Much personal finance content out there focuses on getting out of debt, creating a budget, and frugal hacks that can save a few dollars here and there. There’s nothing wrong with these steps, but a good chunk of Best of Both Worlds listeners have moved beyond them. Let’s say you’ve reached the happy place — by choice and circumstance — where the money going out is less than the money coming in.
Sarah and I welcomed Jean Chatzky to the podcast today to talk about this topic. I first learned of Jean’s work many years ago when I watched the Oprah Winfrey Show’s “Debt Diet” series (on the treadmill, naturally). That was seriously great TV. Jean is also a regular contributor to the Today Show, the host of the Her Money podcast, and the author of several great books including Women with Money (note the “with,” not the “and”!)
She talked about benchmarks for money success. First, she recommends saving about 15 percent of your income. If you can do more, awesome, but that’s a good goal. If you’re doing that, you should hit her retirement savings benchmarks: One year’s salary by age 30, three years’ salary by age 40, six years’ salary by 50, and so forth to ten x at retirement.
(Just to put other numbers out there, the FIRE folks — financial independence/retirement early — tend to recommend building up 25 times your annual expenses, so you can pull out 4% a year, with the assumption that you will continue to grow your portfolio by that amount simultaneously, and hence not run out of money. Depending on your income and planned expenses, and whether you’ll be old enough for Social Security, these numbers could be similar, but as Jean noted, most people have a better handle on their income than on their planned retirement expense level.)
Of course, you can’t just put the money in a minimal-interest-bearing savings account if you hope to stay ahead of inflation. And unfortunately, there’s some evidence that women tend to leave a lot more money in not-terribly-productive assets than men do. The good news is that investing has become a lot easier and more accessible over the years. You could honestly put almost everything in a target date fund (i.e. a fund designed to rebalance your portfolio over time to lessen risk as you get closer to retirement age) and be fine. Index funds (which track major indices such as the S&P 500) are a great option, and you don’t need a fancy brokerage to tell you how to buy and hold those. If you do feel you need a financial advisor, Jean recommends going with someone who will look at everything holistically: taxes, real estate, etc. in addition to your portfolio.
Finally we talked about how to talk to kids about money. Jean is a proponent of allowances as a teaching tool, and having older kids work for money. The goal is to teach them its value, and that money — not always, but often — translates into time. You can use it as a tool, but you want to be a good steward of your resources.
Please give the episode a listen, and please share it with a friend!