What were you doing your sophomore year in college? Maybe some studying, some sports, some parties? Perhaps you and your roommates spent a few too many hours in front of the mirror, debating outfit choices before going out for the night?
Well today’s guest also spent a fair amount of time styling the perfect ensembles — only she turned her passion for wardrobing into a multi-million dollar company that she runs today. Danielle Bernstein is the founder of world-renowned fashion blog and social media platform WeWoreWhat. The platform, which she launched in 2010, now boasts more than 2 million instagram followers, and the fashion collections she offers seasonally frequently bring in more than $2 million in sales within just a few hours of launch. At 24 years old, Danielle was named to the exclusive Forbes “30 Under 30” list, and within the last year she stepped outside of the fashion world and into technology. She recently founded Moe Assist, the first project management tool to help online influencers manage projects, brand partnerships, and payments, and thousands of influencers have already signed up.
This week, Danielle and Jean talk about her journey into entrepreneurship, what it’s like to find a business partner, and Danielle’s tough decision to drop out of school to pursue her brand full time. Danielle dishes on all things related to the “influencer” world where she got her start, and what it means to her to be a good role model for young women.
Danielle talks about what it was like to start a company at such a young age — she wasn’t even 20 when she started her company — and details her philosophies for making a real connection with followers. Hint: It doesn’t happen overnight. Authenticity and staying true to who you are is key, as is being selective with the partnerships you pursue.
The pair discuss how young women can gain and hone their confidence when they’re just starting their careers, and Danielle shares how she carved out a place for herself in the often-cutthroat fashion industry. She also dishes on how she learned to negotiate, the importance of reading the fine print in contracts, and the best ways to handle yourself in a meeting.
Of course we also dive in for some of Danielle’s favorite fashion and styling tips — She tells us what she never leaves home without and what she always makes sure to pack for a weekend away. Lastly, and most importantly, Danielle shares some insight into her relationship with her wealth manager who helps her invest her money, and why she’s elected to save half of her income from every paycheck.
In Mailbag, Jean tackles a question from a listener on “recasting” a mortgage, and dives in to offer guidance to a woman who is receiving a $13,000 gift and is unsure where to put the money. We also hear from a listener who is worried that her family’s travels and little luxuries may derail her bigger plans for retirement. In Thrive, Jean talks about the sandwich generation who may be supporting both kids and parents, and how we can kindly, gently say “enough is enough” when it’s time to cut the purse strings.
Danielle Bernstein: (00:01)
I was just a young 20 something living in New York trying to make it like everyone else and I shared all of that with my followers and I shared my journey and I shared my failures and my successes and really took my followers along for the ride.
Jean Chatzky: (00:22)
HerMoney is brought to you by Fidelity Investments. You work too hard to let your money just sit and savings, learn how to make your money work as hard as you do at Fidelity.com/demandmore HerMoney comes to you through PRX. Hey everyone, I’m Jean Chatzky, welcome to HerMoney and thank you so much for joining me today. So, just out of curiosity, what were you doing sophomore year in college? Maybe you were doing some studying, some partying.
Danielle Bernstein: (00:54)
Sophomore year in college I was, I had just transferred to FIT, so I was kinda done with my partying phases and I was like, all right, I’m going to pursue fashion, but what am I doing in fashion? And that’s actually when I started my blog.
Jean Chatzky: (01:06)
That’s exactly where I was going. Danielle Bernstein is in the studio with us. Of course, you know her from We Wore What, which she launched in 2010. She’s got more than 2 million Instagram followers. The fashion collections that she offers seasonally, frequently bring in more than 2 million in sales within just a few days of launch. Her list goes on. She recently launched a tech app called Moe Assist after her very own assistant. It’s so nice to have you here.
Danielle Bernstein: (01:41)
Jean Chatzky: (01:41)
Thanks for being with us. So many people have said that you single handedly turned the fashion world on its head that, that you came in…
Danielle Bernstein: (01:50)
Wow, that’s a lot of pressure.
Jean Chatzky: (01:51)
It is. A little bit of pressure. You came in as an influencer, a designer, a model, an entrepreneur all in one and basically changed the way that women think about fashion. Take us back to that sophomore year to the beginning and how did this evolve?
Danielle Bernstein: (02:07)
So I had just transferred from the university of Wisconsin Madison to FIT.
Jean Chatzky: (02:12)
That’s where I grew up – the University of Wisconsin. Madison.
Danielle Bernstein: (02:14)
Jean Chatzky: (02:14)
Yeah. My dad was a professor.
Danielle Bernstein: (02:16)
I love Madison. I mean, it’s such a great place. And I really loved it there and I was a retail major, but I felt like I needed to be in New York City. And I felt like one year at Wisconsin was enough for me to really get the college experience I was looking for. I was social chair of my sorority. I went to every football game. I got super drunk every night. I really took it on like full force. And then, you know, I realized that I wanted to pursue a career in fashion. I didn’t know exactly what I wanted to do, but I wanted to move to New York City to do that. I also had a boyfriend at the time that was living in the city, so that might’ve had something to do with it.
Jean Chatzky: (02:49)
Just a little.
Danielle Bernstein: (02:50)
So I transferred to FIT and I guess that was my technical sophomore year, but a lot of my credits didn’t transfer, so I was kind of starting over. And I was surrounded by such amazing style everyday going to class and it wasn’t style that I was seeing when I was back at Wisconsin. And so I thought, you know what If I could share what I’m seeing every day with my friends back at Wisco and all the other big 10 schools like Michigan and Indiana and, and where my friends were in these out-of-state schools and I picked up a camera, taught myself how to use it and started photographing street style and that’s how We Wore What was born.
Jean Chatzky: (03:23)
How did We Wore What become a thing? Right. I mean, everybody and her mother has a fashion blog these days.
Danielle Bernstein: (03:29)
Yeah, no, I mean, listen, this is also 10 years ago. So it was at the very beginning of blogs and bloggers. You know, it was a term that was just starting to come around. But you know, I was photographing street style and then about six months into it, I started photographing my personal style. And I think it’s the moment that I turned the camera on myself and realized that that was something that really resonated with my readers, is when my blog started to pick up as more of a career, and more people started to notice who I was. And soon after that I signed with an agency and things sort of took off from there.
Jean Chatzky: (04:05)
What was it like to start a company at such a young age? I mean you weren’t even 20.
Danielle Bernstein: (04:09)
Yeah, I mean it was completely a hobby at first, so I didn’t even look at it as a company. But once I realized it could become a career and a company, I really started to look at it from more of an entrepreneurial focus. And I’ve always been very entrepreneurial growing up, but I really was just enjoying taking photos and telling people where they could buy a certain trend and what they should be wearing. It truly was just a passion of mine and I think it’s almost like the best careers come out of that.
Jean Chatzky: (04:36)
One of the things that I’ve heard from many people who follow you religiously is that they’re obsessed and they’re not obsessed necessarily with We Wore What, but they are obsessed with you. Right. And when you turn the camera on yourself, why do you think that resonated and what was it about you that really made a connection with people?
Danielle Bernstein: (05:03)
I think I’ve always been really authentic and real and I sort of branded myself as this like perfect mix of relatable and aspirational. So, you know, I was just a young 20 something living in New York trying to make it like everyone else. And I shared all of that with my followers. And I’ve shared my journey and I shared my failures and my successes and really took my followers along for the ride. And I think that a lot of my followers essentially grew up with me and they watched me grow up. So there’s the aspect of that. But a lot of my followers really feel like we’re best friends. And we are in a sense, you know, and when we see them we hug and they know a lot about my life. And even though I know nothing about there’s, we feel like a connection. But they also look up to me. So it’s been a mixture of both. And I think just being a real New Yorker is sort of what’s worked for me.
Jean Chatzky: (05:49)
What sort of responsibility goes along with that?
Danielle Bernstein: (05:52)
Definitely. I have a lot of young girls that look up to me. So you know, I ended up dropping out of school to pursue this full time and it’s not something I recommend to my followers. And you know, everything I do, I know my followers are looking at to sort of mirror it. So I definitely feel this immense responsibility to be a good role model for young women.
Jean Chatzky: (06:11)
Along the way, influencers started to be moneymakers. When you started this a few years ago, almost a decade ago now, influencers were not a thing. They didn’t charge money for posting things online or appearing. How did you turn what you were doing into a business?
Danielle Bernstein: (06:33)
So, when I signed with an agency, I signed with Next Models as untraditional talent. And this woman, Jennifer Powell, who’s still my agent today, we ended up leaving the agency together to pursue full-time, in-house with me. And I think that, you know, we started charging for posts the way traditional advertising was charging for advertisers. You know, it was cost per impression and based on the viewership and based on conversion rates. And sales. And so we really looked at it as just the most modern form of advertising. And so we took things from the advertising world and just applied it to the digital world.
Jean Chatzky: (07:08)
How do you decide which brands you want to align with?
Danielle Bernstein: (07:12)
It has to be a brand I believe in. So, if I wouldn’t wear it or use the product myself, I won’t promote it.
Jean Chatzky: (07:18)
You’ve along the way, created some of your own lines, your own fashion collections and other things. How did that come about?
Danielle Bernstein: (07:27)
So, the first one I did was Second Skin Overalls, which was a line of overalls and jumpsuits that was direct to consumer that I produced myself. I financed it myself. And that was because my tagline back in 2013 was “Overalls are my second skin.” And I was sort of known for wearing all these great overalls but you couldn’t find them anywhere cause they were all vintage pieces. And I would search the market for them and I really couldn’t find any that had good quality and fit. So I saw a space that I knew I could fill and I set out to create a very niche line of products that were overalls and jumpsuits and it proved to be really successful. But I had a ton of errors along the way and it was a huge learning curve, like learning the production and design process. So eventually when I found a great business partner in my swimwear collaboration, Onia, I decided to bring everything under one umbrella under Shop We Wore What, which is what you see today.
Jean Chatzky: (08:18)
If you were doing it all over from scratch, what would you do differently?
Danielle Bernstein: (08:23)
I mean, that’s hard to say because all of my mistakes have become great lessons. So I don’t really know that I would do it over. I would probably just be a little bit more careful with the contracts I sign and the agreements I have with people that were freelance working for me, and just make sure that I had full control over everything.
Jean Chatzky: (08:43)
When you get into agreements, oftentimes you’re getting into negotiation and it’s something we talk a lot about on this show because many women have trouble asking for more money for them. How do you deal with that?
Danielle Bernstein: (08:57)
I’ve never been afraid to ask for more. I just know my worth and my value and so, you know, with my agent we play good cop, bad cop and you know, I’m behind the scenes being like push a little more, let’s get a little more. But then you know, I’m still quote, unquote the talent, so she’ll do the negotiation for me.
Jean Chatzky: (09:15)
Do you think it’s helpful to have another person in the mix?
Danielle Bernstein: (09:17)
I think so for sure. I mean it’s so hard. Like you know, I’m being viewed as talent and then my agent is doing it. But if you’re in, you know your regular job and you want to ask for a raise, it’s kind of all on you.
Jean Chatzky: (09:29)
So those of our listeners who didn’t see you walk into this studio as I did, didn’t see that Moe was with you.
Danielle Bernstein: (09:37)
Jean Chatzky: (09:37)
In the last year you’ve launched Moe Assist, which I think is just fascinating, right?
Danielle Bernstein: (09:43)
Jean Chatzky: (09:43)
I mean there are a lot of things that we do in this business that I think Moe Assist could help with. Tell everybody about Moe.
Danielle Bernstein: (09:49)
Let me give you the backstory. So Moe is my six, almost seven year assistant turned right hand man. So she is even more my boss than I am hers. And she’s basically helped me build, We Wore What. And she started as my assistant and then got more responsibility and now she does everything from managing all my partnerships and scheduling to my relationships with the brands, with my agent, with all our other employees. She sort of is a manager in a sense, but building the business alongside me. So a big pain point in the industry for people that don’t have a Moe are things like organization and staying on top of things and getting approvals from brands and getting paid on time. And these are all things that Moe does for me. So I thought, it kind of became an ongoing joke that everybody needs a Moe. How do I get a Moe? Where can I find a Moe? And I said, why don’t we just put Moe into a platform and build this office tool for influencers that can help them become more efficient in their businesses. So there’s a ton of project management tools out there, but none that really filled the needs of the influencer industry. And who better to build that than an influencer themselves. So we set out to build a project management platform that solved all the pain points of the influencer industry. Everything from getting paid on time to project approval to organization.
Jean Chatzky: (11:02)
Who’s using it?
Danielle Bernstein: (11:03)
Influencers. Mainly micro-influencers that don’t have a Moe, that don’t have an agent. But really we’ve seen a wide variety of influencers using it. But micro-influencers are the target market right now.
Jean Chatzky: (11:15)
What advice do you give these micro-influencers? I mean, I imagine your email box is just full or they’re DM-ing you. Yeah, and I know you can tell my age, right? I mean email box, right?
Danielle Bernstein: (11:27)
The email on my bio is my agent. So if people want to reach me directly, it’s through my DM.
Jean Chatzky: (11:32)
All right, so if they DM you, these micro-influencers, these people who are just getting started who say, okay, in 10 years I want to be Danielle Bernstein, what do you tell them?
Danielle Bernstein: (11:42)
That it takes time. That it’s hard work because you know, listen, I’ve been doing this for 10 years. It didn’t just happen overnight. There was obviously things I did along the way to improve my success rate. But you know, things like being a fearless networker and being really consistent with your content and having a content calendar and not trying to be something for everyone but really trying to be everything for someone and being different and just not doing something because you think it’s what people want to see on your feed. Like really staying true to who you are, as cheesy as that sounds, will show. And the followers will see that. Authenticity is so important, especially on Instagram where everyone and their mother is promoting tummy tea and you know, you really have to learn how to say no and you know, stay true to your brand with your partnerships that you choose to work with.
Jean Chatzky: (12:30)
What hurdles did you have to overcome, particularly as a young woman trying to do this?
Danielle Bernstein: (12:36)
Just learning, I think, how to be a professional.
Jean Chatzky: (12:40)
What does that mean?
Danielle Bernstein: (12:40)
Things like reading the fine prints and contracts and how to handle myself in a meeting and just different sort of things that just come with growing up and maturing. I’m not going out at night and having more than a few drinks at an event because you have to get up early the next day. You know, growing up in New York City and being in this really fast paced lifestyle, you have to really learn to be your own boss in an efficient way. So it’s hard like getting up in the morning, even though I work from home, I’ll get dressed, and really act like I’m going into the office.
Jean Chatzky: (13:21)
I want to come around to what it’s meant to you to have all of this success, particularly the financial success. But before we do that, let me just remind everybody, HerMoney is proudly sponsored by Fidelity Investments. We’re here just to remind you that you work too hard to let your money sit in savings. Whether you are new to the workforce or approaching retirement. Fidelity can help advise you throughout your career and beyond so that your money is working just as hard as you do. It all starts with a yearly financial checkup and understanding of what you own and what you owe. And from there the folks that Fidelity can work with you to evaluate your investment options, determine ways to grow your savings, keep you on track to reach your life goals and you can start demanding more from your money today at Fidelity.com/demandmore. I am in the studio with Danielle Bernstein, founder of the fashion blog and social media platform, We Wore What, and the tech company Moe Assist. You’ve had great financial success, particularly in the last year or so. It’s just been gangbusters. What has that meant to you in terms of your life and how are you handling the money?
Danielle Bernstein: (14:33)
So I have a wealth management person that I work with and somebody who helps me invest my money smart. Conservatively but smart. And you know, I’ve always, my father had always just taught me and my brothers how important saving is. So even though I spend, I have three employees, I have a really expensive apartment. I buy nice things for myself. I always make sure to save more than half every paycheck. So I think that that’s always been something that I’ve sort of like stuck with. And you know, the financial success is amazing, but I won’t let it taint me. So it doesn’t stop me from working harder. I still always want more. I’m like, okay, so now how can we double this year? How can we triple it this year? You know, I always have these really high goals for myself, but I also have to be like, wow, I’m 27 and I’m doing this. Like, that’s really cool. And I almost have to like pinch myself and remind myself how young I am and how much success I’ve had and actually enjoy it sometimes too. Cause I am really hard on myself and I don’t necessarily always take the time to sit back and enjoy what I’ve worked so hard to build.
Jean Chatzky: (15:38)
It’s clear to me, and I started following you because Hattie Berger, one of our employees has gone to work for you.
Danielle Bernstein: (15:45)
She’s killing it by the way.
Jean Chatzky: (15:45)
I’m so glad. But also because my daughter follows you as well and one thing I can tell is that you work incredibly hard. What are your goals?
Danielle Bernstein: (15:59)
I always have a goal and then I reach it and then I think, okay, what’s next? So I don’t know. I mean my goal would be to work super hard, make a lot of money, build these incredible brands, make an impact on young women and the way that they view themselves in their careers and their confidence and to just keep sharing and growing. I think that, I don’t know what the next, I don’t have a five year plan every year. I’m like, okay, this year we’re going to do A, B, C, D, and then I don’t even know what the next year has in store, so I don’t know.
Jean Chatzky: (16:33)
It’s okay. You’re 27. You don’t have to know.
Danielle Bernstein: (16:36)
And that’s okay too. You don’t have to know everything. You know, like it’s okay to figure it out as you go.
Jean Chatzky: (16:42)
Absolutely. Let’s talk a little about the fashion industry. We just came through fashion week.
Danielle Bernstein: (16:47)
Oh God, yes.
Jean Chatzky: (16:48)
Oh God, yes. You’re tired.
Danielle Bernstein: (16:51)
I’m exhausted. I know I was late today. I’m terrible. That’s so unprofessional. I’m sorry.
Jean Chatzky: (16:54)
It’s okay. We forgive you.
Danielle Bernstein: (16:55)
Okay. Thank you.
Jean Chatzky: (16:56)
The fashion industry has a reputation for being cutthroat. A little Devil Wears Prada, a little shallow. Have you found that to be true, and how have you been able to find the soul in this industry?
Danielle Bernstein: (17:13)
Yeah, not as much as the movies make it out to be. It definitely has aspects of that, but I think especially in the influencer world, we’re all real women, so we find it much easier to relate to each other than we do maybe like editors or other people. I mean not the editors are not real women. That sounds silly, but I think that we all share so much of our personal lives that we sort of like know what’s going on. So when I sit at a fashion show and I’m next to a friend of mine that I know just had something happened with her family or just shared something that she was really insecure about because we share so much, we know a lot more about each other. So I find it easier to relate in that way. I mean, of course it’s cutthroat. Especially being in social media, there’s like a lot of hate that comes my way and you have to have thick skin like in any industry.
Jean Chatzky: (18:04)
How do you deal with it?
Danielle Bernstein: (18:05)
I try to ignore it, but if it does get to me, then I let myself feel the emotions that I need to feel. I cry, I get upset about it. But, at the end of the day, I almost then end up feeling badly for the people that are speaking badly about me because that just means that they’re unhappy.
Danielle Bernstein: (18:21)
Let’s before we wrap, get to a few of the questions that I know our listeners have on the tip of their tongues and we want a few styling tips.
Danielle Bernstein: (18:30)
Jean Chatzky: (18:31)
Styling tips. So you have this way. I am going to just describe, you’re wearing an oversized cashmere sweater that I think, is that your boyfriend’s?
Danielle Bernstein: (18:42)
No, it’s not. It’s a brand called Toteme. It’s on Net-A-Porter but yeah, I’m wearing an oversized sort of like Henley collared cashmere sweater with a turtle neck layered underneath and whitewashed jeans.
Jean Chatzky: (18:53)
And you’ve got your hair up in a messy bun.
Danielle Bernstein: (18:54)
Because I was rushed.
Jean Chatzky: (18:57)
And you look spectacular. You look, I mean you just have this way of looking completely polished no matter what you put on. So how do you do that?
Danielle Bernstein: (19:09)
Wow. Let’s see. I always wear something that I’m really comfortable in for the most part, not as much during fashion week, but you know, if I’m wearing really skinny tight jeans, my shirt will be oversized. So I won’t wear anything that’s all tight or all loose. I’ll make sure you still see part of my part of my body shape without being too sexy,I think. Unless I’m going out and I’m wearing a little dress and tights. As far as makeup and how I look awake, I use a lot of blush. But one of my biggest tips is I take red lipstick and I dab it on my fingertips and I put it on my cheeks as if it’s this like sun-kissed glow. So I love doing that.
Jean Chatzky: (19:45)
Any specific red cause I know all reds are different.
Danielle Bernstein: (19:47)
I know. Actually the one I use is a discontinued red, but I’ll find one that works.
Jean Chatzky: (19:53)
All right. You’ll tweet it at us.
Danielle Bernstein: (19:55)
Jean Chatzky: (19:55)
Danielle Bernstein: (19:56)
Oh you know what’s really good. Glossier has a something call the Cloud Paint and the color I use is Dusk.
Jean Chatzky: (20:02)
Danielle Bernstein: (20:02)
And it’s very good.
Jean Chatzky: (20:04)
Perfect. What about if you were going out on a job interview or our listeners who are going out on a job interview, how could they look…
Danielle Bernstein: (20:11)
It depends where.
Jean Chatzky: (20:11)
If they want to look confident, if they want to look…
Danielle Bernstein: (20:14)
Always a blazer, a sexy suit. I think that like suiting, there’s nothing better. But it needs to be well-tailored and fit well. And I think don’t look too stuffy in it. So if you’re wearing a suit, maybe wear a tee shirt under or like a more casual shirt. But it depends where you’re interviewing. If you’re like going to work in like the music industry you could wear like sweatpants and no one cares and a leather jacket.
Jean Chatzky: (20:38)
What’s the one accessory that you never leave home without?
Danielle Bernstein: (20:42)
Sunglasses I guess.
Jean Chatzky: (20:44)
All right and last question, you are going away for a weekend. What are the three things you are always going to pack?
Danielle Bernstein: (20:54)
Downy Wrinkle Spray. It’s my secret to not having to have a steamer. I.
Jean Chatzky: (20:58)
I always carry a steamer. I don’t need it.
Danielle Bernstein: (21:00)
Jean Chatzky: (21:00)
I do. I have the little steamer. I pack it.
Danielle Bernstein: (21:03)
Downy Wrinkle Spray is the best, and static spray. Especially like this weekend I’m going to Aspen and everything I have will be really staticky. So I always have static spray. But as far as clothing items, I’ll always have a good pair of light washed jeans. I wear like my Danielle jean from my Joe’s collab and a great white tee shirt and leather jacket.
Jean Chatzky: (21:24)
Perfect. Danielle Bernstein, Congratulations on all the success.
Thank you. Thank you for having me.
Jean Chatzky: (21:29)
Thank you so much for coming in. We’ll be right back with Kathryn and your mailbag.
Jean Chatzky: (21:40)
And HerMoney’s Kathryn Tuggle has joined me in the studio. Hey Kathryn.
Kathryn Tuggle: (21:45)
Jean Chatzky: (21:45)
Thank you for pulling that together.
Kathryn Tuggle: (21:46)
She was amazing.
Jean Chatzky: (21:47)
She was terrific. But first can we just big shout out to Hattie Berger, right?
Kathryn Tuggle: (21:52)
Jean Chatzky: (21:53)
Hattie Berger for helping us make that happen. Hattie was on our team for awhile and I do think that, I don’t think Hattie will mind us discussing this, but Hattie is a wonderful writer with a very artistic eye. We were her first job out of college. She joined us as an assistant and personal finance wasn’t for her.
Kathryn Tuggle: (22:17)
No, it wasn’t.
Jean Chatzky: (22:18)
It wasn’t. And she came in one day and she had found this job. It started part-time actually with Danielle at We Wore What? And it was clear that this was just something that she was much more passionate about than personal finance. And I think what I hope that she took from the experience was that it’s okay to figure out that your first job is not the best fit for you. I mean, Hattie’s actually doing some work for me now because she made the most beautiful PowerPoints I’ve ever had…
Kathryn Tuggle: (22:54)
She really did.
Jean Chatzky: (22:55)
In my life. And so your job, your career is not a straight line. It’s an evolution and you have to allow yourself to go in the direction that it takes you with some authentic feeling of this is right for me.
Kathryn Tuggle: (23:12)
Yeah. And I loved that Hattie was honest with us.
Jean Chatzky: (23:15)
Kathryn Tuggle: (23:16)
She just said, you know what? Personal finance is really not lighting me on fire, I think were her exact words. And I said, well, that’s your answer. You’ve got to do what lights you on fire.
Jean Chatzky: (23:26)
Exactly. Exactly. And she’s killing it.
Kathryn Tuggle: (23:29)
Jean Chatzky: (23:29)
So those of you who watch Danielle on social media. I was watching her year end recap and saw a couple of shots of Hattie doing her thing. She’s working on Moe Assist a lot.
Kathryn Tuggle: (23:40)
Yeah, she is.
Jean Chatzky: (23:40)
So very, very cool. All right. We’ve got questions.
Kathryn Tuggle: (23:43)
We do. Our note comes to us from Justine. She writes hi Jean. I came across your podcast about a year ago and I haven’t missed a minute of it since. Thank you so much for such valuable info and finding such insightful guests. I wondered if you have an opinion on recasting a mortgage. I’ve been lucky to be able to make extra mortgage payments over the last few years in order to get out from under my 30 year fixed loan early, but I’ve always been a little annoyed that doing so didn’t result in a reduction of what is owed on a monthly basis. My bank recently introduced me to the process of recasting my loan and after filling out a form and submitting an additional payment toward the principal, they significantly reduced my monthly payment to put it on par with the actual remaining principal. For people who choose to make an added payment on their mortgage. Would you recommend considering a loan recast every handful of years to provide that possible added flexibility? There’s no fee required by my bank in doing so. And while it doesn’t change the term period or interest rate, would you see any concerns with this? Thanks so much for everything.
Jean Chatzky: (24:45)
So let’s just back up a second and read everybody in on what a recast is.
Kathryn Tuggle: (24:51)
Please. I need to know what this is.
Jean Chatzky: (24:53)
It’s basically when you go through the process of paying off your mortgage, you have a 30 year mortgage or maybe you have a 15 year mortgage and you have payments every month that are just the same and you know that if you make them on time for the term of the loan, the 15 years or the 30 years, you will own your house outright. And some people like to get ahead of that schedule. They’ve got a little bit of extra money sitting around and so they send it in and ask that it be applied to the principle of the loan. And just to put this into context, it can be really, really powerful. So if you make one extra mortgage payment a year on a 30 year fixed rate mortgage, you cut the term of that loan down to about 25 years, 24 to 25 sort of depending on the interest rate, what it doesn’t do, putting that extra money toward the loan is lower your monthly payment. And by recasting you basically say to them, can you take into consideration all of the extra money that I’ve put toward this loan and lower my monthly payment? It’s a fine thing to do. Some lenders will do it, some lenders won’t do it, but often the purpose of prepaying is to shorten the term. And if you recast too frequently, you’re not going to shorten the term at all and you’ll end up just paying over a longer period of time. Even though those payments over time will be less. So I think it’s fine thing to do. It’s as was clear in your letter, it can be a little bit of a hassle and if interest rates drop as they recently have, you may be better off just looking at your interest rate and going through the full process of a refi as long as you know that you’ll be in the house long enough to make that pay off.
Kathryn Tuggle: (26:53)
Right. But in terms of any concerns or any advice against it?
Jean Chatzky: (26:58)
No, no, no, it’s fine.
Kathryn Tuggle: (26:59)
Jean Chatzky: (26:59)
It’s fine. I mean, I think you have to look at the purpose of making those payments ahead of time and just make sure that you’re on track with that. And the other thing that I would point out, because we haven’t talked about it in a while, is that if you have extra money to put toward any of your financial goals, you should really look at where you’re going to get the biggest bang for the buck. And because mortgage rates are so low, it may not be in prepaying the mortgage. You may get a better return, certainly by paying off higher interest rate debt, whether that’s a student loan or whether it’s credit card debt, but also by grabbing those last few 401k matching dollars or simply investing it.
Kathryn Tuggle: (27:47)
That’s such a good point.
Jean Chatzky: (27:47)
Kathryn Tuggle: (27:48)
Our next note comes to us from Abigail. She writes, Jean, I do not know what my next step should be. I’m 25 years old, a single mom to one toddler and I work full time. I don’t make very much money and because of debt and the cost of daycare, my budget is very tight. I’m trying to be careful so that I’m in a better financial position in the future. I have $2,000 in savings, which makes me feel comfortable in the event of an emergency or unplanned expense. I have a personal loan balance of 18,000 at 7.5% interest with a monthly payment of $400 I also have a car loan balance at $12,700 at 7.5% interest with a monthly payment of $260 I have no credit card debt and my student loans are deferred. While I finished my master’s degree, I’m going to come into some extra money, around $13,000, in the next couple of months and would like to put all of this money towards debt, but I’m not sure which debt to prioritize. A priority for me is that I’ll want to apply for a mortgage in the next year or two. So from that perspective, is it better to have a car loan remaining than a personal loan since the car is a secured loan and the personal loan is not? Or should I pay off the car since it’s the lower balance and would free up more money for me monthly. Note that my car was only purchased a month ago so I worry if I pay that off too quickly it might hurt my credit score or is that just a myth? I appreciate your help. I’m working hard on taking control of my finances and your podcast has been a big help.
Jean Chatzky: (29:11)
Well thank you for saying that and I just think it’s so great that you are moving into the future, Abigail, with so much thought about exactly where to make your next money moves but also getting that masters degree is going to boost your income and that’s going to make this whole scenario much, much easier for you and for your child. I would probably split the difference a little bit. You’ve got two loans that have essentially the same interest rate and from my perspective, you don’t quite have enough in savings. I would take a good couple thousand of that, maybe 3000 of the total, and supplement your savings, just in case. Because although 2000 is a nice starter emergency cushion, it’s really not enough to get you through a medical bill or something else that might hit you in an unexpected way and it would just make me feel a little more comfortable if you had a little more money in the bank, so do that. As far as the remaining 10,000 that you’re going to have left, I don’t think it really matters which one you put it toward. I think you could put half toward each one. I think if you want to just wipe out the car payment, you could put it all toward the car payment and know that you’ll be done with it fairly soon. It won’t totally wipe it out so it won’t hurt your credit score and then you have to look at the mortgage that you’re going to apply for and where the down payment for that mortgage is going to come from. It’s okay to wait. It’s okay to think about all of these different obligations that you have on your plate and realize that you’re going to need to boost your income before you’re going to be able to qualify to borrow for a home and that you can use the time in the middle to just put some money aside for a down payment each month. Once you’ve got that car loan paid off, for example, then you could start putting that $200 that you were putting toward the car into an account to boost your down payment fund and just know that it’s growing along the way.
Kathryn Tuggle: (31:32)
Fantastic. So her question, in terms of a mortgage lender viewing the personal loan and the car loan in a different way,
Jean Chatzky: (31:42)
I don’t think they’re going to look at it any differently. I haven’t really heard of many differences, and personal loans right now are a pretty hot market. A lot of people are taking them out, particularly using them to consolidate credit card debt because the interest rates on those loans are significantly lower than on many credit cards and certainly on the average credit card. The difference in having a secure debt versus an unsecured debt. The credit scoring companies, I don’t believe, look at those very differently. What they do look at is your total debt and whether it’s on the rise, whether it’s falling, how it’s tracking, and in terms of credit lines, how much of those lines you’re using.
Kathryn Tuggle: (32:26)
Okay. Thanks. Our last note is from an anonymous listener, she writes, I’m an avid listener to your podcast and love the advice you share. My husband and I are both 48 years old and I’m wondering if we’re saving enough. I think I’m doing okay, but still sometimes I feel I’m waiting on my next check. My husband and I both max, our employer sponsored 401k’s at around $19,000 each and I also contribute to an IRA outside of this. We have 1.5 million between us. We have a primary mortgage and a beach house mortgage with total balances of $300,000. We also have $300,000 in other investment accounts along with a loan against these funds of $88,000. Other than the mortgages at 4% and this loan, we have no other debt. My teenage children both have 529 plans and my emergency fund stands at $10,000 though I always seem to be dipping into it. Would you recommend I take some funds from the investment account and put into savings to have more liquid? The return wouldn’t be as great, but perhaps peace of mind would be worth it. I’m not a natural saver, but I save so I can spend. I love to travel and plan two large trips a year. That voice in the back of my head says to take some travel dollars and pay down the mortgage or add to the emergency fund, but I do value the travel experiences afforded to my children. My husband would really like to pay off our primary mortgage. I think we should consider saving more from our paychecks to increase our emergency fund and should still be able to accommodate great travel. Any thoughts on reframing my thought process here or what my focus should be? I just want to feel confident that we are on track.
Jean Chatzky: (33:57)
Oh, I need one more piece of information to know if you’re on track, but I can tell you how to figure it out yourself. First of all, on the surface, and I think everybody who’s listening to this podcast right now is going to agree with me, you’re doing fine.
Kathryn Tuggle: (34:13)
You’re doing great.
Jean Chatzky: (34:13)
You’re doing really, really well. The question that I don’t know the answer to, actually there are two. I don’t know how much money you make and I don’t know how much money you spend each year. And those are two key factors in the equation because when we look at tracking toward retirement, there are a couple of different sets of metrics that we use. We use the benchmarks that Fidelity our sponsor developed and they’re really, really helpful. And basically they say that by age 30 you want to have one time your income put aside for retirement, by age 40, 3 times, by age 50, 6 times, by age 60, 8 times and by the time you retire 10 times. So I could look at the 1.8 million that you guys have amassed and I could know if you were on track if I knew how much you were earning. But the other thing that is really helpful to look at is how much you’re spending and what it’s going to cost you to live in retirement. You’ve got the house, you’ve got the beach house, you don’t have big mortgages on either one. Will they be paid off by the time you retire? Will that reduce the cost of living while you’re in retirement? These are all really, really key questions to ask yourself. I would sit down with a financial advisor. I think you don’t have to have one on the payroll forever. You can sit down for one, you can ask your questions. You can chart this out and you can know if you’re on the right course. As far as the savings so you can spend, I actually love that phrase. I think I save so I can spend. I’ve never heard anybody put it that way but I can totally relate to it myself.
Kathryn Tuggle: (36:13)
I had the same thought when I read it. I said that pretty much sums up my philosophy.
Jean Chatzky: (36:17)
Yeah. I save so I can spend. That is exactly right. And what I did when I was planning for my trip with my family to Hawaii for my 50th birthday, because it was a big expenditure, was I set up a separate savings account just for that trip. I funded it ahead of time and then I knew that it was paid for and I didn’t have to worry about any big credit card bills coming my way after the fact. I think if you have different savings accounts for different goals and you just fund those with automatic transfers, then you’ll be saving on different tracks for different things. And my suggestion is that that may actually be something that resonates with you. Cause I hear a little bit of me in the way that you are describing your own financial life. As far as the emergency fund. If it’s really an emergency fund. Yeah, you want to try to leave your hands off of it and you want to have a separate pot of savings that you just use for day to day expenses. It’s not really savings. It’s really just your cashflow.
Kathryn Tuggle: (37:24)
Yeah, that’s an important distinction.
Jean Chatzky: (37:26)
Yeah, but my guess is that you’re doing fine.
Kathryn Tuggle: (37:29)
I think you’re doing fine and my instinct is that you should never feel bad about prioritizing travel.
Jean Chatzky: (37:34)
Yeah, absolutely not.
Kathryn Tuggle: (37:35)
Particularly with your kids. The travel experiences I had with my parents are some of my best memories of my life.
Jean Chatzky: (37:41)
Yeah, me too. Me too. Absolutely. And I also think it doesn’t sound like you spend on everything. It sounds like you spend on this one thing and if this is the thing that you prioritize, then that’s why we work.
Kathryn Tuggle: (37:56)
Jean Chatzky: (37:57)
That is why we work.
Kathryn Tuggle: (37:58)
Thank you so much Jean.
Jean Chatzky: (38:00)
Kathryn Tuggle: (38:00)
Anyone with a question for us can submit it via email at firstname.lastname@example.org.
Jean Chatzky: (38:05)
Great. And today’s Thrive is all about where your money is going. If you haven’t asked yourself that question from time to time, well I think that would make you unusual. It’s a question a lot of us ask ourselves. Where’s my money going? Particularly when that large credit card bill hits at the end of the month. But the answer for many people may actually be a little closer to home. According to a new study from AARP, one third of adults age 40 to 60 have given money to their parents in the past year to help pay for things like groceries and housing and medical expenses, and they do this even when it causes a hardship in their own financial lives. And if they aren’t doing it already, 42% of people in that age group believe that they will be contributing to their parents’ basic living expenses at some point in the future. On top of that, many of these same adults are also contributing to the cost of living for their adult kids. For things like transportation expenses, say a flight home for Thanksgiving. Unfortunately, all of this represents a huge financial strain for folks who find themselves caught in the middle. If it sounds a little too familiar, your first step should be just try to set some boundaries. Tell your kids and tell your parents, I can pay for this, but I can’t pay for that or say, I want to help you with rent because you need a roof over your head, but I just can’t do this forever. Offer them a timeline for however long you feel you can afford to contribute. The second step is to go ahead and dive into those tough discussions around money. And yeah, it may very well get emotional, but it’s incredibly important to run the numbers and make a plan. All of this will help you keep your eyes on your prize, which in this case is retirement. It is going to be here sooner than you think. Thanks so much for joining me today on HerMoney. Thank you to Danielle Bernstein for enlightening us all on her journey into entrepreneurship, technology, and fashion and for those amazing style tips which I am going to start incorporating into my life and my closet right now. If you like what you hear, I hope you’ll subscribe to our show at Apple Podcasts. Leave us a review because we love hearing what you think. We want to thank our sponsor Fidelity. Today we recorded this podcast out of NYC Podcasting Studios. Our music is provided by Video Helper and our show comes to you through PRX. Tune in next week, we’ll sit down with Janice Kaplan. She’s got a new book called The Genius of Women, all about how generations of women have broken down seemingly unshakable barriers and how they offer us all a blueprint for blazing our own trails. Thanks so much for listening and we’ll talk soon.