Invest Financial Planning

HerMoney Podcast Episode 207: How To Make Good Decisions During Uncertain Times

Kathryn Tuggle  |  April 1, 2020

A look at how to deal with uncertainty as it relates to our lives and our money, and some tactical things we can do when we’re facing so many questions.

It may only be a few weeks since you first heard of Coronavirus, but chances are that it’s already changed your life — or the lives of people you love — perhaps drastically, perhaps forever. March was officially Wall Street’s worst month since 2008, when the S&P 500 fell nearly 13%, and the the COVID-19 crisis that tipped it all off  has left millions of us unsure what’s happening. We may be unsure what’s next with our jobs and income, our children’s’ education, our loved one’s health, our 401(k)s and portfolios, the list goes on. And all of it makes us feel uncertain and in need of answers. 

In this week’s episode, we’re diving into the concept of dealing with uncertainty as it relates to our lives and our money, and some tactical things we can do when we have so many questions on our minds. We’re joined by Carl Richards, Certified Financial Planner and the author of two books, “The One-Page Financial Plan: A Simple Way to Be Smart About Your Money,” and “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.”

Jean and Carl dive into the topic of making good decisions, and how those decisions can’t come from a place of panic. They discuss the steps we should all take towards making good decisions when we’re worried, and what people should be doing now. Carl talks about the importance of sticking with the plans you made, and then what to do when your plans get “blown up.” He lays out a step-by-step plan for what to do to bring back feelings of control. 

He also talks about the importance of perspective — that even though we know “this time” is different from the 2008 Great Recession, the only reasonable thing to do right now is to assume that even though this time is different in terms of the cause of the downturn, it won’t be any different in terms of the fact that it will end, and at some point we will all return to normalcy. 

Carl talks about what “panic behavior” looks like during times of crisis (we’re looking at you, hand sanitizer hoarders) and the importance of both talking to someone when we need to, and focusing on the things that are within our power to control. Even if the only thing you can control at the moment is your breath, then focus on that. Then once you’ve got that under control, you can focus on the next thing, until your feelings of control gradually begin to expand. Eventually you’ll start to feel a greater sense of ownership and control over everything you do. 

If you’re worried about making the “right” decisions at the moment, Carl advises a mindset shift — instead of wanting to be right every day, just try to be “a little less wrong.” He says it’s the notion of the “least bad option,” which is, unfortunately, what we’re faced with sometimes. But we’re better at figuring out our problems than we think we are. 

For people looking to make an immediate cutback on expenses, Carl advises taking stock of our blindspots — What expenses could we cut back on now? As more information becomes available, what small steps can we take that are going to help us make it through this time? 

Then, in Mailbag, Jean and Kathryn take a question from a listener who’s curious if she should buy a new car, or wait in light of the economic shift brought on by coronavirus. We also hear from a woman who is curious about refinancing her student loans, and a listener who has questions about refinancing her mortgage and catching up on her retirement contributions while the markets are down.  In thrive, Jean talks about resilience, perseverance, and what it really means to achieve success. 

This podcast is proudly supported by Fidelity Investments. You work too hard for what you earn to let it sit on the sidelines. Let Fidelity show you how to demand more from your money. Learn more at Fidelity.com/HerMoney. Fidelity Brokerage Services LLC Member NYSE, SIPC.

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

Transcript

Jean Chatzky: (00:03)
HerMoney is brought to you by Fidelity Investments. Fidelity is committed to helping clients through any market conditions with financial planning and advice when you need it most. Learn more at Fidelity.com. HerMoney comes to you through PRX. Hey everybody. It’s Jean Chatzky. Thank you so much for joining me today on HerMoney during week, during a month where nothing seems normal and when everything feels uncertain. The COVID crisis has left millions of us unsure what’s happening with our jobs and our incomes, our children’s education, our loved ones health, our 401ks, our portfolios. I could go on, but all of this makes us unsettled and in need of answers and I’ve got to say, I’ve been looking for somebody who can tell me more than, we just don’t know, or at least if that is the answer, then how to handle, we just don’t know. I think it’s particularly important during these times to recognize what you can’t control versus what you can control and focus on the latter.

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Jean Chatzky: (01:30)
And I know that today’s guest agrees with me on that. Carl Richards is joining me from London where he is living with his family these days. He is a certified financial planner. You read his napkin sketches in the New York times and online. He runs behaviorgap.com and he’s the author of two books, The One Page Financial Plan and The Behavior Gap. Carl, welcome. Nice to see you.

Carl Richards: (02:02)
Jean, thank you. How are you?

Jean Chatzky: (02:04)
You know I’m okay. I’m okay. I feel pretty lucky actually. I’m in my house able to Skype with you from halfway across the world and see you and see that you’re okay. I’m able to talk to my kids every day and pet my dog and I feel pretty lucky. How are you?

Carl Richards: (02:25)
I feel the same way. I was just thinking about that list of uncertain things you read off and it’s interesting sometimes to just sort of sit right in that for a minute and realize like how, I don’t know if painful is the right word, but it’s pretty close if it’s not the right word, like just how scary all of that sort of uncertainty feels and acknowledge, we’re often in such a rush to get answers. Like you and I are like. We’re answering people. We’re solution people. How do we solve this or that? That we don’t pause long enough to just go, well what’s that underlying current that I feel because if we don’t sort of feel all the feels right?

Jean Chatzky: (03:09)
Right?

Carl Richards: (03:09)
They just live there under the surface. They don’t go away. But taking the time to pause. And so I don’t know if we’re just maybe everybody who’s listening or viewing this to just to give yourself a little permission to take a breath.

Jean Chatzky: (03:23)
Well and to be comfortable with being uncomfortable. Right? There’s nothing about the volatility in the markets for example, or the things that we don’t know about how long this virus is going to be with us and the economic chaos that it’s going to bring. There’s nothing in that that makes us comfortable. Right? So we have to get okay with being uncomfortable and decide how much of that we can take before making decisions about what to do with our money and the other parts of our lives.

Carl Richards: (04:03)
Yeah. I think like if we think through a case, like what are the steps cause we all want steps. Yeah. I think that first step is really, really important because we can’t make decisions, at least we can’t make good decisions, from a place of panic. And so we can be uncomfortable. We can be sad. We can be mad. Like I cycle a hundred times a day through like just wanting to get in my bed and throw the covers over my head. Or you know, like somebody emailed me today and said I just got in my tub and cried. Those things, I cycle a hundred times a day through that and it’s going to be okay.

Jean Chatzky: (04:44)
Right.

Carl Richards: (04:44)
But I can’t make decisions from panic.

Jean Chatzky: (04:48)
No. I mean I know in your book you say very clearly that the decisions that we make are more to blame for us losing money than the markets. And that I gotta say is a little hard to swallow right now. But explain it.

Carl Richards: (05:05)
Well I think there’s two really sort of lenses we have to view this with in terms of next steps. Like, what should people do. And one is, you hear a lot of this and it’s really useful if you fit in this category. One is stay the course, right? And I think of it as like defending the plan. Like you made a plan. So let’s just go down that path a little bit. Cause another one is, what do you do when the plan’s blown up? Right? And we need to talk about both because for the first time that I can remember, more people may be in that category of what do you do when the plans blown up. I’ll define that in a minute, but let’s say that you made a really thoughtful long-term financial plan. It had a set of goals, maybe even values sort of underlying, I call it a statement of financial purpose, right? Like an underlying set of… Like for it’s time with my family, mainly outside and serving in the community that sits underneath everything. And then on top of that, it’s sort of a set of goals. And those goals get more specific, right? I want to save this much or I want to retire here, I want to fund kids’ education. The goals have a little bit of framework. And then from the goals you built your investment portfolio, and I’m making a bunch of assumptions here, but I think it’s important like your investment portfolio was built based on those goals. Then you pick products to populate that investment portfolio. And so every step of the way you can go back through, you can take yourself out of this like ahhh, and you can reconnect almost like a touchstone to those things again. Like okay, how have the values changed? Time with my family mainly outside, no. Serving the community, no. How did the goals change? Maybe, but for me, no. And for a lot of people I’m having conversations with, no. Is the investment process changed? Now we have a lot of discussion here, but the only thing we have to do here and realize that we shouldn’t even be having this conversation until we’ve had a little empathy first. So we had that right. You got a chance to cry. We have a chance to throw something in the backyard like whatever, but now we get to these facts and we’re like, you built that portfolio based on the way the evidence of history, and you used data for the last 97 years to build that portfolio? You may not know that you did that, but you did.

Jean Chatzky: (07:24)
Yeah.

Carl Richards: (07:24)
And imbedded in that data was 1974, 73-74, the great depression, 87, Black Monday, 2000 when the S&P was down 54 and the NASDAQ down 80, the credit crisis, which some of these things look cute now, right? That stuff was all in the data. So it would be a responsible, when you built your plan, you knew we would have scary markets again. Right? Like you, knew markets would go up and down. You didn’t know why. You didn’t know how come, you didn’t know it would be this scary. You didn’t know any of those things, but you knew and then you can look at the products that you use to populate the plan. Right? If none of those things have changed, then we have that whole line of thinking around, stay the course, stay the course, stay the course. Right? Like if you’re in that boat, long-term money is still long-term, right? Like I don’t need it right now. We’re going to get to in a minute, like what happens if the plan’s blown up, but then we’ve got a lot of writing out there. You’ve done a ton of writing like that. The times is putting together, a lot of people are putting together really good sound writing around… Okay. Okay. The only reasonable thing to do right now, the only reasonable thing, is to make an assumption that even though this time is different in terms of how it started, and it’s very different terms of how it feels, or using words like global pandemic, like this is more than a market issue right? The only reasonable assumption is that it won’t be any different in terms of, it will end.

Jean Chatzky: (08:59)
And at some point we’ll return to, I keep thinking about, because I’m struck with these feelings too of. oh my gosh, you know, I did make this plan. I did buy these investments. But I get gripped with the same sort of feelings about whether I should be selling. And I just keep coming back to thinking, okay, am I going to get on a plane again? Well, sure. I’m going to get on a plane again and I’m going to go out and I’m going to travel for fun and for work. Am I gonna replace my iPhone when my iPhone breaks? Well, yeah. And I think just sort of walking yourself through those decisions about the little things that will signal a return to the normal life as we expect it, make you realize, or at least make me realize this kind of confidence that I do have in the future.

Carl Richards: (09:53)
Yeah. Yeah. I think that’s really important that there’s one of the definitions, as I understand it, of depression, is the inability to construct a future. I mean, at least for me, I don’t know about much right now. All I know is it would be irrational to bet against the fact that we’ll figure this out, right? Like we’re going to figure it out. Now if you’ve got a long-term plan, you can read all that stuff. It doesn’t make any sense to jump out of the lifeboat and into the water, even though it feels like it. And I’m telling you, I know it’s hard for all of us to hear. It’s hard for me to even say, but we were really, really, really scared in 2008 and 2009.

Jean Chatzky: (10:36)
Yes we were.

Carl Richards: (10:36)
We’ve been really scared. Y2K does sound like a joke.

Jean Chatzky: (10:40)
I know, I know. But I remember. I remember Y2K but I also remember sitting at my desk in 1987 right? I was a young reporter. I remember talking to people on Wall Street and how that felt and how men, you know, grown men were just sobbing. So yeah, we’ve been through that before. What are your overall thoughts on panic, on market panic, but also, you know, toilet paper panic and hand sanitizer panic. Why do we behave like this?

Carl Richards: (11:15)
Well, I mean it’s just classic panic behavior where you, I mean, it’s funny, I’ve been really, really aware of this and watching myself act. And I’ve stopped in, you know, we were down to two, three rolls of toilet paper and I was like, whatever, like we’ll go get some more. And so I started going every day and there was none. And I told the lady, I’m like, no, no, no. We have like two rolls left, you know what I mean? And yeah, we got more and everything’s okay. But I just thought it was interesting that even after we got more, I’ve still stopped into this store and looked. And there’s this sense of like, well, because everybody else is doing this… Like the rational thing to do right now is ration and share. That’s the rational thing to do from a community perspective. But most of us get caught up in, well yeah, I gotta make sure me and my family are okay. So I’d love to, if you’re okay with it, I’d love to spend a little bit of time on like, okay, great. What do you do when the plans blown up.

Jean Chatzky: (12:19)
I want to go there. But let me just remind everybody before we get there that HerMoney and important conversations like these, and I got to say Carl, that talking to you, my blood pressure just goes down. Like you are a calming, calming source. And so I appreciate that. HerMoney is supported by Fidelity Investments. For more than 70 years, investors have relied on Fidelity Investments to help plan for their financial futures. And as always, when the unexpected happens, Fidelity is there to help you work through it with financial planning and advice for what you need today and tomorrow. Helping to make it all clear. To see how Fidelity can help you and your family on the path forward, visit Fidelity.com. I’m talking with Carl Richards, certified financial planner and the author of The Behavior Gap. Okay. What does it look like when the plan is blown up?

Carl Richards: (13:19)
And let me first mentioned, did you know I started my career at Fidelity?

Jean Chatzky: (13:23)
No, I did not know that.

Carl Richards: (13:25)
Maybe a security guard. I thought the ad said security guard. It actually said securities and the job was for the Fidelity call center. So that’s where I started my career. It’s where I first learned about the impact of behavior. So anyway hearing you read that just brought back all sorts memories.

Jean Chatzky: (13:40)
That is, that is really, really funny. And you are, boy, we’ve had guests before who started their career at Fidelity too. So it’s a little bit of a theme. Yeah. So what does it look like?

Carl Richards: (13:52)
Yeah, I mean imagine, right? Like all of this is pretty a nice, and you know that old Mike Tyson quote, everybody has plans until they get punched in the face.

Jean Chatzky: (14:03)
Yeah.

Carl Richards: (14:04)
What do we do when the thing’s blown up and there’s a bunch of people that things blown up. Right? And what I mean by that is long-term money may have just become short term. Like I need it. My restaurant’s going under. My business is closing. I’m going to lose my house. Like that long list of things that you read at the beginning. Long-term planning, I’m telling you, please go read all the stuff. Read the work that Jean’s done. Read the work that so many other people are doing. Stay the course. It’s the only rational thing to do. But let’s shift to like now the plan’s blown up. What do I do? Well, listen, right? I mean I’m just thinking about all the phone calls I’ve had the last couple of days.

Jean Chatzky: (14:43)
Yeah. Well, and I think that thing to talk about are the best worst moves, right? Like the best bad moves. Like when you’re a crisis because the plan has blown up. We talk about the least worst moves, the best bad moves, however you want to put it.

Carl Richards: (15:00)
Yeah. I think of the beginning of this as four steps. It’s E, S, P, A. So Empathy, Space, Plan and Action. And I think when the plan is blowing up, the empathy and space piece becomes so important. Right? To just acknowledge, we don’t know. Right? First, get somebody to sit down with and I don’t really care. If you have a financial advisor, financial planner, great. You have a friend that knows their way around calculators. You are not thinking of things. I’ve been in this space. I was in this space in 2008 and 2009. I needed help and I was not thinking of things to do. I couldn’t. I was so, myopic loss aversion, right? I was so focused on this thing. So first you find somebody to talk to you. You feel completely out of control when the plan blows up. So first find something that you can control. For me in 2009 that was literally, I got to the point where it was literally my breath, right? Like everything else was so far out of control that I had this realization one day like, wait, I can still control my breath. That sense of control expanded, and realize like this sounds like, you know, California or something like woo. And it’s not, it’s incredibly important that this sense of control, that’s what we want. When everything else feels out of control, that little sense of control expands, right? As it expands then get a sounding board, right? Create space and then a plan. And the plan looks like this. Well here was my plan. It’s blown up. What’s my plan here? So realize at this point where you’ve got somebody to talk to, you’ve got a little sense of control and you can start thinking about what can I do? Right? Because you may be in a state where you can’t even think about that. Backup, empathy control. You get to a place where you can think, what do I do? So realize that the state of what can I do is, the only thing you can solve, you’ll recognize the reference, this is MacGyver style, right? So for most people who don’t, MacGyver was this, I don’t even know what he was.

Jean Chatzky: (17:10)
No, he was awesome.

Carl Richards: (17:13)
Yeah, he was. He was awesome, but he could fix anything and he would fix it, like the plane would be falling apart while he was in it and he would fix it with gum and duct tape.

Jean Chatzky: (17:22)
And spit. Right yea.

Carl Richards: (17:23)
Humans are really good at figuring out a problem now, right? MacGyver style, like let’s get through this, let’s figure it out. We’re not particularly good, and particularly when you’re in this mode of the plan’s blown up, you’re not particularly good at thinking like six years, six months, six weeks from now. We’re talking today. What can I do today? So when you gained a little sense of control, you just think, and there’s research to back this up. It’s research around complex systems and uncertain environments. And what they essentially say is the only thing you can do to navigate a complex, adaptive or uncertain environment is to solve for the next, the literature calls it next local optimum, but let’s just call it, take the next step. Then reset. Regroup. What new information do I have? Because literally when you take a step, what happens? You get new perspective, you’re in a different place, right?

Jean Chatzky: (18:19)
Right. And it’s how we become resilient by the way. Because when you’re stuck, and this is a situation when so many people feel stuck, you feel unable to take that next step. But the minute you do something, even if it’s the wrong thing, you put yourself in motion, right? You become the ball rolling down the hill. And then you take the next step and eventually you’re going to get one of them right.

Carl Richards: (18:44)
Right. And it is literally like you have to move to get the new information that you don’t have right now. You shift your mindset from worrying about being right to just try to be a little less wrong tomorrow. And so what that would look like would be sitting down with somebody and saying, or even you, your spouse, a partner, a friend, by yourself with a big white board or a big piece of paper or whatever, and just can I get clear about the situation? Things that might come up. It’s like, look, let’s call the bank now, right? I own a business. It’s going under. Let’s get on the phone. What can we do? Right? Is there somebody outside that can help you see some blind spots? Like, hey, is there anything the government can help with? Okay, we had some really tough decisions. What should we shut off now? What expenses can we get rid of now? And having that outside perspective is so valuable in times like this. And then you’ll uncover one thing, you’ll do that, new information will become available, you’ll do that and then things are going to change, right? Can we be a little less wrong? Can we make decisions in terms of what decisions will keep options open? What decisions do I need to make now? What impact will those have? Right? That’s the kind of stuff we do. When the plan goes up.

Jean Chatzky: (20:03)
Let me go back to that question of the least bad option for a second. For people who are looking at retirement, who maybe had more inequities than they thought they had, who need to get at the money that they’ve got in their investments, whether they’re in retirement portfolios or not in retirement portfolios, what are you telling them? The question is, I need cash, right? That’s the question. I need cash. I could take out cash advance against my credit card. I might try to pull some money out of my house, but that’s not going to be overnight because the mortgage lenders are overwhelmed. And I have this retirement that I know I’m not supposed to touch, but what do I do?

Carl Richards: (20:51)
Yeah. Well let’s assume for a second that that’s the only option, right? So you’ve said, look, I could go to the bank, okay, start that process, right? I could borrow money from a friend. Okay, well think about that, right? But let’s assume you’ve narrowed it down to like, okay, I need a little bit of cash now for my retirement bucket. So the question would be, do you need it all? Right? You probably don’t need it all. Okay. Then you look at the allocation and there are probably, I’m assuming there’s some piece of the allocation in fixed income, more even cash, right? And so maybe you can buy yourself a little bit of time with a week or two worth of cash from that. Right? And we just keep our options open. It doesn’t mean, Oh my gosh, I need money. I better sell everything. Right? And so, I’m making some assumptions here, but if you’ve got a diversified portfolio, there’s stuff there that’s not down.

Jean Chatzky: (21:46)
Right?

Carl Richards: (21:46)
And sometimes we think, I’m saving this money for retirement. Retirement three years away. We think, I need all that money in three years. No, you don’t. You need that money for the next 25 years of your life. Right? And so it’s okay to think that money still needs to grow for 25 years. So there’s some element of this that we’ve just got to keep thinking like we’re going to buy ourselves time, buy ourselves time. What we tend to do is project the recent past indefinitely in the future. And we look at our portfolio right now and we say it’s down 25% or in a diversified case, maybe it’s down 15 or 20%. And we say at this rate, I’ve heard these exact words come out of my mouth and others, at this rate, I’ll have no money, you know, in six months. And we’ve just got to count on that. Like betting that that’s going to happen would be illogical because it’s never happened before. Right? So I think we’ve just got to count on that.

Jean Chatzky: (22:47)
Carl Richards, thank you for spending this time with us.

Carl Richards: (22:51)
My pleasure. Thank you for the work you’re doing. Like just calm voice. Like can we just have a chat about how to make good decisions about money right now when there seems to be no good options. And I love the idea of the best worst option. It’s beautiful.

Jean Chatzky: (23:08)
Where can we find you during these weeks and months?

Carl Richards: (23:12)
Hmm. Like I’m devoting almost all my time to the subscribers at the Behavior Gap weekly letter. So you can go to behaviorgap.com.

Jean Chatzky: (23:22)
You should get Carl’s weekly letter. It’s awesome. It is. It is awesome. Thank you so much. Hope to see you soon.

Carl Richards: (23:30)
Thanks Jean.

Jean Chatzky: (23:30)
Alrighty. And we’ll be right back with Kathryn and your mailbag.

Jean Chatzky: (23:40)
Kathryn Tuggle has joined me. We should tell everybody we are not together today.

Kathryn Tuggle: (23:49)
We are not.

Jean Chatzky: (23:49)
Carl lives in London. I am in, I’m actually in my daughter’s bedroom in Westchester because I’m hiding, as I said, from the dog. You’re in New York City.

Kathryn Tuggle: (24:00)
I am. I’m used to seeing you across the table. This is very odd. There’s a lonely iPad sitting across the table from me right now.

Jean Chatzky: (24:07)
Oh, I’m so sorry.

Kathryn Tuggle: (24:09)
That’s okay.

Jean Chatzky: (24:10)
I’m so sorry, But, you know, we’re going to do what we have to do. And I did feel, and kudos to you by the way, I mean I hope you guys know, Kathryn produces this show as well as is a presence on it. And when all of this hit, we basically said we gotta put out some more shows, like we just have to talk about this. So thank you for rallying and putting together a really good lineup.

Kathryn Tuggle: (24:36)
Of course. And I’m so excited to dive into this mailbag and the mailbag on our subsequent shows because the members of our HerMoney Facebook group had so many amazing questions for us related to the covid crisis.

Jean Chatzky: (24:48)
You know what, let me just say before we dive into those questions, HerMoney.com for those of you who do not make a point of visiting HerMoney.com regularly, if you’re not subscribed to our newsletters, you really should be right now. Because we have been putting up some amazing stuff the last couple of weeks. Just today, we put up a list of resources that everybody needs. If you are having trouble paying bills, if you want to know what’s coming from the government, I mean we’ve got it there. If you’re working from home, we’ve got resources for you. If you are trying to figure out how to trim your budget, we’ve got resources for you. So I hope that you’ll come back often and I hope that you’re subscribed not just to the podcast but also to our two weekly newsletters so that you can just keep up on everything we’re putting up now.

Kathryn Tuggle: (25:40)
Absolutely. Even if you are a regular visitor to the HerMoney.com homepage for our two weekly newsletters, we resurface everything that you might have missed. So that’s a really nice way to get a look at everything we’re putting out, including this podcast.

Jean Chatzky: (25:55)
Including this podcast. Alright, here we go. Our first, oh, you’re reading…

Kathryn Tuggle: (26:00)
(laughing).

Jean Chatzky: (26:00)
Oh my God. Oh my God. There you go. Well we won’t put it on the blooper reel. We’ll just leave it in the show. Kathryn, it is your turn.

Kathryn Tuggle: (26:10)
Our first note is from Nancy. She writes, hey Jean and Kathryn. I was literally one day away from taking out a car loan with my credit union for a 2017 used vehicle when coronavirus hit our economy. The car would not be frivolous purchase, but nearing a necessity. My current car is a 2007 model with 242,000 miles and is running but very ragged. I’m extremely fortunate to be a US government federal employee, as is my spouse, so we have secure income at this time. We have no other car loans. We have a mortgage, a small HELOC, and that’s it. My credit union quoted me a rate of 2.39% for 36 months borrowing approximately $22,000 which is the price for the vehicle. I used to think this was fair, but with everything earning practically nothing now, should I wait? Will vehicle loan rates likely dip further? To keep my cash holdings available, I would finance as much of the purchase price as possible rather than paying a partial down payment, which was my original plan. Now I’m unsure whether to proceed, wait another month or just try to hang in there the best I can with my current vehicle. What do you think?

Jean Chatzky: (27:15)
So Nancy, maybe I would think differently if I hadn’t had to go in for a car repair yesterday, amid the corona panic around my area of the country and it was just really creepy. Maybe I shouldn’t be saying that, but you know, having to deal with the fact that maybe your car wasn’t going to be running was just not a good feeling. And I don’t want that for you. I don’t want, and by the way, my car has a lot fewer than 242,000 miles. So kudos to you for keeping it that long. But if you think that your car is on your last legs, I think it’s an important time to have a safe vehicle. I’m impressed that you’re buying a used car. I think that is the smart way to buy a car these days. You’re getting a lightly used vehicle if it’s 2017 so good for you. Personally, I think the rate’s fine. I don’t necessarily think that it’s going to go lower, but if it does go lower, you can refinance. Refinancing a car loan is very, very easy and I am all for your plan of actually financing it as much as possible because I think you need to be hanging onto your cash right now. I think that most of us should be hanging onto as much emergency cash as we can right now.

Kathryn Tuggle: (28:37)
Fantastic advice. Thank you.

Jean Chatzky: (28:39)
Sure.

Kathryn Tuggle: (28:39)
Our second note is from an anonymous listener. She writes hi Jean. I love your show so much. Thank you for providing such helpful advice to everyone who needs it, especially during such scary times. I’m 27 years old and I make about $80,000 a year as a lawyer in lower New York. I started working in 2018 and have been able to pay off $22,000 of my public student loans. I still have a remaining balance of $78,000 with interest rates on some of those loans as high as 5.6%. I have about $16,000 in savings and contribute a small amount monthly to a Roth IRA although I have not yet opened a 401k. I was wondering if this is the right time to refinance my loans as interest rates are so low. However, I have heard rumors of potential loan forgiveness in light of the coronavirus crisis, and I definitely don’t want to refinance if there’s a chance I could do something that would take me out of the running for loan forgiveness. I also really want to buy a house, but I’m not sure if the first time buyers programs out there are a good idea. I have been considering buying house in a different state that has lower taxes and using it as an investment property. I’m just wondering if I’m doing things right overall. Should I worry about saving more before trying to buy a house? Should I hold off on refinancing? I appreciate your input on my situation. I want to make sure I get my financial life started off right. Thank you so much.

Jean Chatzky: (29:58)
Thank you so much for writing and I think you are starting your financial life off right. You’re absolutely asking all the right questions. As far as refinancing your student loans, with the remaining balance of 78,000 it’s a little tough for me to tell if those are federal student loans or if they’re private student loans. As far as what we know from the federal government at the time we are taping this show, and we are taping this show on March 20th, what we know at this point is that interest is being waived so you’re not accruing any interest on federal student loans at this point. You are supposed to make your payments in full, but more of those payments will go toward paying down the debt. It won’t go toward interest charges. And if you were unable to make your payments and you deferred or put your loans into forbearance, essentially putting them on a hold for a little while during this crisis, interest is not going to accrue, but that’s not true of private loans. I would not refinance any federal loans at this point because a) you lose that interest waiver if you are going to take advantage of it, but b) you also lose the ability for some income based repayment programs that, although it doesn’t sound like you need them right now, I don’t want you given the uncertainty in the economy, to lose the ability to tap into them later. If you’ve got private loans on the other hand, yeah, go ahead. Refinance them. I don’t think that you are going to get forgiveness on private student loans. I hope I’m not wrong about that. I don’t think I’m wrong about that. I’ve heard nothing about forgiveness on private student loans and you have an opportunity to refinance them at a much lower rate, particularly given the fact that you’ve got such a decent income and I assume that you’ve got a good credit score to go with it. As far as the rest of your financial life. I’d go in order of first making sure you’ve got a decent sized emergency fund, which it sounds like you do at $16,000 but make sure you’ve got enough to cover three to six months worth of living expenses at this point. Then if you’re offered a 401k, I would look at putting some money there, tapping into any matching contributions that you are offered. That’s free money. You want to make sure you’re capturing that free money. And as far as the house, yes, it’s absolutely something to look at, but I don’t know that I would look at it right this second with the world topsy turvy. It’s something I might come back and revisit in six months to a year and see if you still feel the same way.

Kathryn Tuggle: (33:08)
Fantastic advice. It makes perfect sense. And I just want to say amazing job of paying off $22,000 in student loans after only having started work in 2018.

Jean Chatzky: (33:18)
Yeah, right. I mean that is fantastic. It sounds like you must be prepaying, so that’s great.

Kathryn Tuggle: (33:25)
Way to go. Our last note is from Lindsey and she has two questions, which probably easier if we take those one at a time.

Jean Chatzky: (33:33)
Okay.

Kathryn Tuggle: (33:34)
She says a hi Jean and team. We’re thinking about refinancing and I’m wondering how long we have to take advantage of the new lower rates. We currently have a 20 year loan at 3.75% and ideally I’d like to make it a 15 year. Do you think we’d be able to get a better rate in light of the recent fed rate cut?

Jean Chatzky: (33:51)
So maybe is the answer to that. What we’re seeing is rates really did dip below that. They dipped to about three or even a little less than three for a little while. But once the refi activity started to churn, the mortgage lenders were so overwhelmed by that activity that they artificially boosted rates back up. So right now I’m not sure how much money you would actually be able to save. And then you have to work the math on the cost of the transaction and whether you think you’ll be in the home long enough to take advantage of it. It’s possible. Look the last time that the federal reserve lowered interest rates to zero, where they are right now, they stayed there for seven years, so it is incredibly possible that you will get yet another opportunity to refi. I’d just keep my eye open for it. Also, dealing with mortgage lenders, when mortgage lenders are overwhelmed, is absolutely no fun. So I would bide your time a little bit, watch the rates and do the math to see if that makes sense.

Kathryn Tuggle: (35:05)
Great plan. The second part of her question, she writes, I can’t quite decide whether or not it makes sense to increase my contribution to my 457 deferred compensation plan right now. We really can’t afford much, but I love a sale and I’m feeling behind on my retirement. Is this the time to play catch up? At the same time, I know I could also continue losing money. I think I’m missing something but I can’t quite figure it out.

Jean Chatzky: (35:28)
So it might not be a bad idea to increase your contribution to your 457 plan at this point, but you’re absolutely right. You could keep losing money in the short term. Historically over the long term, it will likely be a very good thing to have done. The question is, and Carl and I talked a lot about this, how comfortable are you with feeling uncomfortable? How are you going to feel if you do lose additional money in that plan? Are you going to be able to sleep at night or are you going to have a tough time with it? If you think you can handle it, then I think it’s an okay thing to do given the fact that you have a very long time horizon.

Kathryn Tuggle: (36:13)
Great advice. Thanks Jean.

Jean Chatzky: (36:15)
Well, thank you so much. Thanks Kathryn. And in today’s Thrive, I wanted to talk a little bit about resilience. So did you all know that Michael Jordan was actually cut from his high school basketball team and that the Beatles were rejected by dozens of recording companies and that Katie Couric was told by her bosses at CNN before she ever got to NBC that she would never be allowed on the air again. The examples go on and on and on, and it all comes back to what Thomas Edison said when asked if he felt like a failure after hundreds of unsuccessful attempts to make a light bulb. And Edison said, I have not failed hundreds of times. I have succeeded in proving those hundreds of ways don’t work. That’s called resilience. And if it’s not yet the buzzword of 2020 it will be, because look at the definition. Resilience is the ability to recover from or adjust easily to misfortune or change. People who have resilience can overcome. They can overcome on the job, in their personal lives and with their finances. They move forward rather than getting stuck in a pool of negativity. They don’t deny that bad things happen in all of our lives, but they’re able to turn their focus over to the things where they have control, with the belief that they have the ability to effect change. And the good news is that you don’t have to be born with resilience. Some people are, but it can also be learned. So we learn resilience by controlling the things we can control and letting go of the others. And we also learn it by, as I was talking about with Carl, taking action. When you are feeling stuck, when you are feeling put upon, the thing to do is something. Just starting can get you unstuck. Thank you so much for joining me today on HerMoney and thanks to Carl Richards for zooming in and telling us all how we can panic a little and plan a little more. If you like what you hear, I hope you’ll subscribe to our show at Apple Podcasts. Leave us a review. We like hearing what you think. Pass us on to a friend during these difficult times. We’d also like to thank our sponsor Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Video Helper and our show comes to you through PRX Join us next time when we’ll be back with another great HerMoney guest. Thanks for joining me. We’ll talk soon.


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