Color of Money Live

Nov 14, 2013

Do you need help achieving your financial goals?

If so, join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion on Thursday, Nov. 17 at noon ET and tell her about it .

Submit your questions early.

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Use caution in disaster relief

Welcome. So glad you could join me today. Even as the chat begins big news on Affordable Care Act. What do you think of the new promise from President Obamacare? And as usual I'm here to help you as best I can to answer your questions about your personal finances. 

So let's get started.

Just want to give a great example of why Michelle's advice to review your investments and update your plan to stay the course yearly is important! I went back to an IRA mutual fund I hadn't reviewed in a while. I saw its pitiful performance over the last 4 years, while other funds I'd overlooked are skyrocketing. Long story short I sold it and moved the money to a better choice. In 24 hours it earned more interest than it had in 4 years! (No, I am not retiring and obviously that can change again overnight, just saying.) Review your investments! Equally as important as how much you invest is where you invest your money. If you are chasing loss or poor returns with more good money, it's time to move on. Dollar cost averaging into poor stocks or mutual funds will not help anyone achieve their goals. Check up on your portfolio every year! Adjust as necessary.

Thought I start off the chat with this testimony.

So, so right!

Michelle, love the chats. I'm not sure how well situated I am for retirement and seem to be getting conflicting information from the various (free) calculators I've found online. I think I'm putting enough away now, but am not sure about the amounts I've accumulated so far. Can you point me to guidelines or a reliable calculator, or should I consult with a financial planner? Thanks much. At 43, it's not as far away as it used to be.

I think you should do both. Find a good fee-only financial planner to help you create an overall plan that looks at all your retirement needs, including any long-term care issues.

One calculator I often refer people to is found at choosetosave.org. Try the Ballpark Estimator. It includes what you've save, how much your saving, expected Social Security benefits, etc. It'll then let you know if you're on track. 

But you are so right it's important to know your number or know what it takes to retire the way you want.

I work for the Federal government and I have student loans. What do you think of the Public Service Loan Forgiveness program? What is the best way to make monthly payments affordable?

If you qualify for the program and the agency you work for participates it's a good way to pay off your debt. For those who don't know, the program was created to encourage people to work in public service jobs. Under the program, you can qualify for forgiveness of your "remaining balance" of your Direct Loans "after" you  have made 120 qualifying payments. It's important to note the caveats. Here's a link with more information about the program: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service

Hi, Michelle. I think I know the answer to this already, but would appreciate your advice. My husband and I bought a house a few months ago, knowing that we could afford the payments. It would be tight, but we could do it. We've redone our budget, and things are even tighter than we thought. It's to the point where we're having trouble saving--something we've always been good at. When do you know what to cut and what to keep? We already don't go out often, but we do have smartphones--should we just get "dumb" phones for now, and save the difference? What else can we do to build up our emergency, car (mine is old and will need to be replaced in a year or so), future baby, medical, etc. funds?

I see this all the time. Often people don't have as much a handle on their budget as they think. So there are two ways really to fix a shortfall in your budget. Cut expenses or make more money or both. 

Certainly look at everything including what you pay for your cell phones. Rather than dump the phones see if you can get a less expensive plan. Look at cable. Look at your food budget including what you pay for groceries. 

Try this. For 30 days keep a spending journal. Write down everything you and your husband spend for 30 days from the mortgage to money for snacks. You may have an outflow of cash you aren't capturing.

If after you've cut to the bone and things are still tight, then it's time to think about whether you or your husband or both of you can bring in more income. Or a boarder to help you save a little. Maybe just for a year until you can turn things around.

But if you can't work more and can't cut more, perhaps you need to examine whether you need to move again so that your housing costs aren't eating up so much of your budget. 

Michelle, I am young person living in DC with a good job and no credit card debt. Since graduating college I have been paying off student loans (its two separate buckets of loans one was 250 a month and one is 84 a month) and recently an incredibly generous family member paid off in full one large portion. What I am wondering is should I use the extra money I now have ($250 a month) to now overpay the second college loan and get rid of it faster or if I should use this cash to start investing in a no load stock index fund and start building up more long term savings. I know how much you dislike any debt but I feel like I should really start saving for the long term now?

Get that student loan monkey off your back. You have time to save for retirement. And once you get the second loan paid off, you will then have $334 to put toward investing for retirement in addition to any other savings you have in your budget.

If it were me, I would aggressively pay off the student loan.

Hi Michelle, Love your common sense way of looking at the big picture!, My sister is turned 60 this year and has asked my advice on wether or not to pay her house off. Says she has enough in her roth 401(k) to pay it off and still have a little left over. My thought is if it makes you sleep better at night...do it. Your thoughts?.

I am a big believer in being debt free. And I can't wait to pay off my home mortgage. However, it concerns me that you say your sister will have a "little left over" after paying off her house. I don't think it's wise to be house rich and cash poor as the saying goes. Meaning she has a paid-for home but not much cash. So sit down with her and see what income she will have if she takes her retirement money to pay off the house. She needs to have enough to cover her expenses, etc. otherwise she'll still struggle financialy. If she's still working, she may -- if she can -- consider still working until she can pay off her mortgage without touching her retirment funds. Then she can retire, have a paid-for home and still have cash to meet her expenses in addition to any pension, other savings and Social Security.

Only payments made after October 1, 2007 qualify. So, for example, even though I have nearly 14 years of public service, I won't qualify for the program until 2017.

Thanks for information on yet another caveat.

You could not pay me enough to enter a retail store on Thanksgiving weekend. I wouldn't stand in lines with all those insane shoppers if Walmart and BestBuy were GIVING away tvs.

Now wait. Giving away :)

But seriously, I agree. I stay clear of any store or mall that weekend. I hate shopping anyway and certainly when people are crazy for bargains, which make many not so easy to shop with or around.

This is my favorite discussion forum thanks to your common sense. I would like to suggest to the person needing more income or cutting down more that a second car may not be necessary. Car costs and insurance are the costliest part of a budget. Try carpooling or public transportation before buying a second car.

If that's possible, good suggestion. Often in some areas its not. But you are right. Look at everything as a way to cut cost. If you put everything on the table, you may find some more areas to reduce your expenses.

My friend JUST bought a timeshare and she's already have second thoughts about it. She paid $1k towards it with her debit card and said yesterday that the money was already gone. Is there any recourse from this? I suggested that she still call her bank and request a stop payment. Hopefully the transaction is pending and hasn't actually been taken out of her account so quickly. Plus its going to cost her (at least) $200 per month :(

I'm not sure of all the rules, laws about timeshares. It's possible you may have a 3-day period to back out. Have your friend call the consumer protection agency or office in the state where she bought the timeshare. But she may not have any recourse and doing a stop payment won't stop the timeshare owner from collecting if she signed a legimate contract with no backdoor out. I typically tell people if they don't have the cash to buy a timeshare outright, they shouldn't buy one.

 

I am trying to simplify my financial life. I currently have 3 credit cards. If used, the cards are paid off monthly. Is it better to figure out which card has the highest limit/perks and close the other cards? Or should I just not use two of the cards? I am looking to buy a car in the next year and want minimal damage to my credit score.

So, because you said you want to buy a car within the next year, I wouldn't close any of the accounts. Closing an account can have a minor dip in your score. It's nothing that won't bounce back but don't take that chance if you plan on getting a loan for the car (which I suggest you don't. Try saving up and pay cash for the car). Nonetheless, if you do get a car loan and don't plan on getting any other loan soon after, yes pick the card you like the most for whatever reason makes sense to you (good perks, low  or no annual fee) and close the other accounts as long as you have on outstanding debt on any one card and all three together. In other words, you don't want to close any credit card accounts if you owe money on the card or other cards. But if you have no outstanding debt on any of the cards AND you aren in the market for new debt any time soon, it's fine to close the accounts you don't want. Additionally, closing the accounts don't mean the hopefully good history you have on them isn't removed from your credit reports. 

Lie to me once, shame on you. Lie to me twice, shame on me. Speaking as somebody who has changed insurance policies four times in the past six years in order to keep my primary care doctor, I'm not believing anything that comes out the president's mouth anymore. He was either blatantly lying to us or completely ignorant of a key legislative initiative that was supposed to be his legacy. It's hard to believe that the government has made the health insurance debacle worse than it was before, but it has. And 100% of the fault lies with Obama.

Certainly the failures of healthcare.gov and people facing cancelled policies is more than frustrating. It's sad. However, let's also remember why we have ACA. We have millions of people without healthcare. We have millions of people with individual policies that don't really cover much. So when all these millions of people get sick who covers the costs? The rest of us. You. Me. The government, which we fund.

We need a fix. Hopefully though this all we will find a fix that is fair to all -- the sick and healthy, the poor and rich. 

I just think calling people lairs or all the nasty commentary and any name calling won't get us to where we need to be, which is with a health care system in which people won't have to go bankruptcy or worry when they sick that they won't get good care. 

I wish we really, truly could have a civil discourse about healthcare. 

Hi Michelle! I'm a new reader of your dicussions and find that you are so helpful!!! I wonder if you can give any advice regarding paying for daycare. I have my 1 year old daughter in a very clean, educational and loving daycare. The weekly cost is $250 (or $1,000 a month). There aren't any discounts available, I've asked. This amount is hurting the chances of my husband and I saving very much money. We aren't in a position to stay home with her. We looked at approximately 10 other daycares in our area and found them to be terrible but around the same price (+ or - $30). Do you think it's worth the money to keep my daughter in a good, caring enviornment where they teach at a higher level, or is it something we should deal with at a cheaper rate, but cheaper-type care? Thanks!

I think where you kid is concerned you place her in an environment that is both right for her and keeps you from worrying all day. So that means if the cost is high, you find other places to cut in your budget to compensate for what you want for your daughter. Cut as much as you can elsewhere even if it hurts and means less eating out or movies or vacations. But it's only for a season. It's only until such costs are reduced as she gets older. That's what it means to live below your means. You decide what expenses are important and cut everything else to make the numbers add up.

My husband and I have racked up a HUGE amount of debt in a short time because I was unemployed for nearly a year and a half (stupid economy!). Luckily, I have great in-laws who offered $15,000 to pay towards the debt (to be paid back in about 3-5 years) to avoid racking up interest; however, we still have about $15,000 to pay to creditors. I can't seem to get ahead because we live paycheck-to-paycheck. We own both of our cars outright and plan to run them into the ground, and don't spend money on frivolous things. We already work as much overtime as we can. Any suggestions for a growing family?

Breathe.

And realize it takes time to dig yourself out of debt.

You  had a major hit to your finances. So now you are in recovery. Be patient.

At this point make the minimum payments on the debts until you get some financial breathing room. Once you get that room (by cutting more or taking the extra income coming in0 then start attacking the debt with the lowest balance while continuing to make the minimum payments on the other debts. And clearly don't add to the debt. 

You can do this. It will just take time.

 

I just want to say thanks for the advice over the years. I got serious about debt repayment 5 years ago and your column keeps me on track. I was in shock when I added up all of our debt. We have paid off half of our debt total over the past 5 years. We are on track to pay off another loan in a few months which will leave just our mortgage. You are right. It feels good. It will feel even better without a mortgage. Keep up the good work.

Thank you for your testimony. I hope the person I just answered who is still deep in debt heeds your story.

Good for you. And let me know when it's all gone. We can jump for joy together!

I have an unusual question. When you're in a good position, how do you get yourself to "live a little"? My spouse & I have been good savers over the years. We both work hard, max our 401(k)s, and bank one salary. With our investments, the good luck has outweighed the bad. In our mid-40s, we find ourselves with a healthy nest egg. We'd like to live a little better, but can't seem to get out of the "save everything you can" mindset. How do you go there?

This no an unsual question at all. I have this issue myself. So what my husband and I did was set aside time every year -- two weeks -- to take a really nice vacation with our family. We plan the fun and spending. It makes saving the rest of the year worth it.

So find something you like and spend on it. Could be a subscription to the theatre, or golfing or regular movie outings, etc. Plan the spending and then go and enjoy. You earned it.

Just started reading the chat and saw the person who says they won't shop during Thanksgiving weekend. Personally I think they're smart. I took a retail job out of my field due to circumstances and learned that most stores at the mall would raise their prices gradually before the holiday shopping season so that when they dropped the price back to "normal" they could advertise big sales. You're better off purchasing things throughout the year when you find a good deal instead of waiting for the so called big sales during specific times of year.

Interesting tip from a former insider. I often suspect as much.

Only thing I would add is if the "favorite" card is an AMEX, also keep a Visa or MC. Some places don't take AMEX and you could be stuck without a method of payment.

Good point. Something to consider.

Hi Michelle, I had to share how children pick up on what their parents do. My son was looking through a toy catalog and deciding what he wanted for Christmas and his birthday (which is 2-1/2 weeks after Christmas). He came up with a budget himself and picked the toys he wanted that fit in his budget. I was pretty amazed as he's only 7. I wouldn't be surprised if he's read some of your articles or chats!

LOL!

Can I adopt your kid?

Love it.

To the original commenter, how did the ACA cause you to change 4 times over the last 6 years? I'll agree that maybe the ACA meant your most recent plan had to change (which assumes the coverage was minimal) but the ACA was signed into law on 3/23/2010 - 3 1/2 years ago. Any change before that was solely based on your insurance company and that's the same thing happening to people who need to change policies now.

Thanks for your input. 

I think some people have seen a price shock with the ACA and we shouldn't minimize their concern. But we shouldn't kick everything it has done to the curb. Maybe, hopefully we will find a way to cover everyone in a fair way.

Thanks for sticking up for civility and sharing risk, Michelle! I agree we need to all take care of each other, in ways that are as fair as possible to everyone. The rollout is rocky (anyone remember Medicare Part D???) but I'm hoping that's - as you would say - only for a season!

Amen.

 

Unfortunately, it costs. It's awful to worry about your kid because s/he is in a sub-par daycare. Just avoid going into debt, and when your kid goes off to public school, just take that daycare payment and put it straight into savings. That what we and a lot of families I know did.

Good points.

I'm so sorry if I didn't get to your questions or post your comments. Nonetheless I appreciate your particpation in the chat. Let's keep taking next week. Same time. Same place.

If you don't already you can follow me on Facebook or Twitter @SingletaryM.

Thanks again for joining me today. 

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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