With Donna Rosato, Senior Writer at Money Magazine
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While it’s one thing to know that you need to save money, find a better job, or pay down debt, it’s another thing to actually do it. To discuss this and other retirement savings issues, Steve speaks with Donna Rosato, a senior writer at Money Magazine.
Start With A Self-Assessment
Donna says a good way to start managing your finances is to start with a self-assessment to see where you stand financially. She says people are feeling pretty good about their finances because the job market has been great and their retirement savings portfolios have benefited nicely from a rising market, but they shouldn’t get complacent. She recommends starting with the basics: Check your credit score, make sure you have about six months of living expenses in an emergency fund, see how much you’re contributing to your retirement plans, see if you could save and invest a little more, and think about where your spending is going and how much you’re saving overall.
Build An Emergency Fund And Keep That Money Safe
Steve reiterates the importance of having an emergency fund and not putting that money at risk or investing it in the stock market. Instead, consider putting your emergency fund into a short-term bond fund and don’t overly worry about returns because you never know when you might need to tap into it.
Stock Markets Are Cyclical
He adds that stock market investments and the economy are cyclical, so when the economy is weak, there’s a good chance your 401 (k) might be down or you might lose your job. And that’s when you’ll need the emergency fund.
Look For Vulnerabilities
Donna suggests also looking at whether your company is in an industry that’s not doing well to see if you might be more vulnerable or if you live in an area where home values hinge on the status of one industry. In essence, think of where your vulnerable spots are and have backup funds that match your risks.
Set Specific Goals
Next, Steve wants to know how someone can start setting financial goals for retirement savings and, more importantly, stick to them. Donna suggests setting a specific goal to be more specific. For example, saying “I want to save more money” is too general. Instead, you’ll do better with a goal such as “In one month, I’m going to increase how much I’m taking from my salary by 1% and put it into my 401 (k).”
Write Them Down
In addition, there’s a study that says that people are 42% more likely to achieve their goals if they write them down and make them more specific. Donna also recommends using tools based on behavioral research that help you visualize what your life will be like when you’re older, which could motivate you to save more for retirement.
Buddy Up
Steve wonders if it’s a good idea to buddy up to achieve your financial issues, just as you might with a gym or exercise partner. Donna concurs and recommends recruiting a family member or a friend to hold you accountable so that you stay on track.
Money Saving Tips
On Steve’s prompting, Donna says technology can also be a valuable aid. A report by the Center for Retirement Research found that people who got a reminder about their retirement savings goals through an e-mail or a text message put away more cash than people who didn’t. In addition, she recommends putting a savings reminder on your calendar, phone or PC, or using a website called followupthen.com to schedule e-mail reminders.
Finally, Donna mentions a web app called StikK that helps users follow through on their commitments by pledging a certain amount of money towards your goal. On the website, you sign a commitment contract and recruit a friend who’s going to monitor your progress. If you achieve your goal, you get some money back, but if you don’t, your friend gets it.
So, the next time you set a financial goal, write it down, enroll a buddy to keep you on track, use technology, and perhaps an app like StikK to really motivate you to save.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s one thing to know that you need to save money, find a better job, or pay down debt. It’s another thing to actually do it. To discuss these and other issues with me is Donna Rosato, a senior writer at Money Magazine. Hey, Donna, welcome to the show.
Donna Rosato: Hey, Steve. Good to be here talking with you.
Steve Pomeranz: You know, the goal is always about improving your life. Should you start with a self-assessment, and, if so, how do you do that?
Donna Rosato: Yes. It’s important for you to look at how you’re doing financially. We like to think about it as your vital signs. I think right now a lot of people are actually feeling pretty good about their finances. The job market’s been great. A lot of people are really happy when they open up their 401 (k) statements, but there’s really more to it than that. I think you want to start with looking at the basics. Check your credit. If you have a good credit score, you have that emergency fund—you should have about six months of living expenses. How much are you contributing to your retirement plans? Couldn’t you put away a little bit more? Think about where your spending is going and how much you’re saving overall.
Steve Pomeranz: Yeah, you know, the emergency plan or the emergency fund idea is very important. Remember, folks, do not put that money at risk. Do not put that money in the stock market. Yes, the returns are going to be extremely low, maybe you can even do a little short-term bond thing, but, remember, this is for emergency and this will help you to meet any obligations or surprises. You know, life is full of surprises, right?
Donna Rosato: That’s right. Whenever we talk to people and give them financial advice, that is really where we start. We often get the question, “If you have a lot of debt, shouldn’t I put any extra savings I have into paying off a credit card or my student loans?” While, of course, you should focus on that, see that you know what’s going to come your way, and if you have an emergency stash—we recommend generally about six months of your bills. And if you lose your job or you have a big expense coming up, you don’t have to worry about “where am I going to find that money?”
Steve Pomeranz: Right. Also don’t forget that if you think of your retirement funds or your long-term savings and you put them in the stock market, stock market investments are very cyclical. Your job environment can be very cyclical. There’s a good chance, depending on what industry you’re in, that when the economy is weak your 401 (k) will be down and you might lose your job. You think of your job and your investments as kind of in the same cycle.
Donna Rosato: That’s right. I think a lot of people are kind of feeling good about the job market. There aren’t as many layoffs. People are feeling more secure. Again, it comes back to what you said. You’ve got to look at your own personal shape that you’re in. You want to make sure that … kind of think about something that may be less obvious. Are you in a company that is in an industry that’s not doing well? You might be more vulnerable.
Steve Pomeranz: Yeah, good point.
Donna Rosato: Do you live in an area where home values really kind of hinge on the status of one industry? A lot of people think of their home as a big investment. Think about where your vulnerable spots are, and then you can match up how much savings you need and think about your risks that way.
Steve Pomeranz: All right. We were talking about buy hydrocodone no membership getting financially in shape. Let’s say I am financially in shape or in pretty good condition and I want to start setting some goals. You can go to the gym, but if you don’t have a plan for what you’re going to do there, you may end up really not getting the most out of it. What’s some advice you can give us to stick to these goals and how to concentrate on the particular goals themselves?
Donna Rosato: Well, a very simple thing you can do is make a specific goal. We think of a lot of these things as New Year’s Resolutions. If you want to, say, “I want to save more money.” That’s great, but if you make it more specific, you’re going to be more motivated. For example, instead of saying, “I’m going to save more for retirement,” say give yourself a deadline, “In one month, I’m going to increase how much I’m taking from my salary by 1% and put it into my 401 (k).” There was a really interesting study by a psychology professor that found that people are 42% more likely to achieve their goals if they write them down, and, if you write them down, it makes them more concrete and it makes it more specific. You’re likely more to follow through.
Steve Pomeranz: I think if you write them down and you put them somewhere up near your workspace and maybe pictures of those things that you’re looking forward to, that will help to keep you focused. It’s very easy to get caught up in the day-to-day, isn’t it?
Donna Rosato: Oh, it is. Actually, you bring up a good point. There are all these tools out there now, but based on some behavioral research, retirement seems so far away for so many people. There’s some really interesting research about folks who … if you can visualize yourself when you’re older and think about what your life will be like then, you are more likely to save more for retirement because you can kind of see yourself and picture yourself and it makes that goal more concrete.
Steve Pomeranz: You know, sometimes when you go to the gym you also want to take a buddy because that person will spur you on, will make sure that you don’t get a little bit too lax, a little bit too lazy. Is it a good idea to buddy up with regards to these financial issues as well?
Donna Rosato: Oh, definitely. I guess there’s that guilt factor. I know, I’m a runner, and when it’s really cold out, I might not go. But, if I know my buddy’s waiting on the corner for me, I’m much more likely to go there and get out. It’s very similar when it comes to financial goals. If you can recruit, say, a family member or a friend to hold you accountable, that’s a great way to stay on track. The same psychology professor who did the study I mentioned earlier about making specific goals also had the folks who wrote down their goals to share it weekly with a friend. The people who did that were a third more likely to stick to their goals and achieve their goals if they did that.
Steve Pomeranz: We’re talking about saving more money, finding a better job, paying down debt, whatever your financial goal may be. I’m speaking with Donna Rosato from Money. Donna, there are so many new applications for our smartphones and our tablets that help us, to remind us, and to actually help us measure our progress. Can you tell us about some of those?
Donna Rosato: Yes, definitely technology helps us stay motivated and helps us get over some of our own bad behaviors. There was a report by the Center for Retirement Research that found that people who have bank accounts who got a reminder about their savings goals—it could have been an e-mail or a text—that they put away more cash than people who didn’t. Now not everyone is going to set something like that up. It’s really easy. Put a little reminder on your calendar, put one on your phone or on your PC, that says, “Okay, now is the time to take some money out of your savings account and switch it over to your IRA.” There’s actually a website called followupthen.com that lets you schedule e-mail reminders to yourself, to your future self.
Steve Pomeranz: Right.
Donna Rosato: You can do it for so many things. You’re going to get your tax refund in April. Remind yourself that you need to take out some of that and put it on toward paying down debt.
Steve Pomeranz: Followupthen.com is the website. You also mentioned in your article the website stikkit, which is S-T-I-K-K-I-T. What does that do?
Donna Rosato: It’s actually stickK. Stikkit might be a good name for it, too, because you sort of stick it to yourself if this doesn’t work. What it is is for folks who need more of a stick than a carrot, as they say, to meet a goal. (You can go to stickK.com by clicking here.)
Steve Pomeranz: Ah-hah.
Donna Rosato: You can go to this website and you pledge a certain amount of money towards your goal. On the website, you sign a commitment contract. You recruit a friend who’s going to monitor your progress. Again, maybe you said that you’re going to pay $50 more on your credit card every month until it’s paid off. That friend’s going to monitor you, and, if you achieve your goal, you get some money back, but if you don’t, your friend gets it.
Steve Pomeranz: Ohh.
Donna Rosato: You can also donate it to charity if you’d like as well.
Steve Pomeranz: That sounds like a great idea. My guest, Donna Rosato, senior writer at Money Magazine, and we’re always helping you to figure out ways to save more, to do better in your life financially, and to kind of reach your dreams and your goals as best you can. Donna, thank you so much for joining us today.
Donna Rosato: Thank you, Steve. It’s always terrific to talk to you.
