CNBC’s Sharon Epperson talks with Opportunist’s Managing Editor Leslie Stone about what Americans can do to ensure their financial health, the importance of savings and why it’s good to be honest with your kids about money.
April is National Financial Literacy Month and what better time than spring—the season of new beginnings and optimism—to take a fresh look at your own financial health? As CNBC’s senior personal finance correspondent, Sharon Epperson covers the many facets of how people manage, grow and protect their money.
She believes that talking openly and honestly about not only our victories but also our money mistakes is a great way to start building better financial habits. “People don’t talk about their financial challenges but it’s important to talk about them, particularly to young people,” she says. “Tell your children ‘this was a misstep that we took’ or ‘I didn’t make a sound investment’ or ‘we can’t take a vacation this summer because I didn’t get a raise.’ People think their kids can’t handle hearing about it but sometimes kids are savvier or stronger than we think. It’s an important way to learn.”
Epperson’s expertise includes saving and investing for retirement, paying for college, managing mortgage, student loan, credit card and other debt, and building a financial legacy through estate planning. She was invited to the White House to speak about financial literacy and to moderate a public meeting of the President’s Advisory Council on Financial Capability at the U.S. Treasury Department. She is especially passionate about improving financial literacy in underserved communities. “When I first came to CNBC one of my colleagues told a story about buying his first share of IBM when he was nine years old,” she says. “Lots of communities, especially of color, don’t have those kinds of stories. Perhaps no one was even financially healthy in their immediate family—or investing.”
Epperson’s first book, The Big Payoff: 8 Steps Couples Can Take to Make the Most of Their Money—and Live Richly Ever After, was a finalist for the Books for a Better Life Awards. She is also a regular contributor on NBC’s “Today,” NBC Nightly News, MSNBC and NBC affiliates nationwide. “I love talking to people about money,” she says. “I really do. Most people want to be financially secure but no one has it down perfectly. Even for those who you think have it completely together, there are often parts of their lives that are crumbling. It’s fascinating to me to kind of delve into that and learn personal stories of success and obstacles and challenges that are being faced or overcome.”
Opportunist: What are some of the most important steps Americans should be taking right now to ensure they are financially sound?
Sharon Epperson: The most important step is to really live within your means. Understand what you absolutely must have to live on, that’s essential, and what you can give up. When you do that you start to figure out how much more you can cut and how much to save for immediate as well as long-term needs. Budgeting comes down to making sound financial decisions. It helps to know ahead of time what your goals are and how you intend to get there. If you’re steadfast in making these goals happen, you need to realize there are some things you may need to do that may hurt a little or lifestyle changes you’re unaccustomed to.
Opportunist: Is it better to pay off unsecured debt such as credit cards before establishing a savings?
Sharon Epperson: It’s not an either or. I encourage people to have different pots of money. In The Big Payoff, I talk about the 60 percent solution. That’s the idea that no more than 60 percent of your gross income should go to committed expenses such as student loan debt, credit cards, mortgage. The other 40 percent is broken up with 20 percent in long-term savings for college or anything that may be five to 10 years down the road, 10 percent in short-term savings or an emergency ‘rainy day’ fund and 10 percent fun money. Lots of people have debts or responsibilities that require them to have a smaller slice of fun money but if you have enough disposable income to allocate 10 percent to fun money, great.
To answer your question more directly, you should not be paying down debt without saving. You should be allocating your income into different pots. The easiest way is to automate everything. Have your paycheck automatically deposited into savings and checking. Then the idea of paying yourself first is automatic; it happens every payday. And have automatic bill pay set up to pay your bills.
Opportunist: How can someone be sure his or her 401(k) offers the most benefits?
Sharon Epperson: You can find out how your 401(k) rates against others at BrightScope. It’s important to know what your company’s matching contribution is and see if that number changes. You can put in up to $18,000 a year—up to $24,000 if you’re 50 or over—which is about $500 more than 2014. Another great option is a Roth 401(k). Many companies are now doing that. It works somewhat like an IRA. It doesn’t give you the tax break up front like a regular 401(k), but when you take it out it’s tax free. And there is no income restriction. You can make as much or as little as you want and contribute to a Roth 401(k). In terms of the investments, you can find out a little about all the mutual funds that are available on CNBC.com, Morningstar or Yahoo Finance and figure out what stocks are inside them. A lot of people want to invest but don’t know how or where to invest. Target-date funds have become popular. The investments are more aggressive when you’re younger and less aggressive as you get closer to retirement date. It’s a great way to put your investments on autopilot.
Opportunist: Ever since the Great Recession, a lot of companies have been using freelancers and independent contractors instead of adding more workers to their payroll. Do you see that affecting the job market and the way Americans work for years to come?
Sharon Epperson: The landscape is changing dramatically and quickly. We will see a significant increase in the number of independent workers. Companies are interested in figuring out how to get talented folks without being responsible for the benefits tied to them. As more and more people get disgruntled with work, laid off or decide to change jobs, they are also becoming interested in freelance work and starting their own business. It’s an interesting time of great opportunity for innovation and for our economy but, in terms of one’s own personal finances, it requires a real commitment and attention to that part of your life as well as building your business.
We talk a lot on CNBC about workers having to fend for themselves in planning for their financial security long term. We have done stories about companies no longer offering pensions and people having to set up their own 401(k) plans and kind of manage those on their own more than they would have to with a pension. That’s essential for independent workers but many, at least anecdotally, that I talk to aren’t familiar with all the types of plans they can contribute to and don’t realize how much more they could potentially save than they could even in a workplace plan. There are lots of opportunities that aren’t really as well known to a lot of self-employed and independent workers.
Opportunist: What are some of those?
Sharon Epperson:. Roth IRAs are good, particularly for young people when they start working. If you have access to a workplace plan, that’s great, but it’s also important to invest longer term for yourself in a Roth IRA. You don’t get an immediate tax break but when you get ready to take that out after age 59 and a half you won’t have to pay any taxes or penalties on that money. Money you put into it is yours to take out any time. It’s a way to build long-term savings, and if something happens it’s yours to take when you need it.
Opportunist: How much money should someone in his or her 30s, 40s or 50s realistically start setting aside for retirement?
Sharon Epperson: Fidelity Investments’ report from maybe a year ago suggested that if you want to retire at age 67 it’s probably a good idea to have at least your current salary saved by the time you’re 35, three times your current salary by age 45, and five times your salary saved by age 55. So by the time you retire at 67 you should have saved eight times that ending salary. I’m sure that makes a lot of people go ‘Are you insane? How is that even possible?’ [Laughs] but I like this benchmark because it’s one of the few simplistic ones I’ve seen and it gives you a guide to strive for.
People don’t realize how much they’re going to be spending in retirement. Healthcare alone could cost several hundred thousand. You may not have the same lifestyle or decide to live in an area with a lower cost of living, but it’s not set in stone. I wouldn’t want people to be so frustrated or paralyzed that they don’t save anything and don’t get there. A realistic start would be to save 10 percent of every freelance check and increase it by 1 percent a year to get to 15 or 20 percent.
Opportunist: What one piece of advice would you give women (of all ages) with regard to protecting their financial health?
Sharon Epperson: Save more than you think you’re going to need at any given time and make sure you have accounts in your own name. It’s an important discipline to start early because it’s much more challenging and difficult to develop later, especially when more things are competing for your money and time.
Opportunist: What inspired you to become a journalist, Sharon?
Sharon Epperson: I started writing for my school paper in high school. I was inspired by a high school English teacher who taught my journalism class that I took as an elective and a few working journalists in Pittsburgh where I grew up. They created a high school journalism workshop for students. I kind of learned the craft through them and from people I had seen on TV or whose bylines I read. They all seemed energized by doing something a little different every day and that’s how I got started.
Opportunist: When did you first become interested in finance?
Sharon Epperson: I started my career as a correspondent for Time magazine and was a little intimidated by the subject matter. I didn’t believe my master’s or my undergraduate degree in sociology and government qualified me. I certainly took economics courses, but they were neither my favorite nor the ones I performed best in. I thought I should steer clear of financial stories and do social issue stories, but I was at the New York bureau and my editor said ‘Look Sharon, you’re in the financial capital of the world … this is what it’s about.’ That encouraged me and I kind of found my way doing business stories with more of a human element to them. I did one story that stood out, which is one of the ways I was recruited to CNBC.
Opportunist: What was it about?
Sharon Epperson: A philanthropist in New York who had worked really hard her whole career at the IRS and saved and invested in stocks. She liked some media stocks and some consumer goods companies. She passed away with millions and millions of dollars just from having earned a meager salary, and she donated all of that money to a university. She was a self-made career woman, a very successful investor and an extremely giving philanthropist. I thought it was a really interesting story and a way to talk about investing in what you know from a very human perspective. That’s how I like to cover business and financial news—in a way that brings out the human interest side of the story.
Opportunist: What was your motivation for writing The Big Payoff? and do you see yourself writing another book in the future?
Sharon Epperson: The motivation behind The Big Payoff was my own life. My husband and I had been married for several years and had not seen any books that spoke to both of us. My parents instilled it in me to be on top of my own finances. My husband is too, but in a different way. I wanted to figure out if there was a way to write about some of the steps you can take as a couple to bring you to the same page even if your attitudes to your money are different. In The Big Payoff there are eight steps to get you to your goals. I would love to write another book at some point, but I’m having a good time in my career and my personal life as a mom and a wife.
Leslie Stone is an award-winning writer, editor and journalist with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides between Florida and Michigan. Follow Leslie on Twitter: @lescstone.
Follow Sharon Epperson on Twitter: @sharon_epperson
Watch Sharon Epperson’s Retire Well Series