No one is born with a mind for personal finance. I certainly wasn’t. I came from a family that handled money prudently, but I understood that only in retrospect. We didn’t talk about it. Everything I learned about money, I learned by watching, reading, doing, and—yes—making some awful mistakes.
I’d love to tell you that I embraced my mistakes because they taught me so much, but I’d be lying. I hated making those mistakes! Still do. The only upside is that, after going wrong myself, I understand how easy it is to get off track—especially when money is short or when so-called financial experts are whispering into your ear. I also learned, through trial and error, what the better choices are.
I started out fine as a money manager, teenage division. On my sixteenth birthday, I took the bus to city hall in my hometown, Niagara Falls, New York, to apply for working papers. That afternoon I interviewed with the head of the public library, who not only hired me for afterschool work but gave me my favorite job title ever: I was a “page” in a building full of books. I spent some of my earnings (not a lot; we weren’t big spenders at Niagara Falls High School) and put the rest in a savings account to help pay for college.
At college, I got a check from my parents to supplement what I’d saved. I watched my pennies, balanced my checkbook, and never overdrew. In those days we couldn’t get credit cards, so I wasn’t put to the plastic test. Summers, I clerked in a grocery story and waitressed at Howard Johnson’s. (I never learned the trick of balancing a fully loaded serving tray on one hand, held above my head. I was always terrified that I’d drop four hamburger specials with Cokes and fries down the customers’ necks.)
Finally I got the summer job of my dreams: reporting stories for the Niagara Falls Gazette. I wasn’t on the front page. It was more like, “Jane, go to the Friday greenmarket and update the table of vegetable prices.” But I was a reporter. I had a desk, phone, and ID card to prove it.
My financial oops moments started when I got out of school and went to work at a consumer newsletter in New York City. For one thing, I didn’t save. I spent every dime and never looked ahead. One year when I unexpectedly had extra income taxes to pay, I had to take out a loan. I lived the paycheck-to-paycheck life.
Lucky for me, a colleague at work dropped by one day to tell me I was an idiot (his word!) not to have joined the company automatic-savings plan. “I can’t afford it,” I whined. “Yes you can,” he said. “Have 5 percent taken out of your pay automatically, and you’ll never notice.” I did, and he was right. I was still living paycheck to paycheck, but suddenly, I was saving money along the way. The money wasn’t much (I wasn’t earning much), but I’m grateful to this day for his having taken the time to tell me I was being dumb. I’ve been devoted to automatic savings plans every since.
I didn’t have a lot of other financial options during my twenties. I married young, had a beautiful baby right away, and money was tight. It got tighter at twenty-five, when I found myself broke, divorced, and struggling to pay rent in a city that isn’t for sissies. Young journalists didn’t earn much, especially if you were of the female persuasion. In those bad old days, there was something called the “female discount.” If a man and a woman held the same type of job in the company, the woman was paid 30 percent less—and it was legal. At my job interview, the discount was figured out right in front of me, on an adding machine. Total humiliation—but I was stuck. Thank goodness for the feminist movement, which eventually put an end to overt wage discrimination—although not in time to help me with the rent.
I survived by pleading for discounts on nursery school fees (the wonderful headmaster said yes) and scrambling for freelance jobs I could work on after putting my son to bed. Those were tears-in-the-pillow years, and bills I didn’t open because I knew I couldn’t pay them right away. It’s the only time I’ve ever run up credit card debt and haven’t forgotten the scare. To this day, I pay my bills in full on the day they arrive.
But except for my checkbook worries, life was great. My son was growing. At work, I was learning how to report and write, and starting to specialize in consumer finance. The more I interviewed financial people, the wider my eyes grew. I realized that I could learn this stuff. It wasn’t magic, it was all based on simple common sense. I’d had no idea.
Fast-forward in time. I got better jobs and earned more money. I married again. We rented a house for a while and finally found the resources to build our own. I felt back on track.
With some money to spare, I ventured into investing and that’s when the oopses really started. I opened an account with a stockbroker—a friend of my dad’s—and asked for advice. He started calling me with new stocks to buy and suggesting that it was time to sell old ones, in order, he said, to diversify. After a couple of years, it hit me that he was making money on commissions but I wasn’t getting anywhere, so I took my money back. At about that time, another broker put an important chunk of my husband’s savings into a single can’t-lose stock. You know the rest of that story! We were stupid and inexperienced, what can I say?
By then, my reading and reporting had led me to low-cost index mutual funds. Whew, just in time. I’ve kept them to this day without a moment’s regret. (You’ll learn to love them too—see page 745.)
But let’s face it, index funds get b-o-o-o-ring. A girl ought to own something interesting, right? Gotta make a killing. At that time, I was editing an investment newsletter and talking to Wall Street gurus all the time. They must know something special about making money. Otherwise, why was I interviewing them?
There’s no point going into all the sad details. Here’s what I got out of my super-guru advice: an oil well in Ohio that came up dry and a top-performing mutual fund that lost 80 percent of its value because it owned too many of that era’s hottest stocks. All the way down, its brainy manager urged me not to sell.
I even went local, in hopes of getting in on the ground floor of something big. A neighbor and former executive of a blue jeans company had a smart new idea for making jeans that fit all figures. I was all too right about the ground floor. That’s where we stayed, as the seed money dribbled away.
In my heart, I knew better than to write those checks. I’d reported extensively on oil-well partnerships and how the fees ate you up, even if you were lucky enough to hit some oil. But I was dazzled by the guru—a regular source for me—who touted the Ohio well as something special.
The mistaken mutual fund investment is even more embarrassing. I knew it owned highfliers, but I was so impressed by the manager’s smarts (or what sounded like smarts) that I figured he’d sell those zoomy stocks at their top and switch to the next Great Investment Game when it came along. Wrong. Soooo wrong. As I’ve learned, almost no fund manager can do that successfully (and probably you should delete the word almost).
About my neighbor, what can I say? It was a completely dumb move that my accountant advised against—but the jeans were so cool. (They ought to have been, considering what I paid!)
Did I mention that I bought some gold coins near the 1980 peak?
All my mistakes came from turning off my common sense and BS detector and letting a salesperson or silly enthusiasm run my mind. Happily, I never had too much money at stake, so I could ramp up my savings again. But, gee, I wish I’d kept it all in index funds.
By this time, I had left my job at the investment letter and started freelancing. I quit because I got a promotion but wasn’t given the same title held by the job’s previous occupant—a man. I got a lesser title, not to mention lesser pay. Sound familiar? Those were still the bad old days when women couldn’t catch an even break.
As it turned out, leaving that job was not one of my mistakes. In fact, it’s the best thing that ever happened to me professionally. To earn money, I wrote my first book on personal finance. I started a syndicated newspaper column for The Washington Post, thanks to the head of the syndicate, Bill Dickinson, who was willing to gamble on an unknown. His belief in me changed my life. At first it wasn’t clear that the column would succeed (Jane Bryant Quinn? the newspapers asked. Who’s that?). I still have in my files the names of the nineteen papers and their open-minded editors who bought the new column and gave me my chance.
When the column caught on (250 papers eventually came on board), one thing led to another. I started a column for Newsweek magazine, added CBS-TV (morning and evening news), and wrote the first edition of the book you’re reading now. But I’ve never forgotten the feeling of launching out on my own—the thrill of a high-wire act and the nail-biting wait to see if I’d make it to the other side.
Freelancing taught me yet another lesson. When you work for yourself, your investments ought to be more conservative. No employer was contributing to my retirement plan. If I got hit by a truck, my savings were my only safety net. So I had to invest more carefully. I’ve always held a higher percentage of bonds, compared with stocks, than I would have if an employer were funding my 401(k).
Fast-forward again, to another hard-learned lesson—this one on long-term care insurance. When LTC policies were first introduced, many of them were poor. They low-balled their premiums, bumped up the price later, put unexpected limits on coverage, and sometimes used fine print to deny payments due. Then the products improved and my husband and I applied. My husband was turned down because, by then, he had some health issues. One day he had a debilitating stroke and the cost was all mine. Would those earlier LTC products have paid? Maybe, but maybe not; they were generally nursing-home contracts and I wanted to care for him at home. Still, it’s never a smart idea to put off buying life, health, disability, and long-term care insurance that you know you need. Buy it now while your health is good. One bad diagnosis renders you uninsurable overnight.
When I became a widow, I bought a house in haste. That’s one of the things I’ve always told others not to do. I righted myself and last year had the joy of remarrying. Money matters in life, but what matters more is holding yourself open to happy surprise.
After you’ve read a list of my financial crimes, you might wonder why I’m writing a personal finance book! First, because I’m a lot smarter now. Second, because I hope to help you avoid some of my own hard lessons and make good choices right from the start. It’s pretty easy to avoid my mistakes once you’ve been alerted to them. And third—the most important thing—to abolish the myth that you have to be born with a math book in your mouth to be good at making decisions about your personal money.
I’m terrible at math; I always have been. Personal finance has nothing to do with math. It’s all about understanding simple principles (such as automatic savings), knowing where to find the advice and tools you need (in this book, I’ve rounded them up for you), choosing plain-vanilla financial products (they’ve proven to be superior to everything else), and ignoring the America’s Great Financial Marketing Machine. In a lifetime of studying personal finance, I can say with confidence that roughly 97.23 percent of the highly touted financial products that you read and hear about will make other people rich; they won’t make you rich. The products and strategies that will make you rich are in these chapters.
A trusted adviser who won’t be identified here once suggested that I invest with Ezra Merkin, a prominent financier. “No home runs, just a steady 10 to 20 percent a year using puts and calls,” the adviser said. I begged off. Not my style. Years later, it turned out that Merkin’s miracles came from investing with the notorious Bernie Madoff, the Ponzi guy. (I still trust that adviser in his area of expertise—but not his investment advice!)
I dodged the Madoff bullet not because I suspected fraud but because—by now—I have rules for myself. Investments have to be simple so that I can understand them perfectly. I won’t pay high fees—they’re your first sign that a product is poor. I stick with things like mutual funds whose prices are published daily, online, and can’t be fudged. Mystery systems of puts and calls don’t fit the bill.
Developing simple rules is one of the secrets of managing money well. You create a list of what works for you and apply those rules to each new idea that comes along. If the idea fits, I consider it. If not, I don’t even bother investigating it. For investing, my rules are: mutual funds, not individual stocks; passive investing (index or target retirement mutual funds); strict diversification between stocks and bonds related to age (110 minus your age is the maximum percentage you should risk in stocks); regular rebalancing, to keep the stock/bond diversification on target; low costs, which keeps me out of all those dubious, expensive annuities; and investments whose price I can follow publicly, in the newspapers or online. In other words, b-o-o-o-ring. For thrills, I go to the horse races. I want my investments to be about as interesting as watching paint dry.
This book explains all these rules, and other rules, about savings, credit, mortgages, and insurance. With any luck, they’ll steer you around my mistakes, or at least keep your bumps to a minimum!
At this writing, we’re also in the midst of a once-in-a-lifetime economic earthquake. Important products such as health insurance, credit cards, retirement plans, and college loans are up for change. I’ve caught as many of those changes as I could before this book went to press. You can check for updates on my Web site at www.janebryantquinn.com.
But the details aren’t as important as the overall concepts—eternal commonsense concepts—that you’ll find here. You can apply these rules to new products as well as to the existing ones. Pay down debt, hold down fees, keep all your insurance plans simple, choose plain-vanilla mortgages, stick with simple investments, and tune your BS detector to “high.” I’ve made mistakes in my time but in the end I got it right, and so will you. Every day, I’m cheering you along.
Jane Bryant Quinn
New York