Hi Michelle, I love your chats. They help me stay on track financially. My question is regarding family, in particular a parent. How do you as an adult child address a parent who wants to buy something (e.g. a car) they can't afford.
It's hard for many parents to take advice from a child they used to change diapers on. Some take offense at being told what to do by their child.
So first honor the person's role as your parent. I say that to say, you have to approach this very carefully. You can start by talking about an aritcle or chat you've read interesting about personal finance. Make the conversation general at first. Even talk about your challenges to budget. Then gently say something like, "So, I understand you're thinking about buying a car. What type of car? Can I help you with any of the process?"
Open the door and then help give your parent information about buying a car and also whether it's affordable.
The trick is to not come off as the parent but a concerned adult child.
We just found out that we have a baby on the way and we are so excited! We also have a bunch of credit card debt that we are trying to pay down as quickly as possible. Given our new reality, should we try to put more into our savings now, or just try to kill as much debt as possible in the time we have before the baby comes?
First, congrats. How wonderful. I have three. Sending one off to college a week.
So, I would do both. Save and pay off debt.
You will definitely need more savings. If one of you is planning to stay home with the baby for awhile, you will need that savings.
But I would also love to see you put as much of that debt behind you. That opens up options in case one of you decides to stay home longer or permanently.
Last night, the collections department for my credit card called. It seems that I was 10 days late with making a payment. A few things went through my head. First, I thought it was a scam or mistake, but it did turn out to be legit. I never got the bill in the mail, so I never sent in a check. I was somewhat surprised that the credit card company would take to calling me since I have never missed a payment before and was only 10 days late. To be honest, I always pay the balance in full. I felt like I was being treated like someone who had a history of bad payments or paying the minimum amount. I don't feel it was totally my fault for missing the payment... It left me with a mixed reaction to the company and somewhat thought I should find another company that doesn't go after their good customers so quickly.
If you haven't missed any payments before or in a long time, you could appeal to the company to forgive any late fees.
But why are you mad at the company? Yes, they should sent you a bill, but you are also responsible for keeping track of your own payments. Take ownership of the mistake.
So rather than switching companies perhaps you should go to online billing, which can send you electronic reminders when your bill is due. Or you can have the amount on your credit card taken directly out of your banking account avoiding having to remember when the bill is due.
Hi, Michelle, I'm in a bit of a dilemma, but in a good way. I've recently received an inheritance that is almost exactly the amount of my (rather high-rate) second mortgage. But I'd like to put some of the money toward honoring the memory of the person who left it to me. And due to some unexpected outlays in the last year, we've burned though most of our emergency liquidity funds and need to rebuild them. I can accomplish the latter two gradually by using the money that I'll no longer have to pay toward the mortgage, but would you recommend that I split up the funds and use some for each goal?
I would take some of the money (not much) and do something nice for yourself. Something that you would remember and honor the memory of your loved one.
But then I would pay off as much of the second mortgage as possible, which also honor your loved one who thought enough of you to leave you money. I would be honored if money I left someone was used to get them closer to be debt-free. Then as you've said use the money you were putting toward the second mortgage to rebuild your savings.
Hi, Michelle. We've been away. I think our daughters do realize at some level that they're lucky to have a nice home nd o student debt. We've tried to instill our values but our materialistic society works against us. We still live in the large but unpretentious home I inherited from my parents shortly after we married in 1981. We didn;t install central air until a few years ago, to all 3 children's chagrin. They went to Walt Whitman High School, where the student parking lot is filled with Mercedes and BMW's and studehts openly mock their teachers, who drive Toyotas, for having chosen such a low paying career. Like all parents, we want what's best for our children and struggle to do what's right, in our case between overindulging them when they'll eventually get most of our money anyway and helping them make wise financial choices in the meantime..
First, let me hone in on this "eventually get most of our money anyway."
You know you have control over that right?
You don't have to leave them money if it's going to be wasted.
Leave an inhertiance that will make a difference not spent by two young woman who have been ungrateful.
Now I say that recognizing that you love your daughters. But I recall their reactions to your helping your son and it was bratty. Own that. Own it because you are in part at fault.
However, as you point out, I accept that it is hard for parents to raise kids that don't have a sense of entitlement when we live in such a materialistic world.
Still when they react to your helping others by saying, "What about me?" when you have given them so much already stop giving to them and let them make their own way.
Hi Michelle, My fiance just finished grad school and got a well-paying job that he starts next week. He has $15,000 in student loans, which is also the amount he has in a savings account. My advice to him was to the loan off ASAP with the savings to minimize interest and then quickly building it back up (he's still living a grad-student lifestyle, so no additional expenses to worry about). He's nervous about dipping into his savings just in case something happens. What would you advise? Thanks! Love the chats
I think he should aggressively pay off the debt. But I agree with him that she should completely deplete his savings to do it. I would maybe take half and pay down the loans. And then since he's still living like a grad student work hard to get rid of the rest of the debt quickly.
Hello, I'm concerned about my current credit score and do not know how to proceed in fixing it. I attempted to purchase a laptop a few months ago in Best Buy and was denied credit -- in Best Buy! I'm not sure why. Since that time, I've reviewed my credit report and did not see any damaging information on the report. I'm concerned because I was denied store credit, so apparently there's unfavorable information somewhere, but I do not know what steps to take to resolve this. Please help! Thank you so much!
You need to get your credit scores to see what's impacting your ability to get credit. Go to www.myfico.com to order your report, which will show you what items may be bringing down your score. If could be that you have too much debt outstanding, even if you're paying it on time as agreed.
I just had a baby in January. I am determined to teach him good financial management, even though I haven't always had them myself. I am getting better and still learning. My question is with the new added expenses of childcare and trying to save and pay off debt I am so confused about what should be a priority. I had to buy a car since my sports car could not accomodate baby and the air went out during a heat wave. I owe taxes and want to save for college and bump up my 401K too. So much to do and I don't know where to start. How do I prioritize?
Having a baby can really stress a person out. Yes, there's lot to think about but breathe.
Now, here's what I would do in order:
-- Make sure I have a good working and realistic budget based on the new expenses re: baby. As you review your budget are there expenses you can cut out or cut down?
-- Calculate and then build up two savings accounts: Emergency Fund and Life happens fund. With the baby, six months of of emergency fund might be too overwhelming right now. So aim for 3 months worth of living expenses saved (rent/mortgage, utlities, food, transportation, child care, etc.) It's what it costs you to run your household for three months. At the same time build up a life happens fund so you don't have to rob your emergency fun for things like car repairs or babysitting so you can get out sometimes. Aim for about $500 to $1,000 in that fun. So if you have an extra $100 a month, put $50 toward the emergency fund and $50 toward the life happens fund. Once the funds are filled stop saving.
-- Until you have a good savings cushion, you can dial back your reitrement savings. However, if you work where there is a savings match, try to invest at least enough to get the match. But my overall point is don't try to do too much because you do become overwhelmed if you don't have enough funds.
-- Focus on getting rid of the tax debt especially if it's federal since the interest payments can really add up. Once you've filled your savings, focus on making extra payments on the tax debt. That too may be dialing back on retirement saving.
-- Finally, the college fund comes after you've saved, after you've gotten the tax done and after you've gone back to saving for retirement. Yes, very important to save for college but you've got some other prioties that need your attention and with limited funds you can only do so much at one time.
Hope that helps.
For the person who was denied credit at Best Buy, you should know that all Americans are entitled to one free credit report per year. Go to www.annualcreditreport.com and you can get your credit report from all 3 of the big credit tracking companies. I do this every January just to make sure there are no surprised. Here is info from their website (don't be fooled by imitation sites out there!): AnnualCreditReport.com is a centralized service for consumers to request free annual credit reports. It was created by the three nationwide consumer credit reporting companies - Equifax, Experian and TransUnion. AnnualCreditReport.com provides consumers with the secure means to request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies in accordance with the Fair and Accurate Credit Transactions Act (FACT Act).
Thanks for this. But the person said he or she had looked at the credit reports.
Nonetheless, you are right. Let's say you've already gotten your free reports for the year. If you are denied credit you get to get the reports again.
We are semi-retired in our early 70's, close to our 49th wedding anniversary! We have sufficient savings, IRA , etc to pay off mortgage early. Balance : $44,000. 15 year mortgage that we have already made several advanced payments. Interest : 4.1 % Even though it is relatively low interest, one of us doesn't like any debt! The one who dislikes any debt wants to be debt free when he again retires. No other major debts. We'd appreciate your thoughts please. We love your column and hope you will continue to be blessed. Huge Thanks.
Big congrats on getting close to 49 years of marriage. How very wonderful. I'm close to 22 and still loving him and our marriage.
I hate debt too. If paying off the balance won't significantly reduce your retirement savings, I would just be done with that debt monkey on your backs. I don't want you to be house rich and cash poor so that's why the caution. But absolutely be debt free when you walk into retirement.
I'm widowed with 2 in college (community college, living at home). We rent. FAFSA thinks because I have cash reserves, we are not eligible for financial support. I am also retired and disabled, so going back to work hasn't been an option for 30 years. What do I do? When the kids are ready to transfer to 4 year colleges, this will get more expensive. Both are doing really well academically.
I would encourage you to contact the financial aid office of the schools your kids are attending. Let them know your situation.
If the aid situation doesn't change then look for 4 year school or school that fit what you can afford. That may mean they still live at home. Or mabye work for awhile with their AA degrees and save up to finish. They can still finish and do so without putting you or them in debt.
My brother and I are both adults, finished college, and live away from our parents. Every few years, my parents propose a family vacation (usually a cruise or other tour package). They can afford the trip and my brother and his partner can afford the trip. Since I am single, I would pay more than the rest since I am not sharing a room. My parents have always offered to pay the difference between the one and two person fares to help offset my added costs for the trip. I feel pressured into going, it is a time for us to be together as a family. A few weeks ago, they were looking at a river cruise through France. It was quite expensive. Some of the earlier ideas were less expensive, but either my brother or parents had already been to those places. How do you put a price on spending time with the family?
Your question suggest you can put a price on it. You can't.
You can spend time with your family without going on expensive vacations. You know that.
It would be nice to go but don't go if you can't afford it. And say so. Be clear. Say: "I love these family vacations but what you guys are considering isn't in my budget."
Then suggest places you can afford. If they don't like it, oh well. Say: "Hope you guys have a great time."
Now if the parents want to help and can afford to help you go. Go. I would.
Just be true to your financial situation. Own it. You are grown and only you can pressure yourself to do what you can't afford.
My sister is starting her 15th year as a DC public school teacher and makes over $90,000 a year, more than our dentist brother (after expenses) or myself as a government lawyer. She hates her job and is afraid of her junior high students, but has been looking for years and can't find anything that pays ahything close to what she's now making. Plus she loves the summers off. I'm afraid she'll have a nervous breakdown and I'm not sure how much her students are learning, but she drives a Lexus and lives a pretty comfortable life.
Be there when she burns out.
Really, not much you can do if she won't give up the "good life" for her mental health. Or suggest she find a career coach to help with job search.
What is the quickest and most effective way to make an immediate positive impact on my credit? I have had some past blemishes and am currently working on paying down debt (some judgements from past debt) including taxes. My mortgage, car and other items are current. I just want to feel like I am heading in the right direction and see progress.
1. Paying your bills on time, all the time.
2. Paying down debt.
The two things that will have the more immediate and long-lasting impact to your credit score.
So just keep doing what you are doing. Will it take time?
My son finished law school a year ago $190K in loans. Passed the bar exam in flying colors. But then couldn't find a decent paying job as a lawyer so went back to IT consulting. Disappointing on so many levels. But now......the $190K in debt.... He and my daughter are 33 and hoping to start a family soon. They both have decent salaries (around $100K each). But this debt is just awful. Any guidance fo them on how to deal with this .....other than just setting up a long-term payment plan? Any special programs that you're aware of?
Unless he's willing to go into public service work that may help with paying off the debt, no special programs.
Here's a link with information about public loan forgivenss program: http://www.finaid.org/loans/publicservice.phtml
It may mean he has to redefine what is a "decent paying job."
Otherwise, it's his debt and he should pay it.
With $200,000 in annual pay, they should be able to knock that debt out and not over 30 years. If I were them, I would live on one salary and use the other salary to pay off the debt aggressively. Even after taxes, they can get rid of that debt fairly quickly. Of course that means living below their means.
I have 2 credit cards that I rarely use. Should I use the credit cards every month, paying off the balance in full, of course, to keep my credit score high or does it not matter how often I use them as long as I pay on time and in full? Thank you!
If you have a good credit score you don't have to use a credit card to keep it.
The two things that impact your score the most is paying your bills on time and NOT having a lot of debt.
Thx very much for your answer earlier I this chat! Following up : one of us is concerned that taking the money from savings to pay off mortgage means " that money disappears!" I reply, " not really!" " each month after mortgage paid we will have $570 additional dollars to put back in savings, travel, etc." But this appears to be a difficult concept for my spouse. I'd appreciate your further thoughts pleae. Many thanks.
Tell your spouse I agree with you. The money isn't gone. It's know part of your assets in the value of the home. And you are right that you can take that $570 and put it in savings.
I understand it's hard to let go of cash. But I wouldn't want to take a mortgage into retirement.
This happened to me once with the electricity bill. I said to the company that I was concerned it would impact my (stellar) credit. He assured me it wouldn't. That's why *I* was mad. I didn't mind paying a fee for an oversight that was my responsibility - but it deed seem to go nuclear on something very small that could impact my credit.
When something like this happens talk to the company. Often they don't report such a payment if it's only a few days late. And let's say they do. Go back to paying your bills on time and it won't tank your score. Such things become problems for folks who are always late paying.
Exactly how does one determine what lving beneath/within your means? Is there a formula?
You don't spend all the money you bring in on a net basis.
So if you make $3,000 a month, you spend less than the $3,000 including what you put in savings.
Really it's about not having your expense eat up all your income leaving you no room to save and invest.