Jean Chatzky: The 50% Off Fallacy & Other Ways You're Sabotaging Your Savings [GREATEST HITS WEEK]

0:00Welcome. Next week, we are airing episode 500. That episode is going to air on April 24th, 42424. In honor of our celebration of 500 episodes, this week we are running a special five-day series. Each day this week, we look back on the earliest days of the Afford Anything podcast and rerun some of our favorite early days episodes, our greatest hits. So five days, five episodes in honor of episode 500. Today is day one of five. We look back on an interview that I did with the former financial editor of The Today Show, Jean Chatzky. Jean is the author of many bestselling books about personal finance.

0:42In addition to her work on The Today Show, she is a frequent personal finance commentator on shows like Oprah, Regis & Kelly, and The View. In this interview, which originally aired in 2016, she shares timeless, classic foundational principles of personal finance, which are as true today as they were back then. Enjoy.

1:07It's great to have you on the show. Thank you so much for coming on. Oh, it's my pleasure. Thanks for inviting me. Gina, I'd like to chat with you about some of the money rules that you wrote in your book, titled Money Rules. Called Money Rules. One of the ones that I really enjoyed is, this is on the section about shopping, the more time you spend looking, the less happy you'll be with what you find. Can you talk about that a little? Sure. So this rule actually comes from some research done by Barry Schwartz, who's a professor at Swarthmore College. He talks about maximizers and satisficers, and those are his words.

1:45But essentially, when you go out and you spend an inordinate amount of time searching for something, whether that thing is a job or new tile for your bathroom or the perfect color for your walls. And you can tell that I've been looking at painting the interior of my house because this is where my examples are going these days. But if you spend so much time focused on getting perfection, you are, the research shows, a lot less likely to be satisfied with whatever it is you pick. Alternately, if you can get yourself to the point where you believe that a lot of different alternatives will be good enough, you're going to be a happier person going through life.

2:39And you're also, in many cases, going to have more money in your pocket. And the best example of that is if you're shopping for a car. If you go out and you know that you want to buy a crossover or a small SUV or a small sedan, but you're agnostic about whether it's a Ford or a Hyundai or a Toyota or a Honda and you can get yourself to the place where any of the similar looking cars in a, in a particular category will be okay with you as long as they have the options that you want. Your negotiating power is so much stronger. Then you can pit one of these dealers against another and say, well, you know, I'm okay with the CRV, but I've got a RAV4 across the way and it's considerably cheaper.

3:35Can you meet this deal? And it just puts you in a position of power when it comes to making the right choices for your wallet. What about when it comes to finding a job or choosing investments? How does this relate there? If you're looking for a job and you are waiting for the perfect job and you have a laundry list of things in your mind, boxes that need to be checked, the chances that any job will meet every single one of those things is in most cases slim to none. But if you can get yourself to a point where you know the field that you want to work in, you know the town that you want to work in, you know the kind of people that you want to work with, and you're willing to walk through the doors that open to you, not only are you going to be happier because you're going to get started a lot sooner, but you're going to be happier because you've just opened yourself up to different adventures in the way that you're approaching your life.

4:42I think that having a very stringent checklist is often limiting. Now, I don't know that the same rule necessarily applies to your investments. I do think that when you're choosing among investments are a buyer's market, maybe not investing in startups, if you're an angel investor. But, you know, if you're buying individual stocks, if you're buying mutual funds, if you're buying ETFs and, you know, these are the parameters that I like to stick with as far as fees go or P.E. ratios. And you've put a lot of thought and expertise into developing those parameters. I wouldn't be inclined to venture outside of those in many cases because chances are you might be following some sort of a hot tip.

5:37But I think that in terms of jobs, in terms of purchases, you can often make yourself happier by being satisfied with things that are good enough without looking for perfection. Absolutely. I agree. Let's talk about another one of your money rules, which is, and this is aimed at parents, your retirement trumps their tuition. Yes, this is the money rule that nobody likes to listen to. parents don't like to listen to or many parents don't like to listen to because you know as a parent it's really hard to put yourself ahead of your kids but the problem with not putting yourself ahead of your children when you rob your 401k to pay college tuition bills or you soft pedal, the 401k contributions to put money into the 529 is you're lowering the chances that you're going to have enough money to pay for your own retirement.

6:39And then who's going to have to bail you out your kids. And so if you can get yourself to prioritize putting money away for your retirement while still contributing something to paying for college, that's the win-win. To the parents who are listening, how do they decide on that optimal balance? How far do you tip the scale in either direction? I would say you look at what you expect that you'll need, both for college and retirement. Saving in a vacuum, whether you're doing it for a vacation or for a big stage of life like college or retirement rarely works. It's much better to have benchmarks and goals that you want to hit and then to make a plan to try to hit those things.

7:33With retirement in mind, if you can get yourself to the point where you're putting away 15 % of whatever you're earning, including matching dollars, that's fantastic. And if you can, beyond that, put something away for college, fantastic. You can also, when it comes to college, encourage other people in your family to put gifts into a 529 account. You can sign up for a YouPromise college savings account. And if you can't get yourself to the point where you feel like you're doing enough for college, then maybe you take a percentage or two out of retirement and you put it into the college fund instead.

8:20But I wouldn't do it in a way that compromises matching dollars because that's the best return on your money going. Absolutely. Let's talk about another one. And this is psychological. Losing money hurts more than it should. How can we manage that? So this is another research-based finding. I pull a lot from the world of behavioral finance, and we know there's a phenomenon called loss aversion. Human beings are averse to losing money. We don't like to do it, and it's why we tend to leave underperforming stocks and mutual funds in our portfolios longer than we should. We should cash out, we should take our losses, and we should move on and put our money in other things where we feel like the future is brighter.

9:14But we don't like to acknowledge these losses. And so we don't do it. I think being aware of the fact that this is how your brain is set up to behave is a great place to start. That if you understand, oh, this is just the way I'm wired, maybe you can get yourself to pull the trigger. It also sometimes helps to have some rules about when you are going to sell. I mean, there are very successful investors out there who just have hard and fast rules. If something's down 10%, they sell. If something's down 15%, they sell. They may have times at which those rules don't come into play, you know, if there's a particular news event or something like that.

10:00But in general, setting up parameters for yourself before the events happen can be really, really helpful. So I guess that kind of leads into, in terms of investment strategy, would you recommend that most people, that the average person, sell the losers, sell the underperforming assets? Or would you recommend the traditional model of sticking to a couple of asset classes and rebalancing annually, which necessarily means, or I should say rebalancing periodically, which necessarily means buying more of the underperforming assets? So I think there's a difference in individual stocks and the kind of broad diversified funds that you're talking about.

10:44There's a big difference in when a single stock is down and a whole index is down or the market as a whole is down. I'm not an individual stock buyer myself. I do exactly what you are talking about. I dollar cost average my way in. I buy and I hold. And I think that that is the best solution for most people with a long term time horizon. But if you are going to be buying individual stocks and holding them, you need to understand that it is possible to get emotionally attached to them and that you need to sort of guard against that. Absolutely. And so you just to clarify, you do think that the majority of people should probably avoid individual stocks, individual stocks, just like managed mutual funds, take a lot of work, you know, they are a lot of work to investigate to keep on top of, to continue to monitor.

11:50And so, yeah, for most people, I think a very broad, diversified index fund, low cost portfolio is the right thing to do or a target date retirement fund where essentially the work is being done for you. Let's talk about money rule number 76. Big numbers make smart people do stupid things. This is my lottery example. Well, if you look at the lottery, when do most people buy tickets? Most people buy tickets, right? When the Powerball gets to insane levels. Right. But what also happens at that point is that your chances of winning go way down. Not that you ever had much chance of winning to begin with because you didn't.

12:39The bigger the numbers, the more likely people are to make irrational decisions. And so how do you manage that? Given once you have that awareness, what do you do from there? Well, I mean, I think that it calls into question whether you want to rush out and buy a Powerball ticket the next time that the numbers get there. But also, you know, if you get a windfall, any sort of a windfall, the smart thing to do for the first six months to a year is nothing. You know, sit on that money. Don't run out and do something with it that you may later decide you regret, but that you can't take back. Such as?

13:28You know, anything. I mean, take a trip, make a purchase. any time you get a large unexpected sum of money that you did not plan for, sitting on it until you decide what your plan actually is, is the right thing to do. I mean, it could be a lump sum settlement because you got divorced or you won a case. It could be a buyout from your company. A large sum of money deserves consideration. And particularly when that large sum of money is unexpected, because it's an opportunity that doesn't come along very often. You want to take your time with that opportunity and figure out what is in fact the best thing to do with this money.

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16:38All right, one last money rule before we move on. And this one, you mentioned don't lend money to friends and relatives and don't co-sign on loans for them. My question about that is, what should you do if you are already in the habit of doing that? You have a history of saying yes, and now your friends and relatives are upset that you're changing. You know, they're upset at the new you. How do you diplomatically handle this? I don't know that there's an incredibly diplomatic way to handle it. If you've been in the habit of doing it, it's best not to start. I think honesty is best, you know, for lack of a better phrase, I think being honest is the best thing to do.

17:23You know, I am just not at a place in my life where I can continue to do this. I'm happy to help you do your research to help you figure a way out of this situation. And if they counter with, come on, you're doing so much better than I am, would you go into detail kind of talking about your goals or? I absolutely wouldn't. I think you don't owe anybody that sort of an explanation. If you feel like you owe them an explanation, then maybe you want, maybe part of you wants to continue to help them. But I would not. I think lending money to friends is a big mistake because if it goes badly, lose the friend.

18:06I think if you're in a position where you truly can afford to help them, you're probably better off giving it to them. and you want to do it. I mean, everybody has their own list of priorities. And if they're judging you because of it, then I think that the question that you should be asking yourself is, what are they getting from this relationship with me other than money? Right. That's a tough question when they're family. It is a tough question when they're family. And there are situations where, of course, we help people, right? I mean, you were talking about college and retirement before.

18:47For many people, many baby boomers, it's not just college or retirement. It's college, retirement, and our older parents who need help all at the same time. And the one place where people find they can't say no, they have to say yes, is with older parents because they don't have another, you know, you can borrow for college, you can work longer in many cases and put off your own retirement or retire differently by downsizing and living a little less large. If your older parents need help, and they are, you know, they've got health situations, or they are out of resources, that's a very difficult thing to say no to.

19:37Well, we will, I'll leave it at that in terms of the money rules. And I'd like to move on to, it's actually a perfect segue to the next question that I wanted to ask, which relates to your podcast, Her Money. I've been listening to it at the gym. It's fantastic. Thank you so much. In the very first episode in which you had an excellent conversation with Gretchen Rubin, who's been on this show, You talked about the concept of choosing your priorities. How do you decide what's a priority and what's not? How do you make that judgment? It's so personal. And I think I'm a big list maker. I will revert to the legal pad when I'm trying to make a decision and do pros and cons and have, you know, talk to my kids about doing the same thing when they're trying to make it's like making any choice, right?

20:32Money is a, is a limited resource for the vast majority of us. And that means that you can't do everything. You can't have everything, or at the very least, you can't have it all at once. And so you need to think about how you will feel in the very short term, but also in the long term if you use those resources for one thing or another. I will always remember talking to Susie Welsh about her 10-10-10 rule. She puts decisions and not just financial decisions, but many decisions through this 10-10-10 filter, which is thinking about if I make this decision, how am I going to feel about it in, I believe it's 10 minutes, 10 months and 10 years.

21:20And that's a really good filter. You know, whether you're deciding if you're going to stay home and spend, you know, an evening with your spouse or go out with your girlfriends, or if you're deciding whether you want to spend your money on X, Y, or Z. So what do you do when there's a conflict between 10 minutes versus 10 years? You know, like going out to a fancy dinner. 10 minutes from now, you'll be very happy you did that. 10 years, maybe not so much. Or maybe because of the memories. You know, I think you look back on it as much as you can by applying the filter of your previous purchases.

22:01One of the things that is really, really helpful in understanding how you feel about the way that you have used your money in the past is to keep a spending journal. It's not just to track what you're spending your money on. It's to track how you feel about the fact that you've spent your money on these things after you've done it. And so the way to do it is to track your purchases in real time, but then go back a week and a month later and record how you feel about those things. So in hindsight, looking back, how do you feel about the fact that you bought such and such a week ago? Exactly. Do you do this?

22:41Have you found anything that surprises you? I've done it in the past. And, you know, it caused me actually to spend the first half of this year not buying anything on sale, because I went through my closet and cleaned out and really found that a lot of the purchases that I regret were things that I bought simply because they were on sale. And so for the first half of this year, I sort of embarked on this experiment where I just decided, okay, it has to be full price if I'm going to buy it. Because to me, that meant I really had to love it. Right. Absolutely. Actually, that reminds me of another one of your money rule.

23:2150 % off is still 50 % on. That's absolutely true. Even though it's inexpensive, it's still requiring resources that you could have used for something else. You know, it's one thing to know this in the broad sense and in the abstract, but how do you remind yourself of this in your day-to-day life? Because sometimes we do things even though we know better. When you are shopping, when you are consciously shopping, you know, give yourself enough time to do it thoughtfully. Give yourself enough time to make smart decisions rather than rushing through the process. I just had Brene Brown on my podcast.

24:05I don't know if you had a chance to listen to that one yet. We talked a little bit about that. And Sarah Newcomb, who is a behavioral economist, was on the podcast as well. And she talked about how she has rules for going shopping and she makes herself dress up and look good. And her purpose for doing that is that so she's not just buying something to make herself feel better about her appearance at the time because she already knows she looks fine. She knows that she's not checking off that bucket. it. And it also is a rule in her book where she has to love it more than anything else she's already got.

24:50You know, a lot of these things are rules that you can choose to adopt for yourself. I mean, I have a 24-hour rule. I tend not to buy things for at least 24 hours. It's my purchasing pause. And I want to know that I'm still thinking about it 24 hours later. And if I'm still thinking about it, then I will allow myself to go back and make the purchase. And if I'm, if I have moved on, then to me, that's just a sign that I didn't want it that much anyway. How much focus or attention should a person give to saving money versus focusing on earning more or, you know, increasing their earning potential?

25:33I think you have to do both. I'm a big believer in controlling the things that you can control. Saving is much more under your control than earning more. You can certainly control your earnings to some degree, but it's not as if it's easy to say, I am going to go out and I'm going to get a job tomorrow or next week or next month or next year where I increase my earnings by 20 or 30 or 40 percent. You can certainly try. You can take on side gigs. You can boost your income by some percentage, but to do it by a huge percentage, you may have to go back to school. You may have to move across the country.

26:21But to say, I'm going to bump up my savings by 1 percent or 2 percent or 5 percent, you can do that tomorrow. You can automate it so that you don't have to think about it. It's very easy to control. What are some of the best or your favorite finance tips across the whole spectrum, whether it relates to investing or earning or saving, anything related to money or time? I think anything that you can put on automatic pilot, you should do. It's as much a time saving mechanism as it is an emotional safeguard. You know, I save before I spend anything because I've just got savings accounts set up for my specific goals, whether it's retirement or college or other things.

27:08And I figured out how much I want to put in there. And it allows me to feel better about what I'm doing with the rest of my money because I know that I've already checked off those boxes. Right. Exactly. safe first and then the rest is up to you. Exactly. But the other thing I think that's really important is that although you may be an island as far as your finances are concerned, you may not be. And if you've got a partner, you've got to talk about these things. You've got to keep the lines of communication open. You've got to talk about what do we want? And you've got to do it more than once because what do we want is a question that changes from month to month and year to year.

27:55And you will be happier in your relationship and therefore in your life if you can get on the same page with your spouse. It doesn't mean that you're going to have the exact same goals or the exact same priorities because you won't. But you need to understand what the person that you're living with believes is important to him or her and vice versa. And so what should you do if the two of you have very different priorities? Let's say if one person wants to retire early, but the other isn't really that motivated to do it. Well, I think you need to figure out a way as much as possible to compromise.

28:36I mean, my husband is eight years older than I am. He will stop working before I do. We acknowledge that that's the way that life is going to be. Would he like me to stop when he stops? He probably would. But, you know, he acknowledges that's not happening. But what I can do is maybe tweak my schedule so that I'm working a little less so that I can travel with him a little more. I mean, your financial life, your goal, So, you know, absolutes are very difficult. It's all gray area and it's about figuring out how to navigate the gray area to make you and the people that you care about as happy as possible.

29:19Well, thank you, Jean. Before we sign off, can you tell us a little bit about your podcast, Her Money? Oh, sure. And thank you for asking. So Her Money is by women, for women, about money, just like it sounds. every week I've got an interesting I think really fascinating guest or two where we we talk about careers investing spending saving life management time management sleep management Arianna Huffington has been on the podcast talking about sleep it's been a ton of fun to do so far and and continues to be that. And I mentioned some of the great guests that we've had, but we've also had Jillian Michaels and Randy Zuckerberg and some men too.

30:06But it's really a place where women can learn comfortably and share comfortably the details of their financial lives. Thank you so much, Jean, for coming on the show. My pleasure. Thank you for having me. I hope you enjoyed this episode. This episode was number one of five in this special five-part series that we are going to be airing over the span of the next five days. And we're doing this in anticipation of episode 500. So tune in tomorrow for episode two out of five and tune in for the next five days for the rest of them because we are sharing some of our favorite episodes that aired during the first year or two of the Afford Anything podcast.