Color of Money Live

Feb 07, 2013

Are you ready to have the money conversation with your Valentine but don’t know where to start? Washington Post nationally syndicated personal finance columnist Michelle Singletary can help.  Join Michelle Thursday, Feb. 14 at noon ET for a live discussion of your finances.  If you can't make the live discussion, submit your questions early.

Thank you again for joining me for a discussion about money. I'm here now every Thursday to answer your financial questions the best I can.

So let's get started.

Dear readers,

During a chat a few weeks ago, I received the following posting

Failure

I admit it. I made mistakes and had bad luck. Yes my life is a failure. So I have no retirement. I know you suggest that I move in with a stranger and give up all pleasures in life in order to save money. But why not suicide as a viable option? I don't want a miserable old age. I have some money in a 401(k) but it is not enough to live on for more than a year. Why not have one happy year instead of 20 miserable ones? I think we need to have places where people who cannot afford to live can commit suicide.

 

I wasn’t sure the person was serious or joking. I decided to assume the person was being sarcastic.

 

As one reader later correctly pointed out, we should always assume such comments could be serious. “Money problems can put a person on the brink. Please print something to that person. The fact that she deemed her entire life a failure is an indication of depression. You really ought to remind people about this issue and that there is always help and hope.”

 

If you are feeling as if your money problems are overwhelming and you are deeply depressed or suicide, please seek help.

 

You can contact or call the National Suicide Prevention Lifeline 24 hours, toll-free at  (800) 273-8255. The Web site is http://www.suicidepreventionlifeline.org/

 

You can also get help with debt issues from www.debtorsanonymous.org

 

I am 59 and have 2 major debts: a mortgage and student loans ($70,000). Both have about the same duration of payoff-8 years. I'm focusing on paying down the mortgage because my student loan payments could be affected by my public service work (e.g. IBR). My dilemma is that I'm not sure that I will stay in the house for more than a couple more years. Is making the extra payments to decrease the term to 5 years worth tying up the money now? 6.5 interest but the house is worth more than what is owed on it. I have enough cash for living expenses for three-six months. Thanks for your help.

I would aggressively go after payind down the student loans if you don't plan on staying in the house. And for those who don't know IBR is Income Based Repayment program that allows borrowers with federal student loans to have their monthly payments set to a reasonable amount based on their income and family size. As www.ibrinfo.org points out if you're a teacher or work in government or at a nonprofit (501(c)(3)) organization, you might qualify for a new type of public service loan forgiveness (PSLF) after 10 years of eligible payments and employment.

 

 

Michelle, have been following your column and discussions for many years and appreciate your no-nonsense advice. What advice would you give to those of us who may be facing lay offs as a result of the looming sequester? What are mistakes NOT to make?

I feel this looming sequester more than you think. I have a close relative who was just laid off because of what has been happening. I'll tell you what I told her:

-- Hoard cash. You will need to stock pile money to cover your expenses so only pay minimum on credit cards or debt so yo ucan save more.

-- Cut expenses now. And of course right away if you do lose your job. Often people don't begin cutting until a few months after they lose their job because they are still in shock and can't face things.

-- Consider everything. You may have to get a roommate or move. It's what I told my relative who values her privacy greatly. But to her credit, she understands she may have to get a roommate (She just bought a beautiful home).

-- Grieve. Give yourself time to feel bad about losing your job. It's okay. And don't feel bad about feeling bad. But if it goes on too long, get help.

-- Start tapping any and everyone who might help you find another job. 

I hope you don't have to make any of these moves. Good luck.

If you've been laid off recently, I would like to hear from you. What financial steps did you take to handle the job loss? What helped you the most financially?

Ms Singletary, I am emerging from a divorce with a credit card bill that coincidentally matches my savings account balance, almost to the penny. It's several thousand dollars. I think you would tell me to take my savings and pay off the credit card, but the thought of having no cash reserves scares me to death. I'm not putting any new expenses on the card but spend every penny of my fairly meager salary and child support every month on basics such as mortgage, utility bills and the like. I can't see putting more than $50 or so a month into savings right now. Should I bite the bullet and pay off that card? What alternatives am I missing? Thank you; love this chat!

Actually, I don't recommend draining your savings to pay off debt. I suggest people always maintain some emergency funds and a life happens fund. In your case, you could keep about one month's of living expenses, another $1,000 to $2,000 for the life happens fund (in case life happens and you need some car repairs, etc.). Then I would take what's left and throw it at the credit card debt. After that I would put as much as you could afford toward the credit card debt to pay it off as fast as you can.

Once you've paid off the credit card, then work to build up your emergency fund (three to six months of living expenses). If you have to tap into the life happens fund, also work to rebuild that pot.

But keep in mind that it's okay to regularly dip into the life happens fund because that's what it's for.

My husband received a investment account that had been opened for him when he was born for our wedding with over 100,000 dollars in it. I would like to take out the money, although we would incur a large fee for withdrawing it, and completely pay off his student loans of over 80,000 dollars, and being able to put all of our income towards our current expenses like rent and food. He would rather pay off the student loans slowly for the next 10 years, and then get the 10 year loan forgiveness for public service. Wouldn't it be better to get the monkey off of our backs now, despite the hefty fee?

I'll be honest, this is a tough question. My instinct is like yours -- to get that monkey off your back.

But if your husband is working in a job that will allow the debt to be erased after 10 years, then I side with him. Pay the minimum on the student loan debt for the next 10 years if you are sure he will qualify for the forgiveness.

However, if there is any indication you won't make the 10 years (he leaves the public service job or you don't make the required on-time payments during the 1o-year period) I would pay off the debt completely.

I am not particularly happy at my job. I have been applying and I received an offer. However, it is less money than I make now. I am not in the financial position to cut my salary. How do I negotiate a higher salary? If they do not raise the amount, I will have to decline.

TTT or as my friend says tell the truth.

Tell your prospective employer you are grateful for the job offer but you would like to at earn at lease what you are making now. Clearly someone thinks you're worth the money. Ask is there room to move up on the salary. Ask for what you want. But also think about if you could cut any expenses if the offer still comes in lower than you expect. Maybe you could take a smaller pay cut (assuming the company comes up on its offer) by examining cuts you could make. 

In the end, if you can't get more money or enough to meet the financial obligations you have and you truly, absolutely can't cut your expenses, then you may have to turn the job down. 

 

Hi Michelle, do you still think that 401(k) is a good investment for retirement and do you have suggestions on safe retirement investment instruments?

I do think a 401 (k) is a good way to invest for retirement, as is an IRA or ROTH.

It's still a good idea if your employer matches a percentage of what you invest (that's free money). It's a good idea because it grows tax deferred (allowing more money to be put to work for you).

But I don't and can't recommend specific  "safe" retirement investment instruments because all investments come with some risk. Even CDs come with risk if you aren't earning enough interest to keep pace with inflation. So you do the best you can to diversify your retirement investments to minimize as much risk as possible or that you can tolerate.

Hi Michelle. For my bank and retirement accounts, I have my younger sister (24) listed as the beneficiary. When I told my mother this, she was a little taken aback because she assumed I would list her. My reasoning was (and I know it's rose-colored) that my mother and father may no longer be living should something happen to me, and my sister (as my only remaining family member) will. I'm 27, and I'm hoping that things work out the way I planned; however, should I be more realistic and have my mother listed as the beneficiary since my sister is young and may not necessarily make the wisest decisions?

Interesting question. You could list both your parents and your sister as beneficiaries. 

But  I think it's perfectly fine to want to leave any money to the relative you think may need the money the most. And you can help your sister become a better money manager should she get your money if you are worried now she doesn't make the best financial decisions.

Dear Michelle: Please help. I left a job and its 403(b) in 1996. I didn't roll it over because I could borrow against it for my house (and paid it all back). It's managed by a local financial planner and contains 17 funds. I want to either consolidate them or convert them to an index fund to save on fees. The manager insists that I come in for advice, although most of my IRAs/investments are in another (low-fee) company. He swears he doesn't make money off the 403(b) and I don't know what I'm talking about (about fees), which is true. Help!

I doubt he isn't making "any" money. He could be making money as the administrator of the retirement plan for your old employer. So technically, he may not be making money off your account. Or he could be. I don't know and you don't know. So ask the company. Look carefully at your statements. A DOL rule says your statements have to now lay out all fees your 401 (k) is incurring.

At any rate, don't let this guy push you around and make you feel as if you don't know what you want. It looks like you do. Just put in the paperwwork to roll over the money. He can "make" you come in to talk to him.

It's not just about salary....find out if the new employer could (or already would) cover more of your health insurance premium, or if you'd have much lower copays/deductibles. What about parking/transportation costs? There are a lot of ways to increase your "total compensation package" other than just salary, and that's what you have to compare to see if it's really going to cost you money to take the new job. The new employer might be better able to offer you some of those fringe benefits instead of a higher salary, but it will still mean more money in your pocket at the end of the week.

Really good points. Thanks.

Hello - I'm in the rare (maybe) situation of having about $250 extra/month due to a recent re-fi of my mortgage. What are your recommendations for how to use this extra money? I am a fed employee, so the thought of sequestration is looming. My options, as I see it, are 1- pay my car note quicker (already ahead of schedule with a super low - 1.75% interest rate); 2- pay more into my TSP (my Roth will be maxed out this year); 3- pay more on the mortgage; 4- save in a rainy day fund. No student loans (already paid off!) and no other outstanding debts (besides car and mortgage). Thoughts? Suggestions?

Save the money for now. Just save in case you do lose your job.

If you get past the trouble, you could first attack the car loan, which is the lowest debt you have based on your list. After that is paid off then look at your retirement to see if you are on track for what you need. If you are, then I would go after the mortgage.

And one word of caution: Congress enacted that law. They can take it away in the future. Just another variable in the calculus.

True that!

Great questions today. Thanks for joining me on the chat. Please keep in mind, I do hold on to the unanswered questions. I'll answer some either in my column, eletter or next week during the chat.

Again, thanks for joining me today. See you right back here next week.

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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