Common Sense Money

Tough Things First

Depending on who you listen too, a recession is either already here or just around the corner. In this Tough Things First podcast, Ray Zinn, who led a major tech company through good times and bad, discusses options for making your personal finances just as resilient.

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Rob Artigo: Ray, I don’t think it’s a stretch, I really don’t, that far too many people have not saved enough money. Would you agree with that?

Ray Zinn: Uh-huh. For sure.

Rob Artigo: I figured there must be a few ideas that you have about things people can do to be more proactive, whether early on in life or now depending on whatever stage in life they are, looking at having to save money. If you’re starting early, starting late, there has to be some common sense ways to work things out. Can you start with a few ideas?

Ray Zinn: Well, it’s a good topic. Because of high inflation that we’re experiencing right now, people are hurting, and they’re having to dig into their 401s or having to dig into their other savings or selling off some of their investments. You never know, maybe a calamity, medical problem, or some family issue or some crisis around your community or home. A savings account is absolute, absolute necessity. You need a buffer, and that’s what the purpose of 401k, that’s why they came out, is to encourage the government and wants to encourage people to save money, because otherwise, we fall back on the government to save our bacon. Emergency will happen.

Ray Zinn Cont:If you’ve lived long enough, you know that not everything is peachy keen and roses. There are going to be some kind of a calamity. Something’s going to happen, and we’ve experienced it over the last three or four years with this high inflation, and that’s just really eaten into our income, as you would, or our buffer. People are having to rely now either on family, on their savings. Somewhere, they’re having to dig up money that they weren’t expecting to have to dig up just to survive.

Rob Artigo: I heard you talking about the debt. The country’s facing debt, and debt is increasing among households because of these various reasons in the economy. And debt costs money, and anything that costs money is obviously a detriment on savings. So I know you’re not a fan in business or in personal life of borrowing money, because it costs money, right?

Ray Zinn: Well, and the interest rate’s so high now, comparatively high than it was a few years ago. So again, cost of money has gone up, and it’s just really hurting a lot of people. I have a lot of friends who are really suffering now because of just what we’ve experienced over the last few years. So putting together a savings account is extremely important. So let’s talk about why or how I should say how do we do it. And as a young college graduate and just getting married, my wife and I decided that we were going to live only on a portion of the income that we made. So we set this rule that we would never spend more than 75% of what we earned, and that gave us 25% to stock away for a rainy day, as you would. And so never live at or above your means.

So you have to have a disciplined life. It’s tempting out there to buy that new car or to buy that fancy gimmick or whatever, gizmo. And so you just got to restrain yourself, take a deep breath and live on 75% of what you make. And it breaks down this way, like 50% for a living, the essentials, what we call the non-discretionary income, things like food, rent, that sort of thing, and then discretionary, that’s another 10 to 20% you could have for entertainment or just on things like TVs or what we refer to as non-essentials, but never exceed 75 to 80% of what you make. Just make a commitment. Just cross your heart and hope to die, stick a needle in your eye, you just got to live on 75% of your income. That’s the first thing. You can’t save what you don’t have, so you have to save it. And saving it is the key to having a savings account, and we’re back to what we said a minute ago. Make a commitment that you will not live on more than 75% of your income.

Rob Artigo: Is this something you can teach your kids early, and get them starting to save? I haven’t seen a piggy bank in a long time, but I imagine it’s never really too early to teach them the principle of saving something of every dollar that you earn.

Ray Zinn: Well, you’re example. As a parent, you’re an example. And so if your family, your children, your friends or whatever, if they see you living high on the hog as you would, high on the hog meaning you’re living at or above your income level and living on debt, as you would, you’re sending a bad example. My children have always seen me. My wife and I live on substantially less than what we earn, and we’ve always done that since we’ve been married, and we kept a budget. We have very, very strict budget. Once a month we sat down and reviewed our expenses and what we were able to put away for savings.

So I can truly say this, I’ve been married for 63 years, and I can truly say that I’ve always had a savings account. My wife and I have always had a savings account since day one. And so I’ve had too many family examples of going way beyond what you can afford, and that’s the challenge is living well within your means, and that’s what we have to set up as a golden rule. Just don’t exceed what you earn. And then of course, you want to have that 25 to 20, 25%, put a sock away for a rainy day, as they say.

Rob Artigo: Is it ever too late to start?

Ray Zinn: No

Rob Artigo: Making it a habit?

Ray Zinn: No, no, no. Good habits are easy to break, bad habits are easy to start. So the bad habit, of course, is when we talked about living beyond your means. The good habit, of course, is living within your means, well within your means so that you have some excess income that you can sock away for that rainy day.

Rob Artigo: You mentioned having a savings account, and I think we’ll end with this, but we have a 401k or we have a Roth IRA or IRA or an investment account, something like that. But you have a savings account, which is strictly cash, and usually not a great interest rate. I think I got a penny worth of interest a while back. It was kind of funny. I just thought, “Wow, that’s really not worth it.” But there is a lot to be said about taking a portion of your money and just putting it in a savings account, and then you have cash there, even though it’s not generating a whole bunch of money.

Ray Zinn: What I meant was, by savings, was not a savings account per se, but savings meaning money that you’re holding back from spending. Let’s put it this way. A savings is money that you’re holding back and not spending on either essential or non-essential items. So savings could be a 401k, it could be an IRA, it could be a mutual fund. Again, keep it simple, stupid, as they say, KISS principle, don’t get carried away, don’t get too risky and invest in Bitcoin or whatever. Put your money where you know you’ve got some security, it’s not high-risk. If you’ve got a substantial saving, let’s say you’re living on 25, 30% of what your income is, it’s okay to take a risk if you want to risk a portion of that money that you’re socking away, but make sure that risk matches what you can afford, what you can actually survive on, as you would.

So again, keep it simple. Don’t get too carried away with some really, I hate to use the term Bitcoin-type things, but the higher risk investments, because that’s like having no money as you would. Because the risk is too high you run the risk of losing all that money that your saving for a rainy day.