I have saved up a decent emergency fund and life-happens fund, and so it seems like it's time to start figuring out a smarter way to invest money other than letting it sit in a checking account or a money market account with almost zero interest. Do you have any suggestions for how I could get started?
So now you have to figure out what you are investing for. Is it retirement, college fund, etc.
If retirement I suggest you to to choosetosave.org. There is a ballpark retirement calculator that will help you figure out what you need to be saving toward retirment. After you figure that out then you can move on to where or how to invest the money.
I paid off a $42,000 line of home mortgage credit in five years. I left the line of credit open last year and was billed $75.00 for that little convenience. Question: Will closing this line of credit adversely affect my credit score? It's over 800 right now and I want to refinance my first mortgage in about a year. Thanks!
You can check with a lender to be sure, but I don't think closing the line of credit will ding you credit score. The history of having the line will stay on your report and thus continue to impact it positively.
Hi Michelle, No doubt you agree that income inequality is growing. Have you read anything about why? I read the recent Pew research that shows how the gap between the people who marry and those who don't is a driver in this equation. It seems that a lot of income inequality is powered by life choices, such as the choice to pursue higher education in a field that has jobs that pay well, the choice to have children out of wedlock and the choice to marry or not to marry. Would you agree?
You're right that often times income inequality is powered by life choices. We each of lots of messages from our past that influence our decisions. It's really important for people to realize what causes them to make decisions especially when they later regret them.
I agree. The income inequality in part comes from the choices people make. It also comes from people having to spend so much of their income on housing and health care, child care, etc. And the less you make the more of your paycheck that goes to trying to cover these basic expenses.
Now that we have children, my husband and I have realized that we need wills and everything that goes along with them. It seems that the cost of having a lawyer help with the preparation is quite high. Are there any alternatives? If not, how much is a reasonable price to pay for assistance with a basic preparation?
You don't have to pay thousands of dollars for the preparation of a basic will. It's more like a few hundred. If you want some complicated trust then you are talking bigger money. You should call around and get some quotes from local lawyers who do estate planning and ask how much it will cost for a basic will. It is very important that you get this done especially since you have children.
I know you have answered this question before about combining finances for a married couple. However, I don't remember if you addressed the question about credit cards for a married couple. We have combined finances and one joint bank account for everything. But we both came into the marriage with several credit cards, none of which carry a balance. Right now we keep using our own and haven't added each other to the other's cards. I was wondering about combining that. I was also wondering about whether we need access to each other's cards but my husband says he can show me the monthly statements. I am not sure if this matters or not. Advice?
Congradulations on talking about money with your husband! You are way ahead of the game! There is no one right way to approach your credit cards. Since you've combined all of your other finances, the credit cards are being paid from the same accounts so there aren't any secrets going on and you've said your husband is willing for you to see the monthly statements. Generally I think it is a good idea for each person to have maintain credit in his or her own name. I also think it's good for each person to have some discretionary money that they can spend without accounting for it (so they can surprise their spouse with a gift is one use!) As long as both remain open and trusting, having your own credit card shouldn't be a problem at all.
Whew. Such an easy answer since you've done all the hard work already by talking about how to handle your money. You could keep the separate cards and perhaps authorize the other to use it. But as Syble said you are using joint funds so really there isn't a need to get joint cards as long as you both know what's going on with the cards.
I'm in the same boat, I'm maxing out my TSP and IRA contributions but still have money sitting in a savings account doing nothing. What's the next step after you take care of your retirement contributions?
Look at your life. What financial goals do you have. Do you have any debt -- car loan, student loans, home loan? If so use extra money to pay those debts off. If you don't own a home and aren't looking for several years, you can invest the money to save more for a house so that you can make a bigger downpayment or even buy the house with cash.
Michelle, you have given me some helpful advice in the past, and as a result, I am on track to pay off my student loan this September! I have another question for you however: Do you believe that psychologically, it's easier to save money versus paying back money you owe? Once my loan is gone, our goal is to pay off my husbands loan ($22k, at a variable interest rate - right now it's 2.5%) AND save about $50k-$60k towards a down payment on a house. (Our online savings account yields .5% interest.) Based on these numbers, Is it better to pay down the loan asap, while simultaneously saving towards the house, or pay off the loan in full, and then save? (We do have a "life happens" fund if it matters.) So what's the better motivator - paying off a huge debt or saving towards something you really want?
I can't advise you on what to do, but I can offer some suggestions of things to think about. How important is it to each of you to own a home? What is motivating each of you to want to own sooner or later? Some people really hate having any debt and will keep putting off even good investments untl they are totally debt free. Other people will with the non-financial aspects of buying a house and determine they are more important than starting debt free. Fortunately, you are in a great position where you have the choice!
If it were me and I have a good emergency fund and life happens fund, I would take ALL the extra money I could and pay off the student loan as soon as possible. Then start saving for the home, and even putting a litto more aside for the things you will want to buy (with cash) for the house. There is nothing like buying your home and walking thu that door owing noone but the home lender. It gives you breathing room. It gives you peace. I have never bought a home with any debt on my books including a car loan. And I've bought three homes.
Hi Michelle, my husband has recently received a large-to-us inheritance (it's about as much as our annual household income) in the form of an insurance annuity, and we've been told that we'll need to pay taxes on the earnings but not the balance. We'll receive a 1099 shortly. My husband wants to go to his mother's "tax guy" just to make sure we're doing everything right. I say we already deal with 1099s all the time (he's self-employed) and his mother's old "tax guy" totally messed up our taxes the first year we used him, so I'm not inclined to trust her new guy. I say just put more than we think we'll need aside to pay the bill and we'll be fine. Thoughts?
This sounds more like a disagreement about your comfort zones than about money. Your husband may be saying he is uncomfortable with this new situation and wants some professional advice. If you don't trust the old tax guy, could you two talk about who would be a good option so you can both feel comfortable? You may be more comfortable with figuring out what needs to be saved or more willing to take a risk and he needs some reassurance from another source.
I agree. A good compromise is to find another tax professional. But please do that. Don't guess at what you think you might owe. Find out for sure.
How can my husband and I stop fighting about money? We don't even talk about it now!
Although people think they are fighting about money, it's really about something else. How do you each define "security"? If one of you needs to have no debts and lots of money in the bank and the other is satisfied to just be able to pay the bills and the minimum amount on th credit card, you're really fighting about a very different value system. Maybe one of you likes to give generously to help your kids and the other feels they should have to struggle and figure out how to make it on their own. Again, it's not about money, it's looking at your values. Have you tried using a simple deck of cards called Money Habitudes? It's an easy way for couples to start talking about money without fighting--and you can learn more about what is important to each of you. If you're interested, go to moneyhabitudes.com and get some. Guaranteed it will help you two talk!
Unlike many questioners, I'm retired and I reasonable shape with social security, a pension, and regular and Roth IRAs. To date, I have resisted creating separate funds for emergencies and other categories because neither social security or the pension will "go away", but would like to purchase one with certain new features. Does it actually make sense to withdraw money from the Roth on a regular basis to "save" it in a bank? If the dealer won't give a further discount for cash, does a "zero interest" deal make sense, instead of withdrawing the entire purchase price from the Roth?
First good for you for having great retirement security. Count yourself blessed.
With savings accounts paying like almost nothing I don't see why you need to move the money out of the Roth. Besides depending on how the money is invested you might be earning more in the ROTH. If the money is in cash like investments then again, not sure you need to open up an account to handle the cash, unless you think you can't get it out of the Roth in time for when you might need it.
I thougt you were discussing the money cards at noon? Do I have that wrong?
This is Syble and I'm here to answer your questions about the Money Habitudes cards and how our habits and attitudes about money influence our life choices.
It might be okay for now if you have different credit cards, but one day, it might work better. I do all the finances as the stay at home parent, so I make sure everything looks okay on the credit card statement (and yes, I check it at least every few days on line). Just an FYI (and so my husband still buys me things, but I hound him on 'what's this charge for' ...?
Sounds like you have a good thing going with lots of trust. Just be sure when you ask about charges you can't easily identify that it sounds like you're checking to make sure they are legit and not judging or questioning him!
I'd appreciate your perspective. In my first full-time job, and while I mainly pay my own living expenses (rent, utility, gas, internet..etc), there are still a couple costs tied up in cheaper family plans that my parents pay--namely car insurance and cell phone bills. I've offered to pay, but they've said that they can afford it and I should concentrate on building up my savings. Which is super nice and I do appreciate it, but I'm wondering when I should insist. Now? After a specific monetary goal? X months after starting job?
Such a good question. As for the phone, sure let them help you out since you are just starting out. I think that's nice and does give you some breathing room. But at some point when you really want to cut the ties that bind, you can politely tell your parents, "I got this, mom and dad. Thank you for giving me an opportunity to save and start my adult life off in better financial shape."
As for the car insurance, same thing but please, please make sure the insurance company if fully aware of where you live, etc. You shouldn't be listed as living at home to get a cheaper rate, etc. Because if you get into an accident and you have not given the company the correct information any claim could be denied.
I've been following your advice for years, am eternally grateful for you, and I'm hoping you can help me help my partner. We're in our 20s, and marriage is not an option. I've got great credit, I'm debt free, and I've got several savings accounts and CDs. My partner has some student loans (she pays more than the monthly minimum), and opened her first savings account a week ago at my urging. She has two credit cards, both which she got in the past year, with a combined credit limit of less than $1,000. She pays them off in full monthly. She doesn't currently own a car, but has had several in the past, all of which she bought with cash. She's got one utility in her name, and the rest are in my name. She doesn't have a bad credit history, she simply doesn't have a history at all. Thinking forward toward buying a house in the future, what can she/we do to boost her credit?
Sounds like you've found a very responsible partner! She actually is building a credit history with the steps you've taken. She's paying off her debts and has credit cards that she's paying off on time. Have you actually checked her FICO score? I'd suggest you also have a conversation about what having credit or being debt-free means to each of you. How much debt are each of you comfortable having? I give you credit for thinking ahead and making wise choices!
Neither of my parents went to college. However, they were able to secure jobs that paid a decent wage -- and paid their health insurance, almost in full, for our entire family. Because their income was not so squeezed, they were able to move to a better neighborhood with better schools, and to save money to send us to college. Their jobs also came with -- gasp -- pensions, so they are now comfortable in their retirement. My point is this: income inequality is not just about life "choices." It's about choices made by the government about our health care system, retirement system, etc.
Exactly! It's not enough as a society to say people are poor because they deserve to be poor because they made bad decisions. It's in all our best interest to insure our citizens can find decent affordable housing, have health care, etc. It's the decent humane thing to do as a society.
Curious about this since a previous poster mentioned she and her husband (my apologies if the gender assumption is incorrect) both came to the marriage "with several cards." Why does one need more than one credit card? Often your readers mention multiple credit cards with varying balances on them. I have my debit card and a "regular" credit card that is used for two recurring monthly payments (paid in full). And I often need that card for work expenses. I was behind someone in the grocery store the other day and his card was declined. So he pulled out a second. Declined. Then a third, which was accepted, and I could see at least one more Visa card in his wallet. What is the wisdom behind multiple credit cards?
You are right. One card is just fine if you are going to pay it off every month. But people often have multiple cards so they can increase their spending power on credit.
Are there any good books or Web sites on how to join finances after one marries? We know we want to handle our money jointly after we're married and have similar general approaches to how we handle things (though I'm a bit more conservative than he). However, in our late 30s, we both have pretty set (and different) spending/money management patterns and accounts set up. I'm not concerned that we're not compatible, but I can't really figure out the logistics of it all.
That's great that you two are having this conversation now. There is no one book that will give you the specifics for the "right" way to do this. Generally you have a few choices: 1) merge everything, 2) figure out all the expenses necessary for meet your bills, other costs and future needs and each of you put a % of your income into a joint pot to cover that and the rest is kept in an account for your own discretionary spending or saving adn 3) divide everything up and keep everything separate. While I know many people do the 3rd option, frequently that is an indicator of not really trusting your partner. Whatever you decide to do, consider it a trial and revisit if in six months to see how it's working. The decision should become clearer and may need to change as circumstances change with time.
I am confused about how much money can be put into an IRA when only one person of a couple is working. I am 61, retired, and drawing a pension from the governmentt. I have Roth IRAs that I am not touching yet. My husband is 63, working part-time, earning enough that we could save some of it. He can put in $6,000 to his own IRA since he is over age 50, right? Can he also put the same amount for me into my Roth IRAs, that I started while I was still working, or do I have to open new accounts to qualify as a "spousal" IRA?
Because of space and time, I suggest you read this article on spousal IRAs.
Hello Syble, when did you recognize the connection between money habits/attitudes and how people make life choices? Was there a particular life choice or experience which inspired you to make Money Habitudes?
I was so surprised to find out that people who seemed so responsible often shared stories of being deep in debt, uncontrolled spending or of basically hoarding money. The idea that they seemed so okay and carried such heavy burdens really touched me and I wanted to know why. After starting down this path I was personally surprised at how many of my life choices were influenced by old messages about money that I was totally unaware of.
But today - pretty much there are so many jobs that while one wouldn't necessarily need a college degree, the employer could require it - because so many more people go to college than they used to. It's so hard to compare now to 40 or 50 years ago. Many people with college degrees can't even find jobs and feel they need more education. And the employers ask for it because they can. Certainly our government is completely dysfunctional at this point, but it is life choices that get one where one is in life.
And what about the folks who make all the "right" decisions but lose their job and then their health insurance and then have a medical issue that nearly bankrupts them? What about the folks born with disabilities? What about people who just don't have the God-given abilities to build computer programs or play sports. Should we say every man and woman for him and herself and not have saftey nets for when "life happens" to you? Or when you do make mistakes. Should that mistake doom you to a life of poverty? I've worked hard for what I have. I have two degrees paid for with cash. But I also know and understand that I've been lucky. I've had people help me. We need people in various jobs in this country and we know those jobs don't always pay a living wage. So should these folks, serving us, not be provided or helped with getting decent housing, health insurance?
We have an amex, but not everywhere accepts that, so we also have a visa. we also have a mastercard that we never use, that is really a lineof credit for our checking account. So there may be a reason to have more than one card, but to have many visas or whatever, yes, that makes no sense.
I think the point is one, two, three Visa, Mastercards, Amex. Just know your limits. Know that if you are carrying a balance any balance on a credit card or charge card you need to examine your spending. All cards should be empty of balances how ever many there are.
I have an excellent job and more than enough savings, only a little debt for my condo but despite that, altough I can spend money on certain things that are not regular expenses, I still have trouble spending money. How can I use the money cards to strike a better balance in my thinking?
We are all a combination of different patterns of behavior. By doing the cards you can see if one habitude is dominating your behaviors. For example, frequently people with many security cards actually aren't saving money, they just aren't able to spend it. Then the question becomes--where did that come from? If you have a lot fo security cards, is there any habitude that is missing? That will give you the key to where you may start trying to make changes. For example, if you don't have any spontaneous cards, you may put aside a certain amount of money and require yourself to spend it on something out of the ordinary for you by a certain date. If you don't have any status cards, it would encourage you to think about possibly doing more to make a positive impression--maybe spending more on your clothes, buying a gift or taking someone out to do something special. You're looking for a balance and doing a bit more of one thing can help balance another.
Hi Michelle! I graduated law school last year and started working in the government. I've been living with my parents to help conserve money and pay down debt. I have about 12,000 in credit card debt (our family went through several unexpected bouts of unemployment while I was in college and law school, so I used credit cards to supplement expenses and pay the astronomical costs of studying for, taking, and getting sworn into the bar - unfortunate ,but I learned my lesson) and another 50,000 in student loan debt from law school (less that a third the cost of attendance thanks to scholarships). I'm hoping to go back to school summer of 2013 to get my final degree in a very prestigious program that's only available to lawyers 1-2 years out of school. I'd get a $55,000 stipend and the program covers the cost of the degree and health benefits, etc. I'm planning a very aggressive budget to pay off my credit cards by December, which will give me about half a year at a high paying salary (I'm scheduled for a significant raise late this year) to save up to buy a (small) condo and move out of my parent's house (I rented in law school and it was very expensive and I have nothing to show for it; I felt like I was paying someone else's mortgage and I'd rather pay my own). Is this crazy? Do you have any advice on whether this is a good idea or how I should go about it?
Whew. Lot going on. So here's what I would do. I would defintely do everything in my power to pay ffo the credit card debt. I would take tht bonus and every other penny, nickel, dime, dollar to pay off that $50,000 (if you can) before starting that other program that if I read right would not cause you to take on more debt. I would NOT try to buy a home while I had ANY student loan debt.
Because you do get something for rent. You get a roof over your head. And by the way, if the program you want to go to is near your parent's home stay there. If not, find roommates, cut the cost of renting if you still haven't finished paying off the law school debt.
I have multiple credit cards because I use one for Internet purchase and one for other things. Occasionally, one or the other is compromised and I like having another card available when that happens. Both are paid off in full each month. Why are folks judgmental about having more than one card?
I wouldn't worry about what others think. You are using your cards resposibly and have rationally thought about the upside of having more than once card. Two cards isn't a problem--people who have 7, 8, 9 cards--that's a problem!
Hope this doesn't get in too late but for the person wanting to merge credit cards, there's a benefit of each spouse carrying a card in their name alone. When my wife's wallet got stolen, we had to cancel the cards in her wallet. That meant some cards in my wallet were now closed but I still had a card that was active.
Good point. Thanks.
Michele - thanks for your response to the person who wrote about all of us being responsible for our life choices. I didn't choose to have my husband pass away while my boys were teenagers, and I didn't choose to be diagnosed with MS last month. Both events had and have serious impacts on my financial health, and it would be nice to have people understand that.
You are welcome. I have a change on a regular basis to see people who did all the right things and many who did a lot of wrong things. I help both! Got to. The key is to provide a hand up.
I have a number of credit cards for different reasons -- one is cash back, one gets me free shipping and earns coupons from L.L. Bean, another earns coupons at another store I like, etc. But I am one of those people who pays the whole balance at once (set on autopay), and I never, ever pay an annual fee. So there can be valid reasons for having multiple cards, other than juggling debt. (I know Michelle's point about spending more with credit than cash, but I also know she would approve of all of my other financial choices, so agree to disagree...)
Yup, you got me. All of you who say you are "earning" money on those cash back cards, reward points, etc. Just know they aren't giving you anything free. You are paying for it by charging more than if you used cash. Me too. But I understand that and try to minimize it.
So I don't have a real problem with people have multiple cards if they don't keep a balance and understand the credit card game is not run in our favor. Even those of us -- like you -- you handle your money well.