Consumer Advocate on How to Save
CATHERINE CALLAWAY, CNN ANCHOR: Well, if Jack Benny were still around, he could learn a thing or two from Clark Howard.</s>MILES O'BRIEN, CNN CORRESPONDENT: Clark has a syndicated radio show based here in Atlanta in which he tells us how to save a buck. And this doesn't have anything to do with comedy. The cheap part is what we're talking about here.</s>CALLAWAY: Yes.</s>O'BRIEN: How not to be ripped off. And we said cheap probably 30 times now just in the intros to him.</s>CALLAWAY: Poor Clark.</s>O'BRIEN: And he just gets redder and redder each time. His latest book on the subject is "Get Clark Smart: The Ultimate Guide To Getting Rich from America's Money Saving Expert."</s>CALLAWAY: He joins us now to offer some of his latest tips on how to protect your pocketbook. He's taking your e-mail at wam@cnn.com. We have a free call for you guys, 1-800-807-2620 if you want to ask him a question. Clark's sitting right here. Hey, Clark.</s>CLARK HOWARD, CONSUMER ADVOCATE, AUTHOR, "GET CLARK SMART": Good morning to you.</s>CALLOWAY: Good morning.</s>O'BRIEN: All right, now that cheap...</s>HOWARD: So where did this cheap thing come from?</s>O'BRIEN: I don't know. I don't know. I...</s>CALLOWAY: It's just a vicious rumor.</s>O'BRIEN: Why don't you just tell folks how much you paid for all the clothing you're wearing.</s>CALLOWAY: Yes, we want to know.</s>HOWARD: OK.</s>O'BRIEN: Because then they'll know. They'll know.</s>HOWARD: It's pretty early in the morning for me to remember. All right, my shoes, I've got to show them my shoes.</s>O'BRIEN: Yes, let's see them.</s>HOWARD: They were $15, made in Brazil, very high quality.</s>O'BRIEN: Oh, yes.</s>HOWARD: See?</s>O'BRIEN: Brazil.</s>HOWARD: Yes.</s>O'BRIEN: I didn't know they made shoes down there.</s>HOWARD: Neither did I till I got this pair.</s>O'BRIEN: Fifteen bucks, that's good.</s>HOWARD: Yes. My shirt is from Wal-Mart.</s>O'BRIEN: It is?</s>HOWARD: Yes, a $12 shirt.</s>O'BRIEN: All cotton?</s>CALLOWAY: It's well pressed.</s>HOWARD: No.</s>O'BRIEN: You like the blends because that way you don't have to pay for the cleaners, right?</s>HOWARD: Correct.</s>O'BRIEN: Yes, yes.</s>HOWARD: Yes, they're easier.</s>O'BRIEN: You don't get, you know, kind of itchy with that thing?</s>HOWARD: Yes, you do get itchy a little bit.</s>O'BRIEN: But that's OK?</s>HOWARD: But, you know, you pay 12 bucks for the shirt...</s>O'BRIEN: You endure.</s>HOWARD: Yes, and it goes in the washer and in the drier, hang it up. Do you see any wrinkles in this shirt?</s>O'BRIEN: No. It's just, it's pressed and...</s>CALLOWAY: I said it's very well pressed.</s>HOWARD: So you're wearing a hundred percent cotton?</s>O'BRIEN: I'm a hundred percent cotton guy. I'm paying through the nose.</s>HOWARD: All right, now, see if you took off your jacket, we'd start to see the wrinkles up here, wouldn't we?</s>O'BRIEN: Yes, you would. But I'm not itchy.</s>CALLOWAY: All right, I have an expensive suit on but I bought it at an outlet. Does that count?</s>HOWARD: That does count.</s>CALLOWAY: Thank you very much.</s>O'BRIEN: All right, I want to ask you about this cheap thing in a minute, but let's get a couple of questions in.</s>HOWARD: Sure.</s>O'BRIEN: First, Carl has this. "I'm retired and have a mortgage. I have the money put away in a money market account, but the interest on the mortgage is more than what the money market pays. Should I just pay the mortgage off and save the monthly mortgage?" Good question, Carl.</s>HOWARD: Well, the deal with doing that is that if he has no other source of cash, if he has no cash flow from another source, I wouldn't recommend doing that, even though it seems like an automatically smart thing to do, to take the money sitting in savings and wipe out the mortgage. Now, if he has steady cash flow and doesn't need the money that's interest savings account to live on, then being mortgage-free would be fantastic.</s>CALLOWAY: Ooh, if we could all have that treat.</s>HOWARD: So that's really the test.</s>O'BRIEN: Yes, wouldn't it be nice to burn the mortgage?</s>CALLOWAY: Yes.</s>HOWARD: Wait, wait. Do you know what percent of Americans own their home free and clear?</s>CALLOWAY: Thirty-eight.</s>O'BRIEN: Three percent.</s>HOWARD: Forty percent.</s>CALLOWAY: Really?</s>O'BRIEN: Forty percent?</s>HOWARD: Yes.</s>CALLOWAY: Uh-oh, Miles, we're in the minority.</s>HOWARD: You've got some work to do.</s>O'BRIEN: They call me Mr. Leverage, Mr. Leverage. All right, go ahead, Catherine.</s>CALLOWAY: All right, Tina from North Carolina on the line with us. Good morning, Tina. Do you have a question for Clark?</s>TINA: Yes, I have a question.</s>HOWARD: Good morning, Tina.</s>TINA: Good morning. My husband and I don't have an account set up from our two children nor do we have a very good savings account. What would you rather us do, put money in accounts for the children and for savings or pay down credit debt?</s>HOWARD: Now, when you say that you don't have money aside, do you mean you have no money set aside for your own retirement?</s>TINA: No, we have 401(k)s and whatnot. We're just talking about liquid savings like in the bank or CDs or something.</s>HOWARD: What percent of money are putting in your 401(k) right now?</s>TINA: I think six percent from my husband and I think five percent from myself.</s>HOWARD: All right, and do each of you get an employer match?</s>TINA: Yes.</s>HOWARD: All right, with the additional money you have, what I'd love for you to do is open an account known as a Roth IRA. Have you ever heard that term before?</s>TINA: Yes.</s>HOWARD: A Roth would give you the double benefit of being able to save money tax-free and you'd also be in a position if you needed to pull money out, you can pull out everything you contribute whenever you want to for an emergency, to pay for your kids' college, whatever purpose you would have, other than the money that your money would earn, which has to be left aside to age 59 1/2.</s>O'BRIEN: But shouldn't she max out her 401(k) first as much as she can?</s>HOWARD: No.</s>O'BRIEN: No?</s>HOWARD: Actually, you do the 401(k) up to the employer match.</s>O'BRIEN: Oh, OK.</s>CALLOWAY: Yes.</s>HOWARD: And then a Roth IRA is a superior choice after you've put into the 401(k) till it matches.</s>O'BRIEN: It is? Because you control it? Is that the...</s>HOWARD: No, because the tax benefit of having the money never taxed in a Roth IRA beats the fact that in a 401(k) you don't pay tax up front.</s>O'BRIEN: But you're putting after tax dollars in a Roth and...</s>HOWARD: Right. But ultimately you start looking down the road, the advantage of never having to pay on the Roth IRA is actually far superior to doing a 401(k).</s>O'BRIEN: I just learned something. Thank you very much, Clark. All right, here's another one for you. "We recently refinanced our mortgage and closed on September 3. We're saving over $300 a month." Congratulations to you. "We are still awaiting the release of our funds, over $1,500 in escrow from the prior lender. We were told they can only owe the funds for a minimum of 15 days. Shouldn't we have them by now?" You know, these escrow things are a mess.</s>HOWARD: This has been a terrible problem.</s>CALLOWAY: They are a mess.</s>O'BRIEN: By the way, that came from David in Raleigh.</s>HOWARD: It's been a terrible problem because there's really no close regulation at all and it's a system that works on almost like a gentleman's agreement. The lender is supposed to refund the money for the escrow in a short period of time. If they don't, what you do is you send them, by certified mail, you send them a letter requesting your money. Once you've sent it by certified mail, if they don't respond within two weeks, what you do then is you contact the state banking regulators in the state where you live.</s>O'BRIEN: So go, just unleash the heavy weaponry. Let me ask you this --</s>HOWARD: But they're not heavy weaponry. You'd be surprised. The state regulators aren't exactly going to be sitting there like in the starting gate ready to go do something for you.</s>O'BRIEN: Oh, they won't?</s>HOWARD: But it is the step you do.</s>O'BRIEN: Is it ever advisable to opt out of the escrow? Would you suggest that?</s>HOWARD: Well, the problem with opting out of escrow is the lender will charge you a higher interest rate, usually an eighth of a point or a quarter of a point higher interest rate on a loan. They want escrow because they're not paying you interest on the money</s>O'BRIEN: They get some float, yes.</s>HOWARD: Right.</s>CALLOWAY: Right.</s>HOWARD: So for you going ahead and paying into the escrow is worth it so you can get the lower mortgage rate.</s>O'BRIEN: All right.</s>CALLOWAY: I know the answer to this question, because I listen to your radio program. This is from Duke in Baltimore. "Is real estate still a good investment?" I know you really like...</s>O'BRIEN: You know what? Well, let's do both of these. Let's do both of these questions together, if we may.</s>CALLOWAY: You really like rental property, don't you?</s>HOWARD: Oh, I love rental property.</s>O'BRIEN: But wait a minute. Let's do the other question, too, with it. "I'm going to start buying real estate, including rental houses and small commercial properties. Is it better to own these properties individually, in a partnership, corporation or LLC for tax purposes?" Chris Moxley. So, the real estate section.</s>HOWARD: All right, well, first, yes, we've had a lot of real estate, haven't we?</s>O'BRIEN: Yes, we have. I think the stock market is not as interesting to people anymore.</s>HOWARD: Right.</s>O'BRIEN: Yes.</s>HOWARD: Right. Yes, nobody's asking which index fund to be in?</s>O'BRIEN: Suddenly everybody wants to be a land baron.</s>CALLOWAY: No.</s>HOWARD: Right. OK, on the rental property thing, there's a special angle right now and that is that in the midst of having steadily increasing real estate values in most of the country, do you know we're having the highest foreclosure rate in history?</s>CALLOWAY: Forty years, highest, right.</s>HOWARD: Right. So the advantage for you as a real estate investor, if you want to have rental properties, is that you're going to be able to buy rental property at a very good price because there's so many properties coming online from foreclosures. So if you're willing to own properties, fix them up, have them for a long period of time, this is a get rich slowly plan, not get rich quick. And you need to know the marketplace. Just because a house is foreclosed doesn't mean you're going to get a deal on it. You've got to know what's fair market value in the general area where the foreclosure is.</s>O'BRIEN: Well, you can get it off these auctions, too, and then you can get carried away at auction, right?</s>HOWARD: Exactly.</s>O'BRIEN: You know, right.</s>HOWARD: At auctions it's very routine that people would over pay for a property.</s>CALLOWAY: Right.</s>O'BRIEN: All right, quick...</s>HOWARD: Now...</s>O'BRIEN: One more from -- I'm sorry, you had another point. I'm sorry.</s>HOWARD: Oh, it was just you had the thing about the limited partnership and that kind of thing.</s>O'BRIEN: Oh, yes, LLC. Thank you.</s>HOWARD: That is really an accountant-lawyer question, you know, because it depends so much on your overall picture and how many properties you have. I have three rental properties and I don't have an LLC or a partnership or a corporation because there is no need for me to do that. I can pass it right through to my personal return.</s>O'BRIEN: Just carry plenty of insurance in case something bad happens would probably be good advice.</s>HOWARD: I do have a lot of liability insurance and I have an umbrella, which...</s>O'BRIEN: An umbrella is a good thing if you're going to get involved in that.</s>HOWARD: Yes.</s>O'BRIEN: Jenna has one question. We're going to try to sneak this one in. "I have several mutual funds that are not doing well." Jenna, you are not alone. "Should I withdraw all of my money and put it somewhere else? If so, where? Or should I ride it out for the long run and wait until the value comes back up?"</s>CALLOWAY: Isn't it...</s>HOWARD: Did she say how old she is?</s>O'BRIEN: No, she didn't. So we don't know. That's an important question.</s>HOWARD: See, that's the test. That is absolutely the key.</s>O'BRIEN: Well, anyway.</s>HOWARD: Is if you're really...</s>O'BRIEN: Let's assume for a minute she's 40.</s>HOWARD: OK, 40?</s>O'BRIEN: Yes.</s>HOWARD: You stick in the game.</s>O'BRIEN: Yes.</s>HOWARD: You know, I would say 50 is the trigger point where 50 and above, you may not ever make back to the level you were at by the time you retire because we don't know. You know, we could be in a 10 year slump with stocks.</s>CALLOWAY: Right.</s>HOWARD: But if you have a long, long time to go, I'm putting money in every month because the long-term benefit to me of the market being down is actually greater than if the market was still where it was a couple years ago. You actually benefit over the long haul from our current decline. But it's hard to tell people that. You know, if we have an opportunity to go to the store and buy something on sale, we rush to buy it. We don't rush to buy things in the store when they're at full retail. Well, if you think of the stock market that same way, we don't think that way.</s>CALLOWAY: Right.</s>HOWARD: You know, when the stocks are really high, that's when we think we should buy them, when the reality is you want to buy them when they're depressed.</s>O'BRIEN: Is your mother named Doris?</s>HOWARD: No.</s>O'BRIEN: Well, there's a question here from Doris Piper. She's probably a friend of yours. "Where is the book sold? I may find it useful."</s>HOWARD: Well, we...</s>CALLOWAY: That's his wife.</s>HOWARD: Well, we have a Web site, getclarksmart.com, where we shop the marketplace and find the cheapest places in the country to buy my book.</s>O'BRIEN: All right, that's good.</s>CALLOWAY: Hey, Clark, that means less money for you, though.</s>HOWARD: But the best place for her to go is to the library.</s>O'BRIEN: OK.</s>CALLOWAY: There you go.</s>HOWARD: Read it for free.</s>O'BRIEN: Ah, Clark, Clark, Clark.</s>CALLOWAY: He's such a nice guy.</s>O'BRIEN: You're undermining your own future financial security by doing that.</s>CALLOWAY: Right. "Get Clark Smart."</s>O'BRIEN: A great pleasure to see you.</s>HOWARD: Thank you.</s>O'BRIEN: In spite of the fact that you wear itchy shirts, you're still a good guy. We appreciate you dropping by. We'll see you later.</s>HOWARD: Thank you.</s>O'BRIEN: Get your $15 penny loafers and get the heck out of here, will you?</s>CALLOWAY: Better to look good than to feel good. Thank you, Clark.</s>O'BRIEN: Come back some other time, will you?</s>HOWARD: OK.</s>O'BRIEN: All right. See you.</s>CALLAWAY: Just to remind you of the name of the book, "Get Clark Smart: The Ultimate Guide To Getting Rich from America's Money Saving Expert," Clark, who's itchy, but happy. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com