to just like be there and, you know, research a stock for 23 hours a day. Five years from now, I want to, work for somebody still, make sure I get my CPA license, start a family together. how can you help provide me that like, Hey, at this year you should have this, this year you should have this just going forward.
Ramiro: Yeah, absolutely. So number one, what we would do is take a look at your income and expenses, right? It's really important for us to have a detailed summary of what's coming in from an income perspective, but also what's going out, right? That's gonna take. Into consideration things such as, you know, mortgage or rent, payments, utilities, food costs, and those other expenses that come along with living life. And ultimately what that allows us to do is see what opportunities we have to save and invest more money towards our goals. Once we have a good understanding of your income and expenses, before we think about investing, we want to ensure that you have a secure financial foundation. The first step there would be to ensure that you have a three to six months. Emergency fund to cover anything that may come up unexpectedly?
Pradeep: okay. That's fair
Ramiro: usually with an emergency fund, we recommend keeping it in a savings account or even a high yield savings account. Again, think of this more so as an insurance policy, so it's there when you need it, but you're not taking any risks In the event that you do need it, we want to ensure that it's there for you. Once we have our emergency funds secured, now we start having a conversation about investing for those financial goals that you have.
Pradeep: what advice do you have soon to be parents, you know, what they start doing? Like, at what point do you also create a trust At what point do you make sure that your child is going to have college funds when they, are out the door 20, even if they're not out the door, like I want leave them something. I also them a cushion of where, least there's a house or there's some money in the trust that you get like, is it just the 529 plan or how can a soon to be parent plan for all that?
Ramiro: Well first of all, congratulations in advance. Um, I think it's amazing that you're planning for this life event so far off in advance, which is a good tell of a parent to be so. As we approach the birth of the child, number one, we want to make this as stress free as possible. You'll have enough to worry about once the baby comes, and we don't want money to be a part of that worry. So I would definitely recommend having enough cash set aside to cover those expenses that come with the birth of the child, whether that be medical bills, diapers, or even clothing.
Ramiro: We want to ensure that's not one thing that we worry about as the child grows. There's gonna be other expenses that come along with it, right? Whether that be daycare, they decide to join sports, ? Other clubs and events. And we need to factor those things into our budget because those expenses will change.
Pradeep: Okay.
Ramiro: So once you have a good understanding of what your cash flow is looking like for the future, and what excess cash you have to put. To work towards your investment goals. The next step would be to really take a look at the investment vehicles that are gonna help depending on the type of goal that you're working towards.
For example, if your main goal is focusing on retirement, we could take a look at making sure that you're making sufficient contributions to your company's 401k plan. Once we have that fully taken advantage of, we'll explore other options such as individual retirement accounts or IRAs, and this could include the use of traditional or Roth IRAs there's a couple factors to consider when choosing a traditional or a Roth retirement vehicle. In the case of traditional retirement vehicles, you are placing money before tax. Growing tax deferred and ultimately tax when you take the money out. So this could be advantageous for you if you're in a high tax bracket now and expect your tax bracket to be lower in your retirement years. In the case of the Roth 401k or IRA, you are putting after tax money, which grows tax free and you are not taxed at the time of retirement. This could be advantageous for someone that is in the lower tax bracket now than they anticipate to be in retirement.
PRADEEP : Okay. That's fair I completely get
Ramiro In terms of saving for your child's future educational costs. A good first place to start would be a 5 2 9 plan with five two nines. There come tax advantages. You're able to make post-tax contributions to a 5, 2, 9, and as long as they're used for eligible tuition purposes, room and dorm costs, or any other costs associated with them going to college, the earnings on that money is tax free. The next step would be for us to take a look at taxable accounts with taxable accounts. There aren't any immediate tax advantages, however. They don't come along with contribution limits, so whether you're looking to set your child up with an UTMA or an UGMA account or looking to set up a brokerage account that you're eventually able to hand off to your heirs, that would be the next best step for you.
Once we have the proper investment vehicle opened, we will take a look at what our investment strategy is going to be. There's a few things that we'll take into consideration for this. Number one, we'll take a look at your time horizon or how much time you have to invest for this goal. From there, we'll consider your anticipated withdrawal period. So once you begin withdrawing from this account, over what time period do you anticipate those withdrawals to continue, and ultimately, we'll review the risk that you're willing to take within this investment strategy for your goal.
This could include a conservative, moderate, or aggressive approach. All these factors combine. Will allow us to determine the proper asset allocation for you, which will give us a good idea as far as what will your portfolio be made out of? Will that include stocks, bonds, or a combination of the two?
Ultimately, this asset allocation is gonna give us a good gauge as far as the return potential, and the risk involved with your investment strategy.
Pradeep: Okay. That's fair.
Ramiro: to provide your children with the better future, the first thing that I would start with is teach them the right financial habits. As you go through this financial journey, there's a lot of things that you're learning now that maybe weren't taught to you. So I think the most valuable thing that you could pass on to them is this financial knowledge that is new to you and to ultimately set them up for future success
Jamie: and for Pip's, question about when he'd need a trust.
Ramiro: The need of a trust will depend on the types of assets that you hold. Accounts such as 4 0 1 Ks, IRAs, and brokerage accounts have the capability for you to add a beneficiary. So a trust is not needed. Other assets types such as real estate, vehicles and personal property do not have that option. So a trust could be super valuable for you.
Jamie: If you're curious to learn more about trust and what it's like to set future generations up for success, check out the episode A Surprise Inheritance from Season One.
Jamie: Now PDI brings up a long time dream of his starting his own business.
Pradeep: In 10 years, I actually do want to pivot where I would like to have something of my own, you know, my own business, a firm, or really something that I have control over and I don't. Have somebody telling me how much I can make every year. so my risk of appetite right now would be aggressive, for the next five, 10 years, and I would like to retire by 55.
Jamie: Predeep has clearly thought about his goals, but he isn't sure if he's taking the right path here. There's a lot in play marriage, kids going into business, especially if he wants to retire early.
Pradeep: I think that's one of the biggest thing where it's like, not a lot of people like know what. You would need to do in order to achieve those financial goals.
Ramiro: Yeah, so leading up to starting the business. One thing I would take a look at is increasing the amount of cash that you have set aside the reason why I would recommend considering. Increasing. This is due to the potential change in cash flow. We have no idea before the business gets up and running, how much cash flow this is going to be generating and what expenses are associated.
Ramiro: The business venture itself will pull enough stress on your mind, and we don't want to worry about covering the next month's mortgage or any other associated expenses.
Ramiro: As the business is more mature and you have a better understanding of the cash flow, that'll give you a good indicator of what you're able to do on the saving and investment front. Let's say you're one year into the business and you weren't able to contribute at the same rate as you did before.
Ramiro: This could ultimately mean that you would have to delay retirement or even spend less in those retirement years. On the flip side, let's say business is great and your income situation has increased dramatically. That gives us the capacity to save and invest more towards this financial goal, which can ultimately mean that you could retire earlier or even spend more during those years.
Pradeep: so is it too much to have more emergency fund? I have, two years of, savings where I know that, hey, if I get laid off I know that I'm okay because as much as aggressive I am in a certain category. I also tend to have a lot bigger emergency saving plan because I don't know when you're going to need it. Just like you said, right? So it's it too much to have, two years worth
JAMIE: Ramiro confirms that given Pradeep’s plans to get married and start a family - and his desire to start a business in a few years - it makes sense for him to have a cushion set aside. But Ramiro picks up on something important about the way Pradeep is mentally organizing his money.
Ramiro: Yeah. So you mentioned something really interesting, Pradeep. You talked about. being super aggressive with a part of your money and also being super conservative with another part of your money, and as you're trying to accomplish a financial goal, you need to be looking at things holistically and not at the individual account level,
Ramiro: because if we're super aggressive on one end and we're super conservative and another overall, you're just in the middle. Right. And there's really two things to consider when you're not properly aligned based on what you're comfortable with. And I'm really talking about the investment side of things.
Ramiro: So if you're too aggressive, then yes, you're taking on too much risk should the market go through a downturn, then you're risk to lose more money is there. But also if you're not being aggressive enough, the risk is that you're losing out on growth potential on that money.
Ramiro: The benefit of working with the financial advisor is that they're there to coach you on that behavioral aspect of reaching the goal.
Jamie: It can be tricky to know what to do with your finances in every scenario, even if you have lots of savings. This is especially true when something unexpected happens.
Ramiro: It's good to have that cushion, right? There's a certain peace of mind that comes with it. But if
Ramiro: You know, you might turn on the TV one day and you see a headline and it looks pretty scary. So you. Go in online to your accounts and you press sell because we're going through a recession. And then you fast forward a year later, the market's up 30 percent and you miss that on that growth. Because we were overly allocated in this case, too conservative with those funds. So I think again, you need to be taking a look at things holistically
Pradeep: that's actually honestly what I started thinking about too, like you said, it's because of that peace of mind that you have. I've always, thought about, getting a financial advisor, but I don't know if it's, the right timing or do I have enough to get one?
Ramiro: That's a great question. And in my experience, there are a lot of people out there wondering the same. Ultimately, this really depends on where you are at in your financial journey. Here at Morgan Stanley, we're able to meet you where you're at, whether you're an investor that's just starting to think about investing or you're someone that has been doing this for quite some time.
Ramiro: And your situation has become more complex and more sophisticated. So you're looking to tap in a professional. I always say it's never too early or too late to start seeking financial advice.
Pradeep: Well, thank you for all the advice that you gave. I mean
Pradeep: it's nice to have a conversation that who understands that you didn't really have that money talk, right? So, um, it was a very insightful conversation and I appreciate, the advice that you've given me.
Ramiro: it was great to meet you, Pradeep. Your story is really inspiring and I could relate to it a ton. I appreciate you taking the time and investing in yourself and your family's future.
Jamie: now. Let's find out how all this landed with Pradeep.
Jamie SCRIPT: So, Pradeep, what are your thoughts after your conversation with Ramiro?
Pradeep: yeah, I mean, he's correct on a lot of things where you can't, be like very aggressive with one side of your portfolio and then one be super conservative and have a lot of savings. Where you're just not really doing anything with because it's not growing so I can understand that. So seeing what's out there and, maybe talking to financial advisor may help, I'm intrigued enough to take it further cause you don't know up until you have a conversation with someone.
Jamie: Absolutely. That makes sense. What did you think about the idea of having an overall financial plan?
Pradeep: I think it's needed, right? Like I know my financial plan in my head but is it, is it really, are you moving money around to make that plan work? No. So I think the next step is being a little bit aggressive with that plan. and you put it down on paper, so I'm not, asking all these questions again, the next time I have a conversation with somebody about, financial planning.
Jamie: Yep, makes sense, and best of luck to you on your wedding, starting your family, your business and all the exciting things you have to look forward to.
Pradeep: Thank you again for all the advice
Jamie: if you'd like a deeper dive on what was discussed today. Or if you're interested in having a financial plan done for you, come see us@morganstanley.com slash my money. I'm Jamie Rowe. Talk to you soon.
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