Color of Money Live

Jun 06, 2013

Do you need answers to your personal finance questions?

If so, join Washington Post nationally syndicated personal finance columnist Michelle Singletary Thursday, June 6 at noon ET for a lively online discussion.

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

-- Michelle's Mailbag

-- Money becomes a main character on cable

-- Today's e-newsletter: Minority unemployment gap is still widening

-- #financialfollishness: Money mistakes from Twitter users

Making that my sign on because it's true. 

Looking forward to your questions. Don't forget to join me on Twitter @SingletaryM for all kinds of good financial tweets. Been getting some great comments at #financialfoolishness. I've asked people to tweet about the financial foolishness that made them money smart. So share. You could help a lot of people avoid your money mistakes.

Now let's get started on this forum.

With my partner recently unemployed, we are adapting to having our family of four live on one income. So far, we're way over budget. We're sitting down tomorrow to slice and dice to get down to a break even place. Do you have any advice for the first things to cut in this situation? I have some items off the top of my head (lower TV expenses, drop lawn service) but I thought you'd have good suggestions that I might not think of.

I'm so sorry about your situation. I have a family member going through the same thing.

So other things to cut:

-- Eating out. I know that may seem obvious but lots of folks still spend some in this area. Don't spend anything.

-- See if you can lower cell phone bill by going to cheaper plan

-- Cut back on retirement savings. I know. Crazy you may think. But right now you have to focus on stockpiling cash or the things that you really, really need.

Are you worried that fewer people will participate in these chats once the Post's paywall goes into effect?

I'm not. Look, I know it's a big change but I believe (and of course I'm bias) that we provide great value for your money. I know I do. I'm a penny pincher so I get that some might not want to pay. But I pay for good information. I pay for things that I value. So I do hope that if you value my columns, newsletters, chats and other features you'll stick with us. 

Hi Michelle - as someone that doesn't have an extra $10 per month, I'll probably use my 20 free pages so I can keep joining your chat, and one or two others. Otherwise, I'll go back to the days before the Internet, and read the paper at the library. Anyway, any thoughts about how this price point was arrived at? Seems to me that a $1.99/month charge would probably mean wapo would retain much of its audience, while $10/month will lead to a dramatic dropoff. One more thing that the less well-to-do are able to enjoy, unfortunately...

I wasn't privvy to how the price point was decided. Having said that, I would be true to myself or my advice if I told you to pay the $10 if you truly can't afford it. Do what you have to do. But I will say this. We've all gotten so use to the idea that stuff on the Internet should be free without thinking about the fact that the good stuff on the Internet has a cost to produce. 

I hope many readers will see the value in have full access to all the great journalism at The Washignton Post. 

P.S. I pay for home delivery of my own paper. Just saying.

Hi Michelle, My husband and I are still recovering from a rough few years. He's a teacher and has endured wage cuts and no raises for over 5 years. I have a stable government job with good benefits, but have also had no income increase in a while. We have managable debt and should have it paid off within a year, (we're both working extra odd jobs for extra $) a modest amount in savings, and his student loan debt should be forgiven in a few years because of his work in a rural school system. We haven't stopped saving for retirement, because I recall reading (maybe it was even you!) a persuasive argument that your kids can get loans and scholarships for school, but you can't get loans and scholarships for retirement, and I firmly believe in not leaving $ on the table when it comes to a company's matching funds. We're in our 30's with a 7-year-old and a surprise baby on the way. I'm still worried that we have *nothing* saved for college. We also don't have a fully-formed emergency fund of months of living expenses, but we're both confident in our job stability. My son has recieved about $5,000 in savings bonds throughout the years. Are we better off converting this into a Virginia 529 Plan? (We don't make enough money for this to be taxable according to the treasury website.) I anticipate the bun in the oven will also get savings bonds from Grandparents, and we are blessed to have other family members that would respect my "we have enough toys, would you please consider a donation to the kid's college fund?"

Depending on how you invest in the 529 plan you should understand you put the $5,000 at risk. But I think it's risk worth taking because it's not likely that the $5,000 in a bond will keep up with the inflation rate for college expenses. So in other words you need that money and more if you can save it to grow and at least keep pace with inflation for college which had been trending at about 5 percent I think.

But long term, once you've gotten out of that debt take that money and earmark it for the college funds for both kids. And save whatever you can. Every little bit helps.

I've been looking at refinancing my house. I'm just past the 20% equity PMI threshold. And my current rate isn't bad (4.875%), especially by historic standards. But it seems I can save money in the monthly payment and long term by refinancing now. Even if I've missed the bottom of the interest rates. I went looking for a more comprehensive refinancing calculator and ran into this one from the National Bureau of Economic Research: http://zwicke.nber.org/refinance/ I like that it includes taxes and inflation into the calculation. When I plug in the numbers and press calculate... I shouldn't refinance unless rates drop to 3.75%. Which is all well and good, but I don't understand the "Why?". Limited as the other calculators are, at least the "why" is easy. I'm not sure how to digest this new bit of information.

My guess is that you are so far along in your mortgage that refinancing unless you get the lower rate isn't worth it.

But without all the hard numbers I'm not sure. Still you are going about this the right way. Asking the right question. You aren't just looking at the low rates. You are looking at the total picture. So if the calcultor shows you the truth don't run from it.

My in-laws retirement fund is, unfortunately, their adult children. Despite the situation, everyone has been paying a lot each month, and will be for the foreseeable future, to cover basic monthly expenses. This makes me wonder – given elderly care – are we eligible for any type of tax credit? Are there any agencies, services or reference materials that address this topic? My in-laws are in their 80s with some health issues, making them somewhat frail. They live in an apartment and can still take care of an assortment of their own basic needs. Just curious about options, if there are any.

You should get advice from a tax professional. If your parents have become your dependents you might some tax breaks but based on the information your provided doesn't appear so. However, a tax professional can walk you through the rules. Also here's a good article from bankrate.com

http://www.bankrate.com/finance/money-guides/tax-help-in-caring-for-an-aging-parent-1.aspx

From the article things to consider and talk over with tax person:

  • Mom or Dad's income, including Social Security.
  • How much support you provide for living expenses.
  • How much you contribute to a parent's residential costs.
  • How much of your parent's medical bills you pay.
  • Combined help of all siblings.


Hi Michelle, love following your work. My wife and I have been climbing out of credit card debt and had a question on the emergency fund. Does it make sense starting out to try and build an interim emergency fund based on one salary, instead of two, while paying down credit card debt. Our plan is to build up two months in savings based on the highest monthly salary, a $1,500 life happens fund, and then aggressively pay-down credit card debt before extending the emergency fund to three months of both incomes. What do you think?

Thank you.

So for the emergency fund you are using the wrong figure. It's not based on your salary. You need to calculate what it costs to run your household for a month (rent/mortgage, cable, utilties, food, transportation,etc.) Then mutiply that by the number of months you want to have saved up in your emergency fund. 

If you have pretty secure jobs start be more conservative in putting money in the life happens fund and emergency fund concentrating more on payind down the debt. Do the debt should come first. For example if you have an extra $100 a month for debt, I would put $50 on the debt and $25 in the emergency fund and $25 in life happens fund. Once you reac the goal in the life happens fund, I would put that $25 toward the debt payoff. See what I mean?   

My husband and I have no debt (just the mortgage). We have solid Emergency and Life Happens funds. Our toddler twins have about 5,000 each in their 529s. My husband's 401k is in good shape and maxed out monthly, but I have been working on an advanced degree and then raising the twins for a while; minimal retirement savings have been put away by me, since I've been out of the workplace for so long between school and the kids. I'll be working a bit next year and we project that we'll have about 1,750 or more left each month after all our expenses are taken care of (including 2,500 each by the end of the year, for the twins' 529s). We have to start saving for a new car, but otherwise, we are not sure if we should stuff the 529s beyond the annual 2,500 each, since the longer the money is in them and the more that is in them, the more it is worth, or if we should get a Roth IRA for me, and perhaps place the money in other retirement saving options as well (my employer does not offer one). College will be in about 15 years for our twins, and retirement not for 30 for us, but the money required is different of course. Where should the bulk of our monthly extra income go - retirement for me or college for our twins?

I would go for boosting the retirement as much as you can. 

But why don't you use the retirement ballpark estimator at www.choosetosave.org to see where you stand for your retirement. That will also help guide you in how much more you need to increase your retirement savings.

My husband and I bought a house last year- well under what the bank approved us for, within the suggested percentage of income, we still put away savings and pay a bit extra ($50) on the mortgage every month. We paid off our student loans before buying a house, so the mortgage is our only debt. And yet we've both admitted to each other that the mortgage payment gives us anxiety! Practically, I know we can afford it, we are still saving, etc., but emotionally we both worry about having debt. We recently admitted to eachother we've let our imaginations run wild with worst-case scenarios (what if we both lose our jobs and we can't pay the mortgage). Any advice for the frugally minded who have anxiety over debt?

Do just what you are doing. You are working to get that mortgage monkey off your back. That's how I stop worrying. I save, plan, look ahead. All things you are doing. 

Hi Michelle-- hoping you could you offer your opinion on the fiscal considerations of a job opportunity. Assume most everything about my current job and new job are the same- health benefits, job satisfaction, commute, pay, etc. The only differing factor is around retirement options. Both jobs offer identical 401(k) plans with matching contributions and investment options. However, the new job also offers a defined benefit pension. Awesome. But, my current job has a hook too. I need six more months to be fully vested in company contributions. If I leave before then, I forfeit $30k. So here's what I'm looking at- say I've got 15 years until retirement age. If I stick around and net that $30k, that's real money I have now invested in stock funds and it has another 15 years to grow. On the other hand, the new job will provide a $400/month pension. At that rate, it would take six years to total 30k, and I won't start collecting for another 15 years. And if I assume the original 30k doubles in 15 years to 60k, I'd need another six years of pension to get there. So basically I see 30k invested now is worth 12 years of $400/month pension later. Is this logic sound, and what are your thoughts?

First, love that you are working this out and workign the numbers.

On the fly, I would say the $30,000 is worth keeping. Of course I don't know how long you have to work at the other job to be eligible for that pension. Do you become upon hire immediately vested? If not then that $400 is guaranteed. 

If you have a financial adviser good question to run by that person. 

Michelle, I am wondering your take on this...although I go to your church and I can hear your voice now saying "nope"....but please just listen!! I am getting MARRIED! I'm so excited and we are thrilled to be able to spend our lives together. We both don't come from a lot of money and we are working hard to pay things off and get our financial house in order before we wed. Recently my father passed away and left a "few dollars" for me and my sister. Well.........I'd like to have my wedding in a place that may be a bit costly and I'd like to tap into a bit of what was left for me to do it. I think if my dad were here he'd move heaven and earth to make this happen for me...but after going through PP I just know there are better ways to spend money than on one day of a wedding celebration. I am paying a mortgage and have student loans and my fiance has PLENTY of debt that he is also taking care of (soon we will be both be taking care of...) So...what say you? Like what is a good price to spend on a wedding and what price makes you say "girl you're a fool".

So for those who don't know PP stands Prosperity Partners. It's the financial ministry I direct at my church.

Look. I do understand. Wedding. Family. Friends. Your big day. You've finally got a good boo (for you non-Baltimoreans that's a honey, snooky, etc.) You want to celebrate. Get that too.

BUT . . . you have DEBT. Yup in all caps. Unless you have no DEBT you can't afford to spend much on a wedding. I'm talking at mama's house with red cool-aid, hot wings and grocery store wedding cake.

And certainly rules out a wedding in a bit more costly place. 

I didn't know your dad I don't think but if you were my daugther I would move heaven and earth to help you become debt free. Use the money to start your married life off as free of that burden as possible. It is just a party. One day. Debt can live on for many days and decades.

 

I didn't realize savings bonds could be placed in a 529. All my boys have bonds from generous family members. How can we get this done? thanks!

No I believe she meant cash the bonds in and put the money in 529 plan.

Hi Michelle, how do you handle summer expenses? I am fortunate to have a job where I am home during the summer with our kiddos (so no day care expenses) but for the older ones it is getting expensive with all these camps and things. They can take only so much of the pool (also not cheap) and parks. We can afford it but I wish we had budgeted better during the year. Do your kids do this kind of thing? How do you keep them busy without breaking the bank?

Child, I'm so on your page. My kids definitely do camps. The younger ones are 12 and 15. I work from home a lot so having them home drives me CRAZY. Like really they don't eat all day at school so why are they always trying to eat me out of house and home during the summer. Can't keep a bag of UTZ chips in my house to save my life. Got to hide it from those rugrats...

Sorry got off track.

Anyway, so I mix a week off here and there at home with a week or two at camps. I also look for the best camps within my county's park and planning, which is really good bargain for some camps. This summer, like last, I spent a bit more to put them both in a good band camp at the Univeristy of Maryland. The other week they are doing a less expensive theater camp through park and planning. 

But always do what you can afford. Always.

Cook from scratch when possible. Eating out is expensive but the buy and reheat packages in the grocery store aren't cheap either.

True that. 

Thanks.

I'm 28 and have paid off all of my undergraduate debt except for $7,000. I have about $25,000 in the bank in a savings account. My question: Should I just pay the full $7,000 now since I can afford it or continue to pay it off monthly to continue building my credit? (I don't own any credit cards).

Get that monkey off your back.

Pay off the student loan debt and be FREE!

Then come back and tell me how free you feel.

I will retire at the end of this month (40 years) what should I do with my TSP money? Thanks

Honestly, if I were you I would hire a fee-only planner and together let that person help you figure out how to withdraw the money so that it will last as long as it can.

Hello Michelle! I'm in a bit of a quandry. I made an intention to buy a home this year (I've been renting for the last 10 yrs and love it!) because I'll be turing 45 and figure I have about 20 years to pay off a mortgage before I retire...however, since there are some good deals on rental properties in my area (3 & 4 plex) I'm thinking it might be more prudent to have an additional stream to help build up my retirement savings. I figure I could still rent where I currently live and put away any positive income I receive into my retirement savings. I'm really not sure which way to go. FWIW, I have about $70K in retirement savings (I was out of work for 2 years and had to live off of what I had saved) and about the same amount in savings account. What would you advise? BTW - I LOVE YOUR CHATS!

If I were you I would do a LOT Of research on owning rental properities. If you were going to live in one of the units then maybe. But really rental property management is no joke. Have you ever dealt with tenants? I have and it can be a TRIP and lots of trouble.

And frankly I don't think you have enough money saved to weather any tough times. What if you can't rent one or two or three or even four of the units? Do you have the money saved if you need to fix something big? And I wouldn't buy an investment property unless I could pay cash for it.

So what I'm saying is you have to be well situated financially to go down this road. 

My mother just died. She was a week shy of her 95th birthday and was enjoying life up until a few weeks before she passed. I never knew how much paperwork was involved in settling an estate -- and my mother was by no means wealthy. Fortunately, she had a will! So, have you got a quick comeback for relatives who want to know how much they're going to get from the estate and when? Just sign me "Frazzled."

If you know, tell them. If you don't know just say you are trying to figure that all out and will let them know when you've gone through everything. It's okay that they are asking if they are in the will. But don't feel pressure to give an answer you don't have. So need for a quick response. Just be honest.

Hi, Michelle -- I'm getting a huge kick out of the brides who want to spend on their wedding. Maybe one day you should ask all of us who had nice but inexpensive weddings how it went. Take my case -- been married for more than 30 years. We were married in the garden of my mother's home. Our plain gold rings came from W. Bell & Co., a now defunct catalog store. I think we paid $50 total. Our wedding cake came from Woodward & Lothrop. It was on sale and cost about $100. We had champagne from the corner liquor store and a few little "finger" sandwiches. That was it! Oh, and my dress was an antique, found in my grandmother's attic. I think it was from a distant relative's confirmation. Flowers were from my mother's garden. We had about 75 people total. It was really nice and everyone had a great time.

I hear you. I have a frugal wedding. Also had a second-hand dress. Been married almost 21 years.

But I still understand people want their big day. I don't begrudge them that IF they have the money to pay for it and not at the expense of NOT getting out of debt.

That's all.

And be certain to start checking Camp availabilities in January or February. I found out the hard way that if I didn't reserve camp time early it typically wasn't available by summer, especially for the local county/state camps that can be less costly.

You are so right on that. I've had them booked for their camps since Feb. However, any last minute planners can find good camp bargains.

Considering what has happened with pensions in recent history, I wouldn't count on it being around when you retire, especially if you're currently under about age 45. Just something to keep in mind.

Totally. You are so right. 

And before you know it comes the time to say so long.

The time seems to go by so fast. Thanks for joining me today. And I'm so sorry if I didn't get to your question. I try but lots in the inbox. But I have a new feature on Monday where I pull some questions that I didn't get a chance to answer and well answer them. So look for it online on Mondays.

Until next time. 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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