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May 16, 2013

12
P.M.

Color of Money Live

Total Responses: 28

About the hosts

About the host

Host: Michelle Singletary

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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Color of Money Q&A Archive

About the topic

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary on Thursday, May 16 at noon ET for an online discussion.

Michelle will offer budget-friendly travel tips and answer your money questions.

Send your questions in early or read the archives later.

-- Requiring employers to provide retirement income estimates under consideration

-- Michelle's Mailbag: Credit card limits and saving while you're young

-- Just in Time for Summer: New Airline Fees That Will Make You Hot - Today's e-newsletter

-- Calculating a ticket's true cost

Q.

Michelle Singletary :

As always, glad you could join me for a live -- text only -- chat. No guest today. Just you and me. In case you don't already, follow me on Twitter @SingeltaryM or Facebook at www.facebook.com/MichelleSingletary.com 

Let's get started.

Q.

401(k)s while unemployed

Hi Michelle, I lost my job unexpectedly last week. We have about three months worth of living expenses saved up (I know, I wish it were more!) and I'm wondering if we should put my husband's 401(k) contributions on hold for a few months, to increase the money we are bringing home each month. I know we will lose his employer's contribution, but I think having the cash is more important at this point. Am I wrong?

A.
Michelle Singletary :

I'm so sorry for your job loss.

No, I don't think you are wrong. Right now you need to stockpile cash because you don't know how long you will be unemployed. I agree that it's hard to leave money on the table but you need the money so that you don't go into debt while you search for a job. 

And for the record it's good that you have three months worth of living expenses. Most people don't even have a month.

Now as soon as you find a job, get back on track for retirement savings.

– May 16, 2013 12:00 PM
Q.

budget-friendly travel tips

Good Afternoon I am someone with a tight budget but really feel the need to get away. I am very interested in any suggestions for a vacation on a small budget. Thanks.
A.
Michelle Singletary :

Now when you say tight budget, not sure what that means. 

If by tight you mean you have debt (credit card and student loans) I say plan on a staycation. Meaning you stay home and find great free or low cost things to do at or near your home.

If by tight you mean you've only saved a little for a get away then search any of the travel sites for deals on airfare and hotel. The Post has a great travel site with deals. Or you can still do something fun and local to cut out or down on travel expenses. It's all in how you look at it.

Fun doesn't have to mean going someplace else. 

– May 16, 2013 12:03 PM
Q.

Tap 401(k), wipe out debt, health insurance quandary

Dear Michele, Sorry for the length but it seemed to me you needed the details to give the advice: I am a working craftsperson. I don't make much money but am able to scrape by with my own work (online, in shops, in craft shows) and working for other craftspeople. I just made it into a huge craft show this summer, a great opportunity. My work for other craftspeople is currently dry for various reasons so I have very little money coming in, not enough to support myself and not enough to buy materials to make enough stock to take full advantage of the huge craft show where I have reason to believe I can make a substantial amount of money. I may be able to take steps to put off some bills so I can at least support myself for the next couple of months until after the craft show and I again get work from other craftspeople. I have 30K in a 401K that I can take out at any time with no penalty. I'd have to take out all of it, though only what I took 'cash in hand' would be taxable income, the rest I could roll over to an IRA and it wouldn't count as income. I have maxed out my credit cards to just about $30,000. I have no other investments or nest eggs. If something dire were to happen (medical emergency, etc) I have family who would definitely help me out. I was unable to get health insurance except through a state program (not Medicare/Medicaid). Because of my income, the state also allows my premiums to be less expensive though they are still $400/month. An added wrinkle is that, because of the new health insurance law, the state program will end this year. In October, counselors will be available to help me find new insurance and there will be subsidies for low income, but I do not know what the income level will be. I am on no other kind of public assistance. I understand that any money I would take this year from the $30,000 would be taxable income. I own my own home and always get money back on my taxes so I can absorb that. However, the cost of my health insurance next year will be tied to my income this year and since I won't actually be making that amount of money I don't think I would be able to pay it. In the state health program I am currently in, the remedy for that is that I could prove my actual low income (when we're actually in 'next year') and get the subsidies, probably after a few months of paying the higher amount. I don't know for sure this will be the case with the new insurance, but probably. Given all of these factors and uncertainties would you recommend that I take the $30,000, pay off just about all of the credit card debt, fund my craft show appearance (make lots of money!), and hope that the health care subsidies issue will be able to be fixed OR I take out half the $30,000 now, roll over the other half, wipe out the higher interest credit card, fund my craft show appearance (make lots of money!) and hopefully come under the income wire for the health insurance subsidies OR some other solution? Thank you so much for your help and consideration of my quandary.

A.
Michelle Singletary :

Wow. Talk about a backstory. So you've got a lot going on. I'm going to try and get to the heart of your issues and question.

Since you can withdraw money from your 401 (k) without penalty meaning you are 59 1/2 or older, why don't you take just enough to cover the supplies you need to purchase for the craft show. You don't want to pay taxes on money you don't need just yet. 

Go to the craft show and see what you make. From that point, you can have a clearer picture of what expenses you can afford going forward, which takes me to the credit card debt.

For now, since your income is very low and you aren't sure what you will actually make at the craft show hold off tearing through your available cash. I know you want the debt goen but just make the minimum payments on the cards until more money comes in. As you make more than your expenses use that extra cash to pay down the debt as aggressively as you can with money above your expenses.

Since your income flucuates so much, I still wouldn't clear out the only savings you have to pay downt the debt. It will have to be a slow process for you. If business dries up again, you'll need that money for basic living expenses.

One quick side note, even as you are paying down the credit card debt, try as best you can to start an emergency fund even if it's just starting with $25. To start built up at least a month's worth of your living expenses.

As for the health insurance, it appears what you pay is tied to what you make. You don't know yet, so can't answer that. But do what you can to stay covered even if it means paying a higher premium until a subsidy kicks in.

Hope I got everything.

– May 16, 2013 12:04 PM
Q.

Bank accounts when moving

Ok, the fact that I am asking this question shows you how much I know about finances, but I am trying to learn, I swear. In a few months I will be moving home from my study abroad program, and I won't really need the account I have at the local (European) bank. (I have another account at an American bank which I intend to use as my primary account after the move.) Should I close the account at the European bank or leave it open? Will it affect my credit score to close an account less than six months after opening it?
A.
Michelle Singletary :

No money question is dumb. You dont't know and it's okay to say so.

Unless you plan on returning to the area where you are studying, I would close the account. No need to keep it open. If you return years later well then open another account.

And just the mere act of closing a bank account is not factored in your credit score. 

– May 16, 2013 12:06 PM
Q.

Retirees and Investing

Should retirees invest and save in retirement?
A.
Michelle Singletary :

Yes. Peoplea are living so much longer now and you still need your money to outpace inflation. You just need to be careful not to put too much risk for money you need in retirement over a five or seven year period. Best to seek more detailed advice from a financial adviser. 

But yup, still need to save and invest.

– May 16, 2013 12:07 PM
Q.

Mortgage Interest Rate and Taxes

Does lowering your mortgage interest rate hurt you tax-wise?
A.
Michelle Singletary :

Why would you care?

Lower rate means you are paying less interest. You don't get a dollar for dollar tax break for mortgage interest if you even take such a deduction, which many people don't. They take a standard deduction.

 

– May 16, 2013 12:09 PM
Q.

529 Plan

Hello Michelle! I need to get a 529 plan set up for our son (we're already a few years behind), but with so many options provided by different places, where to begin? Do you have any suggestions? Thanks if so!
A.
Michelle Singletary :

You should start your research at www.savingforcollege.com

Great website with loads of good information. For me, I invest in my state's 529 plan for two main reasons:

-- I get a deduction of $2,500 per account on my state income taxes. Got three rugrats so that's a good break.

-- The company that runs my state's 529 plan has very reasonable fees.

But most important don't let the abundance of information and choices keep you from doing something and soon.

– May 16, 2013 12:11 PM
Q.

Paying Off Credit Cards

What is the best and fastest way to pay off several credit cards?
A.
Michelle Singletary :

I suggest you list the cards starting with the one with the lowest balance. Throw all the money you can at that debt. Pay just the minimum on the other cards while you are attacking the first on the list. Once you've paid off the debt at the top of the list move to the next one on the list.

Now, I say this knowing many people will argue that why don't I tell you to start with the card with the highest interest rate.

Well, I'll tell you why.

Because in my experience in helping one-on-one many, many people pay off debt, paying off the a debt quickly (the one with the lowest balance) provides folks with an emotional high and a sense they've done it or the beginning of getting the debt monkey off their back. They then get charged up and aggressively go after the next debt and the next one. So in the because they've been so aggresively they don't rack up higher interst charges because the pay those bills off early too.

Further, if people could follow math logic (paying off high interest debt first) then they wouldn't be in such debt in the first place. They woudl have long realized the math folly in revolving credit card debt.

 

– May 16, 2013 12:16 PM
Q.

Transportation

Good Afternoon: Would you please settle an ongoing "discussion" I have been having for years regarding whether it's a better financial decision to lease a new car, buy a new car or buy a used car? I never pay more than $1,500 for a used car, generally drive it 2-3 years and get another one. My analogy is it's a(disposable) tool. If a screwdriver or a pair of pliers broke, I would replace it with a new one, not try and repair it. What's your take on this? Thanks!
A.
Michelle Singletary :

Interesting logic. I see your point. 

But for me, I buy the best used or new car I can afford with cash. I keep the car for a long as I can until it becomes totally unreliable, meaning I can't plan repairs.

I don't mind making repairs on older cars because it's still cheaper than paying for a new or used car. A car is not the ame as a pair of pliers. I just wouldn't want to be trying to find a decent, reliable car every few years.

– May 16, 2013 12:19 PM
Q.

Emergency fund and expenses

I had been wondering myself if we should stop retirement contributions if one of us lost our job. It would have a huge impact on how much of an emergency fund we would need, as we're currently maxing out our 401(k)s and Roth IRAs, living like we're making much less than we do so that we can retire early. I know we could cut our spending to the bone if we needed to, so we may actually reduce our emergency fund, as we have other cash sources in an emergency (new car savings account, a small inherited IRA) that we can withdraw from without penalty to cover expenses until we're back on our feet if we need to do so.
A.
Michelle Singletary :

Sounds like a good plan to me.

– May 16, 2013 12:20 PM
Q.

Does lowering your mortgage interest rate hurt you tax-wise?

This is a mistake many people make; thinking that their goal should be to lower their tax burden. The real goal should be, after paying your bills and your taxes, to have more left. If my tax bill increase by $500 but I've saved $1,000 on my mortgage, I'm $500 ahead.
A.
Michelle Singletary :

Exactly!!!!!!!

– May 16, 2013 12:20 PM
Q.

Mortgage Interest & Taxes

To add to your answer, if someone cuts their interest rate so they pay $100 less per month in interest, they lose $1,200 a year in interest deduction. While this means they'll pay $360 more in taxes (assuming 30% tax rate) but they aren't spending $1,200 in interest and are $840 better off. But remember to see how much longer they will be paying on the mortgage if they refi. Doing a refi when you have 10 or so years left but starting over with a 30 year mortgage isn't good.
A.
Michelle Singletary :

Right again. Now for the last part, also have to look at how much principal is left when you refi. If you've paid down a lot then you may not be adding to the cost long-term if you refi because you aren't borrowing as much as when you got the first loan.

– May 16, 2013 12:22 PM
Q.

Can I afford it?

I have my life happens, my 6 month cushion, my regular funding of 401(k). But I still ask myself if I can afford something... whether it's shoes, a weekend away, or a huge home improvement. So I end up spending nothing. Great for savings but I also think money doesn't have any intrinsic value sitting un-spent (if I can afford to spend). How do you decide if you can afford something?

A.
Michelle Singletary :

I decide just like you laid out. Got life happens, emergency, saving for retirement, kids college fund.

Now I can have some fun. But I get you. I hate spending money. But I do. Every year my family takes a two-week vacation (with cash) to a really nice resort. It's our treat to ourselves and time for us to bond and just relax. 

So let go of the fear of not having enough and have some fun.

Go spend. You have my permission :)

– May 16, 2013 12:23 PM
Q.

Bought house- how many withholdings?

Ive just bought a new house, how do I figure out the new withholdings. I've tried the withholding calculator on irs.gov and it doesn't help.

A.
Michelle Singletary :

If the calculator didn't help I would highly recommend you get advice from a tax professional. Let him or her run the numbers for you now so you can plan for the rest of the year.

So glad you are thinking ahead.

– May 16, 2013 12:25 PM
Q.

Financial Advice For Parents

Financial Advice for My Parents My mom and dad are both over 60 and both still working full time jobs. Unfortunately neither of them are "able" to retire any time soon. My mom is near the point of giving up on her retirement because she is so tired of working my dad shares the same sentiments and has decided he's going to retire next year, no matter what. My mom is 61, dad 63. There biggest financial burden is their home. They have little to mo equity in it and they have a HELOC on the home. How can we Advise them regarding the home? It's a financial burden and physical burden (upkeep). My 2 younger sisters (they still live at home) are becoming "overwhelmed" with all the sacrifices they have to make to help out around the house.
A.
Michelle Singletary :

Time for a family meeting. Perhaps it is time to sell and get a smaller rental home or apartment. But don't let them just say, "I'm done." That's not the answer. Then what? How will they pay for stuff? Lean on you? Your siblings?

They need a better plan then, "I'm done. That's it."

Have them work the numbers. They aren't yet at retirement age so are they willing to take less money for Social Security? Can they afford that? What other savings  or pension do they have?

If they scale down, they might be able to retire. If they can't perhaps they can start reducing their spending now to get themselves ready. Or maybe they can just work part-time to supplement what they have in any benefits.

Maybe they can retire, but they better darn well know or they may be a burden on others.

– May 16, 2013 12:30 PM
Q.

529 plans

My parents are considering opening 529 plans for my younger children, but from what I understand it would be better for the kids' financial aid prospects if the plans were transferred into my name (or the kids' names) before they are actually needed so that the despersements aren't counted as the children's income. However, I can't figure out what the tax implications of such a transfer would be, and the folks who run the VA 529 plans aren't answering my emails. The best information I can find is that there currently isn't a tax liability involved in transferring one of these plans, but that could change at any time. Thoughts?
A.
Michelle Singletary :

Go to . http://www.savingforcollege.com/grandparents

As I've said great site and their is a section for questions about grandparents who want to open an account.

Here's a quick blurb: "Simply owning a 529 account for your grandchild will not affect your grandchild’s eligibility for need-based financial aid, but actually using the account could have a negative impact in the subsequent year. The value of assets owned by a grandparent (or other non-parent) is not reportable on the FAFSA financial aid application. This rule extends to 529 plans owned by grandparents."

– May 16, 2013 12:38 PM
Q.

Retirement saving

Kind of you to say no money question is dumb, because I think I'm about to change your mind. How should retirees plan save if they have no income? If we are taking from our retirement fund just what we need how and why should we save? Do you mean reinvest in the investment account? I guess I have it in my head that at retirement we just take money OUT, not put money in. LOVE your advice and chats and emails!
A.
Michelle Singletary :

Love your question. Not dumb at all. 

I meant to say in retirement you may still need to let some of your money stay in the market rather than just sitting as cash somewhere. So if you have a portfolio some of it should still be invested so that you can try and keep or beat inflation. 

 

– May 16, 2013 12:42 PM
Q.

Paying off debt or stashing cash?

Recently my mother passed away after living a long, good life. She left each of her children some money, each of us getting an equal share of her estate. Mom was a good saver and a savvy investor. As a result, she was able to enjoy a comfortable retirement. My question is: what should my husband and I do with this inheritance of about $40,000? I want to save it because I remember Mom saying that anytime she got what she called "a hunk of money" she would save or invest it. My husband wants to pay off our parent loans from putting our kids through college - about $27,000. We owe only the mortgage on our house. Car is paid off. We have more than 6 months of living expenses saved. Our retirement savings are good; we started early. So, what should we do? Get the debt monkey off our backs? Or stash the cash?
A.
Michelle Singletary :

Monkey.

Go for the monkey absolutely.

And if your kids have student loan debt of their own, consider helping them pay that off or down.

That's what I would do.

– May 16, 2013 12:43 PM
Q.

Proud Debt Defeated!

Hi Michelle! I just want to say that with your influence by husband and I have now paid off 2 of our three credit cards in less than a year. The most recent one ($10,000 balance) was paid off on May10th which is a complete blessing because it was a card (joint card used post-college to establish my credit) that I share with my retired father. My father was elated. This is one last thing he has to deal with in retirement. So I thank you for your advice and now my husband I will shift our efforts to this last card with hopes to have it paid off by September.
A.
Michelle Singletary :

You've got me tearing up!

What a great testimony. Thank you for sharing and for appreciating the burden you've lifted from your father.

So proud of you.

And let me know when that last one is gone. We can shout together, "Free at last. Free at last.!"

– May 16, 2013 12:45 PM
Q.

New versus used cars

Why don't you take into account safety when it comes to car ownership? New cars have many more safety features than older ones, but that factor never seems to be included in your discussions of car ownership. I find it hard to believe that you would advocate skimping on safety, especially when it comes to children being transported in cars. Pinching pennies on cable TV and vacations is very different from taking risks with safety. I have to respectfully disagree with you on this point.
A.
Michelle Singletary :

Seriously. Yes, I've told people to go buy unsafe cars to save.

Yes, I'm hot and bothered with your assumption because it's silly with all due respect.

I expect people to use common sense. And yes that means looking at the safety record of any car new or used.

Besides have you been noticing the recalls on NEW cars lately.

Lots of them.

But you're suggesting that NO used car is a safe as a new one and that is simply not the case. 

One the best safety features is a seltbelt. Used cars have them.

Dual airbags have been required since when, 1998?

So airbags. Check. 

Further we often have more safety information about used cars because they've been what? Used. Consumer Reports, Edmonds.com, and other sites have great information on the safey of used cars.

But if it will make you happy. People take into account the safety of used cars.

– May 16, 2013 12:52 PM
Q.

From TAP 401(K), WIPE OUT DEBT, HEALTH INSURANCE QUANDARY

Wow! Thanks so much for answering my very long question. I really appreciate it. In the interest of not making it any longer I didn't include my age (mid-forties) and the fact that the particular 401K I'm in means I can take the money out without penalty. Assuming my age doesn't change your advice, you suggest I cover my craft show expenses only and roll the rest into an IRA (as required), pay down the credit cards when possible in the future and do my best, with even minimal contributions start an emergency fund. You're right that I am itching to get rid of the debt and interest charges but I give your expert counsel much weight. Thanks again.
A.
Michelle Singletary :

As long as you aren't getting hit with the 10 percent penalty for early withdrawal, yes, my answer is the same.

Good luck.

– May 16, 2013 12:54 PM
Q.

health Insurance

Just a quick note about the health insurance for the crafting person. she needs to check with the folks in her state because her coverage likely won't be ending in October, she'll just have to enroll in a new program in October with a coverage start date of Jan. 1, 2014. They'll take a look at your income at that point and can adjust one way or another if you hit a threshold (either higher or lower) so you don't have to worry so much about calculating your income at this point.
A.
Michelle Singletary :

Hey craftperson, a suggestion. 

Thanks.

– May 16, 2013 12:55 PM
Q.

To writer of Can I afford it

I have the same problem, I rarely spend on myself. But remember your dollars can help others, so that is a good place to start. Find a charity you really believe in and get a membership - maybe a museum or something that you would also be able to benefit from. Also, think about what you may need to buy and look at locally owned shops which give more money and jobs back into your own community and shop there for things you might need anyway - new shoes or a necklace or a gift for a friend. These are small things where your money will work for others as well as allowing you to enjoy the fruits of your labor!
A.
Michelle Singletary :

Good idea.

But I still want the person to treat him or herself too.

– May 16, 2013 12:56 PM
Q.

Craft show entrepreneur

Is there a reason you did not suggest a modest small business loan? It seems like that would neatly solve her problem of appearing to have too much personal income (thus disqualifying her from HC subsidies).
A.
Michelle Singletary :

There was a reason.

$30,000 already in debt and can barely pay that.

– May 16, 2013 12:57 PM
Q.

Retirment savings

If I could add: If you're lucky enough to have a defined benefit plan (i.e. pension) and can live each month on less than what you get, save the rest. One day, your expenses could increase to be more than you get from the pension and having the extra savings (saved in retirement) will let you survive.
A.
Michelle Singletary :

Good advice. Thanks.

– May 16, 2013 12:57 PM
Q.

healt insurance subsidies

Here is a link from a non-partisan group that can help you calculate whether or not you'll qualify for the upcoming health insurance subsidies. http://kff.org/interactive/subsidy-calculator/
A.
Michelle Singletary :

Again, you guys are on a roll with the good suggestions.

Love the input.

– May 16, 2013 12:58 PM
Q.

a little bit more free

Today is my last payment on my 2nd to last credit card. I think I can have the last one paid off by the end of August. Man this was tough, but it feels so good to be a little bit more free :)
A.
Michelle Singletary :

Amen!

Monkey almost gone.

Feels so good.

Check back with me when the monkey is all gone. 

– May 16, 2013 12:59 PM
Q.

Getting ready for refi

We're preparing to refinance our home. Our only debt is the mortgage (about half of the value of the home) and some significant student loan debt. The plan is to pay off the rest of the student debt (project that to be when my better half gets paid for some completed assignments), get acknowledgement from the lender, and do the refi. Any suggestions on steps we should take in the meantime?
A.
Michelle Singletary :

Sounds like you've got it all covered. But double check with the lender or lenderrs to see if there is anything else to improve your application to get the best rate quotes.

– May 16, 2013 1:00 PM
Q.

Michelle Singletary :

So sorry. It seems to go to fast and I'm always sorry I can't get to more questions. I can't think and type fast enough.

But I've got a new feature where I answer some of the leftover questions. Every Monday now, there's Michelle's Mailbag. Only online. Check it out for an possible answer to your question. 

Again, thanks for joining me today. A appreciate your carving out time and hope I've helped.

See you next week.

Q.

 

A.
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