Dollars and Sense
Learning the Hard Way
Are financial experts insincere? Incompetent? Untrustworthy? No, we're more like the doctor who suggests a diet to a patient his own size and then orders creme brulee at lunch. In other words, the real world is full of temptation and tough decisions.
"We all have to make choices," says Marsha Firestone, president and founder of Women Presidents' Organization (WPO), a New York City-based peer advisory group for female business owners. "Maybe you didn't save the cash you needed for college, but you invested in your children in other ways, by taking them on trips or paying for piano lessons. Or you might have decided to reinvest in your business, even if it meant delaying your retirement goals."
That last point hits close to home for Firestone. Although she urges other women who own businesses to set up retirement accounts as soon as their companies can afford it, she didn't heed her own message when it came to the company she founded. "In the beginning, the business couldn't have handled it, but two years ago, it could have," she says. She's now begun to set that account up, but she's painfully aware that it will be impossible to make up for those years of tax-sheltered savings.
Even with ready cash in hand, financial experts don't always put their money where it should be. Jean Chatzky, the author of Pay It Down! From Debt to Wealth on $10 a Day (Portfolio, 2004), is proof positive that Myth #1 about personal finance pros -- that we never make mistakes -- in fact is myth.
"Early on in my career, I was sitting on $3,000 in a savings account," Chatzky recalls, "which was earning about 3 percent interest. At the same time, I had $3,000 in credit-card bills, which was costing me 18 percent interest. People who knew much more about money than I did told me that it was crazy not to pay off the debt. But I can't tell you how long I ignored that advice and just sat around doing nothing."
That error was costly, but nowhere near as much as Chatzky's failure to roll over her retirement account when, as a rookie journalist, she switched jobs. "The truth is, I didn't really understand the rules about retirement accounts. So my savings ended up getting cashed in, which meant I owed taxes and a penalty."
Luckily, she has no intention of retiring anytime soon, and I guess that's my consolation, too. After all, I failed to sign up for a 401(k) plan at my first job because I was convinced I'd be fired any day. In the end, I missed out on 10 years' worth of savings. It won't be any surprise to learn that I wrote plenty of retirement-savings articles during that same decade.