This Startup Wants To Help Young High-Earners Retire Early By Saving On Taxes
According to a recent Prosper Insights & Analytics survey, over 55% of Adults 18 years and older believe they aren’t saving enough to meet their future financial needs and 64% are unsure of their financial security.
Even high-earning Millennials and Gen-Z aren’t always setting themselves up for long term success because they lack the resources and tools needed to optimize finances. Playbook wants to change that. Their app aims to help young people achieve “financial freedom” by optimizing their tax savings and other overlooked aspects of their financial lives.
I recently had the opportunity to speak with Playbook founder and CEO David Hegarty about the problems his company is solving and where the company fits into the fast-evolving fintech ecosystem. Read the full interview here.
Gary Drenik: Tell me about your background and what led you to start Playbook.
David Hegarty: Playbook is the app I wish I had in my 20s. I moved to the US from Ireland in my 20s. I was fortunate enough to have a good-paying job and to be saving a solid chunk of money. My parents had given me a decent background in finances, but the quirks of the US system were new to me and I didn’t understand anything about 401Ks, IRAs, etc. I hate to admit it, but as an M(BA) grad from a prestigious school working at Microsoft, I still didn’t know enough to go after my 401K match. It was ‘free money,’ and I was literally turning my nose up at it.
It took me 20 years to become ‘smart’ about my finances. Unfortunately, that’s 20 years of missed opportunities for compounding benefits. I wish there was a way for 40-year-old me to tell 20-year-old me how to do the smart things with my money. Since I can’t do that, I did the next best thing. I founded Playbook, an app to make it easy and delightful for every 20 & 30-year-old to do the smart things with their money.
Drenik: Why did you decide to focus specifically on young high-earners? What makes this group unique?
Hegarty: Let’s start with a definition: what does it mean to be wealthy? Alexander Graham Bell (yes, the telephone one) defined wealth as the moment you can stop working, and the money from your investments allows you to live comfortably for the rest of your days.
The beautiful thing about that definition is that it’s possible for us all. It means that wealth isn’t a function of how much you make, it’s a function of how much you save. Someone earning $1M a year and someone earning $100K a year become ‘wealthy’ at exactly the same time if they’re saving 20% of their earnings.
It’s true — the more you earn, the easier it is to save. But I think that’s the wonderful opportunity that young high-earners have. If they’re smart about their money in their 20s and 30s, they could be financially free in their 40s.
Drenik: What are the biggest mistakes you see young high-earning individuals make in their finances? How do you solve these?
Hegarty: The biggest mistake? Thinking about retirement accounts incorrectly, and not taking advantage of tax opportunities. It’s hard to beat the market, it’s much easier to beat the taxman. For example, if you invest thru a Roth IRA, you can avoid Capital Gains taxes and bump your return on investment by 15-35% The fact that the government limits how much you can put into these tax advantaged accounts is the surest sign that it’s a good thing. They don’t want you to have too much of it!
Picking stocks is sexy, and pouring through the tax code on the weekend is a drag. That’s why most people focus their efforts on choosing investments. Let Playbook take care of the tax part, so you can focus on your investment strategy.
Drenik: How do younger generations think about savings and retirement in comparison to older generations? What’s different here?
Hegarty: It’s a difference of necessity vs. opportunity. The older generation’s perspective was that saving for retirement was a necessity to ensure comfortable golden years.
Now, younger generations see an opportunity to be smart and financially savvy, reach financial freedom in their 40s/50s, and give themselves the option to retire early. It’s not necessarily that they don’t want to work, they just don’t want to feel the pressure to work a soul-crushing job. Financial freedom gives them options: they can quit the job they hate, they can work 6 months of the year and travel, or they can spend more time with their kids. Financial freedom lets them live their best life.
Drenik: What area in consumer fintech do you see the most opportunity and potential? What excites you about the future of the space?
Hegarty: A tectonic shift is happening right now in consumer finance. The very large incumbent companies aren’t resonating with the next generation of users. They’re not resonating for three big reasons. First, their process was built on pen and paper. They are not tech-focused. Second, when you’re tech-focused, it’s really hard to build great product. And the new generation has a really high-bar for product experience. Third, those incumbents are not talking to users in the way that Millennials want to be spoken to. They’re too old, too corporate, too masculine, too intimidating, too corrupt.
We’re at the baby steps of huge changes in finance. Those old incumbents will be replaced by new companies more effectively harnessing the power of technology and DeFi. But just like the internet revolution before it, the really big winners won’t be the companies that over-index on bleeding edge technology. The really big winners will be the companies that humanize new technology, make it easier to understand, and fit effortlessly into user’s existing lives.
Drenik: Thanks, David for sharing more about Playbook. It’s clear that there’s still a lot of work to be done to help people become savvier with their finances and savings, but it’s promising to see a new generation of consumer fintech startups that are up to the challenge.