As part of “Today’s Money,” Jean Chatzky, the show’s financial editor, gave Megan McCormack, a single 30-year-old, a financial makeover. McCormack was concerned about her long-term savings and providing for herself later in life. Chatzky gave her a four-step plan to help her ensure her future. She has advice for other women in her new book, “Make Money, Not Excuses.” Read an excerpt:
Why Aren’t You Richer?
It took me only fifteen years reporting on money and how people should be using it to have the following epiphany: If you want to get rich, if you want to be wealthier than you are today, you really need to do only four things. That’s right, just four things:
- You need to make a decent living.
- You need to spend less than you make.
- You need to invest the money you don’t spend so that it can work as hard for you as you’re working for yourself.
- And you need to protect yourself and this financial world you’ve built so that a disaster — big or small — doesn’t take it all away from you.
Everything else is just window dressing. The fees — and how to avoid them.The advisers — and how to hire them. The deals. The scams. The ins. The outs.They are all interesting. Some of them are even quite important. But until you have conquered the heart of the matter, they are all minutia. The four cornerstones, by contrast, are the meat and potatoes of your financial life. If you do those things today, you’ll start getting rich tomorrow. And once you feel set financially, you’ll be able to start focusing on the truly important things in life.After I had my epiphany, I stood there for a little while. (Okay, I’ll let you in on a little secret: I had my epiphany where I often have my best thoughts . . . in the shower.) As I let the hot water run out, I had little doubt that every woman, every person, in America wants a little more financial security and the independence it would bring. So the real question is, If it’s so simple, why aren’t we all richer?
And that’s where, for women in particular, the answer is more complicated than the question. Most women in the country are far from rich. We’ve all heard the dismal statistics:
- At retirement, a woman’s average payout will be 56 percent less than a man’s her age.
- Women lose roughly $650,000 in earnings, missed promotions, raises, and benefits as a result of caregiving to children and aging parents.
- For one in four women, Social Security is the only source of income.
- One-third more women than men live below the poverty level.
You hear these numbers cited so often (yes, sometimes by me) that you’d be perfectly reasonable in thinking these are the reasons women aren’t richer. But these are not reasons; these are results. These are examples of the things that happen because you and other women aren’t as wealthy as you’d like to be.
The reason most women aren’t richer — and the reason you aren’t as rich as you’d like to be — is that you can’t get out of your own way. That’s right, you are a big part of the problem. You set up roadblocks that stop you on the way to wealth. You have a million excuses that prevent you from earning as much as you’d like, saving as much as you’d like, keeping as much as you’d like for the future. Have you, for instance, ever heard yourself or the other women in your life say . . .
- “I’m just not good with money.”
- “I can’t get up the nerve to ask for a raise.”
- “My husband (or partner) takes care of our finances.”
- “My husband doesn’t want me managing our money.”
- “I’m going to buy those shoes. After all, you only live once.” “I can’t find a financial adviser (or planner or broker or lawyer or accountant or insurance salesman) I trust.”
- “I don’t have time to deal with my money.”
- “I’m not a numbers person.”
- “Organization isn’t my strong suit.”
- “I hate paperwork.”
- “I shop. He saves.”
- “I’m afraid if I manage my money I’ll lose it!”
- “I don’t know where to start.”
- “I can’t talk about money.”
- “I can handle money, but investing is over my head.” “Managing money is too depressing (or intimidating or overwhelming or scary).”
- “I’m single. I’ll think about money when I get married.”
- “I’m young. I’ll think about money when I get older.”
- “I’m too old to make a difference.”
- “I don’t have enough money to make a difference.”
- “Managing money is boring.”
- “I’m not materialistic. I just don’t care about money.”
If you’re sitting there rolling your eyes, cringing, or shaking your head because these excuses sound sooooo familiar, then you’ve come to the right place. Maybe you don’t say them in exactly that way. Maybe you prefer to think them silently rather than saying them out loud. But you know exactly what I’m talking about. And the fact is, these words —these harmful, negative, demoralizing words and phrases — have to go. Why?
Because these excuses allow us to believe it’s okay that we don’t know where to start. They give us the leeway to set off on what might very well be the right path, then get sidetracked. They let us off the hook when something big, even monumental, rocks our world and sends us all the way back to “Go.”
I understand all of these reasons. I understand the excuses, too. In fact, for many years if they didn’t come out of my mouth, they definitely wrapped their ugly little tentacles around my brain and prevented me from taking action. And I know — reading that — you probably think: No way. But I also know that somewhere in San Francisco, a woman named Liz is nodding her head. She was my good friend in college and my roommate in Brooklyn when we were in our twenties. And she’s the one who suffered when I didn’t pay the phone bill or the cable bill and our service (on both) got turned off.
Liz knows. But I’m sure that those of you who see me on television and read me in magazines telling you what to do with your money think that I emerged from the womb this way, that my umbilical cord was a ticker tape, that my nursery was wallpapered with dollar bills. I wish that were the case. Nothing could be farther from the truth.
I went to college figuring I’d be a systems analyst or an engineer. I got a C in a programming class my freshman year and immediately became an English major. In my first job out of school, as an editorial assistant at Working Woman magazine, I earned all of $11,000 a year. That certainly wasn’t much, but I earned a little extra writing freelance stories and tutoring kids for their SATs. My rent was only $400 a month. I should have been able to manage.
Instead, I did a terrible job. Not only did I neglect to pay my bills, but I racked up credit card debt equal to half a year’s salary. I didn’t understand the benefit of paying down my debt on that 18 percent credit card with money sitting in a savings account where it was earning an anemic 3 percent. (Liz, who worked at Citibank, explained that as well.) I made other mistakes. I completely botched my first foray into a retirement account. I knew that I had this thing called a 401(k) into which my company and I made contributions that slowly added up to about $2,000.But I didn’t understand very much else about how it worked. I let all the money sit in money market funds when the stock market was making its mid-1980s surge, for example. And I certainly didn’t understand that when I left my job I had to roll the money into another retirement account—an IRA — or I’d be penalized and taxed. I wasn’t even savvy enough to be dismayed when the rollover period lapsed and I got a check for the balance. I paid the taxes and bought a few new outfits with the rest. Not surprisingly, I lived paycheck to paycheck. I had no desire to think about my money, much less talk about my money. Money was a nuisance, a problem, a worry, a strain.
So you won’t be surprised to hear that when I got married a few years later, I was delighted to give up every bit of financial control. I had become a little better at earning money — doubling, then tripling my small salary — but I wanted nothing to do with it. I signed up to have my paychecks directdeposited into our joint checking account and let my husband do the rest. I told myself that because he earned substantially more than I did, he had the right to make all the decisions. I convinced myself that because he’d made one brilliant move — buying Microsoft when it was in its infancy — he had a better shot at building our wealth than I did. I assured myself that because I was reporting on money and finances all day at work, I knew plenty about both — so there was no need for me to actually deal with them at home. I even had myself believing that he liked paying the bills. (In retrospect, I realize it always made him cranky.) And I rationalized that I did other things — shopping, cooking — that were equally important to our growing family. We were on the health insurance policy from my employer. Wasn’t it a fair trade that he fill out all the forms?
Eventually, though—and this took years — it started to bother me that I had no idea where the money was going. I had no idea how much we were spending. I had no idea how much we were saving. With the exception of my own 401(k), I had no idea how our investments were doing. I didn’t know the online passwords that enabled my husband to pay our bills over the Internet. I’d never met the accountant who prepared our joint tax return.
Part of the reason it started to bother me, and I’m ashamed to admit that it took this to get me there (and because I’m ashamed to admit it, we’ll explore this notion in greater detail in Chapter 3), is that my salary had grown to a point where it equaled his. I started to feel as if I deserved to know what was happening with our money. I started to feel that he needed to be as accountable to me as I was to him.
But by this point, it was a little late. Because I had ceased to pay attention, I was constantly worrying about money. Did we have enough? Enough to go on vacation? Enough to retire? Enough to send the kids to summer camp? Enough to eat out a few times a week? He said we did. But that didn’t stop me from waking up in the middle of the night wondering if I’d put too much on the MasterCard or if we could really afford the bathroom renovation that was starting — gulp — tomorrow. Plus, by that time, my marriage was on its way to being over. I’m sure that realization played into my sleepless nights as well.
So I decided to grow up. I did it slowly, starting with the money-related decisions that were closest to my comfort zone: the spending ones. I started saving all my receipts to figure out what I was spending — and found I was spending much more than I had ever suspected. I took on the role of chief negotiator. I started getting us on the best phone plans, haggling over rental car and hotel rates. Eventually, I bought a car (demanding to talk to a second salesman after the first one — the one who took me on a test drive — told me he didn’t think we should negotiate because my husband wasn’t there). I fought the health insurer when the claim for our son’s surgery was denied. And I took pictures for the Northwestern Mutual representative when Hurricane Floyd did a number on our house. Then I moved on to saving tasks. I opened separate savings and checking accounts and started paying some bills myself online. I took a more active role in rebalancing the investments in my 401(k) and IRAs. And eventually I had a face-to-face with an accountant.
The change wasn’t instantaneous. Developing systems that actually worked for me took a while. (Sticking receipts in my vast wasteland of a tote bag was an initial disaster; putting them in my wallet was much better.) And it took a while to get over the feeling that I was about to make a big mistake at any moment. But guess what? I definitely made some small gaffes, but I didn’t make any from which there was no recovery. The more information I had, the better I felt. The more in control I was of my money, the more in control I felt of my life. That control wasn’t absolute, of course; it wasn’t unshakable. Life being life never allows you to control everything. And life often sends you down some bumpy roads. But I know that a good foundation makes dealing with even the roughest of them easier.
The upshot? For the first time in many, many years not only did my wealth start to grow but I had the ability to track that growth. And the fact that my savings account and 401(k) were getting fatter inspired me to make them fatter still. I found my money confidence. And money confidence breeds more money. So now—just as I’ve helped you climb small money mountains (finding the right mortgage, getting the right credit card, deciding if you want a 529 plan or UGMA to save for college)—I am going to help you climb the biggest one. I am going to help you have a safe, secure financial future. I am going to help you get rich.
Excerpted from “Make Money, Not Excuses,” by Jean Chatzky. Copyright © 2006 by Jean Chatzky. Excerpted by permission of All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.