How to slay your money fears and take control of your finances: 'The Payoff,' with Alexa von Tobel

Money guru Alexa von Tobel — known for dishing out millennial financial advice in her 2013 best-seller Financially Fearless — wasn’t always so smart about managing that cash.

Even after landing a sweet job at Morgan Stanley right out of college, von Tobel decided to pass on dental insurance — and immediately got smacked with a huge bill when she got her first cavity.

“I realized how dumb of a move that was,” said von Tobel, who went on to sell her financial advice startup LearnVest, founded in 2009, for a reported $250 million in 2015.

For The Payoff's debut podcast, host Antonia Cereijido and Chris Duffy talked to von Tobel, now 32, about what others can learn from her mistakes.

Some big takeaways? Beyond buying insurance, von Tobel suggests young people always open an emergency account first — before getting fancy and investing in stocks — and never, ever try to talk about money while drunk.

The following is a transcript of the interview, edited for length and clarity.

Antonia Cereijido: Joining us now is Alexa von Tobel, founder and CEO of LearnVest.com, a personal finance website, and the author of the New York Times best-selling Financially Fearless.

Alexa von Tobel: So excited to be here. Thank you for having me. 

Chris Duffy: So Alexa, both of us are new to personal finance and we both feel financial fear. How do we go from being financially fearful to fearless, like you?

AvT: First, I would say, personal finance isn't taught in most high schools, colleges, you know, grad programs across the country. So all of us are really in the same boat when we begin to tackle our finances. We're not formally educated. So the best thing to do is to kind of acknowledge that. None of us are. It is really important to just rip the Band-Aid off and just start learning. 

The truth is there are about 50 different questions people have financially and when you learn the answers you feel pretty damn good about your life.

Step one: Rip the Band-Aid off. Step two is get going and start asking the questions and start really learning the basics. 

AC: What would you say your biggest money mistake has been in your life?

AvT: I've had so many. But one of the reasons I started LearnVest was because I was just like anyone else in the country: not quite sure how to tackle my financial life. I didn't really know where to get started, and I made my own mistakes. First, at work, I was working at Morgan Stanley, and I had never had a cavity, so dental insurance was like $6 a month. I was like, I don't think I need that, because I think I can pay for cleanings. A cleaning is $150. I'm fine.

Well, of course, I immediately get my first cavity, and it is like $700 without insurance, and I realized how dumb of a move that was.

I didn't understand how many credit cards to have. I didn't understand exactly what a credit score really was. I didn't understand how much I could afford in rent. It was those basic questions that led me [to] saying, "I gotta figure this out." At the time, I was young, single, I had no responsibilities, I had no kids, I wasn't married, I didn't own anything. I was like, if I feel this stressed about finances now, what happens when I actually have responsibilities? 

CD: Every single questions you just said, I feel like, "That's a question I have!" Oh no! Your biggest mistakes: I'm living them right now.

So, what was the best or worst job that you've ever had?

AvT: I think the best job I've ever had is LearnVest, to be perfectly honest. It is about building a company that I wished existed for me. I wanted a place to go to get trusted financial advice. The best thing about being the founder and CEO of a company is that you get to work with brilliant people that you get to find and who are like-minded and share the same mission. 

The worst part is... everyone thinks that being the CEO means that you're in charge and you get to wrap everything around your schedule, which is exactly the opposite. It's like you become the janitor of the company, because you care about every detail and want to make sure that everyone else is happy.

CD: In this first episode, we're trying to get started ourselves and take the first steps toward investing and doing it right. We both are trying to open retirement accounts and do a little bit of investing there and maybe buy some mutual funds. Is that the right first step? What should we be doing first?

AvT: I love this question. What the hell is a plan? What is a real financial plan? What goes into it?

In financial planning, we've got to first make sure you are protected from deep catastrophe, huge problems. Things like you get really ill and how are you going to pay for it? That's health insurance. You need to make sure you have it.

That's things like if your home burns down tomorrow: homeowners insurance. Or if you drive a car, auto insurance. Be sure you have the right basic insurances. Most people don't think about things like renters insurance. It is about protecting you from a big catastrophic loss. That's step one. 

Step two is what we call "basic financial security."

Do you have an emergency savings account? It needs to be the right size for you, so if you are young and single, three months is enough. If you are a family with four kids, you need a full year of emergency savings because there are more people for things to happen to. And no credit card debt.

Number three: being on track for retirement. The sad secret is that, quick stat, the average American is $9,000 in credit card debt and the average American has less than $400 in savings. And the average American has about $54,000 in their retirement account.

Which means the average American cannot pass basic financial security.

CD: So basically all of us are in deep "catastrophe" right now.

AvT: I often hear a lot of people talking about, "Oh, I gotta be investing more." We're always like, "Whoa, whoa. This is a Monopoly stack. You can't keep anything else in your life until you can pass 'Go' on those things."

You need an emergency savings account. You need no credit card debt. I mean zero. You pay off your bills in full every month. That's also awesome because it starts improving your credit score and other really powerful things.

And then, finally, you need to be on track for retirement. A lot of people don't know where they are. If you're in your 20s, start saving as much as you humanly can. And by the time you're in your 40s or 50s, you want whatever your salary is after taxes, you want about 20 to 30 times your salary in your retirement. That's a good rule of thumb.

CD: Wow.

AvT: Yeah, so it's big number. So let's just say that right now you live on — I'm going to make it easy, $100,000 after taxes as a family...

CD: (laughter) Yeah.

AvT: You would need $2 to $3 million for retirement as a family. Those are big numbers. I say that because most people aren't on track for retirement. Once you can pass basic security, then it's all the fun stuff. Do you want to buy a home? Do you want to buy a car? Do you want to have more kids? Do you want to pay for your kids' education? Do you want to renovate your kitchen?

AC: Oh my god. Sorry. I just got really...

AvT: Sorry...

AC: Yeah, so that's something I think we've been talking about for this episode. Like, we're talking about how to invest if you've never invested. And it sounds like the first step is, like, make sure you have your life together before you even consider something like that.

CD: The two of us are in our 20s. We're not even making $100,000.

AC: Nope.

CD: What if we can't afford a financial planner and we're still trying to figure out what to do? I get "pay off your credit card debt." I get "be prepared for catastrophe." Those make sense to me. But when you actually start saving for retirement or invest this money so that you're thinking about the future, what does that actually mean or look like? How do you do that?

AvT:  If you knew that you needed to get medical advice, you wouldn't just talk to anyone in the medical profession that you could find randomly. Right? You'd be like, I gotta go see a doctor. 

The first thing I would tell people is you need an expert. And just because someone works in finance does not make them equipped to have these financial facts to advise you. One of the things I hate hearing is when people are like, "Oh, my uncle's brother's nephew works in finance, and he's giving me help." I hear that all the time. And I'm like, "Is that person a certified financial planner? Or someone who is licensed to give financial advice?" And if the answer is no, I don't want you taking financial advice from them.

Step two: You want your money working for you. I always like to say I'm lazy with my finances, which is to say, I want when I'm on vacation my money to be "working" its tail off on my behalf every day.

Things like investing for retirement — the more money you've invested the earlier, the harder it works over the next 40 years. 

Compounding interest isn't magic — it's math. If you save a lot in your 20s then it does all the work for you in the next 20 years, and that's powerful.

AC: So the idea is even if you can't afford a financial planner today, definitely look to invest in your retirement and then the rest will come later.

CD: What is the best thing you did for yourself when you were in your 20s to prepare for your future?

AvT: So I think the best thing that I really did in my 20s, outside of starting LearnVest, was really straightforward. 

I always kept my credit score above 760. I never went into credit card debt. Credit card debt is one of the most costly things to your finances because it elicits shame. You have shame about your financial life, you don't make progress in other places. We know this from behavioral psychology.

I also started saving for retirement like a chipmunk when I was in my 20s. I saved every dollar I could.

And finally, I asked for raises. I made sure at every turn I could I would say, "Hey, look, I've done this great work, can you give me a raise."

There's only two aspects of your financial balance sheet, what comes in and what goes out. I've always been a saver and always been cost conscious. I'm not a big spender. But that only gets you so far because it is only half of the equation. You also have to make sure you earn more money.

AC: What about the importance of talking about finances with your friends and family? That is stigmatized and you talk about being "financially fearless" but, like, sometimes it's hard when you feel like you can't talk about those things. What's the best approach to talking about money with your loved ones?

AvT: I would say it depends on who, if it's your spouse, your partner, a person you're dating, the person you're soon to be engaged to. That's a really thoughtful conversation because the truth is, you're building a financial life together. You want people to be honest. You want to create a space of comfort where you can say, "Hey, not everyone is starting in a wonderful place." You don't want to shut down people being open and honest. If it's family, the best thing I always tell people is that the more honest you are with your quote-unquote "inner circle" — your siblings, your parents your best friends — the better. If you're trying to save more money, the best people to tell that to immediately are your friends and family.

Why? Because every time your phone rings someone's asking you to spend money. No one calls and says, "Hey, Alexa would you like to save for retirement?" Right? Like, that's not a phone call invitation that you get.

Instead it's "Do you want to go for margaritas? Do you want to go work out? Do you want to travel? Do you want to go to this great event?" 

The more people know, it's not like they are going to exclude you, they are just going to be more thoughtful and recommend cheaper restaurants. And you'll often find out, they actually want to save more too.

Everybody feels better because — guess what — almost all of America is trying to save more money. It is the No. 1 financial resolution for 2017. 

CD: I think this really resonates with me, the idea that you're saying is one of the worst things you can do is to feel this shame around money because you don't act on it, you don't talk about it. That's one of the big reasons I don't talk about it with people is sometimes it's like embarrassing, or it's like, "Ugh, am I doing it wrong?" or "It's weird, and I don't want to make other people feel uncomfortable and have them know I make less or more than them."

Getting away from that shame and actually having a real conversation about it and being really open about it seems like a really great first step too.

AvT: Exactly. And I always tell people no alcohol involved in money talk.

CD: No matter how much you want to, your financial plans shouldn't start with seven shots. 

AvT: Exactly.

AC: Our last question is: What is no one talking about right now that they should be?

AvT: I think that what I wish people were talking about more, and again regardless of your politics, for this most recent election, I think what we heard loud and clear was that the No. 1 thing I felt like Americans were saying was that they didn't feel dignity about their wallet. 

I think that that was a really loud message that we heard in this election. If you think about the immediate requests people had with enough jobs, the ability to be sure they have long-term employment.

What is that really? I need to be able to pay for my family. If a family can't take care of themselves and their kids, dignity is out the door. 

So I'm super passionate, and again, regardless of politics, I don't think we're talking enough about how big of an issue financial planning and financial literacy is in this country.

CD: One of the things I'm really taking away from our conversation with you is that money isn't just about having more money, but it is about being prepared for disasters, it's about being emotionally secure, it's about having choices.

In a lot of ways it is just about having the power to control what's going on.

That really makes tons of sense to me. We're really thrilled you were able to be here on the show and talk to us. Thanks so much for being here. 

AvT: Thank you guys for having me. 

Sign up for The Payoff — your weekly crash course on how to live your best financial life. Additionally, for all your burning money questions, visit Mic’s credit, savings, career, investing and health care hubs for more information — that pays off.