← HerMoney with Jean Chatzky
HerMoney with Jean Chatzky
“I maxed out my retirement contributions this year. What should I do next?”
00:17:13
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- [01:29]
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Hey everyone, thanks so much for joining us today on Hermoney. I'm Jean Chatky and I've got a very special mailbag episode for all of you. Joining me today to answer your questions is none other than Morgan Housel. You know him because he's the best selling author of the Psychology of Money. He's also got a brand new book called the Art of Spending Money. You should have heard the episode that we did on that just a few days ago. It dropped but we asked you, our Hermoney community to send in your most pressing money questions for Morgan and you delivered. So today we will be dealing with the fear of draining your savings even when you're using it to pay down high interest rate debt. How to invest a lump sum wisely at midlife, and where to put your quote unquote extra money if you've checked all the major boxes. Morgan, thank you so much for coming back. You ready?
- [02:27]
C
Thanks for having me Jean. Let's do it.
- [02:30]
A
First question is from Susan. She's dealing with something that we know many self employed women can relate to. She writes, I run a business teaching art classes and camps so I collect money three times a year and that money needs to last four months at a time. There have been times when it didn't last and I ended up putting my Life on credit cards for a month or two. At this point, I do have enough money to pay off the credit cards, but I am afraid. I'm scared that if I do, I'll run out of cash again. I always budget for fixed expenses and set that aside. But the fear keeps me paying high credit card interest even though I have a bigger savings cash cushion right now. Which, what should I do? Oh, I'm excited to hear your answer because I was there in my 20s.
- [03:18]
C
Yeah, I don't know if there is a real good formula for what to do here. I'll tell you my own experience though, I have as an adult been extremely, I would say allergic to debt. I just don't want any of it at any point at all. And even when on a spreadsheet, avoiding debt or paying off debt did not make sense. If it was a very low interest rate mortgage, let's say I still did it because I what I valued more than anything out of money was not making the spreadsheet happy, was not making all the numbers add up necessarily. What I valued was sleeping well at night. And that's intangible. You won't find that on any spreadsheet if you're, if you're going through your budget, there is no line item that says sleeps well at night, goes to bed with a clear conscience and little worry. But that's what I want to maximize for. And I think this is the kind of thing that a lot of times in finance is completely ignored. No one gets their PhD in finance and wins the Nobel Prize for a formula to make you sleep well at night. It's all maximization of numbers. That level of worry and that level of contentment is going to be different for everybody. And so I look, if it were me, I would pay off the debt, I would pay off the credit card debt. Because the truth is very likely that if you got into a pinch again on a credit card, you can just go right back into that debt. And so it's probably always going to be there in a revolving sense. But if paying it off helped you sleep well at night, knowing that, look, you have less cash now, but you don't owe anybody anything. I have been in that situation as well of paying it off because I valued it more than anything, just having that level of independence. And also when I paid off that debt in my own life, I also knew that if something happened to my career or something happened, I could go back into debt if I needed to. So using it sparingly, not wanting to use it as A as just a normal natural state of events, but knowing it was always there.
- [04:59]
A
Yeah, I completely agree with you and that's sort of how I run my life today. But I gotta say, Susan, when I was was in my 20s, I was in the exact same situation that you are describing. I had racked up about a half year salary in credit card debt. Now granted, my salary was not much at the time. Early journalist salaries in New York in the 80s were pretty low, but it was a lot. And at the same time I had this savings account because I was doing a little freelancing on the side and I was just sticking money in there and, and I couldn't get myself to take the money out of the savings account, which was earning nothing, and pay off those credit cards, which was like 20%. Until finally my roommate at the time, she worked at Citibank, she was like, this is ridiculous. And we sat down and we had a glass of wine and I wrote a big fat check and I did actually feel better. There is something about having a balance in the bank that just feels safe. It's why women keep more cash in savings than men do. I think it is a little bit of a problem that is is more female than male. But if you can't get yourself to pay off the whole thing, as Morgan suggests, break it into six chunks and just pay it off over six months, your interest will go down. Your savings, maybe you'll rebuild them along the way, but I think you'll find that you can emotionally handle it. Next question from Laura. She's facing a big life transition and wants to make sure she's on the right track with her investments. She says, hey, Jean and Morgan. I'm 58 years old, recently divorced, living in Florida. I work as an occupational therapy assistant and I'm trying to make the right financial decisions for my retirement. I currently have about 60,000 in savings to invest. I don't yet own a home and I'm sharing an apartment with a friend. My children are grown and independent and I'm on my own. I really admire your work and would appreciate any guidance on how to allocate these savings to help secure my future. Very good question. Morgan, what do you think?
- [07:11]
C
The first thing I would say is one of the biggest assets that you have right now is not something that you can count up on a spreadsheet. It's not in your bank, it's not in your brokerage account, it's not in your ira. The biggest assets you can have right now are your own expectations. And if you are looking at a situation where you want to be retiring, comfortable. Your own definition of what comfort is is going to be one of your biggest assets. I use the example in my book of my own grandmother in law who passed away a couple years ago. And for 30 years she lived off of nothing but about $1,800 a month in Social Security and nothing else. She had no assets, no pension, nothing else but that. And she was one of the happiest, most content people you, you will ever meet. She lived in a tiny little know nothing house, she spent nothing. And she found all of her pleasure being in the garden, going for walks, bird watching, calling her friends. And she had one of the most amazing lives that you can imagine because her expectations were rock bottom. She was a child of the Great Depression. Maybe that had some impact on this. But you can also look at the other side of the equation of people who have endless amounts of money, but their expectations are even more and they're miserable. And so if you have a situation where maybe you're feeling a little bit insecure about the assets that you have accumulated and what the future might have in store, realize that one of the assets that you have is just your own ability to control your definition of what a good life and a good retirement might look like.
- [08:31]
A
And I would say, if you haven't yet charted out your path to retirement, a lot of people go through their 50s, even their 60s, and they haven't really run the numbers on what retirement is going to look like. When do they want it? When are they going to stop working? Are they going to stop working? What is life likely to cost? Doing that might make you feel a little bit better because there are a lot of levers, including when you're going to tap Social Security, including when you're going to stop working, including if you're going to work part time, including if you're going to continue to live with a friend, which is an idea that I love. As we get older, all of those things help you shape your retirement picture in ways that you might not expect. And you've got a lot more control than you might think. So have at it. And thank you for, thank you for writing. We're going to take a very short break. When we come back, we will hear from a listener who's doing everything right on paper, but she's not sure what to do next. Stay with us. Hey everyone. Jean Chatzky with some very exciting news. The Hermoney Patreon is now live for the very first time. You'll be able to unlock bonus episodes, ad free listening and even deeper dives into your questions all in one place. Here's the best part. We're giving you a seven day free trial so you can check it out risk free. That means you can be there for our very first Patreon bonus episode dropping on the 15th and see exactly what we've been working on behind the scenes. So if you've ever thought I wish I could get more Hermoney, well you can. Just head to patreon.com hermoney start your free trial and become one of our first subscribers. We can't wait to see you there. Many people can't tell you exactly how many financial accounts they have or even what they're worth. 401ks from old jobs, scattered savings accounts, investments they haven't checked in years. And when you don't have the full picture, you will leave money on the table. That's where Monarch Money comes in. It's an all in one personal finance tool that brings your entire financial life together cleanly, clearly all in one place. My producer Hailey uses it every single day and she's been loving one feature in particular. Monarch automatically separates your monthly spending into fixed and flexible categories. Her mortgage and gym membership are fixed, but groceries, dining out, everything else is flexible and that gives her some wiggle room. Don't let financial opportunity slip through the cracks in your life. Use code hermoney@monimalmoney.com in your browser for half off your first year. That's 50% off@monimalmoney.com with code HERMONEY. We are here with Morgan Housel author of the Art of Spending Money. Finally, a question from Kelly. Kelly says, my husband and I need a little bit of guidance. Neither of our parents taught us much about money or investing, so we're learning everything on our own. I've read a lot of books. Right now we have no debt except for our home. We both have emergency funds and they're in high yield savings accounts. We max out our Roth IRAs each year and contribute 15% to our 401ks. So what now? I keep hearing people say their investments are making them a lot of money. We can invest more, but we have no idea how or where. What kind of accounts or investments should we use for extra money? Money that's not for retirement but but for things like a new car, a home, or a future splurge? Talk to me like I'm stupid. I'm not. But personal finance and investing can be baffling sometimes. Okay, I'm Just gonna pause right here because what I think Morgan does so well and what I try to do is just talk like you're having a conversation with a friend. Just talk in plain English. We talk about money like we talk about what happened last night on Dancing with the Stars or what happened in the game. It's all the same language. And people who try to confuse you with jargon and lingo are just trying to sell you something. They are not the people that you should be listening to. And so please don't feel stupid. This is not a problem of yours. It is a problem that the industry has created. So let's just move that to the side. What do you think?
- [13:29]
C
Well, first, you're certainly not. Not asking a dumb question. Seems like you've done everything right. One thing that caught my attention from the question though, was the idea that you might want to invest because other people say that they are making a lot of money in their investments. By and large, that tends to be the wrong reason to invest. And the idea that you would want to chase somebody else's success is the key, is the source, is the beginning of a lot of very bad investing decisions. Now, if you want to invest because you have a long time horizon and you might not need this money for 10 or 20 years, and you have the patience and the fortitude to deal with the ups and downs of volatility in the stock market, then it can be a wonderful thing. What's important when investing in the stock market are things. Three things. One is being very diverse. And so you can do that with very low cost index funds, whether it's at Vanguard or Fidelity or wherever that might be. Charles Schwab, where you are owning a slice of basically the entire stock market. You're not making a bet on any individual company, any individual industry. You're basically owning a very small slice of us or even global capitalism at that point is what you're doing. The second is what usually what that comes with is low fee, low cost. There's a lot of ways to ignore and overlook high costs in investing that really add up over time. And the third that is probably the most important is understanding that the market is very volatile. And that's the point. Dealing with and putting up with an unending train of volatility and unpredictability in the stock market is why it does well over time. There are other investments out there, like high yield savings accounts and bank CDs that have no or virtually no volatility. And you're going to get the low meager return that people would deserve from that. But if you are willing to put up with volatility, which can mean that your portfolio might go down 10, 20, 30, sometimes even 50% over periods of time, if you can put up with that and endure that, then over a long period of time, over 10 or 20 years, the returns for those people tend to be fairly good. So it just comes down to what your risk tolerance is, what your goals are. If you've already done so well as you have in your retirement accounts and staying out of debt and emergency funds, I would say there is no necessarily need to invest it is there if you want it, and it can fit your personality. But don't feel like you have to do it because other people have done well, or so they say.
- [15:50]
A
And I think it would be helpful just to sit down with your husband and talk about maybe prioritizing what you think you might want to do with this money. If you can get a sense of Is this for a house? Is it for a thing? Vacation home? Is this for a car? When might we need that car? Is this for a big trip that we want to take and when might that trip be? In five years? And seven years? In 15 years? Just having some rough answers to those questions is going to give you a lot of information about how you want to put this money to work and if you want to put this money to work. And so I agree with Morgan, I think you can do whatever you want, but having a greater sense of what you want will be some helpful information to have. Morgan, thank you again for answering questions with me. Thank you for coming back. Always a pleasure to talk to you and congrats again on the new book. I'm sure it's going to be a huge hit.
- [16:54]
C
Thanks so much for having me, Jean. This was fun.
- [16:58]
A
If you love today's episode, please take a moment to leave us a five star review on Apple Podcast. Your feedback means the world to me. And if you're ready to keep the Money conversation going, HerMoney has three amazing programs designed to help you feel more confident and in control of your money. There's Finance Fix. It's our four week coaching program that helps you rethink your spending, find hidden savings, and make smarter choices for the future. Our Pre Retirement program runs for six weeks and walks you through building a retirement strategy that's personalized for your next chapter. Finally, there's Investing Fix, our investing club for women. It meets every other week on on Zoom. It is a supportive space to learn, ask questions, grow your investing confidence and build your portfolio and your first month is absolutely free. These programs are truly helping level the playing field for women financially. I'd love for you to join us. Her money is produced by Hayley Pascalides and our music is provided by Video Helper. Thanks so much for listening and we'll talk soon.
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