← HerMoney with Jean Chatzky
HerMoney with Jean Chatzky
"I make $180k and have 2 kids, can I justify my $200 Pilates membership?"
00:28:13
Answering your biggest budgeting questions.
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- [00:00]
Jean Chatzky
The economy is shaky, the markets are volatile and let's be real, we might already be in a recession and not even know it. If you are feeling unsure about your investments, you're not alone. But here's the good news. Our investing fixed portfolio is holding strong. Why? Well, I think it's because we don't just react to the headlines. We invest with a strategy, with confidence and alongside a community that is in this together. The best part, your first month is completely free. We are breaking down the markets, simplifying strategy and helping you build wealth with confidence. Join us today@investingfix.com that's fix with two X's. Let's grow your portfolio one smart decision at a time.
- [00:56]
Dana Miranda
There's so much messaging, especially for women and especially for purchases that are very kind of coded as female. A lot of things that we consider to be really necessary, self care, end up being coded as female and downgraded as luxuries and not priorities.
- [01:15]
Jean Chatzky
Hey everyone, I'm Jean Chatzky. Thank you so much for joining us on her money. We've got a special mailbag episode for all of you with Dana Miranda, author of the book you don't need a Budget. If you caught our Wednesday episode with Dana, you know that she is not afraid to challenge conventional wisdom aside, especially when it comes to budgeting. Clearly her message struck a nerve because we heard from so many of you with incredible follow up questions. So today Dana's back. She's going to help us tackle some of the real life money problems that you all are navigating right now. Everything from questions about early retirement to strategies for paying off debt. And a fun one. Is spending $200 a month on Pilates justifiable? Personally, I would say yes, but I'm going to wait to see what Dana has to say. Dana, you ready?
- [02:07]
Dana Miranda
Absolutely. Yep. Thanks for having me again, Jean.
- [02:10]
Jean Chatzky
Thank you so much for being here. Our first question comes from Angelique and she says, I'm 54, divorced and starting to seriously think about retirement. Ideally, I'd love to retire early in four years when I'm 58, but I'm worried that might not be realistic. I make 110,000 a year at my job. I have no debt. I'm renting in California for 2,000amonth. Each month I contribute $2,700 to my Roth IRA and $1,400 to my 401k where I currently have $130,000 saved. I've also got $200,000 in cash. I work for the state, so I'll receive free full medical coverage for life. Lucky you. And I expect to receive about $700 a month from Social Security at age 62. Despite all this, I still worry, am I going to be okay? I can keep working a bit longer if I need to, but honestly, I've been working since I'm 16. I'm tired and burnt out. What do I need to consider here? First of all, I think she's doing an incredible job saving. What's your read on Angelique's situation?
- [03:25]
Dana Miranda
My first reaction is that this is so common. This is a really common situation for people to be in. We have a lot of people who are just kind of scraping by paycheck to paycheck and not able to save for retirement at all. But there are also a lot of people in this situation who are making a viable salary and able to make some of these recommended contributions to retirement accounts. And it sounds like Angelique has very much been looking into her options and she's opening a Roth ira, so she's getting a little bit more advanced. She kind of understands some of the things that she can do to improve her chances at stability in the future. So she's got a huge head start there in that way. And I think that's great. What is so typical though is this feeling of like, I've been working for so long, I just want to be done. But I'm still worried about what that future might look like. And I can't say for sure whether or not what she has saved is enough or the amount of money that she's going to have coming in is enough, because I would need to know probably quite a bit more about her financial situation and also what she wants her retirement to look like, which maybe would look very different from what her financial situation looks like now. In conversations that I have had with financial planners about people in this situation, which is they're very much working with Gen X right now. People in their 50s who are starting to prepare for retirement and don't know whether or not they have enough saved. Financial planners are starting to talk differently with clients about what retirement looks like. We're not necessarily working toward reaching age 65 and going off into the sunset in an RV and downsizing our homes and all these things that we may have seen a couple of generations do over the 20th century. Now it's more about what changes might you want to make to work, how long might you want to work. Right. Maybe Angelique is burnt out from the full time job that she's doing now. But maybe she would enjoy something part time in her community that would be completely different, that would flex different muscles, that would give her different kind of socializing opportunities, things like that, but still bring in some money if she has a concern about that. And so that's what I'm hearing from financial planners, that it's, it's less about you're going to stop work completely and how are you going to live off of whatever you have at that point? And more about what kind of future do you want to shape? Because at 50, 60 years old, there's likely several decades of retirement ahead of you. And what do you want to do with that time?
- [06:10]
Jean Chatzky
Yeah, absolutely. I'm hearing, I'm hearing the very same thing, that it's a series of transitions as you, as you head into retirement. Some of them may very well involve having the ability to earn some money. One of the reasons that we rolled out a pre retirement version of our finance fix class is because it's really important to think about not just how much you've saved for retirement, but how your expenses are likely to change in retirement. Are you going to continue to rent that apartment in California for $2,000 a month? Will it continue to cost you $2,000 a month? Is it a place where you could live as you age or does it have a ton of stairs and is it hard to access? Right. You have to sort of get granular to figure out if the cost of your life then is going to be very different from the cost of your life now. So we go through a series of exercises to try to a handle on that. But it's also something that you can think about yourself. One thing that I would question, Angelique, is this idea of $700 a month for taking Social Security at age 62, you very, very likely could double ish your Social Security payment by waiting until age 70 to draw on it. And the benefit of doing that is not just that you get this 8% bump in benefits every single year. It' by the time you take it at 70, that's sort of when maybe some of those additional expenses that are not covered by your generous state health plan start to kick in. So I would encourage you to think about whether there's a way to add that into your plan and whether you have to take it at age 62. But I think everything that Dana recommended is a really good way to start. Our next question is from Molly. She's having some trouble getting out of debt. She says, I'm 44 and currently carrying $70,000 in debt. It's a combo of credit card debt, personal loans and a HELOC which is a home equity line of credit. Right now I can only afford to make the minimum payments and I'm struggling to build an emergency fund or save for the future. My big question is, would it ever make sense to tap into my retirement accounts to wipe out this debt? I, I believe I could replace what I withdraw within three years and doing this would give me room to breathe. I have a stable full time job for now and I could also possibly increase my income by taking on a part time job. I also have the opportunity to grow my self employment income, but I'm hesitant to make that leap until my debt is behind me. I'm unsure if withdrawing my retirement is a terrible idea. What do you think? I have some thoughts, but would you like to go first?
- [09:16]
Dana Miranda
I would love to hear your thoughts because I think you might actually have a more prescriptive advice on withdrawing from retirement account. But I think this question is so meaty because there's so much in here that really shows us how complex money is and how it intersects with these other things in your life. And so I think that conventional advice would advise against withdrawing from your retirement account to pay down that debt depending on the interest rates that you're paying on the debt because of how much that money could grow in investment funds in that same amount of time, even if it is just that, three years.
- [10:02]
Jean Chatzky
Well, yes, but it's also the question, I think of a withdrawal versus a loan.
- [10:07]
Dana Miranda
Yes, that was what I was going to say next. You could take out a loan in three years maybe.
- [10:12]
Jean Chatzky
Right?
- [10:12]
Dana Miranda
Change that situation.
- [10:13]
Jean Chatzky
Yeah, yeah. I mean, I suspect that what Molly has is a 401K. If we're talking about an IRA, you can't borrow. But the fact that she could repay it makes me think it's a 401k or another similar plan. In that case, you generally can borrow instead of withdrawal, which is much better because you're not going to be taxed and penalized on that. So you avoid a whole layer of double charges that are unnecessary and depends on how you look at it. But people often make the argument that when you pay the interest on that loan back, you're paying the interest to yourself. That said, I wouldn't go there first you lay out in your question, Molly, a couple of other alternatives that I would try first. Number one, you said you could maybe possibly take on a part time job. Do that. Right. Do that and see if that gives you the flexibility to get out of this debt faster. You said you could potentially increase your self employment income. Do that. Try these things before you borrow from the retirement account. I also would, you know, you say you're struggling to build an emergency fund. When we look at the cost of these credit card debts in particular, I'd take the pressure off myself regarding the emergency fund and just really focus on the credit card debt. Because if the high interest rates on that credit card debt are as high as I suspect they are, those are the things that are really strangling you. And that once you just get down to the personal loan and the heloc, maybe it doesn't feel quite as daunting.
- [12:09]
Dana Miranda
Yeah. Something that really jumped out at me as interesting was that she's feeling hesitant to start growing self employment income until her debt is behind her. And I, if I were her financial advisor. Right. Being able to have this conversation directly, I would want to get into that a little bit more on why she feels that way because that was my first thought too, is that if she's interested in a part time job or self employment income, something like that, that additional income could be used to pay off the debt faster. I would also definitely, before turning to the retirement account, look into other options to make that debt easier to pay off. If there's a possibility of consolidating the credit card debt into another personal loan, that could give you a lot of room to breathe as well. It could give you a little more time to pay it off and reduce that interest and hopefully reduce the monthly payment a little bit too. So if you can consolidate any of that, if you have access to that, it's possible right now that you're dealing with a debt situation and that has hurt your credit score and maybe that's not, maybe that's not possible, but that would be something to look into also.
- [13:15]
Jean Chatzky
Yeah, really good suggestion.
- [13:16]
Dana Miranda
Yeah. You know you're talking about like having more room to breathe. And so that feeling like that debt is like you said, Gene, strangling you is really tough. And so when you're asking like, is withdrawing from my retirement a terrible idea? I think it shouldn't be the first thing that you go to because there are actually just other options that are better. But that if you're feeling like strangled by your debt, that whatever steps you need to take to find some relief are not going to be a terrible idea. That even if it doesn't feel like the most optimal thing, it sounds like you're being really thoughtful about your options here and that you should take the steps that you need to take to find the relief that you need.
- [14:01]
Jean Chatzky
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- [18:06]
Dana Miranda
I think that's a great start. That it doesn't necessarily have to be an either or, I will add, like we were talking about earlier in the week. Jenna, you're asking what's the smartest financial move? And I think you should start with what you want your anchor to be. Are you trying to optimize for your finances or are you trying to optimize for time with your children? Are you trying to optimize for a certain kind of work that you want to do and then make those decisions from there. So like Jean was saying, if you're just trying to optimize for being there for your kids, like after school or something like that, or being available to get them out the door in the morning, things like that. You could achieve that with a lot of self employment, a lot of even remote work, full time employment could let you do that. That could be something that could help you kind of find a balance and you're working from the thing that is actually the priority for you, if it is finances, because what you're struggling with most is making ends meet. So if you're having trouble paying the bills or you're having trouble affording the life that you want to have for you and your kids, maybe finances are what you need to optimize for right now and you need to prioritize Getting into a job where you can earn more money. And I would also recommend as a single parent with children under 18, to look into resources in your community and resources from your state and from the federal government that might be able to ease some of that financial burden too, while you're figuring out how you can make that work for you, that there might be resources that you didn't need while you were married, that you might be unaware of, that could be available to you now, that could help with health care costs, that maybe depending on where you live, that could help with childcare costs and things like even the child tax credit, things like that, that can put a little bit more money in your pocket, that can ease your need to earn that extra income.
- [20:12]
Jean Chatzky
Absolutely. The last part of your question that we didn't exactly answer is tips for rebuilding your credit while you're living on a very tight budget. Credit building is just a formula. There's no magic bullet. It doesn't happen overnight. It's not an extremely difficult process. It's just a process that you have to adhere to over time. So the two most important things that you can do are make sure you pay your bills on time. And I know that sounds like a lot of common sense, but even one or two late payments can really damage your score. So if you've got bills and you have the ability to put them on automatic pilot, that you could set reminders on your phone so that you're not late, definitely do that. The other big part of your score is what we call utilization. It's the percentage of credit that you have available to you that you're actually using. I know on a very tight budget it is hard not to lean on those credit cards, but you want to try to get your utilization of your credit limits down below 30%. And if you can do that, you're going to see your score start to rise. One hack that people sometimes use to get around utilization is to ask for an increase in their credit limit. Because that sort of, if you look at it as a mathematical formula, that helps manage the percentage. The reason that I don't think you probably want to do that is that it then becomes tempting to use that additional credit if you're on a very tight budget. So I wouldn't go there, but just try to pay down some of that debt over time. And if your credit card interest rates are way up there and you're having trouble, a not for profit credit counselor can sometimes help you with negotiating those interest rates and bringing them down.
- [22:18]
Dana Miranda
And I can add, I Went through that experience of having to rebuild my credit on a tight income. And I was in a position at the time where I didn't even qualify for any credit cards. I just had a low credit score and just had a bunch of credit card debt. But, yeah, I would recommend, like Jean said, a credit counselor could help with some negotiation. I didn't work with a credit counselor, but was able to settle on a payment plan with a creditor to pay off that debt. And so it kind of got it out of default and got that. And I was able to pay that off so that it would then fall off my credit report. And I also got a secured credit card with, I think it was a $200 deposit at the time. So if you have a couple hundred dollars to spare, it gives you a very low credit limit to start. But that was one of the things that shot my credit score up more than anything, was just having that credit product because creditors do want to see that and see that you will use credit to some extent. And so just having that credit card was really helpful for me. And I used it very little because it just had that very low $200 balance to start. But it was something that kind of got my foot in the door. And then that was raised over time as I took those steps. But like you mentioned, Jean, it is something that is. It's just kind of a long process. It's like a year or two long kind of process. But if you just start taking the steps, you can do it. Just one, one step at a time. And it doesn't have to feel so overwhelming.
- [23:43]
Jean Chatzky
Yeah, absolutely. Last question. This is from Sheree, who wants to know if she can justify her Pilates membership. She writes, this may be a silly question. First of all, not a silly question. No silly questions. But I need help with my fitness budget. I'm a mom of two working full time, earning 180,000 a year. I save 16% for retire, $400 a month for my kids college, 20% of my income into emergency savings, and $500 a month for vacation. Here's the thing. I love boutique workout studios, places like Pure Bar and Club Pilates, but they cost $200 a month. And realistically, I only get there twice a week. I recently downgraded to a cheaper gym for $40 a month, but it's not the same. The workouts don't challenge me, and I don't feel motivated to go ever. So is it financially irresponsible to go back to the studios that I love, even if I Can't get there most days. Oh, my God. This is such a. Yes. I can't even. I'm like, yes, yes, absolutely. Yes, you can. You can do this. And. And this is. This is the definition of self care. Right. I mean, this is the way you write about it. You love doing this. As a lifetime runner, I know that these are things that we do not just for our bodies. We do them for our sanity. And you are so responsible with everything else. Please don't beat yourself up about this. Don't think twice about this. By the way. If you're going eight to ten times a month, that's like 20 bucks a class. That's reasonable.
- [25:30]
Dana Miranda
Yeah. First of all, I think Sheree answers her own question in the question, like you said, she's talking so much about how important this is to her and Sheree, I think you just need to be told, yes, this is okay. No, it is not financially irresponsible. So go ahead. We're behind you in doing it. But also, I think that the stress and the kind of shame that she's feeling about it is really what I'm talking about when I talk about budget culture, that I think there's so much messaging, especially for women and especially for purchases that are very kind of coded as female. A lot of things that we consider to be really necessary self care end up being coded as female and downgraded as luxuries and not priorities. And this sounds like something that, for Sheree, is a huge priority, that it's very important that she has access to this. And so if it's something that feels accessible for you, you can commit that $200 a month and make other changes if you want to. Right. You can make this an important goal, make it a priority, and move money around somewhere else. But it. I'm actually not even hearing it. Doesn't sound like it's a difficult expense for her to pay. She's just wondering if it's okay to spend this money on herself. It absolutely is.
- [26:46]
Jean Chatzky
Yeah. And it's such a good point about how we think about these things. I'm guilty of it too. Right. I feel like when I go get my hair blown out, even though I'm going nowhere, I have to explain that. I don't have to explain it. Right.
- [27:04]
Dana Miranda
It just feels good.
- [27:06]
Jean Chatzky
Yeah.
- [27:06]
Dana Miranda
It's such a great experience. Yep.
- [27:08]
Jean Chatzky
Yeah.
- [27:09]
Dana Miranda
Life is hard. So take care of yourself.
- [27:11]
Jean Chatzky
Exactly. Cherie. You go to Pilates. I'm going to the salon. We'll meet up for coffee after we're done. Dana, Miranda. Thank you so much for the really thoughtful answers to these questions. I think our listeners are going to get a lot out of this. The book is you Don't Need a Budget. Where can we find more about you?
- [27:29]
Dana Miranda
You can learn more about the book at you don't need a budget.com and find it anywhere you buy books. And you can follow me through my newsletter, Healthy Rich on substack or at healthyrich.co.
- [27:41]
Jean Chatzky
If you love this episode, please give us a five star review on Apple Podcasts. We always value your feedback and if you want to keep the financial conversations going, join me for a deeper dive. HerMoney has two incredible programs, finance Fix, which is designed to give you the ultimate money makeover, and Investing Fix, which is our investing club for women that meets bi weekly on Zoom. With both programs we are leveling the playing fields for women's financial confidence and power. I would love to see you there. Her Money is produced by Hayley Pascalides. Our music is provided by Video Helper and our show comes to you through Megaphone. Thanks for joining us and we'll talk soon.