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Jean Chatzky on Getting Your Finances Back on Track

Episode four of ‘The Girlfriend: In Conversation' offers tips for cutting your expenses

 

 

 

When the stock market took an unpredictable turn —as it did when the pandemic closed much of the country down in March 2020 —many of us looked to experts on ways to get our financial planning back on track. In this episode of The Girlfriend: In Conversation, host Shelley Emling talks with Jean Chatzky, noted money expert and AARP financial ambassador, who shares advice on 401(k)s, stock market investments and saving for retirement. “The [reopening] is a really good time to look at your basic numbers. And when I talk about your basic numbers —what do you earn, what do you own, and what do you owe? Right, take a look at what’s coming in, what’s going out, and where it’s going, because once you have a handle on that information, you can start changing where your money is going,” Chatzky tells Emling. “You can start trying to cut some expenses, put some more money into savings, if you feel like that’s something that you should be doing.”

The Girlfriend: In Conversation audio series is a special collaboration between The Girlfriend, AARP’s free weekly digital newsletter for Gen X women, and AARP Members Only Access, which features content available only to AARP members.

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[00:00:04] Shelley: Welcome back everyone to The Girlfriend: In Conversation. I'm Shelley Emling, the editor of The Girlfriend, AARP's free, weekly digital newsletter for Gen X women. And today, we are in conversation with noted money expert and AARP Financial Ambassador Jean Chatzky about making your money work for you, and getting control over your finances in 2021. So welcome, Jean. It's so nice to have you with us.

[00:00:35] Jean Chatzky: Thanks, Shelley, it's so nice to talk to you, and can I just tell you that The Girlfriend has been such a valuable resource during the pandemic. I mean it, it's just been a real light of my life to see it land in my inbox, so thank you for that.

[00:00:50] Shelley: Ah, thank you, Jean, that is really sweet. Thank you very much. It comes out every Thursday …. It's a free, weekly newsletter from AARP. So Jean, let's get started. These past 16 months or so have been extraordinary to say the least, and they've certainly rattled many of us who are concerned about our finances, especially when life takes an unpredictable turn as it did when the pandemic closed much of the country down in March 2020. So first off, I think everybody has been watching the stock market continue to show fairly robust growth, and many have been watching their 401ks reap the rewards. For those worried that this growth might not continue, and I'm one of those people, what advice do you have for those who may be nervous and want to know, want to make sure that they are protecting their savings?

[00:01:41] Jean Chatzky: I think it's such an important question to be asking right now because the sort of growth that we've been seeing since the market dipped significantly at the start of the pandemic and then took off like a rocket ship is not sustainable. If we look at historical, long-term returns, you know we hope for 8-ish percent year after year after year after year, and we've been getting so much more than that. And that makes it hard to do what I'm going to suggest that everybody do now, which is rebalance.

            So rebalancing is where you look at your investment mix, and you ask yourself, what is my preferred asset allocation, meaning, what percentage of my money do I really want to have in stocks, in bonds, in cash, for my age and for the number of years that I have between now and my goals. And you know, just as a rule of thumb, we typically like to see people take 110 and subtract their age, and that's about the percentage of money that you want to have in stocks. And it goes down as you get older because you are closing in on that ultimate goal, retirement that your 401K is supposed to serve. Especially if you are nervous and you haven't rebalanced, rebalancing is just how you bring your mix of assets back in line. The reason that it's hard to do is because basically what I'm saying is, you know those stocks that are worth so much right now that have done so well? You've got to look at selling some of them and putting the money back into less risky assets, typically bonds that have not performed historically as well, but will give you the ability to sleep a little bit better at night. And for the record, rebalancing is not something that we just do in a roaring bull market, it's something that we should be doing every year. Some people like to do it twice a year or quarterly or whenever the markets have a big move up or down. If you've got your money in a target date retirement fund, or a balanced fund, or a managed portfolio, it's being rebalanced for you. But if you don't, this is really something that you should be doing for yourself, and for people like you and me, who do not think that the market is going to be able to continue performing like it's been performing, that's what you should be doing.

            The other thing to keep an eye on is your savings rate. So the pandemic has actually been really good for our finances. Like you wouldn't have thought that going in, right? For people who have been able to hold on to their jobs through the pandemic and maybe got some stimulus money, our savings rate went up pretty considerably, but now as we come out of it, and as we start traveling again and start spending more, you want to keep an eye on that savings rate and make sure that you're saving enough, because that's the thing about retirement planning that you have the most control over.

[00:05:28] Shelley: Wow, that is very good advice. Thank you.

[00:05:30] Jean Chatzky: Sure.

[00:05:31] Shelley: I wanted to turn to the Enhanced Child Tax Credit that I read a little bit about that I believe is designed to give parents financial relief to help deal with the fallout from the COVID-19 pandemic. But I read that many might not know that the credits don't actually represent free money like the stimulus checks. Some parents might have to pay the money back on their taxes next year. Is that correct? I mean I'd love to know your thoughts about this Enhanced Child Tax Credit.

[00:06:02] Jean Chatzky: OK, so it's a little complicated, and whether or not you will a) receive the enhanced credit, or b) have to pay the money back if you don't really quality for it, depends on your income. So let's sort of break it down. Basically, the American Rescue Plan, which was the last round of stimulus, it temporarily expanded the Child Tax Credit just for the year of 2021, and it did it in a couple of ways. The first thing it did was to allow kids who are 17 years old to qualify for the credit. In 2020, it was only for kids under 17. The second thing it did was to increase the credit to $3,000 per child over age 6, or $3,600 per child under age 6 for many families — and just to put that in perspective, in 2020, the credit was $2,000. It also makes the credit fully refundable, which means that you can get it even if you don't owe taxes, and it requires half of the payment to be paid in advance, and the way that the IRS is doing that is by starting to send these monthly payments that are going to appear beginning on or around July 15. Now not all families with kids are going to get the higher tax credit. Most will. So it kind of works the way that the stimulus worked. The Enhanced Tax Credit, which is an additional $1,000 to $1,600 over the regular credit, that starts to phase out once you have a modified adjusted gross income of $75,000 if you're a single, double that if you are a married couple filing jointly, and in the middle at $112,500 if you're a head of household. If you earn more than that, up to $400,000 per couples or $200,000 for singles or heads of households, you're still eligible for the smaller credit, the $2,000. Are you with me so far?

[00:08:30] Shelley: I'm with you. It's complicated, but you're explaining it very well.

[00:08:33] Jean Chatzky: It is. All right, so now let's go back to the possibility of having to repay the money. The IRS is going to look back at the last tax return that is has for you to figure out your eligibility for the expanded credit, and that's probably for most people going to be your 2020 return. If your income in 2020 qualifies you, they are going to start sending payments, and they're probably going to direct deposit them into your bank account, because they have that information from the stimulus dollars. That'll be $250 a month for children over 6, and $300 a month for children under 6 for each of the next six months. But what if you earn more than that in 2021, or you're earning so much that you think you won't qualify, and you don't want to get the money because you don't want to be at risk of having to pay it back. The IRS has a Child Tax Credit portal that it has put up at IRS.gov, and you just go to IRS.gov and you can use that to opt out of the monthly payments. You can also use it to update bank account information; if you had a baby in 2021, you can update that information, so you get the payments for that child as well. And when it comes down to actually having to pay the money back, the first thing to understand is that the payments aren't taxable. You don't have to worry about paying taxes on this money. They're advances on the Child Tax Credit, but if you do receive more than you're eligible for, whether or not you have to pay it back will depend on your income.

            So families who have an income of less than $40,000 for single filers, $50,000 for heads of household, or $60,000 for couples, will not have to repay any of that money. Those who have incomes of $80,000 for singles, $110,000 for heads of households, and $120,000 for couples, will have to pay all of the extra money that they receive, and those people who are in between will have to repay some of it, which is way too complicated and a lot of math to figure out in your head, but it just is a reason if you suspect that you may be on the edge of receiving too much money, to go to the portal where they also have a calculator that you can use to figure all of this out based on your own financial situation, and make an adjustment if you think you're going to get money that you're not entitled to.

[00:11:27] Shelley: Wow, thank you. That was some great information, and you simplified it very well. So thank you.

[00:11:33] Jean Chatzky: Thank you.

[00:11:34] Shelley: Just being a little bit more general, now that this is the summer of 2021, and much of the country, as you know, has opened up, or we're in the process of opening up, what should be on one's financial to-do list for the fall of 2021?

[00:11:51] Jean Chatzky: So you and I have talked about this before, but I think this whole opening-up process is a really good time to look at your basic numbers. And when I talk about your basic numbers — what do you earn, what do you own, and what do you owe? Right, take a look at what's coming in, what's going out, and where it's going, because once you have a handle on that information, you can start changing where your money is going. You can start trying to cut some expenses, put some more money into savings, if you feel like that's something that you should be doing. It's funny, I was talking about this with my husband just the other day, but you know one of the things that I think the pandemic did for a lot of us is sit us down in front of our television sets and get us to stream an awful lot of content, and chances are pretty good you are paying for that content bit by bit by bit. See what you're actually using, what you're not actually using and start trimming back now that you have more choices of where to use your resources.

            The other thing that I would do is dust off your resume. It is a market for job seekers like we haven't seen in a really, really long time. And so, if you are feeling restless, if you're feeling underpaid, if you're feeling like you want to make a switch, now's a really good time to start networking, start sending out applications. Employers are having a very, very tough time finding talent, and that bodes well for anybody who either wants to make a switch or has waited to negotiate for a raise.

[00:13:46] Shelley: Oh, that's interesting. I'm going to go off script for a minute here. Is LinkedIn the best, one of the best places to look for a job if you are looking for work right now?

[00:13:56] Jean Chatzky: Yeah, I think LinkedIn is a very good place to work. I think CareerBuilder is also a good place. Some disciplines have websites that are devoted to hiring in particular for their industry. So, for example, in journalism, you and I both know, you might post a listing or look for a listing on a site called Media Bistro, and there are a lot of different places like that. But the other thing that we know is that an awful lot of hiring happens from word of mouth. And so talk to the people in your network, talk to your colleagues at other companies, ask what the opportunities look like where they work, and just start having those conversations.

[00:14:44] Shelley: Again, this is The Girlfriend: In Conversation with noted money expert and AARP Financial Ambassador Jean Chatzky. The next question, I have friends that are living in parts of the country with very hot real estate markets right about now. I, myself, am in New Jersey, and I have many friends that are putting their homes on the market and they're planning to rent until the market cools down a bit. What do you have to say about this summer's crazy housing market? Is this the perfect time to sell?

[00:15:14] Jean Chatzky: I think it's a very good time to sell if you have somewhere else to go. And Shelley, I don't know if you know this, but we put our house up for sale in the spring in the suburbs of New York. We sold it in a day and for over the ask. And we did it because we have long been planning a move to Philadelphia. We have an apartment there that we have been renovating, and the bottom line is, we moved out of our house well over a month ago now, and our new place still isn't ready. So, I think if you know where you're going or you have a good lead on securing a new place, and by the way, I would definitely look into the cost of renting, because in these hot housing markets, the cost of renting has often gone up as well, that can be a very, very good thing to do and a way to cash out at a higher price than you thought that you would receive. The combination of our still low mortgage rates and a lack of supply has been really great for sellers, not so great for buyers. But for anybody who needs to renovate before they get into the new place, the cost of those renovations is going up, too. So you want to make sure that you factor that into your calculus.

[00:16:40] Shelley: So if you're renting right now and you have been for quite a while now, I would assume this is not the time to buy?

[00:16:46] Jean Chatzky: Probably not. I mean, it's a little bit of an either/or. We are watching inflation very carefully, and the Federal Reserve is watching inflation very carefully, and if they start to see signs that the economy is really, really heating up more than they want to see it heating up, they'll start raising interest rates, and mortgage rates will rise as well. And so, you're dancing a little bit on the precipice of trying to decide between, “Do I just grab these low mortgage rates where I can borrow at such a cheap interest rate for the next 30 years at the risk of paying a higher amount for the property itself?” And I would say, if you're renting right now and you want to buy, start looking. You will very quickly get a sense of what you can afford, of what a mortgage payment is going to cost you, of what it's actually going to cost you to live in that house. You should use all of those numbers to factor into your decision. The other thing that really plays a role here is what is your work life going to look like in the next five, 10 years. Are you going back to a hybrid model? Are you going to stay remote? Does everybody need to be back in the office? All of those things play a role as well, and I think not having to commute for many of us has been a luxury, but I'm reading the headlines just like you are, and I know a lot of corporations are saying we want people back at desks, and we want them back at desks by September.

[00:18:25] Shelley: Right. Turning to the stimulus checks, as you know, three stimulus checks have helped millions of people keep going during COVID. With the pandemic waning and life returning to normal, the economy seems to be getting better. But I would say the economic recovery has certainly impacted different parts of the country in different ways, and many people's finances have not improved. Unemployment remains above pre-pandemic levels, and plenty of jobs have not returned. But a fourth stimulus check would provide more government assistance, and I have been reading a little bit about this, but will we see this sometime in 2021? What do you think about a fourth stimulus check?

[00:19:12] Jean Chatzky: My personal feeling is, no way. I think that the economy is running so hot, and that if you looked at the most recent jobs numbers, 850 jobs were added back in June, many of those were in the sectors that were hardest hit to begin with — in restaurants, in hospitality, in travel — and we're starting to see rising wages in those sectors as well, in part because of what I said before, that employers are just having a hard time hiring. I think when the government looks at that, and looks at the inflation fears that are definitely on the minds of our people in Washington, I don't think we're going to see it. We may see select pockets of assistance for particular groups like we saw for the restaurant industry, but again, I think there will have to be a really strong argument even made for those.

[00:20:21] Shelley: I'm going to shift gears a little bit here. I lost my beloved aunt in late January to COVID, and she had no children, so I was her sole beneficiary. All I had was a will. She gave me a copy of her will before she died. I did not have a list of her accounts or life insurance policies; I only knew her Social Security number, and I was really caught off guard. What should people make sure that their children and/or beneficiaries are aware of? And believe me, I have three children, and I am really trying to figure this out to make sure they are not left in the lurch the way I was when my aunt passed away in January.

[00:21:00] Jean Chatzky: First of all, I'm really, really sorry about your aunt. I mean losing someone any time is awful, and I think it's worse to lose somebody to the pandemic, so my condolences. I've been through this with my husband, but also with my parents where we have put together a list of all the important information that people need, the account numbers. Where are all of the accounts located, what are the numbers for those accounts, what are the passwords for those accounts, if you access them online. Similar information for all of the life insurance policies. In addition to a will, there should be a durable power of attorney for finance to give somebody else the ability to handle financial matters on your behalf if you can't do it for yourself; a medical directive, which is also sometimes called a health care proxy or a durable power of attorney for health care, which gives somebody else the ability to make health care decisions on your behalf; a living will, which tells a doctor and hospital what you want in terms of life support. And if all of this sounds just like an overwhelming amount of information, AARP has two really, really great resources.

            The first is at aarp.org/caregivermoney, and this was a resource that was developed for caregivers to make sure that they had all of the necessary information that I'm describing to help them step in and take care of somebody else's finances. It's also helpful in that it gives you … it's not just a list, it's a manual where it gives you a thought process to go through in order to make those decisions. I think it's incredibly well done. And it's not just for caregivers, by the way; it's for anybody who has family members that they care about. So that's the first.

            The second is a resource that was developed by the Stanford Center on Longevity, the University of Minnesota and AARP together. It's called the Thinking Ahead Roadmap, and instead of thinking about your older loved ones, this one is actually thinking about what you personally would want, and it's just sort of another way to frame the process, and you can find that at ThinkingHeadRoadmap.org. They're both free, and I think everybody should check them out.

[00:23:37] Shelley: That's good advice. I would just advise everybody to make sure you know your loved one's Social Security numbers, because thankfully my aunt had given me that before she passed away, and that has been invaluable that I at least had her Social Security number. So that was very important. Turning to something completely different — student loan hiatus, which ends on Sept. 30, I believe. If you're not in a position to start making payments again, is there anything that you can do right now?

[00:24:06] Jean Chatzky: You don't want to wait to talk to your servicer. Now is the time to reach out and start a conversation about what your ability to make payments is going to look like heading into the future, and that means knowing your repayment options. It's not just pay or don't pay — there's an in between, and particularly when we're talking about federal student loan debt, there are other options for lowering your payments. The primary one is enrolling in an income-driven repayment plan that sets those payments up as a portion of your income, and that can be zero if you're out of work or you're unemployed. There is also deferment, there's forbearance, so all of those things are things that you want to look at. And just understand that you may, as we start to head toward Sept. 30, you may start to see student loan scams rear their head once again. Legitimate student loan organizations are not going to call you and offer to help you with your debt. They're not going to text you; they're not going to email you. Any of these conversations should be initiated by you with your servicer.

[00:25:30] Shelley: Very good advice. Turning back to COVID for a moment, FEMA changed the rules, I believe this week or recently, on helping with funeral expenses for people who lost loved ones to COVID. If you could use financial assistance, what's available, and how do you go about getting that money?

[00:25:50] Jean Chatzky: This has been a program that has been around since April. I haven't seen it broadcast widely enough, but since April, FEMA has been accepting applications at FEMA.gov to cover up to $9,000 in funeral expenses. And originally, the program basically said everybody needed to have a death certificate that specifically listed COVID as the cause of death. The problem with this was that in the very, very early days of COVID, the doctors and the coroners, they just didn't know, and so COVID wasn't specified. And so what happened recently is that FEMA just changed the rules, and they said that for deaths that happened between Jan. 20 of 2020 and May 16 of 2020, you still have to send the death certificate, but it doesn't have to specify COVID. What you'll need instead is a letter signed by the official that signed that certificate attesting basically that COVID was the cause. But it's a lesser hurdle to have to jump, and that $9,000, if you paid that out of pocket and, and that was unaffordable, or even if it was affordable, you can request to have that money paid back to you. And again, that's FEMA.gov.

[00:27:19] Shelley: Right. So just a few more questions. People … were so busy, the pandemic happened, and people slowed down. But now people are getting busy again and … starting to think about their finances, as they always have. Is there a budget app that you would recommend, or some kind of tool that people could rely on that's pretty easy, that anyone can understand, to help people get control over their finances?

[00:27:46] Jean Chatzky: Yeah, so a couple of things that I would recommend. The first is there are a lot of budget apps out there, and I think it's a matter of finding one that really makes sense to you. At HerMoney.com, we have a lot of people who really like Mint. We have a lot of people who really like something called YNAB, which stands for You Need a Budget. Mint is free, YNAB is not free, so you just have to decide if you are willing to pay that small monthly fee. But the other thing that you can do is just start to pay better attention to the flows of funds through your online bank's portal. If you can get yourself to look at that more often, you'll see where you're spending, you'll see where your money is going — especially if you combine that with some alerts from your credit cards if you start to spend more than a particular amount that you specify. So I think there are a lot of ways to approach this issue. But for people who prefer an app, Mint and YNAB are the ones that our community likes most.

[00:28:58] Shelley: I was going to ask you just finally about maybe one or two big challenges you think people face as we go through the end of 2021 in regard to their finances. But also thinking about that many of us, myself included, are going to be going back to the office in September, and we're going to start spending money, I assume, on work clothes and lunches and commuting. What are some of the pieces of advice you would give people as they enter this fall of perhaps reentering the workforce but still trying to keep their eyes on their finances and budgeting. Are there two or three pieces of advice you could give people?

[00:29:37] Jean Chatzky: The first one is just find some way — and it can be those apps that we were just talking about, but it can also be a good old-fashioned looking at your accounts, writing down what you spend — find some way to keep yourself accountable. Because what's going on right now, and we just wrote a piece about this, is a little bit of revenge spending. We are just seeing people who … we've been cooped up for a really long time. We saved money by not spending it on a lot of things, and that has us going a little crazy where our spending is concerned. So, I'd say it's a great time to set some goals. Think about the things that you actually want to put at the top of your list — whether it's travel, whether it is getting back into the gym that you have just missed so much, whether it is some new work clothes for the slightly more casual environment that you find yourself heading back into. Whatever it is, try to set some priorities for you, and a budget for each of them, so that you don't go overboard.

[00:30:50] Shelley: And I don't want to miss anything. So finally, is there one big piece of advice or something surprising, anything that people should know about how to get their money to grow and work for them as we go through 2021 and into 2022?

[00:31:06] Jean Chatzky: I think you know me well enough, Shelley, to know that when it comes to our investing, I am a big believer that boring is better, and I'm a real believer in that right now. There's a lot of noise out there. We have just come through — and we're not even done with it yet — the era of crypto and meme stocks like GameStop, and there has been a lot of activity driven by new retail investors who felt like they've just had some cash that they want to put to work. And I think that is amazing. More people, particularly more women, should be investing. However, I don't think that means taking a flyer on an investment that you can't afford to lose money on with your retirement funds. I think it means saving money every single time you get paid, preferably a good 15 percent of whatever it is you're earning, investing it in that rebalanced portfolio of diversified investments, very likely funds, and just adding to it every single time you get paid and rebalancing along the way. And what that means is that you'll buy at highs, you'll buy at lows, but over time, historically, the markets have gone up. They've gone up and down along the way, but over the course of history, they have gone up. That's been the trajectory, and if you are feeling inclined, if you feel like, God, I really need some crypto, I really, really want to buy GameStop, then take a little bit of money off the top. Maybe it's 5 percent. Decide that this is your gambling fund. This is the money that you're going to put in, but if you lose it or if you have to wait a really, really long time for it to come back, you're going to be OK with that. And take your risks with that money.

[00:33:11] Shelley: Thank you so much, Jean Chatzky, AARP financial ambassador, for joining us today. I so appreciate all the common-sense advice that you give us, and how you are able to make the complicated seem simple.

[00:33:29] Jean Chatzky: Thank you so much for having me, Shelley. I appreciate it. Nice to see you.

[00:33:34] Shelley: Nice to see you, and don't forget, everyone, to follow The Girlfriend on Facebook and Instagram, and subscribe to our free weekly newsletter at thegirlfriend.com for all the best in beauty, health, sex and life advice. So thanks to the fabulous Jean Chatzky for joining us, and thanks to everyone for listening. We so appreciate it. Thank you.

END OF TRANSCRIPT

The Schedule

AARP Members Only Access is offering The Girlfriend: In Conversation episodes for a limited time. Find available episodes below or on our main The Girlfriend: In Conversation page, where you can learn more about the series. 

 

July 29: Rachel Noble on Resilience

Aug. 5: Jessica Nabongo on Where to Find the Best Travel Deals

Aug. 12: Nikki Boyd on Easy Ways to Update Your Space

Aug. 19: Jean Chatzky on Getting Your Finances Back on Track

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