Financial Security on Your Own Terms

You Don't Have to Be Rich
by Jean Chatzky

One of America's most popular personal finance experts reveals how you can become happier at any income level through better money management.

Millions of Americans have turned to Jean Chatzky for financial advice, thanks to her weekly appearances on NBC's Today and her column in Money magazine. Now, in You Don't Have to Be Rich, she analyzes the results of a unique survey in which she questioned 1,500 Americans about their financial attitudes and behaviors. She looks at how much money people actually do need to guarantee a happy, comfortable life. And gets down to the nitty-gritty, isolating behaviors that if adopted can significantly improve a life.

The results of this proprietary survey conducted with the help of the Roper Center are remarkable. Chatzky found that while a certain amount of money buys comfort, money can't make you happy at least not in the way most people believe it can. But it can make you miserable, if you're managing it wrong. That's why it's time to make a change.

In her frank, engaging style, Chatzky explains how to "own your money" to create a happy and comfortable life. She outlines the financial habits of happy people and shows how anyone can be a part of this group, no matter what they earn. Filled with fresh insights and real life examples, You Don't Have to Be Rich reaffirms that finances don't have to be a source of stress and that living within your means can be extremely rewarding.

It was shortly after September 11 a time of turmoil in the markets, when it was impossible to read the newspapers, turn on the television, or even listen to the radio without feeling out of control financially that I started to think about the effects money has on the happiness of individuals. The shenanigans of corporate executives in far-flung locales from Texas to Connecticut to Mississippi had sent stock prices plummeting. Wall Street analysts those supposedly neutral parties who tell us what to buy, hold, and (all too rarely) sell could no longer be trusted. Neither could the accounting firms that were supposed to keep companies on the straight and narrow. The measures that usually moved stocks in a positive direction from cost-saving layoffs to corporate stock buybacks had stopped working their magic. Even speeches from the President of the United States and (can you believe it!) Alan Greenspan couldn't seem to turn the indexes around.

And we you and I the individual investors and consumers sitting at home, pouring money into our 401(k)s, putting money into college savings accounts for our kids, counting on these companies to continue to employ us we couldn't do a thing about any of it.

We had no way of knowing whether more corporations would fess up to creative accounting, no crystal balls to tell us if more CFOs were cooking the books. All we knew was that the tried-and-true wisdom "buy and hold," "buy the dips" wasn't doing the trick this time around. And although we had past history to fall back on the history that tells us that markets do, over the long term, come back we could only hope that would prove to be the case once again. But whether or not it actually happened was clearly beyond our control.

There were a lot of us sitting in that rocky boat. Some 100 million Americans had bought individual stocks by the turn of the new century. And every one of them had the distinct impression (not to mention the correct impression) that their world had been rocked.

You know this. You were there with me trying to get a clear sense of what was down that uncertain road. You knew you wanted to buy that first house (or trade up from the one you were living in now). You wanted to send those kids off to a great college, without saddling them with an unimaginable amount of debt. You wanted to be able to retire someday, or at least slow the pace a bit. And when you left this earth, you thought it might be nice to leave at least a little something behind for the next generation. All of those things that seemed so possible, so feasible, so easy a scant few years ago now seemed out of reach.

I know that's how you've been feeling the past couple of years. I know you've been sitting up nights, sweating your future, pondering your losses, worrying that you're going to have to give up that comfortable home, or that keeping it means you'll never be able to stop working and even dreading the thought that when your health goes, you're going to end up being something you never wanted to be: a burden to your adult kids. I know that your financial situation has become a big drain on your happiness.

I know because you've been telling me. You've been writing me, filling my e-mail box (and occasionally my snail-mail one) with the details of your financial lives and how complicated they've become and the drain on your overall happiness that can be.

Some of you were looking for an easy fix. Florence from Philadelphia wrote: "I have 75 percent of my money tied up in stocks. Should I leave what's in my portfolio there and see what happens or sell to preserve what I have left?" R.C. from Albuquerque was in similar straits: "Would you please give some basic suggestions to us shopaholics with no budgeting skills? Must I go cold turkey?"

But many others, like Peter in Colorado, just wanted to commiserate. "I have had to defer my retirement, even though I've been saving and investing in stocks and mutual funds that I felt were relatively secure. Now, with companies like Enron and Worldcom losing value, coupled with the Nasdaq and Dow plunging, a fair percentage of my portfolio has disappeared. As a result, I expect to work a couple of years longer."

How We Embraced the Market and Lost Our Way

How did we get here? How did we allow this to happen to us? These are the kinds of overarching questions investors and, to a lesser extent, consumers were asking themselves in the beginning of 2003.

To understand the transformation from the arm's-length-from-the-market bystanders we used to be to the in-the-game-at-all-times participants we've become, you have to revisit the longest bull market in history, starting with the crash of 1987. To most people 1987 was the year the Dow dropped 400 points and lost 22 percent of its value in a single trading session. I was working as an assistant business editor at Working Woman magazine at the time and vividly remember spending the day talking to distraught traders and investment bankers in lower Manhattan. The shaky voices, tears, and disbelief told me none of them had seen anything like this in their careers. For many, it was their own little taste of the Great Depression.

Yet the crash of '29 wasn't at all like the crash of '87 if you measure by speed of the rebound. In 1987 the Dow Jones Industrial Average posted an overall gain for the year. That fact was pounded on tables for the next decade and more. The lesson was: If you'd used the crash as a buying opportunity you would have come out ahead. All of a sudden, buying the dips was the clever thing to do.

Not only that, it was fun! It was a kick to sink your free cash into a stock like Microsoft, then watch it double and split, double and split. If you were smart enough to buy Citigroup when it dropped to $13, or IBM in the teens in '93, you were rewarded as both soared into triple digits. And, because this strategy worked so often and for so long, we stopped asking ourselves, But is this a company worth its share price? Or does it have such deep-seated fundamental problems that it will never recover?

The market became a game. And it had to be played. If you opted out, you left good money on the table. Worse, you had no stories to tell your friends over drinks, no tall tales for Saturday night's dinner party. As Walter Kirn wrote in The New York Times Magazine in mid-2002: "It's as if the whole country put up an 'Out to Lunch' sign sometime around mid-1997, except that we didn't really go to lunch; we logged onto the Motley Fool Web site behind closed doors and screened our calls while quietly tracking Intel."

It was hotter than Trivial Pursuit. Better than Pictionary. Compelling. Addictive. Who needed to tune into Who Wants to Be a Millionnaire? We could play the real-life version by watching CNBC on cable and making our own bets on e*trade at home. No surprise, then, that we all knew people who took the market to the extreme, giving up decent-paying jobs to try their hot little hands at day trading. Even if you didn't go quite that far, you could still be a player. By the early '90s many of us had the next best thing: a 401(k).

And 401(k)s changed everything. I am not exaggerating when I say it's impossible to overstate the impact that 401(k)s, invented just twenty years ago, have had on our financial lives. By replacing the pension as the retirement vehicle of choice, 401(k)s took the responsibility for paying for our retirements off the shoulders of America's corporations and put it squarely on your shoulders and mine. And while in the very beginning we were reticent to accept such a shift, as soon as the markets took off we embraced it.

And why wouldn't we? Our 401(k)s were giving us the opportunity to snare a much more lavish retirement than we had ever thought possible. We could rack up beaucoup bucks in these accounts during our working years and then, when we slowed down, use the money to summer in Nantucket and winter in Telluride, to send our grandkids to Princeton, to retire at fifty if that was the goal. We knew it was possible. And we had gurus like Jim Cramer and Joe Battapaglia and books like The 401(k) Millionaire and Dow 36,000 to tell us how.

Copyright © 2003 Jean Chatzky. All rights reserved. This excerpt, or any parts thereof, may not be reproduced without permission.

About the Author

Known to millions of readers and tv viewers, Jean Chatzky is the financial editor of NBC's Today show and also appears on CNBC. She is a regular columnist for Time, Money, and USA Weekend magazines. She is also the author of Pay It Down!