I loved your column from the other day - "Shutdown should be a wake-up call for us all". You hit the nail on the head. While I'm no financial guru, I am often surprised at how little savings people have. I'm a federal attorney and make good money, but I had one too many (married, two-income) co-workers complaining about how they might not be able to pay their mortgages if they miss ONE check. Baffling. Thank you for speaking the hard truth about making necessary financial choices to ensure a secure future.
Thanks for the shout out. And really, I do understand how people get strapped financially. Many haven't learned the truth and importance about having an emergency fund. Or life gets in the way and they lose track financially. But I say when you know better -- and now you should with the shutdown -- do better.
If you buy ACA health insurance through the state exchange where you live (or through the federal exchange if your state doesn't offer its own), and you move, does your insurance follow you? Or do you have to obtain a new policy in the new state? If so, is there an overlap in coverage? Or could you find yourself without insurance?
Good question. If you move and the insurere doesn't have offices or coverage in the new area, you qualfiy to change plans. And if you make the change within a certain period of time you won't lose coverage. So you would need to sign up with the new insurer with enough leeway so that coverage kicks in by the time you move to a new location.
Hi Michelle I just recently bought a home and I agree with you that there is no good or bad debt - just debt. I only owe on my home. I don't have any other debts at the moment. What's the best way to pay off my mortgage early?
I would ask you this first, before taking extra money to pay off your mortgage:
-- Do you have an emergency fund of at least six months of living expenses and maybe more if you have a high-paying job and expenses that go along with that?
-- Do you have a life happens fund for the things in life that happen, car repairs,etc. I suggest keeping anywhere from $500 to $1,000 in that fund. You pull from that regularly and then save back up in it when you take money out of it.
-- Do you know your number? Do you know how much he will need to retire the way you would like or at least comfortably. So that means making sure you are saving enough and investing enough for retirement.
-- If you have children, are you putting money away for their college fund?
If you have all the above set up then I would add extra payments to my regular mortgage by sending in extra money that you've clearly identified is to be used to pay down your mortgage.
Do you have any suggestions for paying off home loan early or should I just use the interest to write off on my taxes?
My goal is to be debt-free so my husband and I are making extra mortgage payments to get rid of that debt before we retire. I would not keep debt for the tax break. Besides as you get further in paying off your mortgage the break isn't that much compared to the interest you are paying to hold onto that borrowed money.
I am expecting a financial windfall later this month. I expect I will have to pay 50% in taxes so I ask what kind of investment would you reccomend for safe keeping the tax fund.
You should not invest money you know you will need in five years or less. Stash the money in the highest earning checking or savings account you can find. This is money you should not invest.
Michelle, I encounter lots of people living in this city who throw around statements like "you can't make ends meet on $200,000 anymore" and "private schools aren't a luxury but a necessity." I know there are a lot of people in this town who make lots of money and don't know anyone who doesn't, but there are a lot of people who only dream of $100,000 or even $50,000. I know you do a lot of work with folks in the latter category, so I don't think you're part of the problem. But I get fed up with people in the former category. What do you say when you run into people who assume everyone is rich? Or do you just bite your tongue?
I don't think I've ever bitten my tongue. I actually identify and understand both types of folks -- struggling for real folks and struggling because of their financial choices folks. I just as calm as I can explain to the latter that they are in many cases living above their means and if something happens -- such as a crazy government shutdown -- they will find out soon enough they weren't saving enough and blurring the lines between needs and wants.
I try not to get fed up but use it as an opportunity to educate and reform.
I would like to know where I can go to talk with someone about my finances? Where do I begin because I want to hit my debt and situation aggressively. Please help!!!
I'm so sorry. I know debt can be such a burden and you feel like it will never end. I suggest you to to www.debtadvice.org. Find a non-profit consumer credit counseling agency that will help you set up a low-cost debt management plan. And I mean low cost. Don't got to a debt relief company. That's not what I'm talking about. I'm talking about an agency that will help you budget and come up with a manageable debt repayment plan.
Ten years ago, I had some hail damage to the siding on my house. The insurance company issued a check but I never cashed the check or had the siding replaced. I had gone back and forth with the Insurance company a few times because they kept issuing the check to the original mortgage company. Recently, some of the siding on another side of my house not covered by that claim blew off. I had a roofing and siding company out to give me an estimate. The guy didn't want me to involve the insurance company as they would think I was trying to scam them by claiming the same damage they already paid for. I had no intention of doing anything other than explain what had happened. In the end, he recommended I only deal with the current problem and not bother to redo the siding on my entire place as I had initially suggested. That means I will still need to deal with it at some point and also the insurance company.
I think you should continue to work with the insurance company to straigten out the check mess. You paid the insurance and have every right to make sure they cover your damage. And also put in a separate and different claim for the new damage. This is real money and you should make a real effort to get what is rightfully due to you. Make the effort.
I don't understand how you can have both a budget and a debt ceiling. A budget says how much you plan to spend. A debt ceiling says how much you can borrow. If I am going to plan a wedding and give myself a $100,000 budget but have a credit card with a $10,000 limit and not other source of money, I will have a hard time spending (paying for) the $100,000 in the budget. Why would Congress approve a budget without also giving the Government a way to pay for the spending?
Because the gov't isn't like you or me.
Because there is too much politics going on.
Because there are too many hard lines drawn.
Because...well really I don't have a good answer. They had to approve a budget but they also need to address the debt. But that means compromise for everyone. And you see how that went.
How can we avoid becoming pawns for the President and Congress? There have been too many times that the two have risked Government shutdown, sequestration, and default. And believe it or not, the past 16 days wasn't enough time for them to pull together anything more than a short term deal. With Thanksgiving, Christmas, and New Years coming up, I honestly doubt Congress will make their January 15th deadline. That puts us back at risk for another Government Shutdown after the start of 2014. I guess the answer is to continue to hoard money and cancel Christmas.
Yup. Hoard. Save. Cut.
Make hard decisions between needs and wants.
Everything our lawmakers aren't capable of doing.
Hi Michelle - Not a question, just a comment. I was recently furloughed along with my coworkers due to the government shutdown. Because I listened to your good financial advice, I had an emergency fund and had no issues paying bills. Many of my colleagues were not so fortunate. I am grateful that I heeded your good advice, because I never worried about paying bills during this troubling period. I hope that everyone who found themselves in less tenable positions will recover and use this as a lesson to plan for emergency situations. I am sad that so many have been adversely affected, and hope that we don't have to go through this again in January!
We are planning on selling our current home and buying a new one in about five years. In the meantime, would it be better to put more money towards our current mortgage or put it aside to save for a down payment? Does it make any difference in the end, when everything is settled?
Save for a better downpayment on the new home. Save so that when you move in you still have a well-funded emergency and life happens fund.
Hi Michelle: I wanted to thank you for your advice. I'm a gov employee and earlier this month, I started the "life happens" savings fund. During this gov shutdown, I was not too worried, due to the fact that I had some money saved. I used this time to take a quick day trip and do some much needed writing on a major project; so I just wanted to say thanks again for your advice - Life really happens! DJ
Yes it does!
And you are so very welcome.
My husband and I have been working for the last 12 years. We both earn about 120K per year each. I am about to lose my consulting job in 10 days and I am thinking of not working for a while. We have about 300K lying in checking and fixed deposits earning almost nothing in interest. I would like to buy two condos and rent them out. My husband thinks we should pay the minimum down payment and take a mortgage for the rest. There are condos available for 140K here and I think we should just pay off and not take any mortgage since we can afford to. Not sure what the right thing to do is?
Me, I would opt for the choice that does not involve putting yourself in debt.
Here's something else. Are you ready or do you want to be a landlord? Is investment properity management your next career move?
Just be sure you know what you are doing and everyting involved in renting and managing rental properities. Have you done any homework on this buisness? Have you talked to other rental properity owners? Do you have a business plan? Do you know the rental rules? For example, what are the steps and cost of evicting someone? What would you do if renters couldn't pay? Would you have enough savings, should you decide to take out a mortgage anyway, to cover the expenses of the properity if you have not renters for a certain period of time?
Think thu every aspect of this decision, not just whether you should or shouldn't get a mortgage.
Do you think the non-essential employees who did not work for 16 days are owed back pay?
All fed workers, those who went to work and those who were furloughed, will be paid.
I wanted to thank you for all of your advice to make sure you had an emergency fund before you bought a house. My husband and I closed the last week of September and then were hit with a double furlough (on top of both rent, renovation, mortgage, and moving expenses). I was so thankful we made sure we had a 6 month emergency fund so we did not have to worry about money on top of all of the other moving/furlough/home repair stress!
I tell people all the time that when they buy a home they should not deplete ALL their savings to get into the home. I tell them to still have a health emergency fund on top of downpayment and closing cost. But many don't listen. And frankly many federal workers don't or didn't because they couldn't imagine a time when their good goverenment job wouldn't pay them.
So what a wonderful testimony. Glad you listened.
Hi Michelle, Just a shout out to you that my emergency fund kept my sanity during the shutdown. We ate from the freezer, stopped all spending, looked at drawing from emergency fund if needed (not yet--might squeak by without needing it now). This was a great time to explain to my anxious 5th grader why we didn't have to worry about how to pay bills when my paycheck stopped. If I didn't have an emergency fund and a life happens fund, I wouldn't be as calm about things as I am now. Getting backpay is certainly appreciated, but I'm glad I'm not counting on it!
Another testimony about the benefits of saving. And listen this isn't a dig or judgment of those who didn't. You didn't.
But now that you know you job isn't as safe as you thought it was. Do better. Save. Then save some more.
Hi Michelle, I am 22 year old recent grad, living with my parents and am in my 5th week of full time employment. Since graduating my parents have graciously let me use one of their cars to drive to and from work. Last weekend our beloved Subaru Outback with over 140,000 miles unexpectedly took its last trip. I am now scrambling for a vehicle. Thankfully this week I have been able to carpool with a co-worker, but that is not going to work as a permanent solution. I have a salary of $30,000, close to no savings, but I also have very few expenses and less than $20,000 in students loans. Oh right! And I have close to zero credit history. Also, my parents do not believe in using credit so they would not consider co-signing any type of loan for me. I would sincerely appreciate any suggestions! Thanks!
Try to exhaust either carpooling (with another co-worker) or public transportation.
But I know that may not work in the long run. Still try.
Then talk to a lender, bank or really a credit union. See if you can find a lender who will take into account not just your credit score or low credit score but the fact that you don't have a lot of demand on your salary because you are living at home. You are looking for a lender that will do manual underwriting, which means accessing you on more than your credit score.
Now even that might now work. Still what you don't want to do is take out a loan that is sky high, which is what a lot of folks do in your situation. They become desperate and get themselves into bad loans.
Another option, would your parents consider giving you a few thousand dollars, assuming they have it to give, so you can get a really late model used car. I'm suggesting they lend you the money but give it to help you out because I agree they should not co-sign on a loan.
Finally, if none of that works. Try to really, really carpool for at least six months. During that time get a secured credit card to help boost your credit score so that you can qualfiy for a decent car loan but still on a very low-priced used car.
Hope this helps.
One issue is capital vs operating expenses. A family may have a budget for monthly/annual expenses, but generally has a limit on how much it can borrow to purchase a house. While most states have separate capital vs operating budgets, the federal government does not. And just imagine if they had to get through even more budget legislation! I don't know if it's currently true, but for many years, although the federal government was running a deficit, it was not for its operating expenses.
Just a comment, but as someone who heard complaints from furloughed workers that they couldn't pay their bills, while talking on their brand new iPhone 5s and carrying their Louis Vuitton or Coach handbags, I wish that the government could somehow REQUIRE people to save money for their "needs" on the proverbial rainy day before spending it on frivolous "wants". Seems to me that that's a just a good use of the "nanny" state than taxing soft drinks or banning trans fat.
I see where you are going with this. However, I don't think the government should make people save. Heck they can't handle the money they get.
And we often focus on phones or expensive bags or pricey coffee people buy but those expenses percentage-wise are so small when it comes to people's budgets. People aren't struggling financially because they have an iphone or get coffee at Starbucks. It's the larger and more expensive choices they make -- spending too much to go to college and as a result racking up major student loan debt, or spending too much on housing (sometimes by no fault of their own because housing in certain areas is CRAZY), or not keeping their cars until they are on a first-name basis with the local tow truck driver, or marrying the wrong person and then getting a divorce resulting in financial issues, etc.
See where I'm going?
So in those cases, we need to be compassionate. Life happens. People get sick and don't have enough insurance or insurance. They make bad choices.
But then we have to help them make better choices. Help them get back up financially and show them how to save because it gives them better choices.
If you have student loan debt, you have a credit history. Absolutely, pursue a car loan with a credit union.
This is true, but it stll might now have helped to raise the person's score to a level to get the best car deal.
Nonetheless, be sure you actually know your credit score. And again, try to find a lender that will work with you.
This exact problem is why so many young people have trouble finding and keeping decent jobs. When I was a recent grad I had to pass up jobs because I had no way to get to them. Not every area has public transportation, and not every graduate has parents who can help them out.
You are right. So then you have to become creative. Or make certain choices. That's life.
I'd really urge the LW to look into whether she can join a credit union. Many will offer loans with low interest rates, especially if she agrees to automatic deductions. If I were her, I'd try to carpool for a while, build up a good down payment, then get a good used car.
I know this isn't a long run solution but it can actually be helpful for your co-worker - especially if you can give a possible end date. Find out how much your parents can "give" you, figure out how much you can save. I'm looking at cars right now and if you apply yourself are some great deals on old models.
More good advice.
I like the idea of not ruling out carpooling. Talk to the co-worker or other co-workers. Maybe somebody could use some extra money so offer to pay a certain amount for the transportation help until you can save up for a car of your own.
I am single, own a home, and have about $44K in student loan debt. I have paid this down from over $100K just 5 years ago. My problem is that I only have three loans left (they were all broken down separately) and now paying off the next portion is $10K in cash but only reduces my payment by $73/month. It just feels like sending a large chunk of money to the lender when I could, instead either invest it in my home (I don't have central air) or even keep it tucked away until I have enough for an investment property. Can you please give me a reality check and talk me through this? Thanks!
Yup, you know.
Stay the course in paying off that debt. No air until you get them done. No investment property (which I hope you plan on paying with cash). Get that monkey off your back.
But also congrats for what you've done so far. Major kudos. Now imagine what it will feel like when all of it is gone.
Free at last!
I hope the furlough has made people realize the importance of what you have been preaching for years: emergency funds and savings. I've been amazed by the number of people, at all income levels, who have been unable to pay for their basic needs after only a few days of furlough. I'm not trying to be insensitive; but in this time of economic crisis and job insecurity we all have to save a little bit. Employers, Members of Congress, the President and the government will never care more about you than you do. So help yourself and save, no matter how little you earn. You never know when these irresponsible members of Congress will jeopardize your livelihood. Listen to Michelle about the emergency fund.
I contracted to reroof my house and wrote a check for half the estimated cost on 9/24/13. They have not begun the work as yet, possibly weather related , but my question is..Did I make a mistake in writing the check before I had a definite date for the work? It is a reputable company so I know the work will be done, but I am kicking myself for taking the money from savings so soon. What do you think?
Stop kicking yourself.
Nothing you can do now but stay on the company to set a date. Because even if you had a date, they might have had to change it.
We just passed up a house I had been eyeing for months for just this reason. I had thought of this house as "ours" since I first saw it listed, but really, we couldn't afford it. But we can sleep easy in our current house instead of lying awake worrying in the dream house. Still, it was hard to say no!
I LOVE your testimony. You did the right thing and while saying no can be hard, oh the joy when you the right Yes comes along.