Christine: I spend most of my money on travel, food and experiences.
Jamie: Meet Christine, a writer for a tech company, who's making the most of her company's flexible remote work policy.
Christine: I spent about a month in Mexico working fully remotely, and I was working out of Airbnbs and coffee shops.
Jamie: Over the last couple years, she's also relocated her home base a few times, following her wanderlust from the west coast to the east coast and most recently to Austin.
Christine: When people ask me where I live, I say most of my stuff is in Texas, but I am not here for longer than maybe two or three weeks at a time.
Jamie: Being able to travel and work remotely is really important to Christine. She'd rather pay less on rent so she can continue exploring the world. But turning 30 is giving her pause about how she's managing her money.
Christine: I am feeling nervous. Financial literacy is one of those, feels like one of those big adult things. This is not something I've given that much thought about and that's because I never thought I would have this money and this honestly, luxury to think about investing and having a savings.
Jamie: Talking about money wasn't something Christine did with her parents growing up. She wanted to go to college, so she took out student loans and figured things out for herself. Now she's got almost the opposite problem. She has money. She just doesn't know what she should be doing with it.
Christine: I feel like there's a lot I could learn about long term investments like real estate, 401k and stocks. I have been spending more of my money on the things that I want to do. I justify it by saying, it's like, well, I guess I'm not going to buy a house soon. But is that something that I should be working towards? Is that something I should be thinking about? It's hard for me to even grapple with how much I'm making.
Jamie: Christine's salary is between 120 and 135,000 a year, depending on bonuses. She's got around 30,000 in savings and about 500,000 in company stock. Her monthly expenses come in close to about 5,000 a month.
Christine: It does feel overwhelming sometimes. I don't have a plan for the future for what to do with my money.
Intro
Jamie: And that's where we'll start today. I'm Jamie Rowe. 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. For a lot of people, their 20s are about getting on your feet, school, debt, starting careers. It's also a time to explore, to travel, meet people, have new experiences, a whole life awaits with plenty of time to earn and save. But turning 30 can trigger a shift in mindset and young adults with disposable incomes might begin to wonder, should I be thinking more long term? How do I balance the expense of things I want to do today with things I might want to or need to save for in the future? Can I continue to have adventure and still plan for bigger investments, like owning a house? There's a lot of advice out there from family, from social media, but who should I be listening to when it comes to my finances? Joining us today to help Christine answer her questions is Jason from our Atlanta, Georgia office. Jason is a senior vice president and financial advisor at Morgan Stanley and works a lot with young people, specifically athletes.
Jason: So years ago, I played running back. And as an athlete, you always want a goal. What's my goal? I got to score a touchdown or even something shorter. I need a first down. I know I got to get 10 yards to get a first down. If I know that, then I can work towards that. And I think from a financial standpoint, that's what we have to do for folks is break things down – here's our overall goal, but how do we get there? What are the small incremental goals we need to achieve? Let's talk about your six, you one-year or your five year goals.
Jamie: Helping people get started is what's exciting for Jason.
Jason: When you're able to start investing and saving early, you can really build up what you have that you're going to live on for the rest of your life. So that's why I love being able to talk to young people and get started, get them excited about saving and investing early. It's just because you got time on your side. The most important thing really is just making sure you have a plan. Just because you have the cash doesn't mean you need to spend it.
Jamie: Christine's got the cash. What she needs is someone to talk to and a plan.
Conversation
Jamie: Christine, we've paired you with Jason because in his practice he works with a lot of young people who have encountered success early in their careers. So he understands the competing priorities you are juggling, your short term wants with your more longer term ideas. Jason, over to you.
Jason: Awesome. Thanks, Jamie. Christine, nice to meet you.
Christine: Nice to meet you too, Jason. Thanks for talking to me today.
Jason: So what's your first question? Why don't we start there?
Christine: So I do have a lot more income than I have had especially early on in my career. When is it a good time to start investing in something that is a little more concrete and long term like real estate and stocks or should I keep doing what I'm doing, which is budgeting appropriately, not overspending, not necessarily dipping into my savings? What is a good balance between future thinking and what I want to do now?
Jason: I really think you should think about investing now, especially since you do have discretionary income. But before you kind of get into that, I think you really need to have a kind of big picture plan. With a lot of folks I say, hey, look, let's look at what you're making, your take home and let's have 50% of that go towards your necessities, your fixed costs. And then maybe we'll have 30% of that go to your wants, some of that travel that you want to do. And then let's make sure we got at least 20% that we're going to save. And one of the things I try to stress for folks is because the other question becomes, well, how much should I save?
And for most folks, textbook answer is you should have three to six months of your living expenses saved up as your emergency fund. So if you're spending $5,000 a month, I would think you'd want to have five months worth of savings. So $25,000 is kind of your baseline. That's emergency. If you're making more than that every month and once you get to that number, then you can start saving for other things. What we do for a lot of our clients is instead of that money going into your checking account or spending account first, we'll actually put it into your savings account first and then move over what we're going to spend every month.
Once you’ve built good habits for budgeting, and you’ve built up the right amount for your emergency savings, that is the right time to start investing.
Christine: What if I had a list of goals? What if it was I want to be able to take a year off of work and I might want to think about buying a house and also I need to think about my 401k and also I'm interested in Bitcoin, as an example? How should I prioritize all of those wants and goals?
Jason: You kind of have to make tough decisions of what's more important and we'll do that together. We'll make a plan for your goals and we'll work towards them. Good example, you talk about wanting to own a house. I talk to clients about this all the time. Because I can remember when I was young, my parents are like you got to buy a house. You got to buy a house. I didn't realize you buy a house, that also means there's maintenance and upkeep and taxes and all this other stuff.
And so maybe that's not where you are right now. You're wanting to travel the world and enjoy Mexico and go to New York and all these different places. You don't want to worry about the water heater breaking, flooding your house or any of that kind of stuff. So again, that can be a goal, but hey, we set up a bucket and we'll save a little bit of money to get there, but that's not high on that priority list.
Instead we can focus on some of your other goals, like introducing you to investing and making sure things like your 401k plan are in order.
Christine: The pressures that you constantly hear of, well, there's never going to be a better time to buy a house than now, or there's never going to be a better time to save for a house and now, etc. Is that then true? Because what I'm hearing is it is dependent on your situation and what feels ready. And I think that's the internal conflict that I have. I'm like I could potentially be financially ready, but mentally, maybe I'm not. How do I think about that?
Jason: A lot of people would say, oh my gosh, the last seven or eight years, interest rates have been lowest they've ever been. You need to buy a house. But I think you hit the nail on the head. You're not ready for it and I don't think you should be forced into doing something.
Honestly, It may be that given the price of the market and uncertainty of interest rates it isn’t the right time for you. Ultimately, if you are focused more now on traveling, and want to take into account other goals, I wouldn't beat yourself up worrying about those pressures. Again, if you're not ready for it right now, there's no reason to rush in.
Christine: That's good advice. Because there's a bunch of different components to readiness and I think one big one is just I don't have a lot of knowledge and expertise. It feels like I'm just giving my money away to something where I don't know what's going to happen to it in the future.
Jason: And I'll say this about money, many times it's not about just dollars and cents. There is this emotional component of this that we really have to make sure that we manage and understand. That's also part of that whole education and learning how it all works.
It’s my job to help you make sure you do have a good understanding of what options are available to you, and to help talk you through your goals and priorities for the future – and together we can make sure you’ll achieve everything that you are hoping for.
Christine: Yeah. I never thought about financial planning in that way where it's not only just managing finances, but also managing emotions and expectations.
Jamie: Now that Christine has heard it from a professional – you don't need to follow anyone else's plan but your own – she's comfortable with the fact that owning real estate might not need to be one of her goals, at least not now. And she's ready to think about what her longer term goals might actually be.
Christine: How should I start thinking about my next goal or milestone that I want to hit or start working towards?
Jason: Now we can look to formulate an investment strategy with your excess cash. We'll start that journey with understanding your timeframe of how long this money will be invested along with helping you determine your risk tolerance. We will do this based on your goals. Given that you are young, and have time on your side, you may defer to a higher risk tolerance. However, that choice is ultimately up to you and your comfort level. I have tools that can help you understand potential returns going forward based on the risk tolerance level you feel comfortable with. From there, we'll get into a discussion of asset allocation, then finally the stocks, bonds, or mutual funds that we'll use to implement the strategy.
Jamie: Another substantial asset for Christine to consider as part of her long term planning and investing are her company RSUs, restricted stock units. They're not exactly the same as typical shares. They're a promise from her company to deliver a share of stock in the future once certain requirements have been met. Those requirements can be based on time at the company, performance or other criteria. And Christine doesn't really know how she should be thinking about them.
Christine: So Jason, I have RSUs through my company and it's, last I checked, at about 500k, but I haven't really done anything with it. For the most part, it is just kind of sitting there and I don't know what I should do with it. Really, I'm just looking at it and paying taxes on it, seemingly.
Jason: OK, so an RSU is a restricted stock unit. It’s ownership in the company that the company’s going to provide to you once you’ve hit some type of benchmark, or you’ve been there for a certain amount of time, as Jamie mentioned earlier.… The benefit to that is the fact that you’re having ownership in that company and hopefully the value of that stock will grow - you’re going to work really really hard so the company grows and you make more money.
So you should take a look at it and really try to understand which ones are vesting – or being fully earned. Which means at that point they become yours and then you’re able to cash them out or hold on to them. And then you can look to diversify.
Because again with that restricted stock unit, there are certain ones that become available – or become fully earned – and hopefully you consider to diversify because that would be kind of the next goal.
Having half a million dollars, that's a very concentrated portfolio. You got one single stock. And based on what happens with the company is going to be what happens with that half a million dollars that you have. So one of the things you'd want to do is take a look at, okay, how can we start to diversify this?
And the reason we want to diversify is, we don’t want to have all our eggs in one basket. It’s as simple as that. We want to spread the risk among other companies, and among other asset classes.
Then, we're going to want to understand those tax implications. So we'd want to make sure we can help you manage that so that we wouldn't want you to pay a ton of tax just for the sake of diversification – maybe we start to diversify $5,000 or $10,000 this year, maybe we do another five or 10 the next year. And then that way again, we're not having all our eggs in one basket. And we can spread out the tax liability over time.
Jamie: A major focus for Morgan Stanley over the past few years has been helping clients better understand the tax implications of their investments. Advisors use tools to help ensure their clients have tax efficiency, which will help people like Christine determine the right timeline for diversification, among other things in her financial plan.
Christine: One thing that I'm also running into a lot is with the age of Instagram reels and TikToks, there are so many people giving "financial advice," especially to folks my age and even younger of how to make money fast. How do I navigate what is actual advice and expertise versus who's a financial influencer? What tips do you have for that?
Jason: I watch TikTok. I'll use TikTok a little bit. But when I'm on TikTok, I'm looking at comedians and I'm using it for something as just a diversion. But I'm not using TikTok for things that are really, really meaningful. Now again, granted there's some of the people on TikTok, some of the influencers that may have good information, but the problem with TikTok is it doesn't give you the ability to really dive down deep into a specific situation and it doesn't give you many times pros and cons.
Many times they'll just talk about, hey, invest your money here and you make a gazillion dollars. But they don't tell you about the downside of the risk. Financial advisors have a responsibility to their clients. Folks on social media don't. They may or may not have your best interest at heart.
In my profession, we take the advice we offer very, very seriously and it's catered to individuals and not the masses. These influencers have no idea of who you are or the nuances of your particular situation. I believe the best way to learn is with a few good old fashioned books, then build on that knowledge with your advisor.
Jamie: And with that last bit of advice, Jason reviews all of what they've covered today.
Jason: So Christine, we've talked a little bit about budgeting, we've talked about some of your plans, some of the things you'd like to do, talked about investing a little bit. But to summarize, I really think the first thing that we got to do is go back to that plan to make sure you're spending within those ranges and you're starting to save. And then from there, we can start really thinking about longer term goals and investment strategies
Christine: Yeah. That makes me feel a lot better. I knew that I was on a track, but didn't know if I was on the right track and I think that having this conversation is steering me in that direction. So thank you so much. I feel a little better and not as guilty about wanting to do the things I want to do in the short term and the things I want to save up for the long term goals. It does feel a little less scary and overwhelming.
Jason: Well, that's good. I'm glad we were able to have this conversation and I'm excited for you.
Jamie: So Christine, now that you’ve talked to Jason, I just wanted to ask - how was that for you?
Christine: It felt it was a lot more casual and conversational than I had expected. Finances are hard to connect with, I think, on an emotional level, and so to being able to talk to Jason and being able to talk about my goals and my challenges and also my hopes and fears, which I don't typically have a forum to do that, was super helpful and made me feel a lot better about thinking about money. I think the fears that I had around financial planning and planning for the future made me avoidant in taking a hard look at my spendings and how I should be saving. And so, yeah, it's not as scary as I thought.
Jamie: That's great to hear and it's super common to go into avoidance mode, but that's the benefit of getting to talk to someone like Jason. What stood out to you the most after speaking with Jason? Did anything surprise you?
Christine: I think just approaching it from even the baseline model of how much I should be saving. Things like saving and finances, it feels very overwhelming and I am not a numbers person, but breaking it down into starting here is better than not doing anything.
Jamie: That's a great point. What's the first thing you plan to do now, now that you are armed with this new information?
Christine: I think I'm going to start the process of finding a financial planner. Even in the short conversation we've had today, I feel like I learned a lot more than the informational sessions that I've been a part of through work. And I don't have a close personal relationship with my finances and knowing that there is someone that can help me navigate that space is something I should definitely start looking into and doing.
Jamie: Well, Christine, it was a pleasure meeting you and hearing from you today. Thank you so much for taking the time to join us.
Christine: Yeah. Thank you for having me, Jamie.
Jamie: All the best.
Extro
Jamie: That's it for this episode of What Should I Do With My Money, an original podcast from Morgan Stanley. If you enjoyed the show, follow us wherever you listen to your favorite shows.
If you would like a deeper dive on what was discussed today, come see us at morganstanley.com/mymoney. I'm Jamie Roo. Talk to you soon.
Disclaimer
This material has been prepared for educational purposes only. It does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Morgan Stanley Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
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