The Hidden Cost of Replacing You at Work, with “Money with Katie” host Katie Gatti Tassin

0:00Hey there, quick disclaimer before we get started. Today's interview is shorter than usual, but you know what? That means it's more efficient. Enjoy. You know Money with Katie, one of the most popular personal finance podcasts out there. Katie Gottitasen now has a new book called Rich Girl Nation, and we're going to talk all about money, including a new take on how much you should be saving for retirement. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. The show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship.

0:31It's double-I fire. I'm your host, Paula Pant, and welcome, Katie. Thank you. I'm so happy to be here. I love your tagline, by the way. Oh, thank you. Afford anything but not everything. I came up with it when I was traveling and so many people said, I would love to do that, but I can't afford it. But they were the same people who were buying$15 cocktails and they had stainless steel appliances in their rented apartments. I was like, if you made just a couple of changes, right? Rent a less nice apartment with white appliances instead of stainless steel. The white fridge. Right? Yeah, exactly. Exactly.

1:01Exactly. And that might be a$200 a month differential, which is$2 ,400 a year. And so you do that for a couple of years, right? Do that for three years. Now you've got$7 ,500 in the bank. That plus this and that and the other, you can save$10 ,000. Yeah. Yeah, exactly. On the topic of saving, Katie, you've got a new fresh spin on how much a person should be saving for retirement. Yes. So this was an idea that I came up with because I felt as though as I was reaching fi, I was still having a hard time deciding with my income, how aggressive should I be right now? Should I continue to be pedal to the metal, foot on the gas, or can I ease up a little bit?

1:40And it was actually for me less about, should I be spending more? And just, can I afford to earn less? Could I work less actually? Could I have that slow off ramp? But I didn't want to disrupt all the progress that I had made. And I started thinking about how there are a lot of young people today who, through finding jobs in the finance sector or becoming influencers or whatever, they're making a lot of money, but they're in that Henry category. High earner, not rich yet. And how we often think about the types of decisions that we should be making around saving and investing based on how much we're earning.

2:18But as we know, our incomes are very subject to change. They can change overnight. Most of us are at-will employees if we're not entrepreneurs, which means that our company could make a decision at any point that for whatever reason, they don't want us around anymore. So it made sense to me, especially as I watched other young high earners really expand their lifestyles really quickly. Hey, that actually might on paper make sense for your income, but does it make sense for your assets? So when we think about living beneath our means, I was wondering, is there a way that we can maybe expand that formula and think a little bit more robustly about it so that we're not just looking at our income, we're looking at our assets too.

2:58Our income might justify this, but do our assets justify it? So the formula is you take the average between your income and 4 % of your invested assets. So assuming we're talking about investing in the stock market, right? Real estate, I'm sure you're gonna have a different calculus here. But if you're talking about, I'm trying to reach five by investing in the stock market, what type of spending could my assets currently support? 4 % of your assets. averaged with your income. So you take that average and then that should be maybe a better guide for what is a reasonable amount of money, what's a reasonable amount of lifestyle expansion that you could shift into comfortably without really jeopardizing your future.

3:37Okay. So let's walk through a couple of examples. So let's say you've got somebody who has an income of$200 ,000, but they have zero assets. Maybe they've just graduated from law school and they're in their first job. I'm sure I'm going to get some emails from people being like, Paula, that is not a starting salary out of luck. Just hang with me here, all right? You're a highly compensated professional. You're making$200 ,000, but you're still relatively new at your career and you have zero assets. You know, I'm like fast math in my head. I'm like, I think the average of$0 and$200 ,000 is$100 ,000.

4:10So that should be by far the upper limit for what you would be spending. You need to be saving at least 50 % of that. I think for some people in the FI space who are really hardcore, they're going to be like, oh, 50%. I can do that in my sleep. They should be saving 80 % of it. I try to create advice for people who are maybe FI curious. They're interested. They don't want to cut all the way back. When I got into FI, I was like, oh, I'm going to spend$2 ,500 a month maximum. I am going to live on as little as possible because I was just so desperate to reach that point. But I do think that there are a lot of professionals, particularly those who make hundreds of thousands of dollars a year who don't want to live on$40 ,000 a year.

4:50They just don't want to. And so I try to find that happy medium between, okay, if your average is$100 ,000, that might be a ton of money for some people and not very much for others. Obviously, this is all context dependent, but that's how I would think about that. Okay. And so let's take that same person, income of$200 ,000, assets of a million dollars. So now 4 % of a million, 40 ,000. Income, 200 ,000. I guess 120. You would get 20 ,000 extra dollars a year of spending money in that case. I always try to tell people, depending on where you are, if you can afford it, 40 % save rate is the sweet spot where above 40%, you're actually not going to be buying that much time back.

5:29Any additional incremental five percentage point increases that you make, you're going to buy back a year or two at most. So depending on how much you earn, again, that It might be like way too much or way too little, but 40 % is a good benchmark. I know like JL Collins likes the 50 % save rate. So everyone has different approaches to how we think about this psychologically. Right. But I think with the chart in the book, I wanted to show people, hey, you can personalize this further. If you already have made a lot of progress in investing, you might be the type of person who needs to be told, yeah, you can spend more.

6:01It's okay. You can afford to spend more and that's okay. And just to clarify, when we're talking about the save rate, we're talking about as a percentage of your take-home pay. Yes, I always use take-home pay. I guess I understand that gross income is just easier because people know that off the top of their head, they probably don't know their take-home pay off the top of their head, at least annualized. But I have never understood the point of using gross income because you're going to lose 30 % of it. Yeah, exactly. You don't really have a choice. Exactly, exactly. And the difference between your gross income and your take-home is so variable depending on just a litany of facts.

6:33deductions. Yeah, exactly. I guess I would also add that speaking of deductions, I'm sure your audience is well versed in this, but it's a question that I get so often that I just feel like I have to do my due diligence and say it. If you're already saving 10 or 15 % into a 401k, that is a 10 to 15 % head start on that save rate. So your 401k contributions, your employer contributions absolutely count toward that number. Yeah, because you said you get contacted by people who say, hey, I've been maxing out my 401k, but am I ready to start investing? Yeah, and I'm like, oh, you're all ready. It's a funny thing where I think we mentally bucket those retirement accounts as somehow separate from investing.

7:09And so it's something that has come up so consistently over the years. I always want to make sure that I'm clarifying for people like, no, you are already investing in that retirement account. That does count toward this save rate 100%. And I think you see it in two regards. On one hand, people who these automatic paycheck deductions into an employer-sponsored retirement account like a 401k or a 403b, you don't think of it as investing because it's just money that comes off the top right away. On the other side, you also see people who put money, I'll say myself included, who put money into a taxable brokerage account, which we could tap at any time, but who like mentally were like, no, that's for retirement.

7:48And we're so attached to that idea that even if things get hard, like even if something unexpected comes up, we're like, I'm not touching that money. Yeah, we accumulators. Yeah. I definitely think that it's funny how that shakes out where people do tend to fall in one of two camps and people who are good at accumulating obviously do a very good job of saving and investing and then have a hard time putting it in reverse. I got to witness this firsthand with a friend of mine who doesn't have that. I think of it as a pathology personally. I'm like that just like inability to withdraw where you're like, no, it can only go up.

8:22But I had this friend who back in, I think it was like early 2019 timeframe. We were both cycle instructors, like indoor spin classes. It was my side hustle, my part-time job outside of my full-time job to make a little bit of extra money. It was a great gig, highly recommend. And she was a full-time instructor. She was amazing. She was an incredible instructor, every single class she taught, waitlisted. So she was earning a lot of money. She made more as a full-time fitness instructor, probably$20 ,000 more than I made working full-time nine-to-five corporate plus teaching spin. So she was excellent at her job and was paid very well to do it.

9:02And she told me one morning at coffee, I'm very overwhelmed by money and I just don't feel like I can invest. And in my head, I'm like, oh, I'm investing and I make a lot less money than you. And I'm familiar with the lifestyle you have. You can definitely afford to invest, no doubt. So we whipped out my laptop. We spent 15 minutes together. I set her up with a robo advisor. I just pulled a betterment. We went through the flow and I got her permission. And we looked at her Bank of America account so I could see what was coming in and what was going out. And I just said, can I set up an automatic recurring contribution to this brokerage account for you?

9:34Every two weeks, I know when you get paid because it's when I get paid. Every two weeks, it's going to take out this money and just send it right to the investment account. And are you okay with that? And she was like, sure. So I showed her how to turn it off in case she needed to, but we set it up. We never talked about it again. I honestly forgot about it. And then that was early 2019. As we know what happens 18 months later, she's a fitness instructor teaching indoor classes in real life. And we weren't really doing that for much of 2020. So after the PPP loans ran out and those paychecks stopped coming, she was really getting desperate of like, how am I going to make money?

10:10This is my profession. She's trying to figure out an online studio and she was venturing into entrepreneurship. But then she remembered the account we set up. I get this text one afternoon late that summer and she says, Katie, oh my God, there is$30 ,000 in this account. And she was shocked. I was shocked. I was like, I know investing works. I know automating works, but oh my God, that's a lot of money. I can't believe you never turned it off. I figured you probably turned it off a year ago. She completely forgot about it. She was dumbfounded to find this money and it really provided a great bridge for her and gave her that level of security and comfort that, okay, I can figure this out.

10:49I can build a business on my own. I have some runway here. I can be smart about how I'm spending it. It was a huge safety net for her when she needed it most. and it was based on one good decision that took 15 minutes. It really speaks to the power of automation. Absolutely. Speaking of which then, because you talk about the amount that we have invested versus the amount that we're earning, but how do you think about it? What's your framework for thinking about it when some of that money that you're investing is not in public equities, which are easy to track, but rather in starting a business?

11:19Because it is an investment, but it's really nebulous and you can't 4 % rule that. Oh, that's a really good question. Yeah, it's tough. I guess for me personally, I don't have a strong opinion on this, but I feel like with the businesses that I am building, I don't really think about them as part of my net worth in a weird way. I invest aggressively with the income that I take from them. But as far as a lot of money being tied up in the business, in my head, that's where my mental buckets come in, where I'm like, no, that's different. That is a different thing. So I guess it would depend on how much of someone's retirement is tied up in the equity of a business that they own.

11:59I know that is very common for people who are extremely high earners or have very high net worths for the majority of their wealth to be in a business. I just have really never thought about it that way. I don't know why. I have always thought about the diversified public equities route. That's my savings. That's my net worth. This business that I might be able to sell for a million dollars, I don't know. I don't think about it that way. I'm like, oh, I'd rather just not count it. So I know it's weird that way. So what's interesting about hearing you say that is your business actually got acquired.

12:29I don't know what the numbers or the details of the acquisition are, but like you actually did sell a business. A lot of people might have a business where technically you just own your job and then eventually like peters out, right? But you actually sold. That's true. And I guess in a way I consider it a hybrid where I did sell, I also do feel like I own my job. In a sense, I'm like, it's really hard to run a business called Money with Katie without Katie. Unfortunately, a word to the wise, don't put your name in the title if you think you're going to want to exit someday. But yes, I had this experience in early 2022 where I had this acqui-hire arrangement with Morning Brew and signed this three-year contract.

13:09I had never really up until that point read in a personal finance book, here's how you do this. If somebody approaches you to buy your intellectual property. Just so you know, this term and this term are all negotiable. Just so you know, these are the things that are way harder to value, but are actually probably going to be more important later than what you think right now. And for me at the time, only having the corporate W-2 negotiating playbook where you're negotiating a few small levers, base pay, time off, maybe bonus, maybe profit sharing, but you're limited to a couple things until you start to get up into those higher levels of leadership where your comp packages can be more complex.

13:48I didn't really know how to think beyond just compensation. So I'm like, how much do I want to make? How much am I making doing it now? Plus my full-time income from my other jobs at the time I worked in tech, so I had a good salary and good benefits there. So I'm just cobbling all these pieces together. In retrospect, I now know, oh, the IP was by and large the biggest part of that deal. That was the thing that I should have been willing to concede other terms on to make sure that I retained some sort of ability to claw that back or to buy it back or whatever. So lesson learned, right? When I went back to renegotiate the contract again, when the first one ended, that was something that we added because I was like, this is really important to me and I'm willing to cede other terms.

14:35I'm willing to actually be paid less now in order to get some of this back. And so I think that that sort of deal-making, that sort of negotiating prowess so you know how to represent your interests in those conversations confidently and know what you actually can totally reasonably come to the table with and the demands that you can make, especially if someone's trying to buy something from you, that was really important to me to include in a chapter about how to earn more. For a lot of people, that is going to be a path. Yeah. And I want to expand out the conversation on how to earn more because for everybody who's listening to this.

15:07We all want to earn more. People often don't negotiate or do a weak job of negotiating. So can you share some broad tips around, to me, negotiation is like a huge focus for Afford Anything. We're building a course around it. Oh, amazing. I'm going to take it. Oh, please do. I would love to. It's called Your Next Raise. Ooh, I love it. It's all about how to get a raise. And it's because it's so critical, particularly now when inflation is high. So yeah, what are your favorite tips in terms of how to negotiate. Totally. And how to get higher. So a couple of things that I think about from negotiation is that that negotiation, particularly if you're negotiating for a raise in a place you already work, that negotiation begins long before you sit down to have that conversation.

15:49So in my mind, there are a couple of ways that you can set yourself up to have the easiest time where you walk in there. Yeah, you're going to hit your talking points. Yeah, you're going to nail all the semantic fancy footwork. All that's important. But you got to go in there with this person already primed to say yes to you. So I think the high level thing to remember and what I noticed when I was working in a corporate setting is workplaces are a lot like glorified high school lunchrooms. Perception is reality. It is just as important that people perceive you to be working hard as that you are actually working hard.

16:23So if you're like, oh, if I just keep my head down and work harder in silence and like without anyone realizing it, eventually I will be recognized. Unfortunately, that's just not how it works because we human beings are imperfect creatures and we take social cues from one another. So you have to make it other people's business when you're doing a good job. So one very popular piece of negotiating advice is you should keep this list of accomplishments that you have, right? Track all your wins. And then when you go in to have the negotiation conversation, you unfurl the scroll in front of them and go, look at all the amazing things that I've done.

16:57That is good. But what's better is if everyone around you knows the entire time that all those good things are happening. So I call that socializing your wins. I think it's a very jargony corporate phrase. I'm like, please forgive me. I didn't invent it, guys. It was not me. It's like launching a PR campaign. Yes, it's like running PR for yourself, being a publicist for yourself. And there was one woman that I used to work with who was just world class at this. Because the way that she would do it, she couched all of it in like team player language. So her team would be working on something or she would be spearheading something and she would share out the learnings and share out the, oh, we wanted to share this win with everybody in case it's useful for you.

17:35Oh, we had these results in this user experience study. Oh, hey, I've been working on this thing on the side. Just wanted to let you all know in case it's helpful for you later. It doesn't feel like bragging when it comes across that way because it's like she's being a team player. She's framing it all relationally. But we were constantly aware of what she was working on. We knew she was engaged. We knew she was getting stuff done. And every promotion cycle that I had at that job, she got promoted. So that's one thing is keeping in mind that, yes, perception is reality. Unfortunately, the office politics of people need to know that you're doing good stuff.

18:08That is true. I think the other piece of this is about managing up and the relationship that you have with people whose opinions of you directly affect your compensation. So it's the same thing as socializing your wins, but with a more direct eye on your manager. The first thing I would say is if you have a manager that has it out for you, get out from under them immediately because they will make it impossible. You have to have somebody on your team. You have to have an advocate in a manager. So it doesn't matter how hard you work. If that manager does not like you, it's not happening. So I would just note that.

18:41But you can really affect that relationship in a positive way. So if you have a manager that you have a good relationship with or you see a path forward, then you essentially want to think about how you are presenting problems to this person. Your job is to make their life easier. And so if you are communicating problems to them in a way that makes their life easier, you're going to be on a fast track. So this is what this sounds like. Done poorly, it's you come to the meeting and you say, here's the problem. We have this problem. This is what it is. You're basically dumping the problem in their lap.

19:15So you're giving them a job effectively. Level two is a little bit better. It's here's the problem. And I've started to look into it and I think this is what's causing it. Okay. Thanks. You're still giving me a job. Level three is okay. Here's the problem. Here's what's causing it. I think these are some solutions that you could choose. Okay. We're moving in the right direction. That's great. But you really want to be in a level four or a level five. That's ideal. That's where you are going to set yourself up for really easy, breezy, beautiful negotiation conversations. That is, you're coming in, here's the problem, here's what's causing it, here are some solutions, this is the solution that I recommend if you say, go ahead, I'll go do it.

19:53Perfect. Yes or no? Easy. Or if you have the level of seniority and authority and decision-making latitude, level five is, hey, here's the problem, here was what caused it, here was the solution, just keeping you in the loop. I already handled it. It's done. If you can hit a level five, you're not even going to have to ask for the promotion. You're just going to get promoted. And bottom line is, if you're doing all those things and you feel confident that you are delivering value, that you are socializing your wins, that you are managing up, and still for whatever reason it's not happening, don't be afraid to seek employment elsewhere.

20:28Like at some point, once you have put all that in motion, some workplaces are just not equipped to recognize and promote talent. And if that's the case and that's the case for you, it might be time to go somewhere else. And so we also talk about how to negotiate in conversations with hiring managers where you don't have that track record already in your company. You can't look back on that scroll of accomplishments and be like, look at all the things I've done. Part of that is also recognizing when you're in a hiring conversation with a hiring manager, like when you're switching jobs, it's recognizing what your comp at the old company was.

21:04because it wasn't just your base salary. This is the value of all of my benefits and this is the value of all of the intangibles. And like you put all of that together and sure my base salary was 60 ,000, but you add in all of these extras and I was actually making closer to 70. Yeah. And I want to jump, so you're going to need to pay me 80. Yeah. This is the strategy that I've always used because for me personally, and I think a lot of women feel this way in particular, but I could see this being a thing for really just any human who feels uncomfortable asking for more money because it is an inherently uncomfortable conversation sometimes.

21:34is you want to have a reasonable proof point to gesture to that any reasonable person would look at and go, oh, totally get it. So what's more reasonable than I already make that much. And in order to make this jump, I am looking for an increase in income. I'm looking for a higher salary in order to make this change. And so what you're referring to here is just a little formula that I like to think of and how I build this launch pad in my head if I'm going into a negotiation conversation of, okay, my base salary, my 401k match, maybe an HSA match if you have a particularly generous employer. If you know how much your health insurance costs, if you were to look at yourself on a spreadsheet for what you cost your company, take all of that together.

22:20That was your total compensation. That's the number that you should be confidently moving into new negotiations with knowing that that's what I'm working with. Sometimes the new place is going to offer you way more to begin with and you'll be like, great, love it. But if it's close and you need that thing to push you over the edge, that has always felt like a very comfortable place for me personally to work from. I'm not asking for anything crazy. I just want to make more than I'm making now. Perfect. And you also have a formula around the market rate plus what it would cost to like replace you is actually what you're worth to the company.

22:54I know you have to go catch a flight right now. We're going to take a break to hear a word from our sponsors. And when we come back, I'm going to unpack that directly from your book for everybody who's listening. Love it. Thank you for having me, Paula. It was a pleasure. Yeah. Thank you for being on. I'm sorry we can't talk for longer. I know you're going to - LeGuardia. Good. Yes. I'm avoiding Newark at all costs. Yes. Avoid Newark at all costs. That's the best advice I have to offer today is don't go to Newark. Thank you. Well, thank you again, Katie. Where can people find you if they'd like to know more?

23:23If you like podcasts, The Money with Katie Show. If you are more of a reader, Rich Girl Nation is great. And if you want resources and more like newsy newsletter type stuff, we do have a newsletter that comes out every Wednesday. Wonderful. Thank you. Thank you. The kids are back in school now, and I finally have some extra time to plan a weekend getaway for just us. We've been wanting to visit Lancaster County, Pennsylvania for a while now because I've heard so many people rave about it. We love exploring new places, finding the cutest shops, and eating at restaurants that the locals love. DiscoverLankaster.com is the best place to learn about the unique things to do and upcoming events.