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Welcome to NerdWallet's Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion of fake online reviews and how to find trustworthy buying advice.
Then we pivot to this week’s question from Kyle. He says, "Is it a bad idea to save too much money? Recently, my family and I were discussing my savings and my older sibling was concerned that I am saving too much. I'm 25 years old and make $32,000 a year before taxes. I have my paycheck set up to auto deposit 8% to my 401(k), 8% to my Roth IRA and a flat $500 per month to an account I pay my rent from. And finally $250 per month goes into my high yield savings account. My sister pointed out that I may want to keep more of my money liquid instead of almost 30% going into accounts I don't touch. Should I lower my monthly contributions to retirement for now given I'm so young so that more of my money is liquid?
Check out this episode on any of these platforms:
Too many people avoid saving for retirement because they think their money will be inaccessible should they need it. In reality, you typically have a few ways to tap your retirement funds in an emergency, although it’s usually best to leave the money alone to grow if you can.
Saving 15% or more of your income for retirement, starting in your 20s, is a great idea. Your expenses tend to rise as you age, so there may never be a better time to start a significant savings habit. Plus, the later you start for retirement, the harder it is to catch up. Our retirement calculator can help you figure out how much you need to save.
Saving for emergencies is also important, and we have a calculator for that, too. It’s best to keep the money in a safe, accessible place. You don’t want to risk emergency funds in the stock market, but you can earn more interest by using a high-yield online savings account.
If you’re trying to figure out how to save more, consider checking out one more calculator: the 50/30/20 budget calculator. This budget can help you find the right balance among needs, wants, debt repayment and savings.
Figure out how much you should save. The 50/30/20 budget tool can help.
Earn interest. High-yield online savings accounts pay better than traditional banks.
Don’t go overboard staying “liquid.” Keep emergency savings accessible, but don’t avoid retirement funds because you think you won't be able to access the money — you can.
More about saving on NerdWallet:
Liz Weston: Welcome to the NerdWallet Smart Money podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Liz Weston.
Sean Pyles: And I'm Sean Pyles. As always be sure to send us your money questions, call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or email us at [email protected] We are here to help you, so keep your questions coming. Also, if you want more Nerdy goodness delivered to your devices every Monday, hit that subscribe button.
Liz: And if you like what you hear, please leave us a review. On this episode of the podcast, Sean and I talk with Kim Palmer about whether it's possible to save too much. But first, in our This Week In Your Money segment, we're talking about fake reviews from online stores and how you can cut through the misinformation to make an actually informed decision.
Sean: Right. This was inspired by a recent report from the Financial Times that found that the top reviewers on the Amazon in the UK were basically engaged in a fraudulent pay-for-review scheme and Amazon ended up taking down 20,000 reviews as a result.
Liz: This isn't the first time the mega retailer has been found selling products with artificially inflated ratings. A Wall Street Journal investigation found in 2019 that a number of products that had the "Amazon's choice" badge were unsafe or mislabeled.
Sean: Right. Amazon is, of course, a really big and easy target, but it's not the only place with fake reviews; they are on eBay and Walmart.com too. Which leads me to my first question for you, Liz, which is how do reviews factor into your online shopping process and how do you vet for fake reviews?
Liz: I have to say I'm a little bit late to this party. I used to really trust the Amazon reviews and then I was reading — and I can't even remember what the product was — but I was reading through the reviews and realized the reviews were all referring to different things, like one was talking about this great kayak and another was talking about a scarf and another one was talking about a toy and I'm like, "wait a minute, these are phonies." So, yeah, a little bit late to the party but I did find a site called Fakespot that can help you at least sift through some of those reviews and see which ones are kinda suspicious.
Sean: I actually have not heard of that site. What is that?
Liz: Basically they look through the reviews for some sort of automated process that is going on, some sort of algorithm, and they look for reviews that have disappeared — been pulled off — like missing reviews. And they also look at . . . I guess, the quality of what's being said. Because sometimes when you read those reviews you're like, "Wait a minute. What is this? People obviously have a very weak grasp of English or what they're supposed to be reviewing" . . . that kind of thing,
Sean: Or this random ceramic pot is the most amazing thing they've ever seen in their entire life which is tons of hyperbole in these online reviews. But I love looking through reviews because they're a fun little slice of how weird people can be on the internet. But one red flag for me that I'm seeing a fake review or a number of them is that they'll often use the same language over and over among several different reviews. It's kind of like how bots on Twitter all will say the same thing when they're trying to throw misinformation at a certain subject. I see that for reviews on Amazon sometimes, and it's like they're trying to keyword match. Once you get a feel for the certain cadence of fake reviews they become pretty easy to spot. But my main way of overcoming all these fake reviews is to do my own research. I find that research is more valuable than reviews.
Liz: Yeah. Do you ever get paralyzed? I mean, I've done that a few times. I go in and think I'm going to buy something and the reviews are all so mixed I'm like, "I don't know," and I run away. Does that ever happen to you?
Sean: Yes, absolutely. Because I fall down these holes of reading all the reviews and trying to analyze who these people are that are writing them and what's their motivation and what's going on here — is this trustworthy, is this not? What helps me is getting away from the review hole on Amazon or Walmart, wherever it is, and actually going to a website that is professional and does reviews like CNET or Wirecutter, because these people are professionals and they know how to review an item.
Liz: Another resource that's a little more old school is Consumer Reports. They've been around for decades. They don't cover everything, they don't do reviews on everything, but they have very rigorous standards and I feel like I can trust them. So here's a case where crowdsourcing may not be the best way, maybe you really do need some professional reviewers to weigh in.
Sean: Yeah. I kind of like having a mixed approach where I'll go to the professional reviewers for a breakdown of the tech specs — like I bought a coffee grinder a few months back, and I wanted to get a nice one because the last two that I bought broke on me within six months. So I was going to spend a little more money to get one that wouldn't break on me immediately and so I went through the CNETs, through the Wirecutters, read tons of reviews. But I go to the reviews on the different shopping websites. That helps me get an understanding of what the average experience is like. Some people are going to love this thing, some won't, but I typically fall somewhere in the middle. And so for me it helps me understand what the day-to-day usage of this thing might be like beyond just the professional review.
Liz: Well and your broken coffee machines lead me to another concept, which is buying it once, looking for real quality in what you're buying,. You have to pay more upfront for it almost always. But if you wind up only having to replace it every five years or 10 years or whatever I feel like that's a good use of my money. And I don't always do it, obviously, but more and more often now I'm looking at OK how long is the warranty for this and what are the reviews saying about how long they last? Because if I have to buy another one in a few years it might not be the best choice even if it is the cheapest.
Sean: I found myself doing that a lot more since quarantine hit because before you'd buy something, if you don't like it, easy, go print out a return label, send it off to USPS and it's done. But I am less inclined to send things back now, so I'm doing more research. I'm spending money on the things that I think are going to last me — things that I'm going to use every day like my coffee grinder. So that way I don't have to go through the hassle of returning things.
Liz: Yeah and that way you're saving yourself money, you're also saving the planet, so win-win.
Sean: Yeah. Yeah, exactly. But there is one area of shopping where I do really like personal reviews and that's clothes shopping. I'm not sure if you have had this experience with COVID, but I've been doing more online clothes shopping in part because I've been working out a little bit more so I'm a little beefier than I was maybe four months ago. But my predicament is that I'm short and a little beefy and so I have a hard time finding pants that will fit me right — like the legs are too long but then the short pants are too skinny to fit over my calves. And so, reading people's reviews helps me really understand the way that it fits me because that is such an individual experience and it's not like you can just throw off a few hyperbolic words about a toaster or whatever and just send off your review. With clothes, people are more intentional about how it fits you, so that has been very helpful for me.
Liz: Yeah. Come to think of it, that's what I do with shoes, because I have a hard time finding shoes, and it's like looking for the people that have the 9-½ narrow.
Sean: Very specific right?
Liz: Yes, I have skis for feet, so it's pretty important that I get the right kind and I need somebody else who's got the same situation dealing with it. Yeah, that's a good idea.
Sean: I think it helps also to apply a little bit of common sense when you're sifting through reviews. If something has 3,000 five-star reviews and all of the reviews say it was good then that's probably not going to be the most legitimate thing. But if someone spends time to write a really thoughtful review, then I think you can vet it a little bit better. And I also like sorting by one-star reviews to get a feel for what the worst-case scenario is.
Liz: Yes, and I like to go and see what the recent reviews are because Amazon in particular — they'll do a different sort — and I always like to go and switch it. So you click on reviews and then you click into the most recent and then you can see what's happened to people or typically what's happened to people in recent months because it could be a great product and then go completely off the cliff, and you wouldn't know it because it's only the most recent reviews that are bad.
Sean: Yeah especially in the past few months. So much has changed with supply chains, with production, I think it helps to know what's going on right now and you're totally right looking at those recent reviews is a really good resource for that. Well, I think that about covers it for this convo.
Let's get to this episode's money question which comes from Kyle. He says, "Is it a bad idea to save too much money? Recently, my family and I were discussing my savings and my older sibling was concerned that I am saving too much. I'm 25 years old and make $32,000 a year before taxes. I have my paycheck set up to auto deposit 8% to my 401k, 8% to my Roth IRA and a flat $500 per month to an account I pay my rent from. And finally $250 per month goes into my high yield-savings account. My sister pointed out that I may want to keep more of my money liquid instead of almost 30% going into accounts I don't touch. Should I lower my monthly contributions to retirement for now, given I'm so young so that more of my money is "liquid."
Liz: You know, I feel like I'm watching a horror movie, when the guy is going into the darkened room and you're saying, "Don't go in there." I'm thinking the same thing, "Don't listen to your sister! It's a bad idea."
Sean: Yeah. I was thinking that I'm watching something like Family Feud where you can see a sister maybe being a little bit jealous of how much a brother is saving and want to say, "Hey, maybe you shouldn't do so much of that." But maybe that's my own projection going on here.
Liz: You can tell we have siblings.
Sean: Either way, saving a lot is not a bad idea. I think it's great that Kyle is saving this much. But at the same time you want to make sure that your money is going as far as it possibly can, so there's a lot to unpack here. But to help us answer Kyle's question on this episode of the podcast we're going to talk with Kim Palmer.
Liz: Hi Kim. Happy to have you back on the show.
Kim Palmer: Hi, thanks so much for having me.
Sean: Hey, Kim, so glad that you are here. Our listener Kyle is wondering if he's saving too much money, a problem I'm sure many wished that they had. He deposits about 16% of his income into retirement accounts and has regular contributions to his emergency fund, but his sister thinks that he should have more liquid cash on hand. What do you think?
Kim: Well, I am definitely with Kyle on this. I think that the vast majority of us just don't save enough. And so that's why it might sound a little strange to his sister. It might sound almost unbelievable that he can save this much. But actually, it's great that he's saving this much and he's right on track with his savings, and so I say kudos to Kyle.
Liz: I think it's really great that he's saving so much while he's this young because actually this is the best time to save, right, Kim?
Kim: It really is and I actually think that in some ways it's the easiest time to save. Even though it sounds counterintuitive when you're young, your income is lower, but your expenses are also lower in terms of relative to what you might be taking on later in life in terms of mortgages and potentially children or family responsibilities. And so, now is the perfect time not just to save, but just to get in the habit of saving. So, I think the idea of setting aside these amounts, these percentages regularly is really a good one. And also his savings — it's in a liquid account. It sounds like a lot of his savings are in a savings account that he could access pretty easily if he needed that money.
Sean: Well, I think it would help Kyle and his sister settle their dispute if they had some parameters to structure how they think about savings and one tool that we like to reference a lot is the 50-30-20 budget. So Kim, can you explain how Kyle's savings habits could fit into this structure?
Kim: This is a tool I really love. I use it myself when I budget. Basically the 50-30-20 budgeting tool means that you're putting 50% of your after-tax income towards your needs, so that's things like your housing, your groceries. Thirty percent is going towards wants. That's if you're buying something like a takeout meal. And then 20% is going towards savings and debt payments. So even though it's great if you're saving more than that, it's a really good target to aim for 20% of your after-tax income going towards savings and of course that percentage includes things like your pre-tax retirement savings.
Sean: One thing I also think would be good to talk about is the idea of saving with a purpose. Because when I started saving, first of all as I've talked about before on this podcast, I used to have a hard time saving. And when I finally got into it I was saving a lot and I would talk with people and I think that Liz you asked me this question you were like, "What are you saving for?" And I did not have an answer. I was saving for the sake of saving. And so, I think that one thing that can help address some concerns or uneasiness around saving is figuring out what you want to save for. I think it's good to have an emergency fund especially now. And then once you've hit a steady rate of savings think about what you might want to save for. Is it a house? Is it a car? Make sure that you're saving with a purpose and you're not just stockpiling money and it's not really working for you.
Kim: I really like the idea about being really specific about your goals, and I think for a lot of people too who are more visual it can help to really concretely think about are you saving for a car, a house? And having those images to think about specifically, what kind of house, what kind of car — it can help motivate you when you are starting to say no to yourself, "No, I don't want to splurge on that." It gives you something you're saying yes to down the road. So it just helps change the framework so you feel more positive about saving — if you think about all the things you're saying yes to in the future because you're saving more today.
Liz: And actually, Sean, the way that you did it by just saving to save, that's actually a very good habit to start with because a lot of people aren't in that habit. And when they've looked at people who, especially people who are low or moderate income, who don't have emergency funds it's typically the fact that they're not in the habit. So the fact that you got that started is great, but as you guys have been saying, having a specific goal is really important too because that also tells you how to invest the money or whether to invest the money. If you've got a long time horizon, if you won't need the money for a long time, then you can do things like invest in stocks and bonds. If you're going to need that money or you may, then it needs to be somewhere safer.
Sean: Well, that's something I was thinking that we should touch on as well is when Kyle would be able to maybe open a brokerage account or a robo-advisor account and begin making the money that he's tucking away work for him more productively. A high-yield savings account is great to have, but as we know, the savings rate has been going down on those — they're not working as hard for you as they were maybe a year ago. So, I'm wondering if you guys have any thoughts about when Kyle might be OK with the amount that he has saved and maybe he should start looking at other forms to save like maybe a CD or a brokerage account.
Kim: Well, I always like thinking that first you want to make sure your emergency fund is squared away, like you mentioned, and then once you feel comfortable that you have expenses saved up so if you did suddenly experience an income loss you could handle that for a few months, then you can think more broadly about taking on some more risks with your investments to get some of that higher reward. So I think after you have that emergency fund saved away, that's when you can start thinking bigger.
Liz: Yeah. I think people get kind of tangled up in the idea that all of their money has to be working hard for them, and that is not the case. When it comes to your emergency fund, you want that money sitting in a rocking chair — you want it waiting for you when you need it. It's only when you have a lot of time and you can ride out the stock market ups and downs that you should be thinking about taking more risk with it.
Kim: I also wanted to say I think it's so great that it sounds like a big chunk of his savings is already in a high-yield savings account. So many people aren't in that situation and they're putting their savings in traditional bank accounts that have extremely low interest rates right now. Of course, we are in a low-interest-rate environment so it's hard to earn much of a return on your money, but you can really get as much out of your savings by putting it into a high-yield savings account. So I think that's a great move he's making.
Sean: And to his sister's concern about the money being liquid, a high-yield savings account is a fairly liquid form of cash. With the one that I have it takes a little while to transfer from one account to the next, but I have a debit card that if I need to in a pinch I could withdraw that money. So in that sense, it is extremely liquid just like a regular old traditional bank account.
Liz: And Kim, it's not like his retirement account is completely inaccessible, right?
Kim: That's true. So he's saving a lot in retirement and in an emergency — of course that's not something we recommend in normal times — but in an emergency, you could withdraw money from your retirement account, for a penalty of course. But that could get you through a really difficult crisis if you were experiencing one.
Liz: And he's also got a Roth, so that means that any money he puts into the Roth he can take back out again. I think a lot of people get confused about that, they think there's some sort of five-year waiting period but you can always get back your contribution. So if you put $10,000 into a Roth IRA you can pull out $10,000 at any time without owing taxes or penalties.
Sean: I also want to go back to Kyle's question because one thing that his sister was concerned about, she said that he might want to keep more of his money liquid instead of the almost 30% going into accounts that he doesn't touch. Do you guys think there is a set amount that someone should have in their easy-to-access debit account?
Kim: I think that at the minimum you want to make sure you have your monthly expenses, the things that are coming in and out. So look at how much you're spending each month and that you need that easy access to in something like a checking account where you're constantly withdrawing it. But beyond that you want even your short-term savings in something that's earning a little bit more of a return.
Liz: This is interesting because I did ask — at one point I asked a bunch of financial planners — "How much should we have in checking?" We're always talking about how much money we should have in an emergency fund. And it was surprising how differently they answered that question. And they're, of course, talking about high-net-worth people. Several of them said, "We should always have a month's worth of expenses in our checking account." If you are living paycheck to paycheck or anywhere close to that — if you have enough money in your checking to get through the week, that's a good thing. Kim, I don't know if you've had this happen but I've actually heard from people who were saving too much. They were putting so much money into savings they actually weren't living their life. They were passing up opportunities to travel, to spend time with friends, whatever. Have you run into that?
Kim: That's so interesting because I feel like I have only seen the opposite — maybe it's just my friends.
Sean: Well, I think there's a way to strike a middle ground here which is where I like to live, where you can plan for tomorrow, save for tomorrow, but enjoy today. Which means maybe getting some takeout, maybe buying a new pair of shoes, but making sure that it's all within reason.
Liz: That sounds great.
Sean: Kim, I think that pretty much covers it. Do you have any final thoughts for Kyle?
Kim: Well, this whole question from Kyle started because of his sister, so I think it's interesting for him to maybe talk with his sister. Maybe this is coming out of a place of concern for something that's going on in her own life — maybe she feels like she should save more. So I think it does open up the possibility for them to have an interesting conversation about budgeting and saving and it could end up being helpful for both of them.
Sean: I think that's great advice. Thanks for joining us.
Kim: Thanks for having me.
Sean: All right. And with that let's get onto our takeaway tips. First up, use the 50-30-20 budgeting tool to get an estimate for how much you should be saving.
Liz: Second, make sure your savings are earning interest by putting them in a high-yield online savings account.
Sean: Lastly, don't worry about your retirement accounts being off limits. You can always access them in a pinch.
Liz: And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds or call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected] Also visit nerdwallet.com/podcast for more info on this episode. And remember to subscribe, rate and review us wherever you're getting this podcast.
Sean: And here is our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz: And with that said, until next time, turn to the Nerds.