Welcome to Money Advice (For the Rest of Us)

This is the weekend edition of Culture Study — the newsletter from Anne Helen Petersen, which you can read about here. If you like it and want more like it in your inbox, consider subscribing. 

I spent a lot of time in my 20s and 30s feeling pretty helpless about money. There was an initial feeling of control when I was just out college — I had a good job as a nanny and health care coverage — but that evaporated with my first massive dental bill and my first graduate school student loan. Over the next decade, I found myself with financial questions that no one in my life seemed capable of answering. When should I consolidate my loans? Should I start putting money in a retirement account even if I’m still taking out loans? What should I do about this small private loan I had to take out to cover those dental bills? Do I even attempt to try and save money for a house? Why would I ever trust the stock market?

None of the advice I could find online or from my parents was equipped to deal with the specifics of massive student loans, the lingering trauma of the fallout from the Great Recession, the ridiculous housing market or even ever-escalating medical costs. It felt like all financial advice was for the rich, or for those obsessed with retiring early, or Old Economy Steves.

The problem wasn’t just that I was (relatively) young. It’s that the terms of financial engagement had changed, and no one even thought to update the dominant mode of advice.

So we’re trying something out here for the next few months. This is financial advice for people with student loans, for people who pretend they know what a Roth IRA is but really have no idea, and for people who want to balance their individual financial security with the financial health of their larger community. It’s for people with financial anxiety, people thinking about the looming consequences of global climate change, people who just need straightforward prioritization instruction, and people who financially support extended or immediate family. It’s not for people looking for tax loopholes, people with significant family money, or people who already have financial planners. It’s for the rest of us.

All questions are sourced from subscriber-only threads, and will be answered by a rotating group of experts. (If you know someone who’d be great at serving this role, it pays well! Right now, I’m particularly looking for experts on financial planning for people with disabilities or chronic health conditions, as well people with expertise on planning for longterm care. If that’s you, email me with “Finance Expert” in the subject line.”)

The questions (and answers) that follow are just the beginning of what I hope we’ll delve into with this series. (We’ll have another thread soon to come up the next round of questions, and you can subscribe here to join.) I chose our first expert, Bridget Haile, for her extensive experience working with people with student loans. You can read more about Bridget — and her answers to some pretty complex subscriber questions — below, and if you have suggestions for types of experts you’d like to see in the future, leave them in the comments!

Logo by Culture Study reader Joseph Hughes

About Bridget: I love talking about personal finance, and using technology and empathy to make complex financial systems more accessible and understandable for everyone. As a student loan borrower myself, I spend my days helping people navigate their loan situations and prioritize trade-offs with their other financial priorities. I currently make my professional home at Summer, a company on a mission to simplify student debt; before that, I led the Client Experience team at Ellevest, an investment platform designed to get more money into the hands of more women.

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I would love to hear some basic advice yet again about the first steps to take when you're starting (or in my case, re-starting) out. How do you budget when you don't have a lot of support, you have debt, and you're not making money? What should be your immediate goals, and your midrange next steps?

My situation: I'm going to start another teaching job, my first one after my master's, and I'm moving to the Twin Cities for it. I have student loans (yay graduate plus loans), plus my car payments and credit cards, and my salary is about $49k. I'm going to dig around to see what else I can do with tutoring, housesitting, picking up extra stuff at school, but I do not anticipate making a lot of money, and I have a fair amount of debt. I don't have much support from my family, although my partner is debt-free and going to help with some living expenses. I've inherited some retirement accounts from my grandmother, and I have some other retirement accounts from my first teaching job.

I'm very inclined to cash out at least some of this money and get rid of some of my credit card debt, and I'm content to pay on the student loans until the end of time. I'm pretty content with being thrifty (with the occasional splurge), but I'm 34 and I feel like I'm supposed to have an entirely different life. I know a lot of my bad financial choices are because of money issues in my family, and therapy has been a big help with that. However, I'm not going to be in a position where I'm making money, or getting support, and I'm curious what my immediate steps / longer-term steps should be. I'm very lucky to be pretty healthy, no plans to have kids, don't own property, my mother is just retiring with a pension and is very healthy, but also ... my mother says that when she dies, that's my retirement plan, because then I will inherit her investments / the family house / etc. This is not a good plan, somewhat obviously, and I'm at sea for what I should do.

First of all, I think you’re doing a lot better than you think you are! You have a job, you have some money saved, and you’re asking the right questions. Those are all good things! Since you asked to have some basic advice reiterated, I also suspect that you have an idea of what you should be doing. Hopefully this will help confirm things for you and give you a little more confidence about your position.

You mentioned budgeting, so I think the first thing you can do is determine an amount that you can commit to save each month. The traditional advice is to save 20% of your take-home salary. So if your after-tax pay is $3,000 a month, you’d put $600 a month toward your savings goals. That’s a difficult percentage to achieve for a lot of people, so if you’re not there yet, see it as a goal to reach one day, and choose an amount that’s comfortable for you right now.

Once you have a monthly savings number, you can determine where to put those funds. Making the monthly transfers automatic is one way to make sure you stay on track. Here’s a suggested order of priority, but you can adjust this depending on what works for you:

1. Pay off your credit cards first. These accrue so much interest if you carry a balance over at the end of the month, so the goal should be to pay off each bill in full. It’s probably not necessary to liquidate your retirement accounts in order to pay off your credit card debt, as there are penalties for early withdrawals. (I’m not sure exactly what types of accounts you inherited from your grandmother, so you may want to get specific advice from a tax professional on whether you should use those funds for anything other than retirement.)

2. Next, build up an emergency fund. This is cash that’s set aside for actual emergencies, like losing your job. Keep your emergency fund in a high-yield savings account that’s separate from your checking account. That way it’ll be harder to dip into for things that aren’t real emergencies. The standard advice is to keep around three to six months of living expenses in this account. Having cash on hand means you won’t have to rely on your credit cards for unexpected expenses.

3. You can also think about retirement. If you have a retirement plan that’s offered through your job, make sure you’re taking advantage of any matching contributions. For example, if your job matches 4% of your contributions, you should contribute 4% of your salary to double your money. You’ll also have a few options for what to do with your retirement account from your old job.

4. You can also save for the things you want! That could be a vacation, a down payment, or the occasional splurge. Especially once your credit card debt is paid off and you have a solid emergency fund, you can decide for yourself what’s important to you. Your money should help you work toward the life you want to have.

I didn’t include student loans in the list above because you mentioned that you have federal loans and that you’re a teacher. If you work for a public school or university, you may be eligible for Public Service Loan Forgiveness (PSLF). As you’ve probably heard, there are a lot of underlying requirements to this program, but the main ones are that you’re enrolled in an income-driven repayment (IDR) plan, have the right type of loans (your graduate PLUS loans should qualify), and that you work full time for a qualifying employer.

You’ve probably heard that this program is difficult to achieve, and it is. You’ll have to be very on top of recertifying your IDR plan and your employment for PSLF on an annual basis. You’ll have to double check that your loan servicer isn’t making mistakes in counting your monthly payments, which they often do. But it’s very much worth it to achieve loan forgiveness. I’m happy to connect via email if you want to talk about this in more detail, and there are also great resources online that can help you see and prevent common mistakes, like the PSLF Facebook Group and the PSLF subreddit.

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This is maybe more of an Elder Millennial than a financial question: how can we be sure we're putting our money with someone (an investment firm, brokerage account, a bank, a stock) that we can "trust"? I know many of us came of age watching folks lose their life saving in the Great Recession and through financial greed (Enron, Madoff, numerous others), which has made just storing money in a savings account/under the mattress seem the most appealing option. Are there any safer bets? And when are we playing it too safe? I know the answer *intellectually* but the traumatized part of me is like "what if Vanguard is just another pyramid scheme?"

This is a great question. I don’t think you’re alone in feeling disillusioned with our financial system while at the same time needing to participate in it to secure your future.

It seems like there are two different but related concerns in your question: the volatility of the market (The Great Recession), and actual fraud (Enron, Madoff, etc.) Let’s take one at a time.

When you invest in the stock market, the value of your invested funds will fluctuate, sometimes drastically. But on the whole, over the long term, the market has generally performed well. According to Goldman Sachs, “over the past 140 years, U.S. stocks averaged 10-year returns of 9.2%.” There are year by year ups and downs within that, and past performance does not guarantee future results. But the goal is that over a long time period, your invested funds should grow in value.

I won’t get too into the details here, but you do also have some control over the level of risk you take on in your investment portfolio. No investment is totally without risk, but maintaining a diversified portfolio, investing in low cost mutual funds or index funds, and investing consistently through dollar cost averaging can help you participate in the market without trying to game the ups and downs.

There are also a few things you can look for when choosing an investment advisor or firm to give you a bit more confidence in their practices. Look for a person or firm with a fiduciary duty: they’re held to a higher standard in putting your best interests first. You can also check that a firm and your investments with them are covered through the Securities Investor Protection Corporation (SIPC), which guarantees your number of shares and any cash in the account up to a limit if the firm goes under. You can also ask how they make money and how they charge you fees. And lastly, you can make sure your investment advisor uses a separate custodian to avoid Madoff-like situations.

So where does this leave you and your mattress stuffed with cash? Part of your question was whether you’re playing it too safe. It’s good to have some cash under the figurative mattress. We’d call this your emergency fund: three to six months of living expenses held in a high yield savings account that’s FDIC insured. The amount really depends on the person — if it makes you more comfortable to have 8 or 12 months saved, then go for it.

The issue with having too much money in cash is that it will actually lose money over time because the interest rate on your savings account is probably not keeping pace with inflation. The advantage of investing is that, over the long term, your returns should theoretically outpace inflation and earn you some additional money besides. Like most things in life, it’s about balance and finding a plan makes you feel confident and secure.

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This is less a finance question and more a cultural question: why isn’t finance or insurance language taught in high schools? HR professionals should not be the ones teaching you about deductibles.

I agree with you. It’s a little wild that we graduate from high school knowing calculus but not how credit scores work. (Apologies to my high school calculus teacher.)

I don’t think there’s just one reason for this oversight. Personal finance information isn’t evaluated on standardized tests, which is what drives many curricula. And historically, the wealthy and powerful haven’t been particularly concerned if the broader public doesn’t have access to that knowledge since they hand it down in their own circles.

What’s clear is that it’s an oversight that should be corrected. Financial education in schools can contribute to closing racial wealth gaps, and leads to better financial outcomes in adulthood, including higher credit scores, lower debt, and more retirement savings.

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My husband has way more in student loans than we'll ever be able to pay off if we buy a house and/or save for retirement, the equivalent of a mortgage. They're all federal, so they'll die with him. Should we even try? Should we focus on saving for retirement instead?

This is a tough trade-off, and one that I know affects a lot of folks with student debt. I’d love to know a little bit more about your situation to help you weigh options. If we were talking in person, there are a few questions I’d ask you before diving into the details.

First, are you already in an income-driven repayment (IDR) plan? Or are you on the Standard 10 year repayment plan? You’ll definitely want to always make your minimum monthly student loan payments, but because you have federal student loans, you have some control over what the minimum amount is.

Second, how much do you have left over each month after you’ve made your student loan payments? Is it enough to also save for your emergency fund and retirement? If you’re on the 10 year repayment plan and still have funds left over every month, this could be a helpful order of operations. But from your question, it sounds like you may need to make a trade-off between student loans and retirement for now.

The bottom line is that saving early for retirement is really important. You don’t want to miss out on the shocking power of compounding interest and returns, especially because the funds you invest early will have multiple decades to grow before you need them.

I’m glad that your husband has federal student loans, because it introduces the option of income-driven repayment (IDR). If you need to free up some cash each month to make sure you’re contributing to your other financial priorities (like buying a home and funding your retirement), you may want to consider lowering your monthly minimum.

IDR is a set of repayment plans for federal student loans that let you make monthly student loan payments based on your income. At the end of 20 or 25 years, depending on the plan, the remainder of the loans would be discharged. You could take the money you save by enrolling in one of these plans and direct it towards other savings and investing. The best way to get a concrete sense of what this will look like for your situation is to use a calculator like the Loan Simulator at Federal Student Aid. You’ll be able to estimate what your monthly payment would be, and whether you’d have any loan balance left to discharge at the end of the 20 or 25 year period. The good news is that you’re not locked in to IDR. If your circumstances change, you can adjust your strategy to pay off your loans more quickly. (And if you’re closer to retirement age, like many student loan borrowers, the monthly payments will drop when your income does.)

There are a few other considerations to think about with IDR plans. You may end up paying more over the long run on the loans because of interest, especially if you and your husband’s income goes up and you pay them off before the end of the 20 to 25 year period. Most of the IDR plans haven’t been around for 20 or 25 years yet, so it’s hard to know practically what it will look like to actually achieve discharge. Make sure you’re saving your statements and billing records, and always recertify your plan on time. Also, the amount that’s discharged could potentially be taxable. Congress recently made student loan discharge tax-free through 2025, and there’s a possibility that could be extended.

You described your husband’s debt as the equivalent of a mortgage, and I know from experience that looking at the sheer size of a student loan balance can be really overwhelming. But just because it’s a large amount doesn’t mean it has to be the number one priority of your financial life to the exclusion of all others. You can still save for retirement and buy a home (there’s been some good news recently on that second front.) It may not be easy or fast, but you can build a solid foundation for the life you want. I’m rooting for you.

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After years of getting endless private refinancing offers in the mail, a friend mentioned at dinner recently that she is starting to consider it. None of us had stellar info on why not (the interest rate would be half of what our loans are now) just a sense it was a Bad Idea. Is it?

First of all, I’m going to assume you’re talking about student loans here. This really depends on whether your student loans are federal loans, or are already private student loans.

If they’re private loans, it’s definitely worth looking into refinancing. Interest rates are low right now, and you can compare quotes from several lenders before deciding which you’d like to move forward with. Because the loans are private already, you wouldn’t be losing any federal protections, and would just be saving yourself money by lowering the interest rate. Most student loan refinancing doesn’t come with additional fees, and many refinancers are actually offering cash bonuses right now.

If you have federal loans, though, it becomes more of a trade-off. The advantage of refinancing is that you’d be halving your interest rate, which could save you a lot of money over the long term and let you pay off your loans more quickly. The potential disadvantage is losing the benefits that come with federal student loans: once you refinance, you’d no longer have access to federal forbearance and deferment, the option to make payments based on your income, or the potential to receive loan forgiveness or discharge from the federal government.

If you qualify for refinancing, can halve your interest rate, and are secure enough in your job and industry to be confident that you can make the monthly payments, then accepting the trade off and refinancing your loans might be the best choice! It’s not universally a Bad Idea, and can be a great deal under the right circumstances.

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If you read this newsletter and value it, consider going to the paid version. From here on out, the weekly “Things I Read and Loved,” including the “Just Trust Me,” only go out to Paid Subscribers. Paying for this newsletter means I can pay people like Bridget to make this series happen — but also people like Joseph, who designed the logo for it.

Another Subscriber Perk = weirdly fun/interesting/generative discussion threads, just for subscribers, every week, plus Sidechannel, where there’s dedicated space for the discussion of this piece.

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