I want to thank you for all the work you do. Reading your books and columns have changed how I think about money. As my family starts 2011, how shoud we divide our income? What percent for savings, housing, etc.? I want to try to follow a formula for the future.
Thank you so much for your kind words. I'm so happy I have been able to help you think differently about your money. In fact, that's the biggest step in getting your finances straight -- thinking about what to do with your money.
For more details on how to allot your money read my latest book "The Power to Prosper." The chapter on budgeting gives you an idea of what percentage should go toward savings and expenses.
Hi Michelle, My daughter, who's in her senior+ year of college, is moving home this weekend to save money while she continues in school. Should I charge her some rent? Her dad and I each contributed $235 a month towards her apartment rent, as did she. Thanks, Anna.
What a great way to save money. If it were me I would not charge her rent. Instead I would encourage her to save the $235 she was paying to help with the last year of college expenses and the expenses when she moves out. I would also want to see proof she is saving. If she does that give her a break from rent. However if you see her going out, spending unnecessarily, then I would begin to charge her rent.
Hello Michelle, What's your take on paying off a $24K student loan (with 5 to 8% interest rate) by borrowing from equity line of credit (2.2% interest rate)? Thanks, Kia
I'm not a fan of using debt to pay off debt. I'm especially not in favor or borrowing against a home, especially in this housing market. So many people have found themselves upside down on their mortgages (meaning they owe more than the home is worth) because they piled on consumer debt or even student loan debt.
Instead really buckle down and use whatever money you can save to attack the student loan debt. Get another job. Anything but using more debt.
Hi Michelle, Love your advice and have been following since your first book. I invest completely in the 401k to the max. Since I invested in aggressive mutual funds, they didn't make much money. I am 41 years old and would like to know whether I should do asset allocation on a yearly basis on the mutual funds or if should I just go ahead with the existing retirement year funds? Thanks much, Indira.
You should definitely and routinely look at your asset allocation and make adjustments based on your tolerance for risk, how close you are to retirement, etc.
Call the company that is managing your 401 (k) and see if they offer per agreement from your company advice to workers about asset allocation. If it is offered use the service. You might also find a model asset allocation on the Website.
Michelle, I did watch your online video chat and love your enthusiasm for personal finance. You would be the perfect guest speaker for my financial literacy conference in April. Will you come and share your enthusiasm for personal money mangement with our students?
Yup. I'm a big cheer leader for helping people get their money straight. E-mail me and we can talk offline.
Michelle - if President Obama's tax-cut package will give consumers a little more money in their paychecks, how will this affect income tax filings for 2011? I'm doing all I can in 2010 not to owe the IRS, but I am currently single with no dependents. This year, I'm claiming my grandmother's home in TN (in which I'm on the deed) but school loan interest has decreased and we received a $1000 bonus at work. Any suggestions?
First, I would recommend you talk to a tax person. I can't give you advice without knowing more about your situation. And even if I did, I would still recommend you sit down with a professional. You are right to be concerned about managing your taxes. But remember you can offset income with any deductions or tax credits.
Also check with the tax professional because I don't believe you can take a tax deduction for granny's home if you don't make payments on the mortgage. Being on the deed is not the same as making mortgage interest payments, which is the deductible item.
Hi Michelle, What is the difference between credit card reduction and settlement? and how long will it take to recover from either?
Really they appear to mean the same thing. Both terms I assume mean you pay less than you owe. But I have a feeling this is about a company promising to help you reduce your credit card debt. And if that promise comes with a hefty bill, don't do it. There are a number of non-profit consumer credit counseling agencies that can help put you on a debt management plan for a set up fee of about $40 to $50 and a monthly fee of about $25 to $35 dollars. Don't sign any contract calling for thousands of dollars. You can use that money to pay down your debts.
Go to www.debtadvice.org to look for a non-profit credit agency.
Michelle what do you think about affiliate marketing? I am a college student trying to make some money while attending school. I am still trying to find a job so I do not have to borrow so much while attending school. Your honest opinion - Thanks - Michelle, Westminster, Md.
I'm not sure exactly what affliate marketing is? Are you just talking about a sales job? Are you talking about a marketing job you found on the internet?
Just be careful when looking for such jobs. Often they are scams.
Hi there, My husband left his job and started working for himself in mid-2008. I have been the sole breadwinner (with earnings of about $70k) since then, as he has been building up his business. Last fall the first real income began to trickle in but he is about to close a very big deal, and will probably bring home more than double my salary this month alone. That won't happen every month, probably only a couple of times a year, but our financial picture is about to change dramatically. We're both about 30, no kids yet, and we aren't homeowners, but certainly have plans for both of those things. I'd love to find a firm or an individual that could handle financial and tax advice for both him as a small business owner and for us as a couple. Is that kind of one-stop-shopping available? How do I find the right person/group? And how do you feel about advisers that charge fees vs. percentages? Thanks.
Congrats on the break-thu for the small business.
But you are right to be concerned. With such a large paycheck coming often small biz owners don't take out the proper taxes. They often spend all the money rather than saving it and allocating it for the lean months. I would find a really good small business tax professional to help with this new income. Handle this right and the business could be in good shape. Do it wrong and the business could end up in trouble especially with Uncle Sam.
Hello Michelle, First of all, I have been following your advice for years now and I want to say thank you! I have been able to save an 8 months emergency fund, plus another savings acct which has about 6 months, as well as a house saving acct in case I need repairs. I also have contributed to retirement accounts and have zero in consumer debt. I have a mortgage, which is a fixed 30-year mortgage at 4.62%. My question is: I have an 8-year old car, which has been paid off for years (not having a car payment is awesome)! I admit, I WANT a new car because I have had this one for so long, and I feel like it's time to move on from my college car. I do not NEED a new car. My goal when I purchased this car 8 years ago was to keep it for ten years then move on to another car. I have started to save some money for when the time comes to separate from my current car. So, having said all that, what is your opinion on buying a new/used car in my situation? Should I wait it out and buy a car when I really need one, or should I just go ahead and purchase a new/used car now?
If you are in the financially position to pay CASH for the car you want AND everything else is in order -- savings, expenses, etc. I say treat yourself. It's okay to give in to your wants if you've been a good financial steward. Whether the car is used or new depends on what you want and how much cash you have. If you have the cash for the new car you want, go for it. If you have cash for the used version, go for it.
I've been reading your column for years and given your books to younger relatives. When you first said something like "Credit cards are evil," I thought you were a little over the top, but that sentence kept popping into my head whenever I went to whip out my credit card. It took a while, but it took hold. Now I am debt free and I want to say thank you. I have a credit card with a $1,000 limit for when I make travel reservations, and I send in the cash to my credit union as soon as I do, before the bill. I am really afraid of credit now and of going back down that path!! There used to be a comedy routine where someone would slap another person, and the person would say "Thanks, I needed that!" Well, thanks, I needed that. : )
Thank you so much for your kind words.
And trust me you aren't the first person who thought I was WAY over the top. But sometimes you have to be over the top to get people's attention.
My partner and I just bought a new home, and I am the primary breadwinner. I'm looking into life insurance options because she would be in a serious financial bind if something happened to me. Do you have any suggestions on researching and selecting life insurance?
I would talk to an independent insurance agent, one who can look at various different companies to get you an insurance quote. There are also a number of insurance quote sites. But for something like this I usually like to get the opinion of a professional.
My husband and I, 58 and 56 years respectively, struggle to pay off a $9,500 credit card debt. We have about $65,000 in investments that we inherited. We have used this to pay off credit card debts before and wanted to save it for retirement. Knowing we must change our spending habits and not use the credit card, the best we have been able to do for the past few months is to keep the credit card debt at the same balance. Should we bail ourselves out again? I calculated that if we paid it off in 2.5 years we would end up with the same bottom line as if we paid it off now, however, the balance has not been decreasing due to normal and abnormal events in our lives. We will have a nice pension if my husband can continue to work for 8 more years. Other than the credit card we are debt free.
I wouldn't touch the retirement money. Why?
Because you've done it before and look where you are. Right back with credit card debt.
So suffer (and I mean that in a nice not criticizing way).
If you struggle for the next two years to make extra payments on this debt maybe, just maybe you won't put yourself in this situation again. Also, you need to still try to save while paying down this debt so you won't be tempted to use credit again when "abnormal events" happen. What that statement says to me is that you still use the credit cards for stuff when at this point you need to take them out of circulation. You can't get out of debt if you are still using debt.
Hi Michelle, I have a few thousand dollars that I'd like to put to good use. I can put it towards the principal of one my variable rate student loans, put it into a Roth IRA (my income is usually over the cap, but because I was laid half for the first half of 2010, I should qualify), or keep the money in my savings account as part of my 3 month emergency fund. FWIW, I'm in my early 30s and have only begun saving for retirement this year. Thank you for your suggestions and advice!
List your debts starting with the one with the lowest balance. If the few thousand could wipe out a debt, do it. If not still throw it at the debt so you can start clearing the list.
This is of course assuming you have some savings. If you don't, keep part of the money for savings and throw the rest toward the debt.
Dear Michelle, I recently attempted to refinance my mortgage. Ordinarily, I wouldn't be able to refinance because my house is very underwater, but I qualified for a special government program to allow it. Still, by the time the paperwork was all done, there was $7,000 in closing costs, and that seemed like really too much. They also wanted me to bring about $1,500 cash to closing. I just couldn't face taking that much money out of my emergency fund, which isn't really where it should be since my spouse was unemployed for two years. (Thankfully, he found a new job in December.) Michelle, did I do the right thing? I know I would have saved more money over the life of the loan, but I just couldn't handle those numbers. I'm really fretting about this and wondering if I made a mistake. I can afford my mortgage but of course I'm looking to save money anyway I can and it would have reduced my monthly payment a little bit.
I would need to know more about your situation to really comment but mostly stop fretting.
It seems you did the math and you didn't feel comfortable about the costs. It was a sound decision and no use looking back. Some financial decisions are clear cut. Others are not. Yes, you might have save money but how long would it take before you realized those savings? It appears it was too long for you.
You made the best decision given what you knew at the time. That's all you can ask for.
Hi Michelle, Who is a good contact for saving a financially failing business? Thanks for any help you can give, Kathleen
There is a small business mentor organization called SCORE. You will find it at www.score.org
See if they can put you in touch with someone who has run a business similar to yours.
Happy New Year, Michelle! I received a nice income increase due to the social security tax cut. I was told this is only for one year. I do not want to get used to this increase, so any ideas where I should put this extra money since it is not a huge amount?
If you don't have savings. Save it.
If you have debt, pay some of it off.
If you have savings and no debt then just I see no problem in spending on something you may want or need.
But only you have the discipline to not treat this one-year boost as a long-term thing.
I was completing one of the budgeting spreadsheets that you made available and had a question about some of the expenses. I have medical/dental/vision insurance premiums and health care spending account money deducted from my paychecks. When I do the spreadsheet, should I use my pretax income and include those deductions or use my post tax income and list only hsa money for my budget? I have the same question about my commuter benefits.
If the money is being set aside for the expenses you need to capture that on your budget. So I would include in on the section for income. Just create another line item and income the savings.
Another thing to consider is that buying before your old car dies allows you to shop around for the best deals, wait until you find a low-mileage used car of the type you want, haggle with the sales staff, etc. If you're in a position to buy when you're ready (and Michelle approves) instead of when you have to, it could save you some money.
And one other thing. If you don't need to trade in the old car (because you have all the cash for the new or used car) consider donating the car to a needy person or family. You could check with local shelters or non-profits who may know of a family who needs transportation.
There might be someone in your family who needs a car. That's what my husband and I do. We don't trade in cars when we are ready to upgrade. We get the old car serviced, make sure it's in good shape (paying the repair bills) and then we give it away. We gave a Toyota to a niece in college. She's had it for several years. We recently fixed up an old van and gave it to a relative who was just released from prison and needed transportation for work.
Just a compliment: You can tell you're a Mom of three, Michelle, by the way you crank out so many answers in every hour. Thank you for working so hard for all of us!
Yup. I have a lot of mom juice. Got to.
But thanks. You are so sweet. And I do try to answer a lot of questions because I so appreciate all of you taking your time to sign on to the chat so I want to get to as many of you as possible.
Can you offer advice for finding a good financial planner? My wife and I are both in our 30s with decent incomes and are good savers, but we have long term goals and would likely benefit from a more concrete plan.
It is hard finding a good planner. I typically recommend you ask friends, co-workers, family members. If they have used someone they can give you a sense of how the person works.
My husband and I hired a financial coach to find the money that keeps disappearing and get out of debt for good. We're going to become "cash and carry" in FY11 (smile)! One of his recommendations is that we sell our 2009 GMC truck and use our tax return to buy something for cash and no note. Does this sound like sound advice? I can part with the truck for say, a minivan, but I love OnStar!!!
Sounds like great advice to me!
Hi Michelle - Is paying double or triple on my monthly mortgage bill as good (or better) than refinancing? I refinanced my 30 year loan twice in the past to lower the interest rate, and only have about $52,000 principal left. So I figure I'm drastically shortening the term and paying myself 5.8% interest (my current rate) at the same time. Am I correct in my thinking? Thanks for all the great advice you give!
If you make sure the extra payments go to principal then yup you are right on track!
Michelle, is it a good idea to borrow from ourselves? We have $25K in our house savings fund and $5K in our new car fund. We would like to buy a house but would have to put down $30K. One of us wants to take the new car fund and then "pay it back" over the next several months with the money that we're currently banking in the house fund (as well as the difference between our current rent payment of $2K and anticipated mortgage payment of $1K). The other says nope, wait until we have the money in the right fund. Do you think it's okay to shift savings around like this?
Wow. This is a good problem to have.
I'll be honest. I would be the one who says wait until the right fund if funded. But if you don't need the car right away and you find a good house deal I see no problem in dipping into the other pot -- as long as you keep your promise to build it back up so you can pay cash for the next car.
Hope you can get a quick question before the chat ends! After a bad experience in college, I decided to stop using credit cards. I didn't think it would make a huge deal, because I had a student loan to use as a basis for credit history. A few years ago I got a car loan, which I thought would also help. Last summer, I bought a house and the mortgage is in my name alone (I am married). However, when I was talking with banks, I was told I had very little credit history, despite my other loans. Also, my credit has never been great but it has slowly been recovering (although taking out the mortgage dropped it again.) My question is, if I use it only for groceries and make certain to pay it off every month, would it be useful to get a credit card? Would this help me to repair my credit score more quickly? Thanks!
Really as you told your story it appeared your score was lower because of your not great paying history (at least that's what I was reading into what you wrote).
You don't need to use the credit card. The biggest factor in maintaining or getting a good credit score is paying your bills on time. So pay that mortgage on time. Pay the car loan on time. In time your credit scores will be just fine.
Michelle, I want to thank you for these chats. I need reminders of your advice. I keep thinking I would like a new a car but I still have student loan debt. I dont have any consumer debt and I do have a 3-month emergency fund and contribute 7% of my salary to my 401K. So I am doing okay, but I dont have enough cash to pay for it up front. Your advice keeps my impulse away from going and taking out another loan. Thank You.
I love being that little angel on your shoulder.
I have a dear friend and his wife who keep saying to themselves WWMD (what would Michelle do). They ask that when they are tempted to spend when they shouldn't.
But mostly you can stay straight by remembering that student loan debt. Just keep looking at that loan statement whenever you get weak! And then think about how wonderful it will be to be free of that bondage. If you can watch my video chat from today. There's a story of Nathan, one of my Debt Defeaters, who paid of $100,000 in law school debt in 9 years. Amazing story.
You too can be a debt defeater!