Color of Money Live

Feb 20, 2014

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion on Thursday, Feb. 20 at noon ET.

Michelle will be available to answer your personal finance questions or get your take on this week's Color of Money question.

If you can't make the live discussion, submit your questions early.

--Getting into the savings habit

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Study finds rising cost in not going to college, but students should still look for value

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Today's e-newsletter: Taxing Sochi Medal Winners

Glad you could join me today. I'm here to answer your personal finance questions, settle a financial feud or hear your testimonies of recent debt payoffs or how you've finally began to save. 

So let's get started.

I caught you on Fox talking about finances. On the tv screen you had a list of things to cut back on, one of which was gift giving. I get a number of wedding invitations, many of which I can't attend because they are out of state. Usually the bride has a shower, so you are asked to give a gift for that, then they have a wedding registry, which many of the gifts cost a minimum of $100. Nowadays they even ask to congributed to their honeymoon. I have a limited income and most of the brides are better off than I am. However, I want to give something. If I give the usual amount, not only for weddings, but graduations, I would be in debt. What to do?

I was on the show talking about my book "The 21 Day Financial Fast" that just came out. During the fast you can't spend money on anything that is not a necessity, including gifts. So what you caught was me saying during the fast you can't buy gifts not that you should never buy gifts. 

But to your point. I can hear the stress in your words. Let me absolve you. You do NOT have to buy anybody anything if you can't afford it. Even if you attended the events, you do NOT have to buy anybody anything if you can't afford it. You can write them a nice letter or buy a dollar-store card but your gift is NOT the entry fee for attendance and if it is or if you sense it is send your regrets. Because you are right people have made it clear that to come to their stuff they expect stuff or really money. In fact, many couples getting married say just that. Give us money. But that's wrong. You should NOT ask for gifts. 

In the end to whatever you are invited to and you chose to go, give what you can at the level at which you can afford. Period. And if the people receiving aren't happy that's on them.

An article said that people need an income of $63,000/year to buy a median priced home in the DC area ($368,000). It showed the income required for other cities ranging between $20,000/year and $120,000/year. When I purchased my home in 1998, I paid less than $150,000. I couldn't imagine trying to come up with a downpayment today if I didn't already own a house. But, that also makes me feel poor compared with my neighbors who were able to pay between $350-400,000 for their houses. I know that I shouldn't try to compare myself with my neighbors, but I can tell that I have spent less on upkeep of the exterior of my home. I can't pay for a lawncare company, regular powerwashing, painting, etc. I fear that when it comes time to sell my home, I will need to invest a lot of money in updating/upgrading the interior and exterior to match what my neighbors have done. I guess I should be happy that I have a home with a mortgage that I can afford and not focus on what my neighbors spend or I may one day need to spend.

You have just told yourself exactly what I would have told you. Stop looking at how green your neighbors' lawns are literally and figuratively. You have no idea what "crap" they put on their grass to get it that green or what crap they are going thru to live the way they do. Maybe they are good money managers, maybe not. The point is you don't know and because you don't know, you may be so much better off than they are.

As for how much you put into the house. Why? When it comes time to sell, often just a coat of paint and making sure your lawn is nice is all that it takes. Further just because you put a lot of money into the home doesn't mean you will get that money back. So when the time comes to sell and you are mortgage free, get what you can get and don't look back with regrets for upgrades you couldn't have afforded anyway.

At one time, the Olympics was for the non-professional athletes. If you played professional hockey, you couldn't represent the US. The thought of a tax break for winning gold seems silly. I can just see Turbo Tax adding a question asking if you participated in the Olympics. How about winning the Super Bowl? Athletes today can be worth millions in commercial endorsements. I don't see someone who has a deal with Nike needing a handout from the government.

 

Taxing Sochi Medal Winners

Yup. Agree.

Or maybe they don't have a big deal, which many don't. It's still not fair to exempt them as I wrote in my eletter today "Taxing Sochi Medal Winners"

Michelle, You frequently emphasize paying down debt, but I'm curious if you ever feel having some(not a lot) debt is a good thing. I'm in my early 20s, so while my credit history is very good, it's also very short. I've heard that carrying some debt and making the payments on time will help boost my score. If there is a "good" amount to have to raise my score, how do I decide how much is too much?

Glad you asked.

Is there such a think as good debt?

No.

Nope.

Niet (in honor of the Sochi Olympics)

Nein.

No debt is good debt.

Now do we sometimes have to take on debt. Sure. Most people in the US can't buy a home outright. 

Do you need debt to establish credit. Yes, you do but it appears you have done that if you have a good credit history. Getting more debt or establishing credit to get better than good is not necessary. Besides the top way to get good credit is to pay your bills on time.

 

Hi Michelle, I know you don't read minds or predict the future, so I think what I am asking is, What would you do? We are recently married and expecting our first baby this summer. I have never been a 'high earner' but always diligent about saving and investing. VERY diligent. Having two incomes is a new perspective for me, and half the time I worry about affording our life, while the other half I am literally wondering what else to do with the money. I had good savings before we married but no property, and we have some good hazard pay tucked away from last year since we were both overseas (I am such a scrooge! I wouldn't let him spend it - about $30k in a CD ladder and another $20k cash), max out all our retirement accounts (to the tune of about $50k between the two of us - TSPs and IRAs), no debt on vehicles though one is at the replace-or-drive-into-the-ground point, and we have a house that he bought before we were married (so can afford the mortgage on one income) with about $430k remaining. Not that is matters, but it is worth slightly more. There is a good chance some factors with my job won't allow me to stay employed after our baby comes, at least for a while. He is also deploying again, meaning a temporary increase in salary, bonus, and hazard pay. I have another $30k coming from a business loan a restaurant is repaying to me. Too much detail? Do we find new investments and continue some taxable index funds I started, just with bigger contributions? Pay down the mortgage faster (3.8% but I don't want a mortgage in retirement)? I have never before had "too much" and I am grateful for my good savings habits, but it is a little overwhelming. Also, we do make trips to see family which is important to us, and have helped family financially at times. The only thing I am clear on is that I want to put the max in a 529 for our baby, since we can right now and who knows what the future holds. I am relucant to spend too much since I think we could easily be back to one normal salary and have the baby soon enough. What do you think?

Wow.

Breathe girl.

I'm tired just reading your thoughts. 

Really you are in such better shape than MOST of the people I know. 

You got this!

But I think you bottom line questions are should you save more and maybe spend a little more on things you want.

For now, I would hold off on saving anything more until you get a handle on the increase costs of having a child, especially if you go back to work. The same is true if you decide you want to stay home with the baby. You may not have child care costs but trust me a baby costs more than you think. 

Same with paying down the mortgage. Again, until you get a handle on your new family expenses hold tight with what you are doing.

Finally, yes if you can afford it go see family. With a new baby you will welcome the company or a chance to hand the baby to someone so you can get some sleep!

@SingletaryM single mom daughter in college..how do u prepare for a lay off?

This is so tough and I don't have an easy answer for you.

You are now going to have to go into crisis mode. If you have been paying down debt, stop. Just pay the minimum because you need to preserve cash. Really go thu your budget. Cut, cut and then cut some more. 

Without knowing more about what you are paying for college for your daugther, I can't tell you what to do other than if she is going to school close to home but living on campus she may have to commute IF you've been borrowing for that cost. 

 

Good afternoon Michelle, I wanted to know how do we help young adults (20-25) to do better with their money?

Practice what you preach.

Childrena and young adults watch. And then they often do what you do. So set the example.

And I talk to them. All the time. Just ask my kids. I just had a conversation with my 13-year this morning about money, college savings and saving for a downpayment on a home. I told her we  have her college money saved. BUT if she works hard to get scholarships, she gets to keep that money for graduate school.  

It's important not to preach too hard but mostly to just let them see how wonderful saving can be and how awful debt can me.

I had a friend that insisted that traveling to her out of town wedding was more than enough of a gift. I wanted to do something...but wanted to honor her wishes. So I got a frame on sale somewhere and went to the local beach. I took a picture of their name and wedding date. She was touched. It's not always about the amount you spend on a gift...just put some thought into it and be sincere.

Wonderful idea. Thanks for sharing.

Hi Michelle...love your advice and chats! Keep up the great work. ...I'm on track to retire at 50 by following the Mr Money Mustache approach to early retirement. What do you think of his approach? Cheers...

He's extreme for some folks but he also shows you can do it. And if you can, go for it!

I'm not sure if I am connected. I see that there are two responses but I don't see anything. What am I doing wrong?

So if you are on the Post Live page for the chat, just keep hitting refresh and you will see the questions and my answer.

There is also a box where you can ask a question.

Just to continue the ongoing ways to save on college - ask around about local reputations. I went 7 years ago to get my MBA. I was looking at two local schools - one of which was nationally ranked and twice as expensive. After talking to some people, I found that in THIS AREA, school B was just as noteworthy and cost half as much. Made the decision that much easier. National reputations aren't everything.

Exactly. What a smart move you made!

Dear Ms. Singletary, I have been reading your book the 21 Day Financial Fasting. However, the book seems to presume that we are in financial debt due to bad spending habits. The things that you suggest we stay away from during the fast, I already do not do. I live in the D.C. area and make only $38,000 per year. God blessed me with an apartment without a job! I once had a room mate but she decided when I lost my job that she know longer wanted to take a chance of remaining a room mate. But truly there is ONLY a difference of $85.00 living on my own. I don't shop, not even window shop because I can't afford it. My cell phone was a gift, so I do not pay that bill; I have the bare minimal in cable and I don't use credit cards. So, what would be your advice for a single woman who IS on a budget; living from paycheck to paycheck without a degree and just not making enough money. How can I save money and how can I get out of the tight situation that I am in prior to obtaining my degree?

The answers to all your questions are in the book. So keep reading. And the book isn't just for people in debt although it tends to help them the most. Plenty of people with good money management skills benefit from the fast because it can help see where you can do better.

The point of the fast isn't just about NOT spending or even saving. It's about really thinking what you want to do with your money including saving it, paying of debt or giving to others. 

I'm over 50 and haven't saved for retirement. Is is too late for me?

It's never too late. Because what is the alternative? 

You just have to think about retirement differently. Perhaps you can't retire at 55 or even 60 or 62 or even 65. But if you do have to retire because you can't physically work full time, you may have to take in a roommate or move in with a friend or relative or not travel as much as you wanted, etc.

You have to figure out what retirement you can have with the money you can save and the income you will have from Social Security or any income you may have coming.

Call the college, too. They might be able to increase a grant or assist in some way, but the sooner they know, the better. A lot of financial aid decisions are occurring around now.

Good point. Thanks. It's also another reason why you need to fill out the FAFSA form even if your income may not indicate you can get financial help. Things change.

I purchased a 2013 car in November and now in February 2014 I am not that pleased with the car and I want to trade it in but I know it has negative equity. Do I have any choices? One thing I was looking into selling the car through CarMax and tacking on the negative equity and getting a different car. Not sure what to do. Any help would be appreciated. Signed BuyersRemorse

So you want to put old debt on new car debt, which my friend would immediately make you upside down on the new or even used car.

I wouldn't do it. Drive it until you can sell it for what you owe so that you are not rolling debt into a new loan.

Or learn to live with a perfectly good car that you don't like. 

Don't follow an unfortunate decision with a bad decision. 

I'm confused. A $63,000 income sounds like way too little to afford a house in the $300-400K range. I make $51,000 and when I ran the numbers before buying three years ago, I figured out that I could afford a house under $150K, and I had no other debt and no children. That squared with the old rule about buying a house no more than 2-3 times your annual salary. How did anyone come up with this number?

I didnt' work the numbers because don't have the time. I wanted to get to the heart of the person's question.

But here's my rule for what you can afford when buying a home:  Don't pay more than about 36 percent of your net monthly pay for housing. Notice I used the word "net." 

 

The US is the only country that taxes money made by citizens overseas, though.

Doesn't sway me at all.

In an ideal world would your advice be to have no other debt before taking on a mortgage? I don't have credit card debt or an auto loan, but I do have a student loan. When I got out of school it was over $1000/month. I've paid it down to a point where it's around $300/month. I have savings and an emergency fund and would like to think about buying a place...is that wrong?

I wouldn't say it's wrong. But, if it were me, I would wait to get rid of all my debt. And it's what I did. I've nevered purchased a home when I had other debts. And I've purchased three homes in my lifetime.

Just kick the rest of that debt to the curb putting you in an even better position when you do buy.

I just wanted to say thank you for writing this book. I teach Sunday School for the young adults and we have done the fast twice. I expressed to them that it's not just about not spending money but how to make money. It seems that the perception of most people who read the book is that it's about get rich but it's not. It's about finding about who you are and how you deal with money.

You totally get the point of the book.

Thanks.

Husband's job is relocating us to a more expensive area. Love current location, have two children graduating from HS next year and following year, and on will be in MS. Problem: we are deep in debt. Behind in mortgage, late in paying utilities, credit card debt. The electric wants is demanding in addition to next payment, two months security deposit. It's not an income problem, it's a money mangement problem. We have been down this road 2 times before and husband doesn't want to work with me to mange the bills. I have tried to create budgets, taken financial classes read books, watched shows and believe if we work together we can solve the problem, but husband won't work out a plan with me. He is afraid I will take things over. My question is related to the move. He looks at is as a chance to start over and wants to relocate immediately. I can't image we would be approved for a new mortgage, and I have no problem renting, but bad credit may prevent that as well. I am thinking we should keep current house for 2 years until HS graduation, work on restoring credit, while he rents in new location. Then we can move with the Middle schooler to the new location. My husband is a great guy except for this REALLY BIG problem and will take classes but won't do the work once we get home (fe finances). Where should I begin? Thanks

You need to begin with maarrige counseling. And I don't mean that in a flippant way. 

You are right. You don't have a money problem. You have a marriage and money management problem. 

Could he look for another job in the area where you live?

I fear if your husband moves the financial situation will only get worse. If you can't handle one household with the money you have, how will you handle two with twice the expenses and still a husband who won't manage the money.

You need counseling to help him figure out why he can't help you manage the money and see moving itself won't solve your problems. If he wont' go, you go.

But bottom line. He/You guys won't be starting over. You will be dragging old problems to a new and more expensive city.

Whenenver I consider a career change or moving from full time to freelance, I see if I can maintain my current income. But, I realize that people manage to get by with a variety of incomes. The person who cuts your hair, the person who works at a bank, and a doctor all have different incomes but live in the area and have figured a way to live on their current income. Why does the thought of a $10,000/year pay cut seem harder when lots of people find that amount enough?

Because it can be hard if you don't adjust.

We can't always know how others manage with more or less.

If the job is right for you, before taking it make sure the numbers work or at least be willing to make them work.

My friend and I argued how to pay down debt. Do you pay off your mortgage first or your student loans? Does it depend on a multitude of factors or interest rate only? What do you think?

The answer is complicated. But I would pay off the student loans first because they are likely to be less than your mortgage or so I hope. I tell folks to pay down debts starting with the one with the lowest balance. 

Also with your home hopefully as you are paying you are buidling equity. Not the same with a student loan. 

You need the right buyers. the house I live in now (bought less than 2 years ago) - well, it had no grass (owner hated to mow) the colors of the house were awful (all that needs is a coat of paint). But my husband and I saw the potential (we were NOT going to share a bathroom with our kids - but we had to put one, somewhere). We have already done a lot of work to this house, but we did see a lot of potential in it. don't worry about selling the house - if you can live there and afford it, great. at some point - even if it's a shack that isn't being taken care of, all you need is one buyer. And you may sell for a lot less than what a different house near you sells for, but don't stress about that if you've been there for decades.

Right on the money!

Thanks for sharing.

Hi Michelle, Prayerfully you are doing well. I know that you have said it is better to adjust your deductions so that you do not get a tax refund at the end of the year. But for those of us who have not done that yet and have received a refund is it wise to use the money for car repairs. Our vehicle is paid in full and it failed the emissions test. The car will need repairs before it can go through inspection again. We unfortunately do not have a life happens fund established to offset the repair cost. It is wise to use the refund money to get our vehicle repaired. It is also klucking and making a lot of noise. For safety reasons, we really need to get it repaired without having to put it on a credit card (only other option, besides the tax refund). Interested in your opinion. Thank you.

Is the choice use the refund or put the repairs on credit?

If so, use the refund to fix the car.

I can believe it easy....it's all what you should buy versus what the banks are trying to sell you. I bought a house a couple of years ago with a salary of $61k - the banks were trying to tell me I could afford a $350-375k mortgage. I think I actually laughed in one bankers face and said "No, I don't think so." And this was AFTER the mortgage crisis. I'm still now underwater on my house, but...I can afford it, I love it, and I'm going to stay here for at least 15-20 years. Doesn't matter.

Exactly. We bought our house based on what we KNEW we could afford not what the bank said we could afford.

I was in the situation too once. Carmax was willing to give me the entire amount that I owed on the trade-in as long as I purchased the "new" car from them.

Thanks.

But again if that doesn't happen don't do it.

I'm so sorry. I see there are lots of questions I didn't get to. But your efforts are not in vain. I read all your questions and comments and some make their way into a column. 

Also feel free to follow me on Twitter and later if I have time, I'll try to answer your question if you can't wait until next week.

Thank you for joining me today. Take care.

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday. Her award-winning column is also carried in more than 120 newspapers. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges.

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