Terry Savage is one of our nation's highest-visibility experts on personal finance. She serves as television commentator on investment and financial markets for CNN, CNBC, PBS and NBC, and nationally syndicated personal finance columnist at the Chicago Sun-Times. Her fourth book, The Savage Number: How Much Money Do You Need to Retire? has been praised by investment gurus James Cramer, Jim Rogers and Bob Brinker, and her previous best-seller, The Savage Truth on Money, was named one of the “ten best money books of the year” by Amazon.com and was made into an hour-long television special that aired on PBS.

Starting out as a stockbroker, Terry became a founding member (also the first woman trader) on the Chicago Board Options Exchange. As a member of the Chicago Mercantile Exchange’s International Monetary Market, she has traded interest rate contracts and currency futures. Her numerous awards include the National Press Club award for Outstanding Consumer Journalism, the Outstanding Personal Finance Columnist award given by the Medill School of Journalism at Northwestern University, and two Emmys for her television work.

We recently sat down with Terry to talk about the challenges of financial literacy for home-based businesspeople in the twenty-first century. — J.D.M.

 

Terry, what’s the biggest financial challenge for self-employed people who work home-based businesses?

I’m an entrepreneur, too, and I think I know just what your readers’ experiences are like. You spend so many of your waking moments, thinking about your business and how to grow it. It’s what you focus on, and that’s only natural.

But with all the time you put into how you are going to make more money, it’s so important that you set aside some of those moments to think about how to make your money work for you.

We wouldn’t be in business for ourselves if we weren’t willing to make a huge commitment. It’s worth it, to make our dreams come true. So we pour our time, energy and money into our business. It can seem like we’re pouring everything we have into growing that business.

But the most important thing you can do, trite as it sounds, is to pay into your future.

We all know it’s critically important to make our federal tax deposits on time. Anyone who has ever missed that deposit by even two days and gotten hit with that penalty will never do that again. We need to give that same priority and sense of urgency to making our retirement deposits. Because if you’re counting on Social Security from those tax deposits to fund your retirement, you better think again.

Why is it that so many of us don’t do that?

This is the first generation who is completely responsible for its own retirement planning. In the past, you would have worked for a company that took money out of your paycheck before you had the chance to see it and spend it, and invested that money in a pension plan that promised you a monthly check for life.

My dad did that, and it worked for him.

Sure, it worked for a lot of people. But like everything else with the Baby Boom generation, we broke that mold.

But here’s what happened: when we broke the mold on music and tuned in to the Beatles and the Rolling Stones, everybody noticed. When we broke the mold on colleges, everyone noticed—they all had to build more buildings to accommodate us. And everyone noticed when we tried to change the way power works in the sixties, because we were loud and very noticeable.

But what we didn’t notice was this huge change in the way we would live, work and ultimately retire. It didn’t occur to us that this was going to be a huge problem, because we’d grown up watching our parents getting their monthly pension checks. We broke the mold here, too, but failed to realize it for years and years. This one crept up on us.

And it’s time we noticed it.

Actually, it’s way past time we noticed it. Time is money, and all those years that we didn’t put our money to work for us are now coming back to haunt us.

Many of us got into our businesses because we wanted freedom over our time. Is this the other side of the coin?

Exactly. The other side of the freedom coin is always responsibility. But nobody was forcing us to save, or even reminding us.

Because we’re entrepreneurs, we’re all busy building our businesses. And it’s easy to allow our businesses to soak up all the money we’re generating.

So where does that put us now?

This is the good part: it’s truly never too late to start. One great thing about being an entrepreneur is that nobody’s going to arbitrarily retire your job at age sixty-five. You have complete freedom to continue building your business—which means you also have complete freedom to save more, either in your own IRA or in a simple 401(k) plan you can set up for yourself.

So if you missed the boat, don’t worry: being an entrepreneur gives you a second chance.

Think of the people who worked for companies all their lives and never put any money into their 401(k)s, and now their company says, “Sorry, it’s retirement age.” And it’s over for them! That’s really rough. But you don’t have to quit working. You’ve bought and paid for your freedom.

What do you say to people who say, “I don’t know how to set this up, it seems so intimidating.”

Just call Fidelity or Vanguard. They have specialists to help you.

Just like you’d hire a plumber.

Right. You’d never say, “Oh, shoot, I guess this faucet’s going to have to drip forever, because I don’t know how to fix it.” Or, “Oh, my gosh, my ankle’s going to hurt forever because I don’t know how to call a doctor who specializes in ankles.” You either find out how to do it yourself or go get an expert.

And they might start with a copy of The Savage Number.

That’s the purpose of the book, and I also offer lots of free information on my web site, www.terrysavage.com. There’s just no excuse for not funding your future. You don’t make excuses for walking around on a broken ankle.

We’re talking about taking care of your own future, not just your money, but your life. This is a really personal issue, one that everybody has to wake up to.

You’ve made a statement that fascinates me: “The most powerful money emotions are fear and greed; noticing the symptoms and gaining the courage to surmount them is the first task in managing money.” How do we get over those emotions around money?

You never get over those emotions—never, ever. Because of that, you have to set up a plan that’s disciplined and automatic, that isn’t dependent on your emotional state to keep functioning.

You can’t conquer those emotions; instead, have to understand them and respect them. Understand that you’re going to get fearful or greedy at the worst possible time; therefore, you need to set up a regular, monthly diversified investment plan and then let it happen automatically.

Look in my book under “targeted retirement funds” [“Retirement Investing Made Easy,” pp. 131–134 — Ed.]. All you do is call Fidelity, Vanguard or T. Rowe Price and say, “I hope to retire in the year 2025,” or whatever year you decide; “I’d like to open an account and send money every month.” They’ll do the discipline and the investing for you. You don’t have to be a genius at investing. You just have to set up a plan, so the money comes out of your account every month before you have a chance to see it and spend it.

And that’s the “Savage number,” the number you want to hit.

Exactly. And it’s different for everyone, so the book tells you how to figure out what your number is. It also provides some great web sites to help you do that—not the sort of thing salespeople will show you. The “ballpark estimator” tool at ChooseToSave.org, hosted by the Employee Benefit Research Institute, is by far the best online calculator of how much money you need to save.

It’s easy for self-employed people to think, “If I can generate enough of an income stream through this business, then that income stream will just take care of me forever.”

[laughs]

Say more about what’s behind that laugh!

You are the business. If something happens to you, then what? You do not want to put all your eggs in one basket, even if you are the very best basket you can think of. You need to have your money working for you.

There are some frightening statistics about women and retirement.

We live longer, we need more. And typically, if there’s an illness or a need, the male spouse gets ill first and uses up the family’s money, leaving the woman with few resources. I’m a very big proponent of long-term care insurance. In fact, I devote an entire section to it in the book. The number one thing a woman needs, that she typically doesn’t have, is long-term care insurance. Your business will not change your bedpan or help you into the shower. So while you’re in your early fifties is the time you should buy long-term care insurance.

When you retire, you may think you’ll have fewer expenses, but you’ll want to travel, and medical costs are going up, and so are your property taxes and the utility bills. You’ve got to plan for these things. We all need more money than we expect.

Why are we slow to become alert to these points?

Because the reality has truly changed. We are the first generation to go through this.

The next generation will see it earlier. Twenty years from now, today’s thirty-somethings will start seeing their parents needing help getting from bed to bath. When they see that their parents are living longer and the cost of their care is rising, then that generation will understand what’s really happening, and they’ll still be able to start saving in time.

But today, the generation that hasn’t been saving is the largest generation in our history, and they are even now barely beginning to see this new reality. That’s going to put a huge burden on our country, which is why we need to be out there telling people.

Any closing thoughts, Terry?

In the nineteenth century, Americans were shocked when they found out that the West, the “frontier,” no longer existed. We’d pioneered and settled all the land. That era was over, and would never be back. It was a major cultural turning point for the nation.

We’re in a similar place today: we’re waking up to the fact that our resources are not unlimited. Our country is deeply in debt and we’ve made promises to a lot of retirees that we simply can’t keep. We are finally entering into the era where we cannot count on the government anymore. We need to create our own financial futures. That’s our challenge—and our opportunity.


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