Color of Money Live

Apr 18, 2013

Need help achieving your financial goals?

If so, join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion on Thursday, April 18 at noon ET and tell her about it . Michelle will also be on-hand to answer your money questions.

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

-- Owe taxes: Be your own savior with the IRS

--Retirement planning doesn't have to be rocket science

--Boston Marathon profiteers - Today's e-newsletter

Thank you for joining me today live. If you don't subscribe to my weekly newsletter I hope you will. I use it to inform you about personal finance stories across the country with my added spin on some of them.

Also follow me on Twitter (@SingletaryM) or Facebook (www.facebook.com/MichelleSingletary)

Additionally, starting on Monday April 22, I’ll have a new online feature, Michelle’s Mailbag. I’ll be answering the questions I couldn’t get to during the live chat and pulling in questions you send to me thorough e-mail Twitter and Facebook.

To check out the mailbag questions starting Monday go to http://www.washingtonpost.com/michelle-singletary/2011/02/24/ABWCMzI_page.html

Let’s get started.

I'm under 40. I thoroughly enjoyed your article on retirement planning, but so much of it doesn't apply. What are the odds that Social Security will have the same rules - or even exist! - in the 2030s and 2040s? Pretty slim. There's really no point on focusing on things like Medicare at this stage because change is a given. At the same time, I can prepare best for retirement by preparing younger. What is the best thing you can do if you're under 40 to prepare for retirement?

 

Retirement planning doesn't have to be rocket science

I hear your frustration. But I don't happen to believe Social Secuirty or Medicare will go away. The benefits will definitely be different. So what can you do:

-- Get rid of or reduce your sense of entitlement so you can cut your expenses so you can save.

-- Marry smart if you marry. By that I mean look for someone with your same financial values so you can save together in peace. Or at lease negotiate a financial peace agreement that will allow you to save if you marry your money opposite.

-- Don't overspend on the kids. 

-- Shun debt as much as possible. Hate it. Loate it. Don't buy into that you should use it to leverage anything. And I mean student loan and mortgage debt too. It's not good debt. It's just debt. So if you loathe it, you will use less of it.

-- Use your peak earning years to save rather than continually boost your lifestyle. And by that I don't mean don't have fun or take vacations or go to the theater (My husband and I have a full season subscription to Arena Stage in D.C. We make it our date night). But pull back enough so that you are living not within your means but below it. 

-- Save. Save. Save and then save some more.

Hello. My fiance and I are looking for an advisor on how to merge finances, plan for retirement (we are fice years apart in age and would like to retire at about the same time), how to deal with properties we bought individually, etc. Should we look for a fee only financial advisor or a marriage counselor? I went through my company's EAP and they did not have anyone suitable - the specialties for those counselor a tended to lean towards infertility, depression, etc and not any sort of financial focus. The financial advisers I've spoken to could help with retirement planning but not really offer advise on things we would need to talk through when trying to figure out how to split the bills, how much to save, etc. My fiance does not have an Eap program and we have no religious affliation so there is no premarital counseling path recommended by our civil officiant/ wedding celebrant. Do you have any recommendations on a class or a type of person we could see? Thank you.

Use both types of professionals, financial adviser to help wit the planning and a good premarital class to help you negotiate the relationship. You can google premarital class and that will begin your search for something in your local area. Or check with your church or religous organization if you belong to one. But know this, the class itself won't be your savior. You have to really, truly have open and honest conversations about what you want in your marriage. You have to be on the same page even if you're different. 

Here's a very interesting article about how one journalist felt premarital classes didn't work for her (she got divorced). But didn't read it as don't take the classes. I read it as a lesson to when you do -- and you should -- how important it is to be sure you both are being honest.

http://www.huffingtonpost.com/amira-young/why-premarital-counseling_b_1958815.html

Hi Michelle, I've been a dedicated reader of your column for some time now and would greatly appreciate your insight about financial priorities. We hear from all sorts of places that we should: have a three and eight months (or more) emergency fund; max out retirement savings; eliminate debt; save for our children's education; and save up for big purchases so that we don't go into debt. My wife and I have a one year old and we both work in the public sector. We have about 3 months living expenses saved, a life happens/vacation fund, and save aggressively for retirement. Right after our child was born, we opened up a 529 plan and invest $150/month in it. We have combined about $25,000 in federal student loan debt, $15,000 in car debt (both of which are at interest rates of less than 3%), and our mortgage. We add a little extra to our student loan payments each month. So, what we are doing is really a little bit of everything: saving for the long-term, while saving for the near-term, while paying down debt. We wonder if we should take a more focused approach: build up additional savings first, then move on to more aggressively paying down debt - or vice versa. With so many competing financial priorities, but limited resources, where should we focus? Thanks!

You are so on track you don't see the asphalt. 

Really, you are doing great but you know that right?

So how would I tweek what youa re doing? If you are pretty confident about your public sector jobs, you can stop piling money into the emergency fund and life happens/vacacation fund. Take that money and rather than pay "a little extra" on the student loans get more aggressive in getting those loans paid off as well as the car. So take the money that you don't need right now for savings and apply to the debts starting with the ones with the lowest balance. If that's the student loans good. If car, do that. List them 1.2.3 starting with the lowest balance. Take all the extra money and apply to the debt at the top of the list. Make the minimum payments on the other debts. Once you get that debt paid off move down the list and repeat. 

Once you are free of the student loans and car debt, you can examine whether you might want to boost the college savings. And trust me you might. I have a kid going off to college now and the bill is well eye popping. 

Once you are saving for the retirement, college fund at a good clip, perhaps you can tackle prepaying your mortgage.

 

Hi Michelle. Are all Roth IRAs the same, no matter the seller? Or do they differ in returns, rates, fees, etc.? Thanks.

So I'm going to need you to do some homework because from your question, which is a good one, you need to know much more before investing. 

Basically a Roth IRA or 401 (k) or whatever retirement plan/vehicle is like a pot. It's where you hold your investments and that pot has a lot of rules that have tax advantages.

In the pot you put investmetns -- stocks, bonds, mutual funds. So yes what you choose to invest in will be different with different rates, fees, etc. 

So you decide the pot you want to put your money into -- Roth, Traditional IRA or 401 (k). Then you pick what you put in the pot. That's where the research comes in.

Go to www.choosetosave.org and read through the resource page for more inforamtion to start.

I owe the federal govt taxes this year. Is there a way to negotiate to reduce the payment owed?

 

Owe taxes? Be your own savior with the IRS

I just wrote about this yesterday. The IRS does have a option in which you can see if you qualify to pay less than you owe. Click the link to read the column. But the option, Offers in Compromise, is tough to get and is meant for people who are deeply in financial trouble with little hope of getting better.

If you are in fairly good shape, like you have a job, your best option will be a payment plan.

We have been married over 35 years. My spouse uses the debit card, and gets money out of the ATM constantly. I can not get him to work with me on this. Other than getting a divorce, what can I do?

I get this question all the time and it makes me so sad because I've seen the fights and frustrations that can happen when couples are not on the same page financially.

But don't give up. I've seen these situations turn around. But you do need help. Look for a therapist who also can comfortably talk about financial differences. 

Try taking a financial class or seminar or program together as well. And if you spouse won't go, you go -- both to the therapist and class.

In the financial program I run I've often had just one spouse come and he or she gets the information and takes it back to his or her spouse. The person also sometimes changes become better at persuading the spouse to become a better money manager.

Dear Michelle, The man who complained that his parents are "only" leaving him $1 million really stucki in my craw. We have wonderful,hard working, frugal parents who due to the recession, lack of health insurahce and massive medical bills now have virtually nothing. They never owned a new car or had a nice vacation until we gave them a cruise for their 50th wedding anniversary. We air conditioned their modest home a few years ago but they never turned it on unless one of us was visiting. Now they've lost the home to forclosure. Dad has ALS and Mom has varous heart ailments. It's hard for them to accept help from their children but we give it gladly. That's what being family is all about, not who gets the biggest piece of the pie.

 

Dividing up money can cause divisions in families

I received a lot of comments from that column.

But here's the thing, I understood where the son was coming from. We say money can't buy love but giving it or not giving it still affects people. I believed the son wasn't being greedy but worried he wasn't loved as much as his sister or her kids or that he didn't have his parents approval. He equated that to the money they planned on leaving him.

This family and financial stuff is deeply complicated. And you and I both know even as kids we measure ourselves with our siblings based on whether they did get a bigger piece of the pie or a fair share of the household duties or whatever. We measure and somethings that measure is money.

However, you are right that as adults we had to deal with our demons and learn that it shouldn't be about the money.

My father lives alone in a small house he bought under a county program years ago. Under the program, he bought the house under a significantly reduced price with the understanding that he cannot rent it out and can only sell at the same price. He has been making very little money and cannot find a decent job since getting laid off four years ago. We have been helping out and I want him to move out into an apartment and sell the house. It's getting old and the maintenance is getting expensive and things need to be replaced. He cannot take care of it on his own so we come over to clean and take care of the yard. It's becoming a burden. The question is whether this is fiscally responsible. The payment on the house is very low - much lower than any apartment in this area and I am not sure if he would qualify for any kind of subsidized housing in the area. But the other costs of maintaining the house and the emotional toll of taking care of it when we have our own place is driving me nuts. What would you do?

Have you considered taking to your dad about getting a roommate who might help with keeping the hosue up?

Or perhaps you can afford to pay someone to help with the housekeeping and yard work.

But if all that isn't possible and dad wants to live alone and can in a less taxing housing situation than no I don't think you are being fiscally irreponsible finding a better solution.

So do the math. What is the total financial cost of  taking care of the house plus the mortgage. Then look at the cost of the apartment, which may be equal, less or more when you add in the money for the house. 

Factor in the cost of peace of mind -- yours.

Me, I would try the roommate route first. Or explore what it would cost to have a lawn person and a housekeeper come in once a week.

 

My 47-year-old brother has just moved in with my parents after splitting up with his son's mother. He hasn't had a job in five years but has started part-time at home improvement warehouse and has burned every support system (except my parents). My mother was asking me about what sort of guidelines she should set in place for the time that he is living with them. They are financially very secure but don't want to be a crutch for him and want him to get on his feet as quickly as possible. Any suggestions?

 

Who's right in this family's financial fight?

Your mom is doing the right thing trying to figure out how to avoid enabling the brother.

If I were her -- and I have been for other relatives who have come to live with me -- I have a meeting about the situation. I draw a rental agreement, which includes the rules of the house. Then I would set a time limit. Maybe six months to a year for a plan to move him on his own. Make it realistic. He has to have time to save money, get better employed, etc.

But rent, responsibities and time limit. If he bumps up against that time limit they can renegotiate but if she wants him out for his own good yor parents should say that in a loving but firm way. 

Hi Michelle, I love your posts! I understand from reading your columns and those of other financial experts that every household should have an emergency fund equal to 6-8 months of their living expenses. For my household (which includes my husband, our 1-year old daughter, and myself) that's equivalent to $30,000-$40,000. How can we possibly began to save that amount of money, in addition to trying to save for a house, paying off debt and just paying bills every month? I manage the bill-paying and household finances and I try to sock away a little each month when we have extra, but it only amounts to about $20 here, $50 there and I know at this rate, we'll be retired before we ever have an adequate emergency fund. Any suggestions???

 

Most Americans found to be unprepared for financial emergencies

Good question. So ready for a hard answer?

You have to prioritze and some things will have to come off the table. Right now you are not ready to buy a home. So take that off the table meaning the money you might have for that will go to build your savings. 

But that savings can be built over time, one dollar at a time.

Set small goals first. So I would:

-- Set the first emergency fund goal for one month.

-- Save to have between $500 to $1,000 in the life happens fund, which is separate from the emergency fund. So if you just have $20 for that $10 goes to the one-month emergency fund and $10 to the life happens fund. When you reach the life happens goal, take the $10 and put in emergency fund.

--Do your best to pay off the debts, which I'm assuming is credit card debt. Once you get that paid off you can use that money to boost your savings and move to 2 months worth of emergency fund money.

-- Really look at your budget to see if you an eek out any more money -- $20 for the emergency/life happens fund and $30, $40 or $5o for paying down the debts.

Right now concentrate on those two goals. Debt and Savings.

Once you get a good start on that you can then move to college fund savings and making sure you are saving for retirement.

But the house will have to wait for now until you get a better cushion.

Hello Michelle, My dear cousin is in bad financial troubles after divorcing her ex. Part of the divorce agreement was that she needs to pay him out for his half of the house they own. The deadline is approaching and she doesn't have the money. I am fortunate to have enough to help out. The amount will be probably moer than $11,000. What's the best way to approach this? I don't expect her to pay me back. I want to help her remove the leverage this guy has over her life. There are so many lawyers involved already, should I add one of my own? Thanks!

Oh my dear. First, if you truly, really truly have the $11,000 to GIVE and NEVER need back, sure I think it's great you want to help your cousin.

But really examine your own financial situation. Do you have debt (credit cards, student loans, car loan?) Do you have a nicely funded emergency fund and life happens fund? Are you saving for retirement? If you have kids are you saving for their college education?

If all your financial ducks are in a row, then I think it's wonderful you want to help by GIVING her the money with no strings or expectations. None. Ever. 

So that means you don't need a lawyer.

But can I add something? Should she sell the house? Can she afford the mortgage, upkeep without the income of a spouse?

Ask her. Be sure. Otherwise you will give her $11,000 and she might lose the house and your money and that might create a problem in your relationship.

Hi Michelle -- saw your note about your newsletter and just wanted to add my two cents - I get several newsletters and yours is the only one that always gives "new" information - information that I haven't seen before. Every week when I get it, I tell myself I should tell you how great it is! Thumbs up from a fan...

I can't tell  you how much I appreciate your note. I write so much doing any given week -- two columns, the eletter, Twitter and Facebook posting, and now the new feature on Monday and I hope it's helping folks and that the information fresh, insightful, helpful and at times fun.

So thank you. Made my day!

Hi Michelle, We got hit with an unexpected car repair bill of $1800, which has me thinking we need to get serious about building separate "life happens" and emergency funds that are not part of the regular monthly expense pot of money. Obviously this month it would be tough to set something aside, but I'm concerned that it becomes easy to say that any given month. How do we start? With two kids in child care, there's just not a whole lot of wiggle room.

I hear you and you are so very right. It's why for years I've been pushing people to have a life happens fund for just what you experienced.

So how to do it regularly. 

Do it regualarly and automatically.

If you don't already, go to your HR department and have a set amount of money sent off to a checking or saving account separate and a part from your monthly pot of money. I do it every month. My life happens money goes to a credit union and the rest of my pay goes to the bank where we pay our monthly bills. 

If you are self-employed you have to do this yourself. But automate baby. That's the way to go.

Someone last week had a question about borrowing from their 401(k). I wanted to add that many people don't realize when they take a 401(k) loan that they pay taxes on that money TWICE. When they repay the loan, the repayment comes from post-tax dollars, not pre-tax. Then they'll pay taxes again when they withdraw it from the plan.

Good point. 

Thank you for your message in today's newsletter about being wary of appeals to help people affected by the bombing in Boston. As a fundraising professional, I can tell you that my profession gets sullied by crooks. The top areas for fraud and scam are disasters like this, as well as anything related to soldiers and first responder-types (police, firemen, etc). I wouldn't be surprised to see a proliferation of appeals that dealt with several of these areas at once. I know people who are far away want to help (and God bless them for that), but it's better to wait and/or give only to well-known organizations.

Thank you. So people be careful out there. 

If you want to give, it's so important that your dollars go to legitimate charities.

It is very tough not to feel slighted when two siblings are not treated equally by a will. Even if one is better off than another, it seems the one who gets less always feels slighted, and it's not about greed. Also, as it comes from beyond the grave, it can't really be addressed. I will say, though, that the grandparents may have viewed their grandchildren as more "real people" as they grew older, and may have begun to worry about ensuring they go to college, have a wedding, or other things for their future, and that may have been more what it was about than slighting the sibling.

Very true. Good points.

But you owe. That amount. Long-term dire financial straights? Maybe qualify to have the amount reduced. But we all pay taxes. And by paying our taxes we get much in return. Our veterans are cared for, our food and drugs are tested and safe, our air and water are clean. And so much more. Because we pay taxes to the IRS to fund the government.

You are most definitely right. I gripe about paying taxes but in the end I understand I must.

But we also need to recognize and that's why the IRS has the Offers in Compromise option that people fall on very hard times. They get sick, for example, and can't pay.

But if you can pay please do. And that may mean struggling by cutting back. After all if you owe taxes that meant you had taxable income.

Why do you always recommend paying off loans with the lowest balance vs the highest interest rate? Paying off the highest rate first will result in the the lowest amount paid when all the loans are done. Is it psychological? Credit rating driven?

It is psychologial. 

Look if many people did the math in the first place they wouldn't be in debt. So after years and years and helping hundreds of people up close and personal, I believe this method works best because people see movement. When they see movement they get even more motivated. And then they become even more aggressively about paying off the debt. 

Then guess what?

The interest rates don't matter that much because they've paid off the debt so much earlier that they don't end up paying the full interest.

Hello Michelle I'm getting married in June. My daughter is going to college this year. I'm a single parent so with just my income she gets a lot of finacial help. My fiance is concerned about how us getting married and our combined incomes with affect her financial assistance for college. We don't have the money to send her to college and our combined incomes equal about $130,000. Please advise us on where to start.

Unless you don't get married, your situation will change.

So that means, you need to figure out now before she commits to college what you can afford on the combined salary that may impact her aid. Contact the financial aid office. 

She certainly can try for merid aid but you are right to be concerned. So plan now before you commit to a situation you can't afford. 

 

I'm so sorry have to run. But as I mentioned early, I'm hanging on to all your questions. On Monday Money, I'll start my new feature Michelle's Mailbag. So you may see your question answered there.

Thanks for joining me today.

Please be financially safe.

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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