Color of Money Live

Mar 14, 2013

On Thursday, March 14 at noon ET, join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion. Whether you have just started getting your money straight or have retirement questions, Michelle will be available to answer them. If you can't make the live discussion, submit your questions early.

--Quit relying on your tax refund

--Most Americans found to be unprepared for financial emergencies

--Being a teen parent will cost you - Today's e-newsletter

So glad you could join me today. Let's get started.

Hi Michelle, Just wanted to share with you and the chatters that, with your gentle voice in my ear, I've now gotten my student loans under $20,000 (from $32,000) in less than 6 months. My goal is to write my last check one year from today. Let's all keep it up!

I always love starting off the chat with a testimony. And boy is this a testimony. 

So proud of you. And in 6 months! Glorious.

When you write that last check let us know so we can rejoice with you. 

Hi Michelle, I am following your advice on having an emergency fund along with a life happens fund. I know the emergency fund should be enough to cover 3-6 months of expenses, but ideally how much should I have in the life happens fund? I currently have $5000 in mine, but am also saving for a down payment and every little bit helps! Thanks so much

 

Wisdom in rainy day funds

I get this question a lot. The life happens fund is one in which you will be constantly putting in and pulling out money.

So to determine how much to put in there think about about large expenses you might have outside your typical monthly budget. For example:

-- Your car is a hoopty and you are pretty sure you are going to have some big repair bills to keep it running as long as you can. Then aim to keep from $500 to $1,000 for car repairs.

-- You are planning a big vacation. Put the savings for that in the life happens fund.

-- You know you need some home improvements and are saving up for it.

See what I mean?

If word gets out that you have $2 million, people and organizations will come out of the woodwork trying to get their hands on this money. You absolutely have to find someone beyond reproach who understands trusts and taxes and all the other aspects of this situation. You also need a crash course in financial literacy. I know this is hard when you're so emotionally vulnerable but your husband gave you this great gift and you don't want to lose it,. I know Michelle would be happy tohelp you and so would I, but I can't give you my name. Be sure to interview several people (the initial interviews should be free) and take a trusted adviser to scope this all out. Good luck. I know Michelle and manjy of her readers are praying for you.

 

Last week's Color of Money discussion

Thank you so much for such a lovely and kind response to a question from last week about a woman whose husband died and left her a $2 million insurance payout.

I agree with all that you said. Get help and good help to make sure the money is uses well.

Would you consider refinancing a home an option to get non-cosmetic (i.e. energy efficient windows and better scurity doors) work completed? My rate is at 4.5 on an FHA currently. Is it worth refinancing in this market?

So you are really asking should you refinance to pull money out to pay for home improvement. That's what I'm getting from your question.

And no I wouldn't. I would save to pay for the home improvements. 

Refinancing rates are good but you have to factor in the cost of refinancing and whether given your pretty good rate if it's worth it. Plus you would be including the extra money in the mortgage paying interest on those funds. 

 

How do we pick the best 529 plan for our daughter (she's 4 right now)? Should we avoid one if it's possible she won't go to college? She has a developmental delay that she will probably grow out of, but we can't be sure of that.

It's hard for me to tell you which 529 plan works for your family. Here's a website with lots of information to help you choose: www.savingforcollege.com. It's the best one about 529 plans. I will say this, look into the one for your state. Many states offer a tax deduction for investing in your state's plan. Let's what I do. Maryland's plan offers a $2,500 a year deduction for each account. Also pay attention to fees. 

As for your question about her maybe not going to college, you can always transfer the money to another child, relative or even yourself. But let's say there isn't anyone to give the money to or that you want to give it to. It's still your money. But you will have to pay taxes on the returns and a 10 percent penalty for not using the money for qualified education costs. 

Entering our retirement years now, my husband and I aren't sure how we should plan our withdrawals. I have a gov't pension and healthy TSP account; he works part-time and will continue that for a few more years. We both have Roth IRAs and we have a healthy amount of non-tax-advantaged savings, in cash, savings bonds, and mutual funds. So where do we start pulling our withdrawals from? The TSP (largest pot, by far), the regular savings which have no tax implication, the Roths, or what?

You are asking some great questions. Unfortunately, I can't answer because I'm not a financial adviser. These are great questions for a professional with the license, background and experience to help you develop a post retirement financial strategy. Really, the best for you is to find a fee-only planner who can map out exactly where you should take your funds based on your monthly financial needs, age,health and  lifestyle (will you be traveling a lot, visiting grandchildren, moving, etc.)

Ask around for recommendations for an adviser or go to this site www.napfa.org for the National Association of Personal Financial Advisors.

But really what a great problem to have.

 

Hi, I would like to refinance my mortgage but I am underwater. Is there any lenders that will help me to refinance or should I just wait to see what the housing market will do.

It's hard to refinance when you owe more than the current mortgage amount i.e, being underwater.

But I've heard from folks who were in this situation and they just kept shopping around for lenders who may do the deal. So keep shopping around. But realize you may have to bring money to the table or be open to other things to make the loan happen.

Also look into the government's Making Home Affordable program. You may be eligible to refinance through the federal Home Affordable Refinance Program, or HARP. There are of course a lot of caveats but check it out. Here's the site

http://www.makinghomeaffordable.gov

Hello. So long story short, I am 22, graduated college last year, have been employed since June, and currently live at home. My expenses are pretty minimal so I have managed to save a sizable amount of my income (and will likely be able to do so for the foreseeable future). At the moment, my money is just sitting in the bank earning a whopping 7 cents a month. Recommendations on more productive (but not too risky) places to put my money? What should I look for in terms of returns from money markets or CDs? Thanks for your help!

So young and saving. Love it!

If the money you are saving is your emergency fund money and life happens money you don't really have a lot of options. You want to keep these funds safe so you have to live with the low savings rate. You certainly can try to find institutions offering the best of the low rates. Go to bankrate.com for tools to  help in that search.

 

Hi Michelle - I got sandwich generation-ed this week! My 67-year old, retired, fixed-income mother confessed to me this week that several years ago she refinanced her house with a subprime, interest-only loan, and in July her payments are set to balloon beyond what she can afford. She needs a refinance and is considering applying for a modification under HAMP. I wonder if you know if anyone is having success with this program lately. It was heavily criticized from the beginning. She lives in California. Her confession comes at a stressful time because I am expecting my second child this summer and we can't seem to find affordable daycare for our toddler, when we thought that would be easier now that she is almost 3. My husband and I seem to be in stable jobs, but who knows what could happen in the coming years. So my mom shouldn't be counting on us to bail her out of her mess. She asked me to buy a large house so that she can move out to live with us. My husband said that he is not going to mortgage our children's futures to buy a house we can't afford to bail out my mom. Other than all this uncertainty we are doing well: no debt, saving for college, saving for retirement, and saving for a house if the market ever improves. Of course I agree with my husband about choosing our children over my mother but my heart is sinking every day. Any advice?

I feel you pain. Been there. Am there.

Yes, many people have been helped through HAMP. Not as many as some had hoped. So absolutely your mother should apply and see what happens. If she can't qualify or get out of that awful mortgage she may have to sell short or give up the house. If she doesn't quailfy you can help her look for other housing options, renting or bringing in renters if she tries to keep the house.

I would not put your family out on a limb with a bigger house you might not be able to afford. However, you do need to have some serious conversations with your husband and any other siblings if you have any about where you mother might move if she can't afford to live on her own. Could you make room in your home? Could another sibling? Are there nearby apartments she can afford on her retirement income.

Just keep talking to her and helping her explore all options, even ones she might not be comfortable with but don't include you putting your family's finances in jeopardy. 

Oh Michelle, I may mail you a picture of me smiling with my last check. So prepare;) Thanks for all the good work you do!

I would love the picture. Really send it. We could start a trend.

 I can post it on Facebook or Twitter as inspiration for others!

Hi! My mother is retiring (required by age 67) later this year. She says she is hitting a financial "armaggedon," so I offered to look at her finances and see if I can advise her. Her expected income from Social Security and retirement ($1,350) is just less than her basic expenses-mortgage, home/car insurance, utilities, etc., not including food, gas, clothes, etc. She has about $80k in retirement savings/IRA/CDs, $5K in credit card debt, and owes $39K on her house. Her car just died so she needs a new one (she lives in FL...no public transportation). She's obviously going to have to continue working though she has no college education and limited skills. Can you offer any advice I can share with her besides that she needs to find another job? I hate that this is what retirement is going to be for her. p.s.-My husband and I minimally help out financially when we can, but are getting ready for kid #2, which will make things tight.

She may need to find another job. Sorry. It's true.

She may also need to consider bringing in a roommate to help with the mortgage expense. But given that she only owes $39,000 that might not be for too long.

I would suggest she take part of the $80,000 and pay off the credit card debt and then encourage her to not use the cards unless she can pay the bill off the next month.

She might also take some of the retirement money and buy the most reliable but least expensive car she can find. 

The point is for her not to have any debt payments other than the mortgage.

Now about that job. If she's healthy she may still be able to find jobs that don't require a degree. I just profile a book in my Color of Money Book Club about jobs for folks over 50.

It's “Great Jobs for Everyone 50+: Finding Work that Keeps You Happy and Healthy . . . and Pays the Bills” by Kerry Hannon, who writes the Great Jobs for Retirees column for AARP.

I have saved a lot of money, but I just hate spending money. I try everything to save a buck. And I will have to spend a lot. Ive got a lot going on, new job, buying a house, expecting- Im completely overwhelmed, I cant even be happy about all the blessings because its too much at one time. Not even sure I took the right job, so feel even more stuck now. I guess I want to know how I can relax? I have LTD, life, setting up a will, retirement.

You can relax by rereading the post in this chat from people worried about parents with no money. 

It's all about perspective. I get that you have a lot on your plate. But hey at least you have a lot to work with namely money, job, support, etc.

So slow down. Having a baby can make you anixous.

Breathe. Right now. Take a deep breath.

Make a list. Figure out what you need to spend money on. Put on paper the tasks  you have to get done financially and one by one work though the tasks on the list.

And remember, as you pointed out, you are blessed.

 

Hi Michelle, My husband and I are saving for a house, planning (and praying) to move in the next 7-10 months. We paid down just under $20K in debt last year, including a significant amount in credit cards. Now we have about $1800 left on a card (less than 20% of the limit) and about 1/3 of what we need for down payment and closing. Do we crush that last bit of debt and push the move back a little or pay it slower and bank all the money for the new house?

Push the move back. Become debt free before you move forward.

And really, I would also make sure you have a healthy emergency fund before you move. 

Take your time. Get rid of the debt. Save more. Then move. You will be better off.

Michelle, I wrote in a few weeks ago about options for paying off as much as a could on credit cards vs. saving up cash now in prep for furloug. I wanted to let you know that tomorrow I will be paying off all of my credit cards, and I will have close to a month's worth of savings in my rainy day fund. I also have a back up plan for slashing my budget, should things get worse than planned. Thanks for all your advice.

I'm so sorry about the furlough but glad you paved the way to be better off when it happens.

Thanks for sharing.

Dear Michelle: My husband and I are in our mid-'50s. Having been rattled by the recession and a drop in my freelance income, we are eager to squirrel away as much as possible for retirement, which will hopefully be in 10-12 years. We currently save 19% of his salary in a 401(k) with employer match and we recently received an inheritance ($250,000) all of which we will put toward retirement. Our only debt is our mortgage ($62K left), we have money in an emergency fund. Yet at the same time, I wonder if we are doing too much forward planning and not living in the moment or enjoying our good health while we have it. I'd hate to retire with plenty of money, but drop dead at the finish line!! Any thoughts on striking a balance?

I would use some of that $250,000 to:

-- Pay off the last bit of the mortgage.

-- Take a really nice and long vacation.

Paying off the mortgage will free you from that last bit of bondage. Taking the vacation will get you some of that now enjoyment.

And you are right. You are in the position now to spend a little to live well. 

 

What's the best way to start saving for a baby in terms of college? Is it too early? Would you consider it poor etiquette to ask in lieu of gifts for a contribution to the child's future (I.e college)?

Once the baby comes you might consider opening a 529 plan. Earlier in the chat I mentioned a good site to find out information about that savings vehicle. 

And no I wouldn't tell me in lieu of gifts, etc. Miss Manners wouldn't approve. But is someone asks what could they get the baby, you then can mentioned the college savings plan.

Your savings for Life Happens and Emergency must be liquid. This means you must be able to get access to them immediately if not sooner. So you're not fussing about any interest rates. Your longer term savings for retirement, house, etc, are where you need to worry about interest rates.

Exactly.

Thanks.

Dear Michelle: I have a fairly common last name. I find that I am constantly getting calls from bill collectors looking for various people--none of them relatives--who share my last name and first initial. Do bill collectors simply call every listing in the U.S. with the last name of the person they are seeking? Frankly, I resent the idea of paying extra for an unlisted phone number to get ride of the bill collectors.

Bill collectors do what they can to find the people they are trying to wring money out of. 

But I wouldn't pay for an unlisted phone if you don't want to. However I love caller ID. It's not hard to figure out those type of calls.

Got to go folks. Again, thank you for coming back regularly to share your stories, testimonies and most importantly to ask my thoughts on your financial situation. I very much appreciate your participation. 

If I didnt get to your question I'm so sorry. But keep an eye out for my column and my postings on Facebook or Twitter, you may find your questions answered there. 

Take care and see you next week, right back here. Have a great weekend. 

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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