Malena de la Fuente: we all have emotions tied to our finances, good and bad.
Mikey Caloca: There is no perfect time. I think if I would have waited for a perfect time, I'd be sitting here still in debt.
Malena de la Fuente: If you're not getting that money, that that's free money from your employer that you are leaving on the table, that you could be saving in your retirement account.
Alan Adjei: So here's the question. What if some of the biggest money mistakes aren't obvious at all? Do you just easy to miss. Welcome back to In my finance Era podcast. I'm Alan and this is where we talk through the real money questions you've been asking to help you taking the next best step.
Alan Adjei: Today we're diving into the money mistakes people make. But we're not focusing on what people are doing wrong. Instead of focusing on what people might be missing out on, because a lot of times it's not about failures. It's about the opportunities that are right in front of you that just go unnoticed. So we're going to unpack a few of those during this episode.
Alan Adjei: I'm joined today by creator Mikey Caloca and Vanguard expert Malena de la Fuente. Thank you so much for being here today.
Mikey Caloca: Thank you, my friend.
Alan Adjei: Well, Mikey, you're sharing your financial journey whilst you're still in the middle of it. You've paid off your debt. You working to buy it? Buy a house and you're are learning as you go. So what made you want to lean that process instead of waiting to show that everything's perfect?
Mikey Caloca: That first sentence you said man “Paid off your debt.”
Alan Adjei: Was a beautiful sentence.
Mikey Caloca: Let’s go!
Alan Adjei: It’s a beautiful sentence man.
Mikey Caloca: Thank you dude.
Mikey Caloca: The thing is, nobody, like there is no perfect time. I think if I would have waited for a perfect time, I'd be sitting here still in debt. Yeah. So, I mean, for me, I was I was procrastinating. My student loans were like, just sitting there, just, like, kind of lingering. And I saw them and I'm like, I don't want to deal with it. So I kind of like, put it off to the side for a while. But eventually I was like, you know what, dude? We got to pay these off. So I, I started attacking the student loan debt, but I was like, knock out two birds with one stone. Create content too, and it just worked.
Alan Adjei: That's awesome. And I mean, after
Mikey Caloca: I was done, I didn't want to stop because I got kind of addicted to the process of seeing something chipped down, and I wanted to go upwards and save now for a house.
Mikey Caloca: I was done, I didn't want to stop because I got kind of addicted to the process of seeing something chipped down, and I wanted to go upwards and save now for a house. And that's what I'm doing. And I'm actually building my house. So yeah, really crazy journey. But there's never like, a perfect time to start it.
Alan Adjei: That's amazing. You're building that momentum that you started on.
Mikey Caloca: Literally.
Alan Adjei: That's amazing.
Mikey Caloca: Yup.
Alan Adjei: And I think what's really fascinating is that the moment that you currently in, it's what really defines the decisions that you make. which is why I'm really excited to have this conversation here with Malena. Because Malena, you are a behavioral scientist.
Malena de la Fuente: Yes.
Alan Adjei: You're an economist of Vanguard, and you work really focuses on the decisions that people make financially. From savings to debt and long term planning and financial well-being. So what tree in that space and what makes you passionate about helping people make those more informed decisions with their money?
Malena de la Fuente: Yeah.
Malena de la Fuente: So I've always just been really interested in understanding how people think, how they behave. And as I got further into studying human behavior, one thing I realized is that as a space that's really important both in people's lives and also it's very complicated and difficult to navigate, is the world of personal finance. this is a place where people can really use the help. And so it became really important for me to, make it easier for them to make smarter choices with their money.
Alan Adjei: Yeah, absolutely. There's so much information out there you think about when you go to college. I was like, “Hey, go ahead, figure out this world of finance.” And you're like, “Okay!”
Malena de la Fuente: Nobody teaches that stuff!
Alan Adjei: Exactly.
Malena de la Fuente: Yeah.
Alan Adjei: So it's really, really important that we have these conversations, understand the opportunities that are out there to just continue to advance yourself and take the next best step.
Alan Adjei: All right. Let's dive right in. So, Mikey, what are the most commom “I wish I knew this earlier moments” you hear when it comes to money?
Mikey Caloca: I mean, I wish I knew a lot of things earlier.
Alan Adjei: Don’t we all? Right?
Mikey Caloca: If we did we all be in a different position. But I think me personally, I, I've always I think a lot of people can probably relate to this. I've always looked at things in like a big picture, like I've got 20,000 in student loan debt. And like when you see that, it's like like, you know, it's a mountain in front of you. Same thing with, like, saving up for a house, man. Like, you know, in this world that we live in, it's it seems out of reach for some of us. But I, I've always looked at things in a big picture, like scary. But I think as I've gotten a little bit older, I've learned. And I wish I knew this earlier, that it's really just like a it is a baby step thing.
Alan Adjei: And I think that's great. Mikey, I think when you talk about taking one step at a time, it's really important because you can't make all decisions right now. And as we talked about earlier, everyone's has a unique situation in the moment in time they're in. It's what really caused them to make that decision. But it could cost them over time because you're missing out on the opportunity that maybe a little better. So, Malena, when we think about this topic, is there a common behavior that you see that feels responsible in the moment but is quite costly to people later?
Malena de la Fuente: Yeah, absolutely. Quite a few. But I will say that one that I've seen a lot is that people tend to have credit card debt, but also carry a lot of cash at the same time. And that feels really responsible to save cash. And you should have some savings, right? We talk about the importance of emergency savings. At the same time, debt, especially, credit card debt, which tends to be high interest, is costing you every year in interest 20, 25%, you know, somewhere in that range a lot of the time. and so if you have the cash to pay it down, basically you're spending on that interest unnecessarily. It's really best to take that cash, which is earning 0%, 2%. You know, sometimes can go up to four, but really it's somewhere in that range that you're earning on that cash, probably sitting in a savings account. And put it towards that debt which is costing you 20% a year. Right. And so if you just think about the math of that, it really makes more sense to, to pay down the that credit card debt as quickly as possible.
Alan Adjei: Absolutely. Because I'm like, man, that feels responsible. Have money in the bank.
Malena de la Fuente: Yeah.
Alan Adjei: But also I have credit card debt that every year is costing me so much more money, but it feels responsible. As I said, in that moment of time, because you're being told, like, here, let me let me save some money.
Malena de la Fuente: Save.
Malena de la Fuente: Yeah.
Alan Adjei: But also, if you're keeping that credit card debt and it's not doing any good because then it's kind of like is it subtracting is like, is that negative?
Malena de la Fuente: Exactly, the math
Malena de la Fuente: It turns out negative.
Alan Adjei: The math ain’t mathing right?
Malena de la Fuente: Exactly.
Alan Adjei: Malena. You made a really interesting point. And many listeners may be in this right now where they have the credit card debt and they have the idle cash and now they're like, “Okay, now I understand. Let me use that cash for good.” So how can this listeners now figure out the right order to start paying down their debts?
Malena de la Fuente: Yeah. This is actually a common question and something that we also see people sort of miss opportunities on, which is paying down the wrong debts first. So financially, the the best solution is to go by interest rate. The debt that has the highest interest rate is the one that's costing you the most, because that interest is what you're paying essentially to borrow the money. So start with the highest interest rate debts first. That's often credit card debt, but not always. Obviously check your interest rate and then go from there. Things like student loans and car loans tend to have slightly lower interest rates. Mortgages tend to be the lowest. And so really starting from that high interest to low. But it's really interesting actually, because so this method of debt paydown is called “the avalanche method”. There's one that's kind of similar but a little bit different called “snowball”. But we actually see people do a completely different third one, which I like to call “the Glacier method”, because it's like really big and kind of slow moving. And it's really where people are taking the really large, actually pretty low interest debts like student loans and paying those off first. And I think it's really tied to emotion, like people just, you know, it's really big. It's really daunting. feels really good to pay it off. So I think people maybe go by emotion more than the numbers. The problem is that when you're paying off those really big, low interest debt, it's actually not costing you that much money to begin with. And so in the long term, you'll end up paying more interest. And it'll take you longer to pay the debt off. So, that tends to be not the best strategy.
Alan Adjei: Glacier?
Glacier?
Alan Adjei: So
Alan Adjei: found in the recent Vanguard survey
Alan Adjei: 30% of Vanguard investors with credit card debt are making extra payments on other lower interest debt like student loans.
Alan Adjei: So why do those those debts feel more urgent and heavier than others, even when the interest rate is low?
Malena de la Fuente: Well, there could be a few reasons. One is that people tend to like paying off older debts first. Like, it just sort of lingers there and people feel like, “Oh, I've had this for forever. I need to pay it down.”
Malena de la Fuente: That could be one reason. Another is that it's just more,
Malena de la Fuente: available in your brain. You just think about it more often. It feels, much more important because it's maybe bigger or because it's something that, is really important to you. Like if, say, it's a student loan, right? Like, that's a big part of your life, you maybe think about it a lot.
Malena de la Fuente: I went to college. I took out this debt.
Malena de la Fuente: And so you feel like this urge to pay it off? Basically, it can be a lot of non, non-financial reasons. And so this is somewhere where it's really helpful to try to take the emotion out of it, which I know is hard. Like we all have emotions tied to our finances, good and bad.
Malena de la Fuente: I think it's very rare to find someone who feels very neutral about their finances, but sort of taking that emotion out of it. And going by the numbers is really important.
Alan Adjei: And Mikey, you talked about your debt paydown journey. Was there any urgency as well that you felt or like what was your process and thinking pattern? Did you look at interest rates like how did you or were you looking at the urgency?
Alan Adjei: Do you see the big number? Like, “I got to pay that first.” Like, how did you get that journey started?
Mikey Caloca: Me, personally, I've, I have always been very scared to log in and look at the numbers until I actually, like, forced myself to do it. I think a lot of people can probably relate to that as well as it's just like a lot of us mathematically, we should be paying a specific type of debt because of the interest rate kind of hitting us heavier than other ones.
Mikey Caloca: But I didn't know, like, I, like I had some credit card debt, I had student loans. I didn't know the credit cards were hitting me worse.
Mikey Caloca: I only really found out until I was looking at it. And I think people should look at it more. I know emotions tied to this, and it's scary to just hit log in and look.
Mikey Caloca: It's like, “Oh my God, I don't want to see this.” But I think when I started looking at it is when I sort of realizing, oh my gosh, like, this one is hurting me more than this one is, I should probably focus on this first. So that's kind of how I kick started it. And then
Mikey Caloca: just momentum.
Alan Adjei: Yeah, absolutely. Because that money move may feel responsible as we've talked about, but it's getting in the way of better opportunities out there. All right. So let's look at some stats that really bring this to life. I know we've already jumped into one but there's some more out there. So let's jump into a couple of those here.
Alan Adjei: So we found in the recent Vanguard survey that amongst 18 to 34 year olds with a workplace retirement plan, 50% say they contribute enough to get the full employer match and just 18% max out the contribution. So, Malena, when you hear that, what stands out to you?
So we found in the recent Vanguard survey that amongst 18 to 34 year olds with a workplace retirement plan, 50% say they contribute enough to get the full employer match and just 18% max out the contribution. So, melena, when you hear that, what stands out to you?
Malena de la Fuente: So this is another one of those missed opportunities, right? So when we say 50 you said 50%, get an are able to get the employer match. What that means is most employers if you have a retirement account with them, they will match either $0.50 on the dollar or sometimes dollar for dollar the contributions that you put into your own account, up to a certain cap. If you're not getting that money, that that's free money from your employer that you are leaving on the table, that you could be saving in your retirement account. And I know that a lot of times people don't do that because they think, “Oh, I don't have enough saved,” or “I have to pay down my debt first,” or “I have to make other, you know, financial choices first.” Like, “I'll worry about my retirement later.” The problem with that is that you are basically losing time, and people think that interest rate is the most important force in finance. And it is very important, as we've talked about. But actually more important than even that is time. Time is really what makes your money grow. It's what gives you that, ability to to let that compound interest happen. And so if you are not saving early, it means that you have a lot more catching up to do later. So even those small amounts, whatever you can put into your account, first of all, you're getting that that free match, which you should always get. It's free money. Yeah. So we always encourage people to take that money, get that, that match. But you know, even if you can do just a little bit, the more you put in now, the less you have to put in later. And you really give that, money time to grow. And so,
So this is another one of those missed opportunities, right? So when we say 50 you said 50%, get an are able to get the employer match.
Alan Adjei: yeah, is there a reason it's a very missed opportunity very missed opportunity. But is there a reason why people like miss out on their match without realizing it. Is it too complicated? It's like, is there like a more reason or is it's just happening for happenstance?
Malena de la Fuente: I think it's also people don't know. This is something that is not really explained to us. It's something that we aren't really taught. Also a lot of times these retirement accounts are set up, with defaults, which is great because it means if you do nothing, you're still going to be enrolled in the account. You're still going to be saving some money. But sometimes that default isn't where we want to be. If you were saving a lot at your previous job, the default might bring you back down to a lower savings rate. And so, you want to check that, that default when you switch jobs and make sure that you are where you want to be. And I know, again, that's something that sort of slips a lot of people's minds. It's something that if you are starting a new job, right, things are really busy, a lot is going on. And so maybe you just don't have the time or you forget to check. And so again, another missed opportunity.
Alan Adjei: Exactly. Something Mikey said earlier was sometimes we're too afraid to check. But it's, it's also a small adjustment that you can make in your life.
Alan Adjei: I mean, like, let me actually be involved, actively involved in my what is happening in my personal finance. And but those small adjustments can actually help make a big difference later down the line. So Mikey, when you think about that, like, how does it show up for you when you're thinking about your personal goals right now.
Mikey Caloca: So, like let's hit on employer match. So like like let's say I was currently I'm not working, I'm doing content full time. But when I was working I was taking my employer match. But let's say I wasn't, that was money that I would have been bringing home and probably spending on things that, you know, I probably don't need at the moment. But I was taking my employer match and I was living off of less, which I guess forced me to spend less. But that's a small little adjustment that I, you know, that I did when I started working there in order to better my future self. So that little adjustment was really important for me. But then another big thing is just me personally now trying to say no more often. So like maybe not spending as much money on things that I probably don't need at the moment. I know it's not necessarily such a small adjustment, but it's, it's it's me trying to train my brain that I don't need that right now. I can use the money for things later. You know, in case of an emergency or whatever. So I'm, I think I'm trying to get and this is like, I'm just speaking from a place of currently learning. Like I'm, I'm trying to train myself to say “no” more often. And I know it's not a small change, but it's it's something.
Alan Adjei: Yeah.
Malena de la Fuente: But I think this is also a great example of I, we talked about how emotions are just inevitably tied to money for pretty much everybody. This is a great way of using those emotions for good and harnessing them in a positive way. Right? Mikey's thinking about his future self and tying, tying his current self to his future self. And by making that connection really stronger and thinking about, future Mikey, he's really using that, that emotional connection to, to make those choices that will help future Mikey.
Alan Adjei: Yeah. Yeah.
Mikey Caloca: Trying to. I'm working on it.
Alan Adjei: Yeah. That's great. And when you talk about a future, Mikey, I think this is really, really interesting because it's not always just about what people are doing with their money right now, but also how they see themselves when it comes to money. So we're gonna look at another stat from a recent Vanguard survey, because about 59% of 18 to 34 year old adults think it's unlikely they'll ever become millionaires,
Alan Adjei: So when you hear that, Malena, well, like, what do you think about that?
Malena de la Fuente: I think that really gets to the idea of, again, time, right? Time is a really powerful force in, personal finance.
Malena de la Fuente: Giving that money time to grow in the market, can really help with something like that. It's also important. And I think this also gets to why it's so difficult sometimes to think about finance and to into why people miss some of these opportunities. When we say millionaire, that doesn't mean like, I have $1 million cash in my hand, right?
Malena de la Fuente: We're thinking retirement accounts. We're thinking if you own a home value of your home, we're thinking about, accounts that might be like high yield savings accounts.
Malena de la Fuente: There, there are lots of assets in your life, and they're kind of all spread out. So sometimes it's hard to see them as one big bucket of money,
Malena de la Fuente: rather than a bunch of little pots of money.
Malena de la Fuente: And I think that's also why it's so hard to think about personal finances, because it's like, I have this money over here, I have my debt over there, I have my savings account over there. I have my 401K over here, and all of these little tiny pots of money are all over the place. If you combine them and you think about them as one, first of all, that might be how people are thinking about the million dollars, but it also means that it's easier to make trade offs and to think about those missed opportunities.
Malena de la Fuente: And like, should “I put my next dollar over here or over here?”
Malena de la Fuente: And that's a lot easier to see, if you think about it as one big, thing rather than a bunch of little ones.
Alan Adjei: Yeah. Mikey, I'm curious.
Alan Adjei: Have you found yourself on either side of that perspective? Because what I'm hearing from you, Malena, is that there is some confidence when you learn more about where your assets are.
Alan Adjei: Like, I would think $1 million. And my first thing like, “Do I have $1 million in the savings account?” which probably not the best place to keep that at. But there's multiple assets that will contribute to your net worth. But have you ever felt on either side of that spectrum? I'm curious, as you've been learning more as a creator that's been learning more within your financial like discipline?
Alan Adjei: Like, has I helped out with the confidence that you have as you kind of right now you're building your house,
Mikey Caloca: Yeah.
Alan Adjei: which is amazing. And it's a huge feat. But with that being said, have you felt more confident as you've walked and learned more about how that contribute to your net worth?
Mikey Caloca: 100%. I it's funny because like when I like, if I take a couple steps back when I was in debt, like right now I have no debt and I, I'm close to, you know, having my six figure goal for my home.
Mikey Caloca: But when I think back to when I was in the position where I was in debt, I did not have that money saved. It almost seems like like fake, like it almost seems like I'll never get there because it's just such a large like journey to get to that point.
Mikey Caloca: But I think when people say, like $1 million and just having a lot of money in general, I think it's it's really crazy to think that you can give someone that money right now.
Mikey Caloca: And if it was me, if you would have given me that money right then and there, I probably wouldn't have been that great with that money at the time, because I had to progressively build the confidence and kind of tie it all together and get good with my money, because now that I am in a position where I have it, I'm better with it.
Mikey Caloca: And if I if you would have handed it to me just straight, cold, hard cash eight months ago, I probably would have blown it on something dumb. So I think as you go and as you take those baby steps, you really start to kind of grow confidence and you really build like financial responsibility too, and you become more of a responsible adult as you kind of go and you go up the ranks I guess.
Alan Adjei: Exactly as we started, there are some mistakes that you would have made.
Mikey Caloca: Yeah. There's always mistakes.
Alan Adjei: However the opportunities are there when you understand and you learn about what to do with your money and what opportunities are out there to make better choices, to really take your next best step in your financial journey.
Alan Adjei: Amazing. Well, let's bring this home. I know we've talked about a lot of these things, and there are a lot of moments where we have the opportunity to make really, really smart choices to help us in our financial journeys. So with that being said, Mikey, is there a burning question that you have for Malena as we kind of wrap this up?
Mikey Caloca: I feel like I have a lot of questions for Malena. Is there, I guess like the psychology behind money. So like, is there something that you think because I'm sure we can talk big picture like what can someone do like to 10x their current situation. But what is some, what is something that somebody can do now that can take that little baby step to them?
Mikey Caloca: Now flipping the switch and being better with their money, is it like changing a pattern? Is it doing something different? Like what do you think is something small? Somebody can shift, kind of like those little, small little moves?
Malena de la Fuente: I think there are a few things. One is I will always stress the importance of emergency savings. It helps, get peace of mind.
Malena de la Fuente: It helps people feel like they have a buffer. It helps them be able to think a little bit more long term about their future, knowing that they have that money in case of emergencies. So that's a really big one. But I think also,
Malena de la Fuente: paying down high interest debt credit cards, they just kill you on interest. And so the more quickly you can pay that down, the more you'll have not over not only, like less debt,
Malena de la Fuente: and having to pay less interest, but you also have then that little extra cash afterwards or after you're done paying with your your debt that you can use for paying down lower interest debts, for, covering
Malena de la Fuente: those spending needs for saving for emergencies. So it really helps free up, some cash flow as well. So that's another really big one.
Alan Adjei: This has been a great conversation. Both of y'all. And thank you so much for having this conversation and joining us. I feel like there's been so much that's been learned, and I hope that people are going to take the next step to understand how to avoid this money mistakes and find the opportunities that are out there.
Alan Adjei: So thank you both so much.
Mikey Caloca: Thank you so much for having me in this.
Alan Adjei: Hopefully the takeaway is that it's not about getting everything perfect. It's about recognizing where small adjustments can make a meaningful difference. Is something here stood out to you? You connect with us on social media. Send us a message there. You can also head to inmyfinanceera.com for additional tools and resources. So thanks again for listening and we'll catch you next time.
