Transcript: CIBC US Financial Toolbox podcast, Episode 1 — The importance of savings for your financial wellbeing
>> Narrator: Welcome to Financial Toolbox, a podcast series sponsored by CIBC Bank USA that understands that financial wellness is not innate. It's learned, whether you're a member of the next generation wanting to start your financial journey out strong or you're a lifelong learner looking to improve your financial standing moving forward. Our team of experts are here to equip you with the information you need to help make your ambitions a reality. And now for this week's episode.
>> Drew Marquart: Hello and welcome to Financial Toolbox. My name is Drew Marquart and I'm the Director of Deposit Products for Private, Personal and Digital at CIBC Bank USA.
>> Michael Hill: Hi. And I'm Michael Hill, Product Management Director here at CIBC Bank USA. And we’re pleased to be your hosts for today. For today's episode, we’ll talk about the importance of saving for your financial wellbeing. We'll discuss how strategic savings habits can support your financial goals and the pitfalls that can eat away at your fund pool.
>> Drew Marquart: Okay, great. Michael, let's get into it. Why don't we start with what the foundations of a saving strategy should look like at any age?
>> Michael Hill: I think the biggest thing that we should look at is not really trying to boil the ocean all at once.
We shouldn't look at, Hey, I want to finish at 66-plus, with this pile of money. And more so look at it like, I’m 20 years old and I want to start to be able to have a savings to fund, maybe my next first home purchase. Maybe that might be me looking for opportunities to pay down some debt that I may have incurred within college. Think looking at it from those steps provides you with a little bit more clarity. And it takes, unfortunately, it takes the burden off of you of feeling like you have to become this quote unquote instant millionaire with this perfect grand idea of a savings plan within 30 days. Just taking it into small chunks and looking at it from the perspective of I'm 22, I'm 21 years old, and what are the most important goals for me right now? And how can I utilize accomplishing those goals as leverage to be able to get me to my next set of goals? So I would ask you, Drew, what would you think of Drew, you are 21 years old, 22 years old, fresh out of undergrad, looking at the world with this super bright open eyes and smile, what would you say, Hey, these are the first things that I would look at trying to accomplish with regards to my savings goals?
>> Drew Marquart: Oh boy. Okay, let's go back here in time a little bit with the mindset. Yeah, well, no, I couldn't agree more with what you said. I think the key, and we'll get into it in a little bit more detail, but the key, when you're at a young age and kind of starting your savings journey, you don't want to be thinking about just savings accounts or just your savings, your funds that are for your rainy day funds. It all is going to, part of your savings practice is going to be also in what kind of checking account you're using, what you're using for your day-to-day expenditures. So I loved what you said about not boiling the ocean. A lot of your early-stage savings practices are going to be in, how are you controlling your spending? What kinds of banking products are you using that are low or no fee?
Are you making sure to avoid things like ATM fees, monthly maintenance fees with your checking account? Are you leveraging auto payment features for any of your bills? Those are all ways that are great habits to start out with at an early age that will help supplement your savings as you're going on, because you won't be spending extra funds on fees that you didn't need to be paying or fees to access your money. That's a huge one. You really want to avoid any kind of fees that would ever be assessed to you for accessing your money. So that's a real huge one, and that can really lay the groundwork for a good savings journey for yourself.
>> Michael Hill: I think too, Drew, one of the things that I think about is when I was younger, I can remember my grandparents and my parents waiting for their bank statements to come in the mail and literally going line by line by line to confirm the transactions and lining up with what they had in their ledger. And I say all of that to say, to really piggyback off of what you said, you really have to look at your accounts and your spending on a microscopic level and understand that although my Netflix bill is $10.99, that $10.99 adds up over a long period of time and it erodes the savings that you may have. Or even right now, we see that people have tons of subscriptions to a lot of things that they don't even use. And those subscriptions over time, they add up and they keep you from being able to accomplish your financial and your savings goals.
So starting out at a young age and being able to be very diligent about checking your statements, checking your online banking activity and checking your spending habits, I think it pays great dividends, right? Because the trajectory is always to see an increase in your income and is that income increases. And if you've already established an ability to be able to manage your expenses, well then, you just help that snowball, grow a little bit faster for you and it helps you to be able to go on into the next stage of your life. And as far as the savings goals that you had, and one of the other things that you said, which I thought was really phenomenal, it clicked in my head, it's like a lot of times that we don't necessarily realize that the power of the internet allows us to be able to do research and see what all products and services are out there and are available to us to be able to utilize.
And maybe your local bank allows you to use a checking account, but it has a $15 fee, but you may not be aware that there’s a bank that’s digital-only, where you can do that same type of banking and there's no cost associated with it. So really utilizing the tools that are available to us through search engines or through any type of financial publications and extensively looking at those and seeing where the opportunities lie, that may not be right in front of our faces. I think it's a great piece of advice and should be adhered to for everyone.
>> Drew Marquart: That's right. That's great. So I think the themes we're talking about for young savers so to speak, are really, it's kind of counterintuitive, but you really got to get a handle on your spending early on and make sure you're watching that closely. Also hearing, seek out a low to no fee checking solution. And then part of what you're talking about that's going to allow you to have an easy line of sight into all these things, is have your savings account where you're doing your checking because it'll make it easier for you to manage your monthly bill payments without incurring late fees. It'll make it easier for you to have the best interest rate you can get while also being able to move funds quickly over to checking based on your spending habits or your bill-paying needs. So I think those are the key foundational building blocks to your savings journey as a youngster. What about someone a little bit further along in their career, perhaps midway in their career, how do you think they should view their savings options in that context?
>> Michael Hill: I think that once you get that, if I can continue with that analogy, once you kind of get that snowball going, and if you get that snowball up to a nice enough amount, you really put yourself into a position where you have options, right? Because if I have options, then that allows me to be able to take advantage of programs and services that I may not be able to take advantage of because of the amount of funds that I have saved. And so I like to think of in the business that we're in, when you have options, you have the ability to talk to one bank about what they're going to offer you for your deposits and also talk to another institution at the same time. And the hope is that you're able to leverage one over the other to be able to grow your relationship.
And I think those things, they help you. And then even when we think about things like relationship pricing, right? So if you're at an institution and you have deposits that are doing really well there, that institution is going to look at you as a valuable customer and they're going to provide you with those lower rates on loans that you may be seeking, whether it's an auto loan or some sort of home loan. So when you get into that middle stage of your career as you begin to look at purchasing a home or you begin to look at refinancing a home, or you begin to look at kind of making some of those larger purchases of assets for your family or for yourself, then you can use those things that you did at the earlier stages at your career and use them as just like a sail on a boat. I can use it and put it right directly to my back, and it can help me to be able to move forward from there with ease versus it being a struggle or versus it being something that is more daunting and challenging than that it should really need to be.
>> Drew Marquart: No, that's helpful. We're both on the same page there. I think as far as, I think what we're getting at a lot here, no matter what stage you're at, is that your savings journey is not just about what deposit savings product you're in, the checking product's key. And one of the items we haven't discussed but kind of goes without saying, especially for someone who's a little bit further into their career here, is part of your savings journey is leveraging as many of the different savings options as you might have available to you. So that's going to mean your retirement accounts, and to the best you can, maxing out your annual contributions to any given retirement account, maxing out any match you have at your employer as far as your 401k or other retirement plan options might be allowed. Those are all part of a very key part to your savings journey as you're going along. The sooner you start those the better, but especially as you're getting into your career kind of midway through your career, you want to make sure you're an expert on what's available to you in the marketplace and at your employer to help you grow that savings.
>> Michael Hill: I agree too, exactly what you were saying when you started to speak about retirement accounts and maxing those out, the ability to max those things out only come when you've done a really good job of being able to manage your expenses, because I can't max it out if I've got a ton of overhead that’s always staring me in the eyes every month, every quarter, or whenever the case may be, if I've managed those things well, then I can take advantage of maxing out my 401k and then do outside investing on the other side of that as well, which ultimately sets me up to be in a very good position when it comes time for me to look to maybe retire or look to leverage those funds to do something else. So I think from our initial conversation of starting, when you initially start out your career to mid-career, the commonality is that I got to manage my expenses. I got to make sure that I keep those at a minimum. I got to make sure that I keep those to a point where it's manageable for me. I remember hearing a quote from one of the NFL owners and he said that it's not about what comes in the door, it's about watching what goes out the back door. So just managing those expenses, it helps and it creates a place of comfort for us to be able to grow and move on into the next stages of life.
>> Drew Marquart: Absolutely. I couldn't agree more, I think. So we've already touched on the importance of tracking your expenses, being cognizant of your monthly and annual budget, utilizing those tools that your bank or your financial platform allows you to have is definitely worthwhile. Bill Pay services, autopay where available, those are all part of your savings and spending journey. We touched on this a little bit earlier, but what about, let's talk about credit cards a little bit. How should we view credit cards through the lens of a savings journey? There's a lot of value that could potentially be added with credit, but also places where you need to be careful. So what do you think about credit cards within the context of a savings journey?
>> Michael Hill: Yeah, I think credit cards are a great opportunity for individuals. So long as that individual or those individuals, they understand that this is a tool and it's not something that can be abused or something that can be overused. And as long as we understand the rules of using that tool, then we're good to be able to use it. And by that I mean I want to take full advantage of any type of point system that comes with it, but I don't want that point system to come at an expense where I end up paying interest costs. Right now, we're doing a counterintuitive process of not only of moving away from being able to build our savings and build our financial future, to now we're starting to erode at it, just like we were talking about earlier with those small monthly expenses. So just really understanding that as long as I stay within these parameters of the usage over credit card, making sure that I pay it off each month, understanding that what I do use to purchase this with that it is something that should I need to purchase, should I need to pay it off automatically, I have that available to me.
And I'm not using it as a way to continue or a way to start a process of just buying the first thing that I see just because I want it and not, again, as we get back to utilizing the tools that are available to us, to be able to help us to grow financially and to be able to help us to take advantage of opportunities that may be in front of us. So I think the biggest thing about it is just making sure that you have those guardrails in place, you adhere to those guardrails, and the moment that you feel like you might be sneaking up on them or that you feel like you may not be able to control it, you got to cut it off, you got to move off of it and go back to the basics of managing your funds.
>> Drew Marquart: No, that's right. We're on the same page. I think the key is, set it another way. Find that point reward system that is best for you, go for that cash back. Absolutely. That can be, that's a very valuable use over the course of your life. You'll save hundreds and thousands of dollars over the course of your spending life using a credit card if you're doing it right, but you don't want the credit card, and you want to build that mindset early where you're not spending because you have a credit card, you're using a credit card as a smart saving solution for all the expenditures that you need to make. So don't shy away from credit, but make sure you're doing it in a smart way where you're taking advantage of the cash back offers or the point offers without having to really change your spending behavior. You want it to be part of your typical habit for the expenditures you need to make, and that'll help you add the most value as far as credit cards go, and at the same time, that'll give you a little extra to put away in a savings account or a retirement vehicle. So it's a really good long-term habit to get into.
>> Michael Hill: I agree. What are your thoughts on the age-old question of building credit with a credit card? As we talked about these different life stages, 21-year-old, no credit, looking to establish credit. What do you think those steps should be for someone that's in that age bracket to utilizing a credit card to grow their credit?
>> Drew Marquart: Great question. So it gets back to that mindset, and so I'll speak more specifically. There's a lot of different ways to do it, but you want to get into the mindset where you're viewing your credit card as spending on things that you would have already been spending on anyway. So a great way to start with a credit card is to pay a bill or two or three that you would already be paying for no matter what a utility bill, a portion of your grocery bill, a lot of folks will spend, use a credit card for only their groceries. There's great cash back percentage offers for grocery savings. Gas works the same way to fuel up your car. I think that's the best way to start is to kind of start small and make sure you're staying within the confines of your credit limit, but also building that credit history and that consistent payment record.
And I know we talked about it earlier, but another big part of it is you want to set your credit cards to autopay and for the full balance. And so that's the best way to start with a credit card, is to be working within that context. You are going to use it for a very specific set of expenditures, and you're going to make sure to be paying that off in full every single month to the extent that you can. And that'll help maximize the value as far as the cash back goes, and then also allowing you to make sure you're staying within your spending constraint.
>> Michael Hill: Very good. Could not agree with you more on that. And as we walk through these different age changes and these life changes with age and savings, I couldn't help but to think once you move from that mid-career into the latter stages of your career, that if you've been able to really utilizing it here to those things, you pretty much put yourself into a position to be able to open up additional options for you from a savings perspective. And by that I mean hopefully you're in a position where your home, you're starting to tackle either paying off your home or really begin to attack that principal balance. Should you decide to have kids or you have kids now you're able to provide funds for them to be able to look at higher education options, whether that's sitting funds aside in another savings vehicle for them to be able to use for college. I got a question for you, Drew. What would you say or what would you use as far as advice to someone who may be in that middle to latter stage of their career and they haven't been able to really work the steps well, like we talked about in an initial career from savings, from a savings perspective, what advice would you give them to utilize to begin to get on the right road and get on the right track so that they are on a better trajectory going forward to grow their savings?
>> Drew Marquart: Sure. Well, it might sound silly, but it's never too late to start. It gets back to that, I think we talked about this earlier. You don't want to boil the ocean thinking about what could have been or that you're starting late. You just want to get moving. And I don't think it's ever too late. I think you referenced college savings. So that's another one of those accounts that you want to try to leverage as soon as possible. The 529 plan, depending on where you live, whatever the best option is for saving for education expenses for your family, that's key. But it's never too late to start and it's never too late to start leveraging some of the digital tools we've been talking about. So maybe you use Bill Pay but you aren't leveraging autopay. That's a huge one. Maybe you leverage, you think about budgeting kind of on the side of your desk, but maybe it'd be useful to use a budgeting tool at your banking platform to make sure you're tracking your expenses.
Maybe you're not sure how much you're really spending on that restaurant or that sporting event every single month. So just being cognizant of those things can help change your behaviors. And I think the previous solution would also still apply low no fee checking account and saving as much as you can for a rainy day and your savings account. And I loved what you said earlier about making sure you're able to use the internet and leverage the marketplace for the best rate offers that you have. I do think there's a lot to gain from keeping your checking and savings together so it's easy for you to move funds back and forth and really maximize your savings there, but at the same time, it's still key to seek out the best savings rate you possibly can for your disposable income.
>> Michael Hill: I agree. And it just clicked in my head as we were talking about searching, utilizing the internet to find financial solutions. You know what, your banking center good place to start as well. Bankers and tellers inside of our banking centers come in contact with hundreds of clients within a week, if not thousands of clients within a month or within a quarter. And so their ability to be able to provide advice to clients and guide them in the direction of what tools are popular for budgeting, what tools are good from a perspective of rewards, credit cards. I think that sometimes we just simply see the banking centers as just being places where we drop deposits off at or where we just retrieve deposits from versus really understanding that these financial centers have a wealth of knowledge through the people that are there and the people that they continuously touch.
And just using that as another tool or as another option to be able to provide advice. You really Drew, no matter what age or what age gap you're in, those are financial centers that see people from every spectrum of life. And I’m pretty sure that they have a story to say that, hey, someone at 19, someone at 30, someone at 54 did X, Y, and Z. They use this and this was something that they used that was able to help them to achieve purchasing a home or achieve paying off debt or something along those lines. So I think that even though we continue to move forward in the digital age, that we still have a strong presence inside of these financial centers of individuals with a wealth of knowledge that can be used. It just has to be picked. And I'm pretty sure you probably can say the same too, that using something on our end too and being a little bit more forthcoming to clients about those things would be helpful to just going out and providing advice to them based off of questions they may have or things that we may see.
So it's a dual relationship. You can go in and ask for information, you can come in, you can get information from us as well.
>> Drew Marquart: Oh, that's a great point. I mean, basically it's use the experts around you. Don't hesitate to develop a relationship with your banker. That's another helpful point of having both your checking and savings relationship at the same place. You can leverage that banker and all their expertise and they get to know you and develop a relationship with you and know what's important to you. So I love that. Use the expertise around you. It doesn't just have to be something that you're searching for online. You might have expertise right around you that's definitely worth tapping and that's great. I think what's another, if we wanted to kind of get close to wrapping up here, Michael, what's kind of a final piece of advice you might give or just an overarching theme you might give for how to think through your savings journey based on everything we've talked about so far?
>> Michael Hill: I think Drew, you kind of hit the nail right on the head a couple of minutes ago. It’s just really having that belief and faith that it's never too late and it's never too early. And so a lot of times when it's too early, there's always that adage, well, I don't have enough to save. Right? Well, you'll never have enough to save unless you save. And so realizing that $5, $10, $15 over a long period of time, it accumulates and it helps. And if you're in that latter portion of your career, it's the same thing. Zero. It doesn't get any greater than $3, $5, $10. We want to have something that's available to be able to help us move forward. So I would just say my overarching thing is it's never too late and it's never too early. What about you?
>> Drew Marquart: No, I love that. I love that. I think never too late, never too early. Those are words that live by, I think we touched on it, but use the experts around you so that use the resources. There's a lot of different products you can find. Be careful with debt. We talked about credit cards. Be strategic with your debt. Pay down the highest interest balances first. That's also part of an overall savings journey. But I love the idea of just using all the resources around you and developing the habit early because that'll really, really be what helps you build wealth over the long term. Thank you all for listening in as we discuss the importance of saving for your financial wellbeing. If you have any additional questions, please reach out to your relationship manager at CIBC to assist. You can also check us out at cibc.com/us or across several social media platforms by searching at CIBC US. Thanks for listening. We look forward to catching up again soon.
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