On this week’s episode of the HerMoney podcast, we’re going deep! We’re diving right in for some introspection, and we’re going to flip the script a little bit by asking you a question: Are you the kind of person who always follows through? Someone who always — or almost always — keeps their promises?
If you’re feeling guilty already, don’t, because this week’s guest, Seth Godin, has some motivation for all of us that’s going to change the way we think about our word and our personal brand. Seth is the author of an incredible 19 books, including the worldwide best-sellers “Linchpin,” “The Dip” and “This Is Marketing.” He’s the founder of workshops including the ALT-MBA, and ‘The Marketing Seminar,’ which more than 10,000 people have taken, and if that weren’t enough, he’s also an entrepreneur and in 2018 was inducted into the Marketing Hall Of Fame.
Seth says that the strength of your personal brand — and perhaps even your entire career — hinges on a single question: Do you do what you say you’re going to do? Seth says that you tell people who you are every day, at every interaction, without even realizing it. Because your personal brand all comes down to what people expect when they engage with you — and in that way, your brand is nothing but a promise … a promise you’d be wise to keep!
Listen in as Seth tells us all what good marketing looks like, how spam is “in the eye of the beholder” and how we should never (ever) spend money to make short-term pain go away. He also dishes on how our “lizard brains” (the parts of us that still make us wild animals) are influencing our decisions day to day, and how we can tame these parts of ourselves and tune into what’s in our best interest.
In Mailbag, Jean tackles the question of where to invest money once you’ve maxed out your 401(k) and addresses the best way for someone in their early 50s to save for retirement. She also advises a woman who rents out part of her home, is considering getting liability insurance and is looking into refinancing her home loan.
Lastly, in Thrive, Jean takes on the fact that some private colleges are — shockingly — lowering tuition, but there’s more to this story than meets the eye. As these institutions lower their sticker price, they’re taking away scholarships and other discounts. The big takeaway? Always look at the net price of what you’re paying for college before you commit.
This podcast is proudly supported by Edelman Financial Engines. Let our modern wealth management advice raise your financial potential. Get the full story at EdelmanFinancialEngines.com. Sponsored by Edelman Financial Engines – Modern wealth planning. All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416
Jean Chatzky: (00:06)
HerMoney is supported by Fidelity Investments. We want you to demand more from your money, so start by knowing what you own and what you owe. We’ll help you take the next step that fidelity.com/demandmorenow. HerMoney comes to you through PRX. Hey everybody, it’s Jean Chatzky. Thank you so much for joining us today and I should warn you that in today’s show we are going deep. We’re diving right in for a little bit of introspection and I am going to flip the script and start by asking all of you a question. Are you the kind of person who always follows through? Are you somebody who always or almost always keeps their promises? If you’re already feeling guilty, don’t hit pause because I am already feeling guilty, but we are going to learn a lot about this and so much more today from our guest, Seth Godin, who is the author of 19 books, many of them bestsellers, you’ve heard of them Linchpin, The Dip, This is Marketing. He’s got workshops galore, including me, Alt MBA and the Marketing Seminar and tens of thousands of people have taken those workshops. And in 2018 he was inducted into the Marketing Hall of Fame. Seth, welcome.
Seth Godin: (01:41)
Thank you Jean. It’s good to talk to you.
Jean Chatzky: (01:43)
Thank you so much for being here today. You’re actually with me on Skype. You’re closer to my home than I am.
Seth Godin: (01:51)
Well, I’m watching out for you, making sure that there’s no intruders or bad weather or anything.
Jean Chatzky: (01:55)
I appreciate it. I know you have been at this for a long time. You have to have been at this for a long time to write 19 books, but one of the things that you’re famous for is saying that the strength of your personal brand and maybe even the strength of your entire career hinges on that question. Do you do what you say you’re going to do? Can you talk about where that came from and why it’s so true?
Seth Godin: (02:24)
Well, there are two things that are in shortage everywhere we look, even among the wealthiest communities. And those two things are attention and trust. So people are, companies are dealing with the attention problem by spamming everyone they can, calling us at home during dinner, making come-ons and promises. And at the same time that they’re stealing our attention, they are burning our trust. The alternative is to beat one of those voices that when it shows up as welcome, one of those people we look forward to hearing from, someone like you, and then creating trust. And the only way that I know to create trust is to make promises and then keep them. And if someone makes a series of promises to you and then keeps them, you are significantly more likely to trust them next time.
Jean Chatzky: (03:14)
I was reading the Wall Street Journal this morning, I don’t know if you saw this same article that I did about how the world of spam calls is now transforming into a world of spam texts. And hearing you talk about these unwelcome intruders in life, it makes me think about some of the texts that I’m getting from marketers lately. And some of them are absolutely unwelcome, but some of them are funnily enough, kind of welcome. My team knows, they’re gonna laugh at this, but I shop at a consignment store frequently called The Rundabout. I like it because they have great stuff and I pick up good finds at amazing prices and they text me and I don’t mind. And I guess that’s sort of what you’re talking about here.
Seth Godin: (03:59)
Yeah. If they’re texting you and you don’t mind, then it’s not spam. Spam is in the eye of the beholder. If the recipient thinks it’s spam, then it’s spam. And the problem is most marketers are selfish, narcissistic, short-term profit seekers and they don’t care about anything except themselves. So what they will do is send a hundred messages, 97% of the people think they’re spam, 3 people think they’re not. And they consider that a good day. Well, I came up on the other side of the tracks from that. When we invented email marketing all those years ago, we had a 76% open rate and a 33% response rate.
Jean Chatzky: (04:39)
Seth Godin: (04:39)
Which is about a thousand times what a typical marketer has today because we only wrote to people who wanted to hear from us. And it’s easy to think that I’m a fuddy duddy, but it’s, in fact, the secret of just about every successful entity. So if we think about something like Amazon, which is one of the most valuable companies in the world, what do they own exactly? They don’t have super valuable warehouses. They don’t have technology that other people can’t copy. What they own is permission and trust from 60 million people. That’s all you need. Permission and trust.
Jean Chatzky: (05:17)
You mentioned your upbringing. Tell me a little bit more about it. How did you get so smart about this?
Seth Godin: (05:23)
Well, I’m not sure if I’m smarter if I just make more mistakes than most people.
Jean Chatzky: (05:28)
Wait, that can’t be true.
Seth Godin: (05:30)
In 1989, 1990 I created one of the first online computer games. Before the internet, even before AOL for a company called Prodigy. And I had a long think around then because I came from the book business, in the media business, so I understood what was about to come. And I realized that there was going to be in a world where you could send people a note for free, a huge amount of spam, and that led to the idea of permission marketing, which led to a book which led to a company and then I became a VP at Yahoo in charge of their direct marketing because I saw that attention wasn’t going to get expanded. We don’t have any more time. All we have is ways to spend the time and the people who steal it from us, they’re not people we trust very much.
Jean Chatzky: (06:23)
It’s so funny, God, I have not heard the word Prodigy in that context in such a long time and it tells you how old I am, but Prodigy was before AOL, it was, Oh, there was another one. It began with a C. What was the other?
Seth Godin: (06:39)
Jean Chatzky: (06:39)
CompuServe. Oh my God. And it changed my life as a reporter because I was working at that point as a reporter at Smart Money Magazine and then at Money Magazine and all of a sudden we were able to talk to real people. To find real people to talk to for our stories in a way that was so much easier than it ever was before because of AOL and Prodigy and email. And I’m sure we were not always welcome or trusted, but it certainly changed the job and the life that I had at that point. When we talk about these brands that are welcome and that are not welcome and that waste our time and that don’t waste our time, I think as individuals, we want to be the good guys, right? We want to not be the time-wasters. We don’t see ourselves that way, but how do we shape ourselves to be thought of in that way?
Seth Godin: (07:35)
Okay. So now we’re budding right into cultural standards and the way different people talk to themselves differently. So there is a misunderstanding, widely held that powerful people talk loudly and often that if you’re not exactly sure of what you’re doing, particularly if you’re a woman, you should say nothing. But on the other hand, if what you’re doing is really important, you should stand up and shout it from the hills. And most of this was invented to maintain status roles, to maintain power for people in power. That what we said to people is, you don’t have a microphone, you can’t talk. You don’t have a reputation, you’re not welcome at this table. And as you pointed out, the internet and the bulletin boards before, it changed so many rules about geography, about who’s allowed to speak about who we get to talk to. And in the face of all that change, we looked to the social networks into others to tell us what the rules were. So there are people, and you and I both know them, who post an update on Twitter every five minutes who are constantly grooming their Instagram account, who will ask you for a favor every day or two because they can. But just because you can doesn’t mean it’s effective. What’s way more effective is to be part of a tightly woven community that would miss you if you were gone. If you didn’t show up, would people say, where are they? That trust, that dependence because you are a part of something, that’s the longterm asset that leads to the ability to make change happen.
Jean Chatzky: (09:18)
You’ve written a number of terrific blogs about money. And in one of them you said profitable is not the same as important. Popular is not the same as worthwhile. Expensive is not the same as well done. And that’s what you’re getting at here, right? I mean, I believe, and I may be misquoting you, but I believe I’ve heard you say you should want to have fewer followers rather than more, but the ones that you really want are the ones that truly care.
Seth Godin: (09:49)
We all know that it’s easy to get more followers. A friend of a friend was sad one day and I said to her, why are you so sad? And she said, ’cause I have to go negative. I said, what does that mean? She said, well, I have 1500 Instagram followers but there’s more than 1500 people I want to follow on Instagram and I don’t want my ratio to go negative. And I thought that was the silliest thing I’ve ever heard. So her birthday was coming up and I bought her 15,000 Instagram followers for $89.
Jean Chatzky: (10:20)
Oh my God.
Seth Godin: (10:21)
I mean, because it’s not hard, right?
Jean Chatzky: (10:23)
Seth Godin: (10:24)
Or you can just pick fights with people or talk about the issue of the day or do things that are provocative or that race to the bottom. But why doesn’t it make more sense to seek out the smallest viable audience, the smallest group of people who you are willing to be on the hook to and for? That when they speak, you want to hear what they have to say. But if what they say is dragging down you in the community, well then they’re out. That you have no obligation to do Twitter’s work for them, no obligation to be Mark Zuckerberg’s growth manager. Your obligation is to say, who do I seek to serve and how can I serve this specific group in such an overwhelmingly positive way that they will eagerly bring in others who want the same thing? Because if you can do that, become a meaningful specific, you will always be happier and more profitable. Then Zig Ziglar would say, the wandering generality.
Jean Chatzky: (11:22)
So more profitable is exactly where I want to go. This is a money podcast. We help people figure out their finances, feel better about their finances and, in a lot of cases, try to make more. How does this translate into making more?
Seth Godin: (11:41)
okay, well first of all, thank you for doing this work because too many people are seduced and tricked by the people who will take advantage of them when it comes to money. Now it used to be that the only way to grow your money was to have a steady job and smartly invest and smartly save. But today there are more people freelancing, being part of the gig economy, renting out a room in their house, doing design work, being on Uber or Etsy or wherever than ever before. But it’s important to understand the distinction between entrepreneur and freelancer. If you’re a freelancer, you’re getting paid when you work and the very best way to do that is to get better clients. So if you want to be a driver, driving for Uber means you get the lowest common denominator client. On the other hand, if you find 6 people who trust you to take them to the airport and are willing to pay a premium for it, you have a better client. You have to do better work because you have better clients. But that is the goal of any kind of freelancer. You will make more money if you find better clients and you will find better clients when you deserve them and work to find them. On the other hand, entrepreneurs build something bigger than ourselves. So if you are willing to do the work of getting other people to do the work, you can build something that will make you money. And if you can figure out how to earn money in these two ways, and you can figure out how to be smart about spending money on things that actually make you happy or productive as opposed to spending money on things that the marketing industrial complex wants you to spend money on, then you’re two steps ahead of everybody else. Then the third step, which is the step people talk about exclusively is where to put that money. And you are way better than I on that topic, but I think the first two are overlooked by too many.
Jean Chatzky: (13:35)
Well, I want to actually focus in on the second. I want to focus in on our usage of money on flipping the equation a little bit, but before I get there, I just want to remind everybody that this conversation and the HerMoney podcast is proudly sponsored by Fidelity Investments. Fidelity is all about helping us demand more from our money. It’s about helping us make our savings work as hard as we do because that can help us reach our financial goals faster. All of this starts with a financial checkup and an understanding of what you own and what you owe. And from there, the folks at Fidelity will work with you to evaluate your investment options and different ways to grow your savings. You can get started today at fidelity.com/demandmorenow. I am happily talking with New York Times bestselling author, marketing and branding wiz Seth Godin. And Seth, as you know, better than pretty much everyone on the planet, the job of a marketer is to get people to buy. And my job is to get people to make good decisions, conscious decisions about their money. So how do we, As consumers and investors, separate the hype from where we really should be using our money?
Seth Godin: (15:03)
Okay, well, a bunch of short rules for you. Number one, only borrow money to buy anything that goes up in value. Do not borrow money to buy anything that goes down in value. And if you think about it for three minutes, you’ll realize why that’s the case. Number two, don’t spend a significant amount of money situationally, meaning to make short term pain go away or to create short term pleasure.
Jean Chatzky: (15:28)
Can I come back to number one for a second and then we’ll revisit number two? Can we talk about real estate?
Seth Godin: (15:34)
Jean Chatzky: (15:35)
So historically houses have gone up in value. Most people can’t afford to pay cash for a house and historically they’ve gone up in value, but there have been times, and I know this because I bought my house in 2005 when they’ve also gone down in value. Square that for me.
Seth Godin: (15:53)
Okay, well nothing goes up in value guaranteed every day. If it did, the price of it would be so high it wouldn’t go up in value every day anymore. That one of the key rules of scarcity and economics, my argument is that if you have even $1 in credit card debt, you have it because you bought something that went down in value. You bought a handbag, you bought a vacation, you bought a car. These are things that are worth less tomorrow than they’re worth today.
Jean Chatzky: (16:24)
I was going to ask about cars.
Seth Godin: (16:25)
Right. So a car loan simply shifts when you get your car. And the mistake people make is that they so love the pleasure that first day of driving a new car off the lot, that they get hooked on a cycle of getting a car loan, buying the car, driving it until the car loan is paid off. Then getting a new car loan and starting over again. If you compare that person to the person who did it in reverse, who saved up until they had enough money to buy a used car and never once got a car loan, in the lifetime of that person, they would end up at the end with enough money to buy a brand new Rolls Royce twice that the other person couldn’t because you’ve been paying the bank for something that’s been going down in value.
Jean Chatzky: (17:16)
Okay. All right, I got it. Rule number two
Seth Godin: (17:19)
And rule number two, don’t spend money to make short term pain go away. If you were at the carnival, you should spend $5 on popcorn ’cause it will make you smile right now. If you are in a situation where you can spend 20 bucks to get off a line that’s driving you crazy to upgrade to a different line, terrific, but don’t spend 1,000 or 5,000 or $10,000 simply because for the next hour it will make you happy or for the next hour if you’re uncomfortable. So here’s an example. If you’re on an airplane and it’s about to take off, you’re at the gate, and then they come on and say, sorry, we’re oversold. Who would like $500 to fly on the flight an hour from now? Almost no one raises their hand. But they don’t realize that what they just did was pay $500 to get to their destination an hour earlier. But they weren’t willing to deal with the discomfort of, Oh no, I have to get off the plane. And so they didn’t take the $500. And we make mistakes like this all the time. We’re at a store. This thing is twice the price of something we could get across town tomorrow, but we buy it because here we are. And marketers have sold us on convenience, convenience, convenience. And in exchange. We’ve given up our privacy, we’ve given up bits of our freedom and we’ve given up a ton of money simply for convenience. And if someone hired you to deal with inconvenience for $100 an hour, you’d do it all day long.
Jean Chatzky: (18:50)
Seth Godin: (18:51)
But when the opposite is true and you can pay $100 to avoid inconvenience, too many people do. Don’t do that.
Jean Chatzky: (18:58)
One of the things that struck me about you, we met at a conference recently and you told me that you price your speeches based on how long it takes you to get there.
Seth Godin: (19:09)
Absolutely. Because if someone says, well then, why is California so much more than New York? My answer is come to New York. I’d much rather give a speech in New York because I only get one life. I only get Thursday one time. And for me to spend Thursday on a plane just because I love to do the speaking work it, the deal’s not a good one for me anymore. And what we have to decide as we work our way through life is does money work for us or do we work for money? And if you are privileged enough to have a computer, to live in a country where you can make choices about what you’re going to do next, I hope you can come to the point where money works for you.
Jean Chatzky: (19:50)
What do you spend your money on to get enjoyment? Or let me ask it a different way actually. How do you use money to get enjoyment or for your benefit?
Seth Godin: (20:05)
I am super fortunate in that when I was growing up, both of my parents understood what it was to be part of the community. And I was taught that helping somebody else, opening a door for somebody else, is one of the greatest joys. So working with the Ackman Fund, working with Room to Read, working with Build On, working with Crisis Text Line, other nonprofits that are doing under the radar work to change the way things are. It’s hard for me to imagine a better way for me to spend money and I don’t have to store the item when I buy it ’cause I don’t even get the item. All I’ve managed to do is tell myself a story about opening the door for someone who needs a chance.
Jean Chatzky: (20:48)
You’ve written, and I’m really fascinated with this concept because I think evolutionarily we have not come as far as we think we have, about our lizard brains and how we are still at the mercy of them. Tell me about our lizard brains and how are they still impacting us to this day?
Seth Godin: (21:10)
Well, what makes a wild animal wild animal is the part of their brain that does revenge and anger and survival and reproduction. Human beings are wild animals with some other parts of the brain added on the outside. But the thing that’s closest to the spinal cord is the amygdala and the amygdala is the brain of a wild animal. And it’s important that it’s close to the spinal cord because it’s the fastest one of our brains. So what will happen is you’ll get bad news and you’ll instantly revert and it will take you a few minutes for the other part of your brain to catch up. What we do is we allow the lizard, that little tiny reptilian brain to tell us that we’re afraid of public speaking, to seek out people who have hurt us so we can get revenge to lash out at people. This little piece of our brain is the one that marketers want to take advantage of when they are selling us something we might not need because they know it’s pre-verbal. They know it’s not particularly rational and they know it’s very fast. And so if they can poke it, it might poke them right back and then they come out ahead.
Jean Chatzky: (22:16)
How do we tame it?
Seth Godin: (22:18)
Well, the thing is you can’t make it go away, but what you can do is dance with it. What you can do is know that when it shows up, it’s not telling you the truth, but it is giving you a signal and you can say, all right, that’s interesting. What should I do about it? So you can’t make it die down. But you can say, Oh, welcome back. Thanks for reminding me I’m onto something important. Because it never wakes up when it doesn’t think it’s important. But if it’s important, then it’s up to the rest of our brain to figure out what’s in our interest to do with that alert.
Jean Chatzky: (22:53)
It wakes up all too often in response to a sale. I’ve heard from many, many people in many, many instances.
Seth Godin: (23:01)
That’s right. Because what it’s saying when we say a sale is fear of missing out. This will not be here tomorrow. You are insufficient. You are not the kind of person who is worthy of something that’s full-price. So you better hurry. If not, people will make fun of you. You will fall behind. You’re not high status. If you’re not high status, we won’t get fed. If you don’t get fed, you’re going to die. So basically this is on sale is one step away from buy this or you’re going to die. And what we can do is counter it with some simple cognitive behavioral approaches that basically say every single time you see a sign that says this is on sale, pick up your phone and do X. Where X could be something fun like play a video game or X could be something like call someone you care about. So now the sale sign triggers a different feeling. It’s a reminder for you to go connect to a human you care about not to preserve yourself from drowning by spending money.
Jean Chatzky: (24:02)
And that’s a lot easier than the often recommended solution. In fact, the solution that I’ve recommended a lot, which is just to make yourself pause because you’re giving yourself something positive.
Seth Godin: (24:15)
Exactly. And you know my office used to be near the train station and every time the train went by, people would grumble and I said, what if we just view the train going by as a chance for a meditative break and if you’re on the phone, say to people, that’s our gong, I’ll be back in 30 seconds and we just sat there quietly for 30 seconds, 6 times a day and suddenly we weren’t so angry at the train.
Jean Chatzky: (24:37)
Love it. How can our listeners find more of you?
Seth Godin: (24:41)
You can find my books and workshops akimbo.com.
Jean Chatzky: (24:47)
Thank you, Seth. Such a pleasure.
Seth Godin: (24:49)
Thank you Jean. Take care of yourself.
Jean Chatzky: (24:51)
Bye bye. And Kathryn Tuggle from HerMoney.com has joined me in the studio. We were just remarking on the break at how calm his voice is. It’s very meditative.
Kathryn Tuggle: (25:07)
I love it. I believe everything he says.
Jean Chatzky: (25:09)
I know, right? You want to believe everything. I mean, I think he’s so smart. I’ve heard him speak a couple of times. I actually think marketing is really difficult. I took a bunch of marketing classes, undergrad. I don’t feel like I’ve completely got it, but he explains it in a way that I feel I can understand it.
Kathryn Tuggle: (25:31)
Do you agree with him, just from building your brand, that your brand is all about the promises you keep?
Jean Chatzky: (25:38)
Absolutely. I feel like I get a little weirded out, as you know, talking about my personal brand because I like to think that I’m a person and not a brand, but I know I’m both, it is such a responsibility to help people with their money. I mean, I know I’m not a doctor, right? And that’s an another universe entirely, but it’s my responsibility and all of our responsibility at HerMoney to get it right.
Kathryn Tuggle: (26:07)
Jean Chatzky: (26:07)
Like I am not publishing something. I am not saying something unless I know it’s right. And if it’s something that can’t be right, you know, if it’s one of those investing questions where perhaps there is no right answer but there’s a better answer, you know, we’re going to get to that better answer and we’re going to push the reporting because this stuff changes all the time. I mean you and I, for those of you who are relatively new to the podcast, Kathryn is our chief editor HerMoney.com. She touches all the copy before I touch it. And you know, we push the reporting because we have to push the reporting because this is people’s money.
Kathryn Tuggle: (26:58)
We really do. And so many times I feel like people are afraid to say, well I don’t know the definition of this, but I’m just going to keep pushing through this article anyway and hope that it explains itself in the next 3 paragraphs. And that’s no way to read.
Jean Chatzky: (27:12)
No. And it’s no way to report either. I mean, you’ve heard me sit on the phone, we all sit in the same office in our, WeWork and you’ve heard me on the phone with people saying, can you just back it up and…
Kathryn Tuggle: (27:25)
Explain it to me like I’m 3 years old?
Jean Chatzky: (27:28)
Or just explain it again. Right. I’m not dumb. I know I’m not dumb, but if I don’t understand it, I can’t explain it. And if you’re not explaining it to me in a way that I can understand it, that is not my problem. You know, that is your problem. And either you’re gonna figure out how to explain it to me in a way that I get it so that then I can explain it or I’m calling somebody else.
Kathryn Tuggle: (27:50)
Right. I always say, what is the single most important thing I need to know about this? And for some reason that helps people focus in. Because with the topics we deal with, there’s so much you can say. That’s the problem.
Jean Chatzky: (28:03)
I know, I know vast, it’s vast. And we do. We have to laser focus on the important things because we have, and I think Seth said this, we have so many different messages coming at us that we need to make sure that the important ones rise up.
Kathryn Tuggle: (28:19)
Like the consignment shop.
Jean Chatzky: (28:21)
Those are the important messages. I love my consignment shop. Love it, love it, love it. Anyway, we’ve got mailbag questions. What do you have today?
Kathryn Tuggle: (28:29)
Great questions today. The first one we have is from Unsure in San Diego.
Jean Chatzky: (28:34)
Oh, I love it. She gave herself a name.
Kathryn Tuggle: (28:36)
Jean Chatzky: (28:37)
All right. Let’s see.
Kathryn Tuggle: (28:38)
Hi Jean. I’m 40 and my husband is 45 we have two kids. I feel I’m a bit behind in investing in stocks and bonds, but I have a lot of cash saved up over a hundred thousand. Right now we have a rental house with a $230,000 mortgage at 4% interest, a primary residence with a mortgage of $640,000 at 4.125%, and a car payment of $14,000 at 2.99% interest. I have $180,000 in my 401(k) and both my husband and I are maxing out our contributions every year. So, I’m wondering should I use the $100,000 in cash to pay off our loans or put it towards investments if investments, what’s the best vehicle for us since our 401(k)s are now full?
Jean Chatzky: (29:23)
So this is a trade off question, right? We get a lot of these, should I put my money toward college? Should I put my money toward retirement? This is, should I pay down my debt or should I invest? And the way I look at trade off questions is I look at them two ways. There is the numbers answer and there’s the emotional answer. Here the numbers say invest the money. And the reason the numbers say invest the money is because the debts that you’re carrying, the mortgage at 4%, the primary residence at just a little over 4%, the car payment at 3% that is really cheap money, right? Especially when you consider, you’re probably still getting some sort of a tax deduction on the primary residence. I’m a little surprised that the rental house is cheaper in terms of the interest rate than the primary residence ’cause it’s usually flipped, but it’s probably because of when those loans were taken out and where interest rates were at that point. It doesn’t matter. This is cheap money and you’re going to do better over time by putting your money into a portfolio of investments that particularly, because you’re so young, and 40 is young, particularly because of your age can be invested pretty aggressively. So I would say open a brokerage account. If you have no other places that you want to invest this money that are offering you tax advantages and you might want to look at 529s for your kids. You might want to look at health savings accounts if you’re offered health savings accounts. Otherwise plain vanilla brokerage account. Buy some stocks and bonds that line up with your goals for the future. Caveat, the investments could go down.
Kathryn Tuggle: (31:19)
Jean Chatzky: (31:21)
Over time, the investments will likely go up. Historically. But I do feel that right now, it’s just important to point out that this needs to be longterm money. It always needs to be longterm money. It’s not the money that you need next year to make a down payment on the next rental house that you want to buy. Stocks have been pretty frothy. We’re at a point where they are, I think, long overdue for a correction. I am still putting money into my investments. I’m still buying. I’m still putting money every single month into my 401(k) as I have done through the last recession and as the market’s climbed back up because I don’t believe in timing the markets and I don’t believe that you should either.
Kathryn Tuggle: (32:12)
Jean Chatzky: (32:14)
Thank you. What’s next?
Kathryn Tuggle: (32:16)
Next up is from Maura in Pennsylvania. Hi, Kathryn and Jean. I got my first shout out so I’m very happy.
Jean Chatzky: (32:23)
Very nice. I love that.
Kathryn Tuggle: (32:25)
Maura says, hi, Catherine and Jean. I love, love, love your podcast. I’m one of five girls in my big family and a mom to three daughters. I wish I had learned these skills and advice earlier in life, but I have all my family tuning into you now.
Jean Chatzky: (32:38)
Kathryn Tuggle: (32:40)
I know it’s never too late to start to save, but I got started late in the game just 10 years ago and I’m now 51 but I’m happy to be saving 10% of my salary and capturing my employer’s 4% match. I earn $100,000 and my goal for next year is to save 15%. unfortunately, my spouse has never invested in, does not have an employer sponsored plan. Also, we own a house worth $300,000 and we have $150,000 left on the mortgage. We plan to stay here until retirement. My question is twofold. What’s the best way for someone in their early fifties to contribute to their retirement? Apart from just my 403(b)? Also, what are some ways I could look into generating more money for retirement? Any advice or ideas you could offer would be so appreciated. Thankfully, my girls have totally got your concept of compound interest down pat and I’m forever grateful to you for that advice.
Jean Chatzky: (33:32)
I love that. Thank you so much for writing and just like 40 is young, 51 is young. I am going to be 55 this year, so believe me, I really believe that 51 is young and you’re doing great. You definitely have to keep on going. You have to stay on this path. You have to continue to put away that 15% a year. But that’s a really, really good rate of savings. So I would say keep going with that. If you and your husband combined have the ability to save more, again, we want to look at those tax advantaged options and he is not taking advantage of his. He could make an IRA contribution. He could make an IRA contribution even if he’s not in the workforce simply because you’re in the workforce. This is called a spousal IRA and the money can go into a traditional IRA where you get a tax deduction for making that contribution, or a Roth IRA where you pay the taxes on the money before you put it in. Either way, it enables you to put away a good additional $6,000 a year and that’s really substantial. So I’d start there.
Kathryn Tuggle: (34:49)
Great. To qualify for this spousal IRA. Does he have to have any certain type of employment situation? Or anybody can do that?
Jean Chatzky: (34:56)
As long as one of a married couple is in the workforce, has earned income, then this can be done.
Kathryn Tuggle: (35:03)
Jean Chatzky: (35:04)
Yeah, it’s great and not enough people know about it. So I would say go there.
Kathryn Tuggle: (35:08)
Next up is from Pat in California. Hi Jean. I own a duplex and I have a few questions involving my real estate. In my home, I live in one part and run out the other. I’m wondering how important it is to have umbrella insurance coverage in addition to the usual car, homeowners, and rental property insurance. Is that something I should look into? Lastly, are there any downsides to refinancing even when the interest rate is 0.75% lower than what I have? I have 27 years left on my mortgage, but mortgage broker says it’s still not a good idea right now. Thanks, Pat in California, known in my office as Patty Moneybags.
Jean Chatzky: (35:45)
Oh, we love that. Okaym Patty Moneybags. Two questions here and I have two answers. Yeah, you want umbrella liability insurance. You’ve heard people say, we live in a litigious society, we live in a litigious society. You want to have a big umbrella liability policy particularly because you rent out your home, but it’s important even for people who are just coming into and out of your home. The good news is it’s really cheap, couple of hundred dollars, we’ll get you all the liability coverage that you need, and just a heads up because I had a really interesting conversation about liability insurance when I was on the train coming in, I was actually sitting next to my insurance broker who happens to be a friend of mine, and I noted that my son is fostering a dog which he intends to adopt and he said, is that dog on the renter’s insurance policy? And I said, I have no idea. He said, you tell him to call me and we’ll get that dog on the renter’s insurance policy because evidently a lot of the claims that are coming in against homeowners and rental policies these days are dog related. And even though I met this dog and I think it’s a very nice dog, I did send him a quick text like, call Bob and talk about adding your dog to the policy. As far as your interest rate, Patty, I do not see a downside to looking into refinancing right now. I’m up for looking with a difference of half a percentage point, sometimes even a quarter of a percentage point, particularly because you’re not very far into this mortgage. The question for you is, will you be in the home long enough to recoup the costs of the transaction? That’s a really easy calculation to run, you just figure out how much you’re going to save on your monthly payment and add it up compared to the number of months that you think you’re actually going to be in that home. If the savings are greater than the cost, you do the deal. And because we’re able to refinance again and again and again, it’s never a bad idea to look, particularly right now when rates have fallen so far and so fast. So I’d say check it out. And if this mortgage broker is telling you that this is a mistake, maybe you need a different mortgage broker. Patty, thanks so much for writing and Kathryn, thank you so much for the questions.
Kathryn Tuggle: (38:22)
Absolutely. I love the questions and I encourage our listeners to keep them coming firstname.lastname@example.org.
Jean Chatzky: (38:26)
Fantastic. On today’s Thrive, many of us have come to accept that college tuition costs are on a never ending upward rise over the last 30 years, the cost of a four year degree has increased eight times faster than wages. That is so awful. And that’s why this year’s announcement from five private colleges that they’d be lowering tuition costs by anywhere from about 16% to 57% sent more than a few shockwaves through the academic world. Unfortunately, before you get too excited, here’s what you need to know and that’s the fact that students may not see any upside from this. What’s going on is that essentially, many private colleges have liberally handed out scholarships and discounts to students, all of which help chip away at the sticker price. So we’re really not paying that sticker price, we’re paying something called the net price, which is often much lower, but with this move, those five schools are also doing away with many of those scholarships and discounts at the same time they’re lowering prices so that net cost effectively stays the same. So why do it at all? The colleges are actually betting that a lower sticker price will inspire more applications from cost-conscious families who might have previously said, no way I’m applying to that school because of the higher advertised cost. The big takeaway, it’s not the sticker price that matters. It’s the net price. Use the net price calculators on the websites of all colleges and universities to help yourself figure out what the actual price is going to be. Thank you so much for joining me today on her money. Thanks to Seth Godin for the great conversation. If you like what you hear, please subscribe to our show at Apple Podcasts and leave us a review. We like hearing what you think. We also want to thank our sponsor Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Track Tribe, and our show comes to you through PRX. Join us next week. We’ll be here with another great HerMoney guest, and thanks so much for listening. We’ll talk soon.