Melissa: Do you want to become financially independent? You’re in your twenties, maybe fully getting out into the working world for the first time and making some money for yourself. 

But maybe, you are also pretty broke.

Same.

According to a 2019 study by the Pew Research Center, only 24 percent of young adults are financially independent by age 22 or younger. That’s compared with 32 percent in 1980.

A chief financial analyst for Bankrate.com told CNBC, who reported on the study, that low wages along with increasing student loan debt and monumental housing costs are key factors as to why more young adults may not be financially independent yet. 

At the same time, everyone’s saying, “Invest in your future. Now’s the time. Do it while you’re young.”

But how do you do that when you don’t have that much money to work with? Not everyone comes from generational wealth, and some of us are starting from square one. What do you even do first, or what should you prioritize? 

Elizabeth Pennington, a certified financial planner from Fearless Finance, who works mainly with younger adults, has some answers.

In this episode, she breaks down what kinds of goals to set, how to get started planning for the future, the basics of credit and retirement investing, what to look for in a financial planner, and why it’s important to start thinking now, but also how to be realistic when it’s not feasible for you to put down huge amounts of cash. 

Disclaimer here: Any information shared in this episode or in the show notes is for general information and entertainment purposes only, and we cannot be held liable for anything shared in relation to this episode. Anyone featured or working on this episode does not know any of the listeners’ individual financial situations, so this shouldn’t be considered financial advice. Please speak to a professional who does know your situation before making any decisions.

And on that long, legally-necessary note: let’s get into it. 

This is Tired In My Twenties, a podcast about figuring out adulthood one episode at a time. I’m your host, Melissa Lent.

Melissa: So I am here with Elizabeth Pennington. Thank you so much for coming onto the podcast, Elizabeth.

Elizabeth: Yeah. Thanks so much for having me.

Melissa: And I’d love to start this conversation by asking you, how did you become a financial professional and start working with young adults towards financial independence?

Elizabeth: It's a good question, because I did not come here via the traditional path. I had no interest in doing anything business-related or investment or anything like that in college. And I realized that this is an area that interested me because I made my own financial mistakes. 

So I got out of school, ended up in an apartment that was more expensive than I could afford and taking on, via a couple of paths, some credit card debt. 

I knew enough to know that I wasn't going in the right direction. And actually I think that my own financial journey and those bad habits tied into quite a bit to my mental health.

So when I was stressed or depressed online shopping was a form of therapy. And if I was too overwhelmed to cook, I ordered a lot of takeout. And as I was managing that part, the mental health part, as I got better there, I realized that wellness holistically also includes this financial security piece and that I wasn't going to stop being stressed and overwhelmed if I felt like I didn't have control of where my money was going and how I was managing it.

And thankfully realized that I needed to fix it for myself. And as I was doing that, I realized how much this information just isn't available to people starting out, at least not easily accessible.

And that's when I kind of realized that I wanted to make this career change and become a financial planner, but that I didn't want to go the traditional route of only working with people who were already rich.

Those people need advice too, but there's plenty of financial planners out there who tailor their practice just to wealthy clients. And I wanted to make sure I was doing something that could reach everyone no matter where they were on their financial journey.

Melissa: Thank you so much for sharing that. Basically you are coming from a perfect background to really speak to this topic today. So I'm so excited that you're here. Today we are really talking about, how can you become financially independent when you have debt or when you may not come from a place of generational wealth.

Elizabeth, maybe I can ask you this as a starting off question. How do you even start thinking about that? How do you even start? Because I feel like a lot of our listeners may be coming from square one and may not even realize that they can do that, or if they even want to do that, feel super overwhelmed to even beginning.

Elizabeth: Yeah. That's a loaded question, there’s a lot of pieces there. So in terms of starting out, I think the first thing we need to recognize is that none of us come to this in a vacuum. You may not have had any sort of money education or financial background provided, but we all have information that we carry with us about money. I like to refer to it as our money baggage.

It's the baggage that we take with us from childhood, from seeing the way our parents handle money or talk about money, or don't talk about money. It's seeing ways that money is treated in society and social media, especially on TV shows. So we come in with this kind of preconception that if you have money, you should be able to afford all of the things that you think you deserve.

And the very first step here is unwinding those pieces of money baggage. And understanding that where someone else is on the outside is not necessarily where you want to be financially on the inside. A lot of people who have the nice cars and do happy hour every night and go on fancy vacations don't have the money to do that.

And so it sets these unrealistic expectations for the rest of us who are trying to be responsible with our finances. 

The first place to start really is figure out what matters to you, with the caveat that I'm assuming you're making a livable wage, because if you're not making a livable wage, there's no money to save anyway.

And then the real problem is that we need to be making more money and that's hard to do. So I like to emphasize that for some people at certain salary levels, this might not be achievable right away. And that speaks more to their income versus them not doing the right things with their money. But if we're at that place where we know we should be able to be financially secure, the first thing to do is decide what matters most to you.

If that's buying a house in the next five years, or just getting out of debt as fast as possible, if it's saving up a rainy day fund, so you can afford a visit to the emergency vet, those are all great goals. We need to figure out what goals matter the most, because that's how you focus that energy.

Melissa: So what makes a good goal?

Elizabeth: That tends to be pretty individual. I would say that there are some core goals that everyone should have. So when I'm working with a client and they say that they really want to buy a house, we actually take a step back and say, okay, are you financially secure in these other five areas? Because if not, the house isn't happening. These have to be your goals first. 

And so, I think of these as like the five pieces of financial wellness that I look for with clients. And that's one, that they're spending less than they earn, which is basic, but also pretty hard for a lot of people.

Two, do they have a small rainy day fund for the little emergencies that come up needing a last minute plane ticket to visit a sick relative. Things like that, not life-changing, but definitely not in our regular spending patterns. 

Three, do we have an emergency fund, which is for life-changing emergencies, losing your job, disability divorce, anything where we might need to fund several months of expenses in cash and that's a lot of money and that freaks people out sometimes.

Four, do we have any consumer debt credit, card debt specifically? Because those high interest rates hurt a lot. And if you're holding on to high interest debt, then none of these other goals can happen until that's gone. 

And then five are you saving for the future? Are you putting enough aside for retirement? Because if you want to buy a house and you haven't put any money into your 401k or IRA, you're not buying the house. We got to make sure that 70 year old you is financially safe before we worry about upgrading your living situation now. 

So those are what I look for, first is general goals. And then it really depends on the individual and what matters to them and what they want to focus on.

Melissa: Right. So it seems that if you want to move forward, you have to make sure that you have a solid foundation already. And maybe that can be a little bit frustrating if you feel like, “I'm ready right now”, but it's also really important to make sure that you have that solid footing before you make a big purchase, because then if you don't and something happens, then it's kind of like you  have the big purchase. You're not able to sustain it. And then we're going back to square one, right? 

Something big that you mentioned in all of this is saving, especially towards emergencies or short-term kind of spending. How can you even save money if you actually have very little money?

Elizabeth: And that's where the cashflow piece comes in.

So making sure that you know where your money is going, because if you're not watching it,  nine times out of 10 guarantee that there's  money disappearing to places that you don't want it to be going to. Whether that's ordering off of Door Dash because you had a long day, or Amazon Prime is the bane of all cash flows because the one day ordering, buy now, one click, shows up at your door that kind of instantaneous gratification is what rewards us in terms of dopamine. Like we want that rush. 

And so a lot of times savings doesn't come with a rush and we have to build it in.  Re-shift your focus around what savings means to you. For me, saving up an emergency fund is what let me quit my previous job and start this career.

And that was really exciting and really empowering and having that kind of excitement, a goal to reach toward is what makes it helpful. But on the numbers side, you need to know where your money's going. Track your expenses, understand what you're spending each month in some core categories. I am not advocating for a budget here.

Because for most people, budgets are too restrictive. If we are tracking 30 different line items every month, it's like saying that I'm going to go from being a couch potato to running a marathon next week. That's not super sustainable. What I actually recommend instead is only tracking the things that actually matter.

So track your grocery spending because that's somewhere where a lot of people overspend easily and track your discretionary money. 

With clients, I refer to this as their flex dollar allocation or their flex dollar pool. And the idea is that, instead of saying, I'm going to spend a hundred dollars on eating out this month and 50 on Amazon and 50 on clothes or Target or whatever, we wrap all of that into one pool so that you get to prioritize your money every day by choosing what to spend it on.

And if you know that you really want to buy a new rug for the living room, it might mean that you're eating out less or going to Starbucks less. It might mean that you skip the concert tickets that go on sale, or if those things matter, it might mean that you stay away from Amazon that month, or, pull back on happy hours.

The fun money is there for you to enjoy that you can't have everything all at once. You have to decide what matters the most in those categories.

Melissa: I think that's really, really great. And honestly, I have always thought about making a budget, but it always felt intimidating to me. And so your tips right now just made it seem a lot more manageable if you're only tracking a few things because every month I have expenses that are very fixed, I have to pay certain things so that money always goes away.

So just focusing on the money that I have left and what is going on with those funds,  seems actually a lot more helpful, so thank you for that.

You also mentioned credit cards and I did want to get into it a little bit. I know we could actually just have a whole episode about credit cards but what are some general pieces of advice that you have towards managing credit card debt, especially when you maybe have other forms of debt.

Where should that be in the hierarchy when you are really planning towards financial independence?

Elizabeth: Credit card debt should be pretty close to the top of the list. So if we're starting from square one, we don't have anything saved. We're starting new and tackling everything. Then before throwing money at credit card debt, I'd say you want at least a thousand dollars in that rainy day fund, because we don't want something to come up that you didn't anticipate that puts you back into debt.

But once we have that, the credit cards come next and that can be really hard. Especially if you've built this habit of using the cards and not thinking about it too much. Access to credit is both great, and also really, really dangerous, especially when it comes without any sort of education on how to use it responsibly.

I think that millennials and Gen Z are the first generations coming in where credit was always accessible. I filled out my first credit card application before I was even 18, because they were giving out a free coupon to Cold Stone Creamery.

Melissa: And you’re like oh yeah, I’ll get that free ice cream.

Elizabeth: Exactly, exactly! I made up my social security number cause I didn't know it yet. 

Melissa: Oh my gosh. 

Elizabeth: The application was not valid. There's no way they would've given me a card, but that level of access is dangerous because I had no idea if I had been 18 and they had approved it, I would have started using it. I would have not known better.

Having access to credit is what improves your credit score, your credit history for when you want to do things like buy a house down the road or buy a car. But if we're in a situation where you're already in debt, it's not a good thing. We have to get us back to a good baseline before using credit again.

And that means that you shouldn't be using any cards that you carry a balance on. Leave them at home. Don't think about them. If that means that your only option is the debit card, then that's what you're using until we have at least one card paid off. And once that card is paid off and if you're spending on it, you have to be able to pay it off in full every month, which if you're watching your cash flow and where your money is going, should be easily done because we know we've planned for those expenses.

Melissa: Right. All the pieces fit together. And another big piece of this that I wanted to mention is. Investing because I feel like there's a lot of talk about investing in terms of planning for your future, becoming financially independent, especially for retirement. And just generally, is there even a way to start investing when you don't have virtually any or very little money at all? 

And if so, how would you do that? Because I'm trying to figure that out.

Elizabeth: I love this question because I wish they could tell everyone in their twenties that they need to start investing for retirement. One of my most rewarding client experiences was actually helping a 21 year old set up their Roth IRA for the first time and contribute.

Melissa: Oh wow, very young.

 Elizabeth: I know, I know, I was like, I wish someone had told me at 21 to have a Roth IRA. So for people who aren't aware an IRA is an individual retirement account. And if you have any earned income, you can open it. This is by far the best way to start investing. I don't want you to download Robinhood or get into Coinbase or follow whatever meme stock is being sold.

Melissa: Get into crypto? [laughing]

Elizabeth: No, we start with an IRA! [laughing]

Melissa: All right.

Elizabeth: When we think about like goal timelines, the only time you should be investing money in the market is if that money is meant for a long term goal, which retirement is the perfect example for. The other great thing about our retirement account is that it comes with tax benefits. 

So if we haven't maxed out an IRA or a 401k, buying individual stocks in a private account is not the best move. You're leaving some free money from the government on the table there.

So that's a whole rabbit hole we can go down, but whether you open a Roth IRA or a traditional IRA, open it and stick 20 bucks in. You can open accounts with companies like Fidelity, is a good example, because they don't have any minimums for those accounts.

Vanguard is another one. Because we want to build that habit. So if you don't have a lot of extra money now, 20 bucks a month is something. You're starting and you're getting into the habit of putting money aside.

The other piece I want to make sure to mention here though, is that if you have a retirement account through your employer, like a 401k, a 403B if you're in the nonprofit space, before we put money anywhere else we want to make sure we're getting any employer match that they offer, because that is again, free money that you are leaving on the table.

And usually you have to put in a certain percentage before they'll match what you put in.

Melissa: That is great. And no one wants to give up free money. 

Elizabeth: Exactly. The investing piece is a big thing because when we look at the benefits of investing, the longer time period you have, the more those benefits are visible. 

Melissa: Are there any other actionable ways people in their twenties can start managing their finances now?

Elizabeth: I would go back to those five points, actually. You know, if we are looking to start making good financial decisions in your twenties, having an emergency fund, and a rainy day fund, no credit card debt, retirement contributions, and a sustainable cash flow are where you want to be. And if we're there, any other financial goals are extra credit at that.

Because I work with a lot of clients in their thirties and forties who don't have those five steps done. So if you get those done in your twenties, you're ahead of the curve and you're setting yourself up really strong for making good financial moves in the future.

Melissa:  I am not surprised that maybe people, even in their thirties and forties, don't have it all figured out, but it is comforting to hear as well. Being in your twenties and starting to think about finances now is a really good step, versus thinking about it maybe a little bit more down the line, which you can obviously still do, but it's great to start early.

So in terms of feeling overwhelmed, how feasible would it be to get a financial advisor when you're at this stage in your life? 

Elizabeth: That's a really good question because I think a lot of people don't realize that you can access professional advice.

If you're looking to work with a financial planner, what I recommend looking for is a fee only planner, which means they're not going to sell you products, who operates on an hourly basis or a flat fee basis. 

And to be perfectly honest, a lot of those planners are still going to be out of reach. They might charge hourly fees that are higher than you can afford.

And that's part of why I care so much about working in this industry, because I want to be part of that change. And I think that change needs to happen. 

So look for someone who will act in your best interest, meaning they're a fiduciary. I see way too many people come to me who were sold whole life insurance policies in their twenties because it earned someone a really generous commission. And now they're stuck with this product that they don't need. 

So know that if you're getting advice for free on the internet from a financial planner, wherever you need to know how that person is paid. Is it through affiliate links, which are fine, but you want to be aware of that. Is it through commissions that they earn when they sell you something? Because if that's the case, then there's a pretty significant conflict of interest there if you don't actually need that product. 

And it's why I like the fee only model working with an hourly planner because there are still conflicts of interest. It's in my best interest, if a client keeps booking hours with me, but it's also not nearly to the level or the scale of me taking a percent of their assets that I manage or getting several thousand dollars from an insurance plan they don't need.

So start there, start with knowing the pieces you want to look for. And then look for someone in your range. I would say that at fearless finance, we have worked very hard to make this information affordable.

It's not perfect. I think that we're continuing to iterate and make sure that we're affordable at different levels, but I would really love to see more of the industry moving in that direction.

Melissa: Thank you for outlining that. I think it's very important to see what the options are. And also what are the things that you should look for when you are considering working with a financial planner. So fee-based, definitely a great tip. 

So Elizabeth, this is a question that I ask all of my guests. What did you think adulthood would be like?

And what is it for you now in reality?

Elizabeth: Young Elizabeth was very risk averse. Like I thought –I was going to get through college, get a good stable job, and stay there for 40 years in an industry that I loved.  And that would bring me happiness. Would definitely bring me some security. 

And when I graduated and I had got to that point where I was in a job that on paper should have been my dream job that I told all of my friends, when I got the offer, I was going to stay there forever because it was so great.

I pretty quickly realized that that was not going to work for me. And so even though I'm risk averse, I gave up that stable job with the 401k match and the free health insurance to pursue something completely different from what I studied in school and what I was planning to devote my career to. 

And even with that, I'm so much happier than I know I would have been if I hadn't taken that risk.

For me, especially what I didn't expect is to realize that, we think of risk as being the unknown, but there is real risk in a stable environment where you know you won't be happy. Like that risk is unknown level of risk. And for me, it was less risky to take on a new challenge with income variability and growing a business than it was to stay in a role where I knew I wasn't going to thrive. 

And that's something that if you had told 18 year old Elizabeth, that she would be an entrepreneur and building a business and she would have completely thought you were insane because it was not on my radar back then.

Melissa: Well, I am glad that you took that plunge and you found something that really makes you a lot happier.

And I think that's something that we really want to normalize on this show that there is no one path.

And I definitely want to normalize that feeling for a lot of people. So I'm glad that you even shared part of your story on that today. Where can people find you?

Elizabeth: Yes. So the company that I'm a planner with is Fearless Finance, fearlessfinance.com. We're also @fearless finance on Twitter, Facebook and Instagram, are our main platforms. I should also say people could reach out to me directly at elizabeth@fearlessfinance.com. 

Melissa: You should definitely go do that. So thank you so much for joining us, Elizabeth. It was wonderful to have you and I really enjoyed our conversation.

Elizabeth: Yeah, thanks for having me. In case it isn’t obvious, I'm always happy to talk about money with people. So, glad that I could share some of this with your listeners. 

Melissa: It can be hard to talk about money. And it can be even harder to think about financial independence when you feel like you have very little resources to start with.

I hope you give yourself permission to take financial independence one step at a time. As Elizabeth said, if you are barely getting by, then you do need to find a job that gives you more discretionary income before you can start going down this road. And that’s okay too. 

But once you feel like you’re there, try to tackle those five main goals Elizabeth recommends: make sure you don’t spend more than you earn; save an emergency fund and a rainy day fund, whittle down any credit card debt you may have; and put away a little for the future. In other episodes, we’ll be breaking down saving for retirement through IRAs and 401ks, building good credit, and handling debt even more. I’ve also linked some articles in the show notes that break down some of these topics further. Once you have those building blocks in place, you can think more about buying a home, starting a business, or even retiring early. 

This won’t all be perfect, and it won’t be all a= t once, but even you thinking about your future is a great start. And little actions over time can bring big returns in the long run. Even if you think it’s not very much, see what kind of commitment you can make. 

It’s all about a slow build towards financial freedom, one of those pivotal parts of becoming an adult.

If you do want to seek professional help, check out Elizabeth and Fearless Finance’s services. You can work with a fee-based financial planner who is a fiduciary, meaning they have a code of ethics in the position they hold to act in your best interest legally and financially, versus trying to sell you products you don’t need, all things Elizabeth mentioned. Fearless Finance has an hourly model, and also, as more affordable options, a half hour financial review, a small group course, and even an app. She also recommends the books Broke Millenial by Erin Lowry and Get Money by Kristin Wong. I’ll link all of this in the show notes, don’t worry. 

Many of us, me included, don’t have that kind of generational wealth where that path will be easy. But maybe it can be our turn to build that foundation for ourselves and the generations to come. So let’s take that road, slow,  together. 

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Tired In My Twenties is an independent podcast produced, edited and hosted by me, Melissa Lent! Get detailed show notes at tiredtwentiespod.com and subscribe to my newsletter at tiredinmytwenties.substack.com. 

Music and sound effects for this episode come from Artlist. Special thanks to Isabel Gouse.

Thank you for listening to Tired in My Twenties, and join us next time to keep figuring it out together.