NerdWallet's Smart Money Podcast - Social Media Shopping Tips and Smart Spare Cash Investing

Episode Date: December 25, 2023

Learn pro tips for shopping on social media so you don’t overspend, and smart strategies for investing your spare cash. This Week in Your Money: Get equipped with practical tips to shop smart on social media platforms and stay vigilant against overspending. Personal finance Nerd Kimberly Palmer joins hosts Sean Pyles and Liz Weston for a Nerdy look at how your social media feed may be leading you to spend more money than you should. You’ll learn about useful browser extensions to help you compare prices, a reminder to check customer reviews and how the setting and a false sense of urgency can lead people to spend too much money and perhaps share too much personal information. Today’s Money Question: Investing Nerd Sam Taube joins Sean and Liz to answer a listener’s question about how to invest extra money currently sitting in a high-yield savings account. The Nerds take a deep look into the importance of emergency funds and how to set realistic financial goals, offering practical advice on starting your own emergency fund and discussing how your cost of living can influence the amount you should consider saving. They also explain how using online banks can make savings goals more tangible, before they switch gears and dive into the vast world of investment options, including the mutual funds, exchange traded funds, individual stocks, high-interest savings accounts and money market accounts. Takeaway Tips. In their conversation, Sean and Liz discuss: social media shopping; influencer marketing; price comparison shopping; how to read customer reviews; smart shopping browser extensions; limited time offers; options for investing spare cash; emergency funds; cost of living adjustments; online bank savings buckets; short-term and long-term financial goals; money market savings accounts; money market mutual funds; CDs; and splurging. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Hey, nerdy listener, Sean here. We are taking the week off. So please enjoy this episode from our archives. We'll be back in the new year with tons of excellent podcast content from our genius nerds. In the meantime, send us your money questions. You can always leave us a voicemail or text the nerd hotline at 901-730-6373. That's 901-730-NERD. Or you can email your questions to podcast at nerdwallet.com. All right, here's the episode. Ever feel like you just aren't sure where to invest the money sitting in your bank account? Well, this episode, we've got you covered. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles.

And I'm Liz Weston. Listener, we know you have questions about money and we have the answers. So let us know what's on your mind. You can leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdvolat.com. In this episode, we're answering a listener's question about investing the money that's sitting in their bank account.

But first, we're joined by personal finance nerd, Kimberly Palmer, who's going to give us some smart tips for shopping on social media. Welcome back to Smart Money, Kim. Thank you for having me. Hey, Kim, you recently wrote about how to shop on social media in an era of scammers and ever appealing impulse purchases. Online shopping is the norm for so many of us. So why do you think now is a good time for a refresher about being a savvy shopper, particularly on social media? I think it's because so many of us are doing it right now. We've actually seen a huge uptick in retailers putting a lot of money into their social channels, especially the ability to shop directly through social media. So you don't even have to leave social media to make your purchases. And about half or almost half of US consumers actually say they have already made a purchase on social media. So it's definitely happening more and more.

I think we've probably all seen our favorite influencer or brand selling on Instagram. I know I have. And so it's just a good time to talk about it. Yeah. And so are you thinking about things like Instagram lives, Facebook lives, as well as posts in people's feeds? Yes, sort of all of the above. So what we're talking about here includes any kind of social shopping or shopping directly on social media. So that can include when you have an influencer saying, hey, I love this product. Here's my special code for a discount. You can buy it right here. You know, link is in the bio. Or it also includes live events where you actually are sort of shopping with an influencer and they're sending up the codes that

you can click on and make your purchase. So basically anything where you're on social media and shopping at the same time. Yeah. It's like these influencers have their own QVC channels on their platforms at this point. Yes, it's exactly like that. Well, overspending can be all too easy on any media, let alone social media. So how do you pump the brakes? I think the big challenge with social media is that everything feels so urgent because you'll often see the influencer say, hey, there's a limited time when this deal works or there's a limited number of product. And so you feel so much pressure to make your purchase immediately. And the key as a shopper is to realize, no, you don't have to buy it right now. You can step away, take time to think about it. And, you know, you'll probably find another discount code later if you really want it.

Mm hmm. Yeah, we talk a lot about scammers on this podcast. And one of their go-to tools is to create a sense of urgency and pressure you into sending money as soon as possible because something bad will happen. In this case, it's not quite as drastic, but they're saying essentially, you have a very limited time to get this one thing that's going to totally fix your life. And if you don't do it, then everything's going to be crappy for you. So send this money now. I'm just wary of this whole playbook. So I think it's important for people to take a step back maybe when they are shopping online and realize they probably actually don't need that thing that's in front of them. Yeah, that's so true. And I think a lot of times too, we're often scrolling at night,

we see these tempting deals pop up. And so we don't have all of our automatic filters, you know, turned on fully when you're tired. And so I don't have all of our automatic filters, you know, turned on fully when you're tired. And so I think it's extra hard to step away, but so important to do so. Well, price comparing and checking reviews are kind of par for the course with online shopping. Is that easy to do when people are shopping on social media? It is easy to do as long as you give yourself that space and time to do it. And so you don't want to get sucked into purchasing right away through the app. You want to leave the app, do some searches outside of it, just open up a browser and see what prices are for the product you're looking at other places. You also want to look up customer reviews because of course you don't want to buy

something without checking what other people have said about it. And so you just need to make sure you take that time to compare prices and check customer reviews. If you skip that process, that's where it's easier to get into trouble. And of course, I always say I love using apps to do some of this work for you. So you might want to have a price tracking browser extension to be scanning in the background, do some of that comparison shopping so you don't have to do it all manually. Okay. And you have a couple of go-to apps that you use for this, right?

I do. So I really like the Honey browser extension. It comes from PayPal. It's very easy to download and use and have it run in the background. It can pull in discount codes. If you're a big Amazon shopper, the Camelizer browser extension is a great go-to one to use because it gives you the whole price history. You can set up price alerts for specific products. So you just want to make sure you're using something. Okay, that's good advice. So I want to go back to the idea of scams because in a recent episode, Liz and I talked about the prevalence of scams online, particularly around shopping on social media.

How do you suggest people stay safe when they're shopping on these platforms? It's really all about remembering that you are still among strangers and to not really get sucked into that mentality that you should overshare because you're with like-minded people. Especially on the live shopping events, you see a lot of people commenting and sometimes they're even sharing personal things, what exactly they purchased, maybe even where they live or where they're going to be wearing the item they just bought. And you just want to be a little careful with that because you don't really know who these people are, even though you do feel like you're kind of friends chatting in person, they're still strangers. And so you just want to be careful of oversharing. And then also think about when you do share your credit card or your payment information to actually make a purchase.

You want to make sure you're not actually leaving the social media app and entering it into a third party site that you're not familiar with. And you also want to consider using a credit card because, of course, credit cards do give you extra fraud protection. More and more, I'm just defaulting to using Apple Pay. And I think Google Pay or Samsung Pay is similar because I use a credit card within that app, but it tokenizes the whole transaction. So the merchant can't see my credit card information. I think some people do connect their debit cards to those things. You just want to make sure ultimately you're using a credit card. Okay. Yeah. That makes sense. That's good to know. But at the end of the day, social media shopping can be a lot of fun. Given all that we

just talked about, how can people still find joy when they're shopping on social media platforms? out. And there's nothing wrong with that as long as you're taking some extra precautions just to protect yourself. So you can still enjoy it as long as you're taking that time to compare prices and keep yourself safe. All right. Well, Kim, thank you so much for talking with us. Of course. Thank you. Before we move on, we have an exciting announcement. We are running another book giveaway sweepstakes ahead of our next Nerdy Book Club episode. Next month, we're talking with Cameron Huddleston, author of Mom and Dad, We Need to Talk, which guides us through difficult but really important financial conversations that we need to have with our parents. To enter for a chance to win our book giveaway, send an email to podcast at nerdwallet.com

with the subject book sweepstakes during the sweepstakes period. Entries must be received by 1159 p.m. PT on August 9th. Include the following information, your first and last name, email address, zip code, and phone number. For more information, please visit our official sweepstakes rules page. And with that, let's get into this episode's money question segment. This episode's money question comes from Uli, who sent us an email. Here's their email as read by Smart Money producer, Rosalie Murphy. Hi, NerdWallet. Love the podcast. I have

about $68,000 total in a high interest savings account with $10,000 dedicated to an emergency fund. I'm currently maxing out my 401k and Roth IRA and investing about $500 every month in a general investment account through index funds. My question is, I don't know what I should do with the extra money. I live in LA and cannot afford a home here, but it also feels like it's too much money just sitting there. Should I put more of my money in index funds? Thank you for your time. Keep up the good work. Best, Yuli. To help us answer Yuli's question, on this episode of the podcast, we're joined by NerdWallet investing writer Sam Taub. Welcome back to Smart Money, Sam. Great to be back.

Great to have you, Sam. Before we get into the conversation, a quick reminder for our listeners, we will not tell you what to do with your money. We are not financial or investment advisors. Our job as nerds is to give you information so that you can make your financial decisions with the utmost confidence. All right, well, with that out of the way, let's start by talking emergency funds. Our listener is in a pretty sweet place with $10,000 set aside for emergencies. But I'm wondering, given where they live, whether that would be enough. So Liz, can you start us off by giving some general rules of thumb around emergency funds? Yeah, generally, it's a good idea to start with at least a small emergency fund, say $500. Even saving that, of course, can take some time, but it would probably be enough to

cover a lot of small emergencies like a flat tire, losing your keys and having to have a locksmith come to let you into your apartment, things like that. From there, what you want to aim for is three to six months of your basic expenses. You probably don't need to factor in things that you could cut back on, like delivery, eating out three times a week, whatever your indulgence is. But if you lose your source of income for whatever reason, you'll want to figure out what is your nut, what you absolutely need to cover. Shoot for one month to start and then eventually build it to three months. And if you can get to six months, even better.

It occurs to me in the context of this reader living in LA that housing can be a very difficult thing to cut back on. I looked up some numbers and it seems like the average rent in Los Angeles right now is about $2,400 a month for a one bedroom. That's as of June 2023. So if you do the math on that, three months of rent is about $7,200. So I think in this case, given the guideline of three to six months expenses, you could make an argument that this listener should set aside $20,000 or even $30,000 for an emergency fund given LA's cost of living. And given that they have almost $70,000 in their high-yield savings account,

it sounds like reallocating some of that money is potentially possible. I think it might be helpful for them to go through that exercise that Liz mentioned of really getting clear on what three or six months of basic expenses would mean. That's going to cover things like rent, groceries, but maybe not everything you would get at the grocery store when you have a steady income. So in my case, that would be cutting back on things like smoked salmon or other little indulgences. But just know what would get you through a good amount of time if you didn't have an

income coming through. Yeah, exactly. And if you have other sources that you can tap, like if you have, I don't know, another income coming in, if you have generous parents, maybe you need a skinnier emergency fund. If you are on your own, if you wouldn't want to tap those options, then maybe a larger emergency fund would be a good idea. Mm hmm. All right. Well, now let's get to the fun part. What to do when you have tens of thousands of dollars just burning a hole in starting a family or starting a college fund for your family or even retiring early. Whereas the short-term goals we're talking about here would be things like a dream vacation or a new car. In general, long-term goals are things that are going to be more than five years out,

whereas short-term goals are going to be things that are less than one year out. And there are medium-term goals that are somewhere in between those. What strikes me about Uli's question is that they don't seem to know what they want to do with this big chunk of money. And I think something that might be helpful for them would be setting up savings buckets. This is something we talk about a lot on Smart Money. And it's essentially a way to have different sub savings accounts within your high yield savings account that you have set up already for different goals. I have about half a dozen right now. I think I have one that is my fence fund. I have one that's a wedding fund. I have one for taxes, one that's my emergency fund.

And I just put money into these accounts either all at once if I get a big windfall, or I also do regular automatic deposits from my paycheck into these different savings buckets. And that helps me structure my savings for these short, medium, and long-term goals that I have. And if you're new to the podcast and you haven't heard us talk about this before, you can use online banks, which typically have the option of setting up these savings buckets or sub-accounts. They call them different things, but you can actually put names on them and you don't have to pay extra for having more accounts. That's something that's different from brick and mortar banks, which is great. There's no minimums, there's no monthly fees. So it really helps you get the psychological advantage of being able to label these buckets so you keep your mitts off it when you don't grab money from one bucket to pay for something else. pair that was around $500. And it's kind of weird, but I felt some gratification that I had the money

saved in my car fund account that I could put toward this. It didn't really hurt as badly as if it was just in the general pool of cash that I had, because I knew, okay, this is money I've been setting aside for this specific purpose. The blow doesn't really hit me as hard because I've already prepared for it. Yes. And if Yulia is having trouble figuring out what their goals should be, what can they do, Sam? Well, talking to people is always a good option. Having conversations with friends and family and financial advisors. Now, granted, in that situation, you should take any advice with a grain of salt, especially if it comes from non-professionals like friends and family. But hearing what other folks would do in this situation,

particularly folks you relate to, can help determine what you do and don't want to do with your money. Sometimes I'll have a conversation with a loved one around money and what you would do with any sort of windfall. And the things that I hear sometimes make me scratch my head. And that's how I know that I just have different priorities from them. And that's totally okay. But that helps me get really clear on what I do want to do with my money because I know what I don't want to do. Yeah, exactly. So Sean, how do you handle balancing different financial goals and saving for them? I am a big advocate of trying to do many things simultaneously because I am a multitasker and

I'm kind of impatient. So I can give a recent example where I had a windfall earlier this year that left me feeling like I had some extra money like Uli. And so I decided to split the money that I got across a few different goals. I spent 10% on stuff that I wanted. I got myself a new dresser. I got myself a new laptop. And then I put some into a wedding fund that I have, some into my home repair fund, and then I put some into a brokerage account. And again, that helps me feel like I'm accomplishing a lot of different things simultaneously. I don't have to funnel everything toward one specific goal. Well, I'm all for blowing at least 10% of any windfall that comes in. I think that's the fun money that you get to do whatever you want with. I'm the same way, Sean. I like to be making progress on different goals. I know it's very satisfying to funnel all your money in one thing, but that typically

isn't the best way, in my view, to handle financial goals. I just wanted to throw in that maybe our listeners should think about their bucket list for their life, things that they want to do, and making progress on that as well. I've taken several sabbaticals in my career and I'm really happy I did it because you never know what the future is going to bring and you shouldn't put everything off till the future. I think those of us who have a savings orientation are very likely to do that. And hats off that so much money is being saved. I mean, Uli is doing a great job of putting money aside, but just making sure that they're also spending money on today and creating memories and having experiences because that's important to our happiness as well. Yeah, it goes back to the idea that I talk about a lot on the podcast of living for today while you're planning for tomorrow. I think both are very important to do so that you don't find yourself 20 years from now thinking, I really wish I'd gone on that vacation where I could have gone backpacking when you were a little more able-bodied. So that's something to consider too for our listener. Yeah. Now we probably should

talk about how Uli should think about investing the money. We talked about long-term, medium-term, short-term goals, and those have different investing guidance, right? Absolutely. The Securities and Exchange Commission actually only recommends investing money in stocks if you don't need it for at least five years. So the answer about the best thing for Uli to do with the extra money is going to depend on the goal for that money. And the reason why the SEC recommends this five-year rule of thumb is because sometimes the market tanks and you want to make sure that your money has a chance to recover from a potential downturn before you need it. So the average bear market recovery time based on historical data can be about 27 months, and a few of them have been as long as five years.

Sam, Uli is interested in investing more in index funds in particular on top of the $500 a month that they're already investing. Can you explain why these are a popular investment option and also what some alternatives might be? involved in holding an index fund, and they can generate a pretty reliable return over long periods of time. So often when we talk about index funds, we're talking about an S&P 500 index fund. The S&P 500 has a long-term average annual return of about 10% before inflation, and that average has held for a good 100 years or so. In some years, it returns more than that. And in some years, it returns less. And sometimes people can beat the S&P 500 through stock trading. But roughly 10% annual return for an index fund is really plenty for a lot of financial goals. And it just requires so little effort. You just buy it and hold it. Of course, index funds are a passive investment. You're just trying to match the

benchmark like the S&P 500. What if you want to be a little bit more active? Yeah, there are kind of different levels you can go to in terms of activity. If you want to be just a tiny bit more active than an index fund, you can also buy mutual funds or exchange traded funds that target a particular segment of the market. So like, if you think that tech stocks are coming back after the crash that they went through in 2022, you could buy a tech stock ETF. Or if you think the healthcare industry is going to do well in the coming years, you could buy a healthcare ETF. And then if you want to be more active than that, you could buy individual stocks. Blue chip stocks, something like Apple, is probably going to offer a little more stability

than a small cap stock, but they serve different needs. And there's a chance of outperforming the indexes when you're buying individual stocks. But the catch with individual stocks is that researching them can take a whole lot of work. You should really extensively look up the numbers and the news around a particular stock before you're buying. And you should also monitor it pretty closely. And that can be a pretty substantial cost both in terms of time and in terms of kind of mental bandwidth and anxiety.

And if you're buying a lot of individual stocks, which is a good thing to do for diversification, then the upfront dollar cost might be a lot bigger than an index fund, which can allow you to invest in hundreds of stocks for one relatively low price. Well, and everything you've just said, Sam, is the reason I'm a passive investor. I just don't have the bandwidth to do all the research. And actually, being truly diversified can take

hundreds of thousands of dollars if you're investing in individual stock. So that's something to keep in mind. And the other thing is all the research we have showing that most people who try to beat the market fail. So you wind up trailing the market. When you fold all that in, I'm like, okay, passive is the way to go. But everybody's got to sail their own ship, as it were. And everything that we've just been discussing around ETFs, index funds, mutual funds, buying individual stocks, that would be more for longer term goals, like you said a little bit earlier, Sam. What are some options for putting money into vehicles for shorter term goals? One popular option is a high interest savings account. And a money market account is another

similar option for that kind of thing. The returns you'll get in an account like that aren't as high as what you'll get with stocks on average, but they're pretty high right now because interest rates have been going up for the last year. Some of these accounts are yielding more than 4%. And the other thing that you get with a savings account that you don't get with stocks is insurance. The money in a high yield account or a money market account is going to be insured by the Federal Deposit Insurance

Corporation up to $250,000 per account. So you don't have to worry about it all evaporating in a downturn. Yeah, that's a good point. And just for clarity, there's two types of money market accounts. Actually, there's money market savings accounts, which are FDIC insured, and then there's money market mutual funds, which don't have that insurance. And if your goal is somewhere between short-term and long-term, well, you can try laddering CDs, which means buying CDs with different maturities. So that gives you the FDIC insurance that Sam was just talking about. Maybe short-term bonds could be an option as well. It's a little bit squishy in that medium-term area, but you can research it a little bit more and see what your options might

be. Well, Sam, thank you so much for coming on and sharing your insights with us. Thanks for having me. And with that, let's get on to our takeaway tips. Liz, will you please start us off? Yes. First, know how to save for emergencies. Starting with even a few hundred dollars can help you weather many unexpected expenses. Eventually, work to save three to six months of essential costs. Next, bring in the buckets. Saving buckets are an easy way to organize your savings for different goals. Finally, weigh your investment options. Investments like index funds or exchange traded funds are typically better for long-term goals, while money market accounts and savings accounts can be a better pick for short-term goals.

And that's all we have for this episode. Do you have a money question of your own, turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. And here's our brief disclaimer. 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. This episode was produced by Liz Weston and myself, Kaylee Monahan, Mixed R Audio, and a big thank you to the folks on the NerdWallet copy desk for all their help. And with that said, until next time, turn to the nerds!