Color of Money Live

Apr 17, 2014

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

Send your money questions in early.

-- Today's Color of Money e-newsletter: The Price is Wring --The trap of payday loans can lead to triple-digit interest rates

-- Put your estate plan on paper before it's too late

-- March's Color of Money Book Club pick: "Say Goodbye to Survival Mode"

Glad you are joining me today. Let's get started.

My sister and her boyfriend recently had a baby. He is divorced with three children age 8-20. My sister has earned a solid paycheck and invested heavily over the past 10 years. He has nothing in the bank and unsteady employment. She pays all the bills. She mentioned that they are planning to meet with a financial planner. I think she should meet with someone independently. Are there any books that you would recommend for planning for a blended family, that would help her ensure her child is well cared for, without her taking on the financial responsibility for the other 3 children (who live with their mom)?

Wow. A lot going in with your sister. I don't think she can get what she needs from a book, at least not totally.

If I were you, I would encourage her to meet with a financial planner to work on her finances separate from her baby's daddy who doesn't seem to be making a move (a least according to the little you say) to get married or help financially. I'm not saying she shouldn't get involve the father but he's not her husband and she shouldn't tie her finances, wealth, credit to him until there's a commitment. 

Now if they get married, she should get used to the fact that she would be taking on the responsibility of the other three kids. 

I'm now in a position to aggressively pay down my only debt-- my mortgage. I plan to add more to each monthly payment and have it applied to the principle. I pay all my bills online using my bank's bill pay service. Since I'm paying online from my bank (which is not my mortgage lender), how can I ensure the extra money is being applied to the principal and not just an advance on next month's regular payment or applied to interest? Should I revert back to mailing my lender's monthly paper payment slips that allow me to specify the purpose of the extra funds?

You know I'm not sure. You could make a separate online payment, making sure the loan servicer knows you want the money to be applied to the principal for your loan. But best to call the company to find out what's best. They may say, you need to mail a check.

The important thing is to be sure how they will apply the payment however they receive it. And then double check to make sure it's done correctly.

We recently found out that when our contract with the Federal Government ends that my employer will not be able to continue in its current role. My employer is a mid-sized company, and the contract will be changed to be a small-business only contract. This means that the best my employer can do is partner with a small business as a sub-contractor and hope to pick the winning company. As such, if successful, the small business that wins the contract will have a minimum of half of the positions and my employer will have the other half. Our team leader indicated that the home is the small business would hire the rest of the team letting just about everyone stay in their current position. There is no guarantee that this plan will happen as hoped or that anyone who does get the chance to join the other company will keep their current salary and benefits. This seems to indicate that the best course of action may be to start looking for another job. I know the grass isn't always greener elsewhere and the job search may take longer than available before our contract ends. I don't want to jump at the first offer if the position isn't right, but don't want to get stuck without a job. What would you do in this situation?

I had a family member go thu just what you are going thru. He ended up being taken on by the new company on the old contract but at a lower pay and crumbly benefits, losing most of his vacation time.

I would start looking for a job with similar pay and benefits. If the new company taking over the contract makes a decision before you find another job great. If not and you get a good offer, I would jump because I'm not a risk taker.

Hi Michelle, My mother is turning 57 this year and is thinking about buying a house (she's been renting for more than 8 years now, and from what I can tell the cost really adds up). I think that it's a good and financially savvy move (tax and asset wise, etc.), and potentially cheaper in the long-run. She's concerned that if she buys this year and you factor in a 20-30 year mortgage, she may not live long enough to pay it off. I still think it's a good investment and probably cheaper than continuing to rent for years down the road. Thoughts?

This question sounds familar. I answsered in a column I wrote a few weeks ago (See, I do read and answer leftover questions). But for now, your mother should do all the math and factor in when she might retire. If she plans on retiring in her early or mid 60s, can her retirement income service the mortgage that she can get now? What if she can't work? Will she have the money to cover the mortgage with what she has saved? Does she have funds for home improvements or all the other things that can go wrong when you own a home and you don't have a landlord fixing things?

Even with a 15-year mortgage she'll have a mortgage until she's 72.

She's got to work thu all these questions and considerations before deciding on taking on a mortgage. There's more to home ownership than the monthly payment.

As for living long enough, if she is the only one responsible for the mortgage and she passes away, nothing to worry about. Noone would be obligated but her.

Look carefully at the online form used to pay your mortgage. It may have an option for "principle only". Mine does, at least. Or, just call the lender to see what you need to do.

Good tip. Thanks. And folks in general, it's always good to call and verify anyway. Then look later to make sure your payments are being applied as you wish. The Consumer Financial Protection Bureau look at mortgage complaints and lots of people found that their extra payments for principal were not being applied correctly.

Good Afternoon: I enjoy reading your column and wonder if you could provide some advice or steer me towards some good websites. I am 55 and have been diagnosed with a medical condition that usually will result in a lack of mobility over the next 6-10 years (but not terminal), expected wheelchair confinement within 15 years. I can take the $50,000 I have now in savings and work on converting my current townhouse to make it more adaptable or I can save more money and buy a home without stairs down the road when I get worse. My current house is a typical 3 story townhouse with no garage, 5 steps to the front door, bedrooms/bath up and washer/dryer in the basement. I can manage steps with a cane at this point and expect to be able to live in place at least another 5 years, maybe 10 with a ramp and moving the washer/dryer to the main level and expanding the half bath to a full bath on that level. I really like where I live and don't know what is the most cost effective way to deal with this recent developement in my health. Do I 1)just the bare min on my current home (kitchen is 40 years old so no dreamed of remodel) and save 2)move now or 3)fix up my current place and be happy in the moment? Thanks for listening.

I am so sorry about your news. But so proud of how you are handling it by thinking ahead for what's best for a challenging situation. So before you make a move do some research. Talk to nonprofits that assist people with your condition. See that they have found in their experience. Then talk to individuals who have your condition and see what they say. Visit them in their homes if you can. In fact, see if you can find someone with a home like your and one with less stairs, etc. 

Next, talk to some real estate agents to see what they might recommend and to get some home quotes for what you can get for your home and what you would pay for a home that long term would present less issues.

Once you have all that informaiton, then you can make a more informed decision on whether you should stay or go.

I'm just about to turn 30 and want to make sure I'm saving for retirement. I have a plan through work (+ a plan from a previous job), so I'm saving. But I have a lot of savings and feel like I should be doing more. I had one meeting with a dude at my bank who scared me off by showing me all these plans where I had to spend a lot of money to use them and I felt like I was being swindled. So now I'm a little gunshy. What should someone my age be doing? Who should I be trusting to advise me?

You have good instincts. If you felt scared or uncomfortable you did just the right thing backing off. Try going to this website: There you will find a retirement ballpark calculator. Plug in your numbers and see where you are and if you need to save more. You may not. You may be on track. And if you need to save more, you could just put more in your workplace plan up to the maximum. Or invest in a low cost index fund. 


Hi Michelle, Your family has been in my thoughts and prayers and since you've been away from the chat for a couple weeks, my concern over your mom grew. Not that it's any of my business, but how is she doing?

Thank you so much for your concern and prayers. And I made it your business by sharing my business. I wrote about my mother because I wanted to help others not go through what I'm going thru. (There's a link if you missed the column)

My mother, who was severly injured in a house fire, is still in critical condition but stable. She's still not breathing on her own but considering her level of burns, we are grateful she's still alive. 

I've been so moved by the notes. So thank you and all who have written to me or even if you haven't but still have me and my family in your thoughts.

How many months of living expenses should one have in an emergency fund? I have my life happens funded. For emergency, I have two months in regular savings and five months in original contributions to my personal Roth IRA for seven months total. Is this enough? (My personal Roth IRA is not my primary retirement account, it functions as part of my emergency fund.) My long-paid-off 15-year-old car has 200,000 miles on it and I'm wondering if I have enough in emergency to begin diverting some to a car fund.

So having six months of living expenses -- every penny it takes to run your household for six months -- is a good, solidy emergency fund. My only concern is that a lot of your money is in investment funds, which as you know can go up or down depending on the market and how it's invested. I like to see emergency money in cash. yes, you won't earn a lot but this is your safety money that you don't want to put at risk. 

For now, you could take any extra money and start building a car fund. Just keep an eye on your IRA and its returns. Once you get enough in the car fund to pay cash for your car, start building up an emergency fund with cash.

Hi Michelle, Your column about a tax break from buying a house being worth it kind of hit me hard. After years of saving, my little family thought that we could afford a house downpayment in the DC area with a reasonable mortgage. We can't without majorly sacrificing house prorities (like not living right next to the Beltway) or compromising on the big things we value in other parts of our life (like retirement savings). We're heartbroken, and it's a double punch in the gut because we pay taxes every year no matter how many other vehicles we try to use to reduce that amount. I guess I just want common sense saying that renting is okay. It's not money being thrown away while we continue to save. We just hope that when we think we're ready again to buy, the interest rate won't be too high to make the mortgage payment unreasonable and stop us again. Thanks for listening.

Glad to listen. And trust me you are doing the right thing by buying a home when you can afford it and it has what you want and is located where you want.

And you are NOT a financial failure if you rent.

You ARE getting something for your money -- a roof over your head. So don't let anyone tell you different.

It is my understanding that most mortgages are calculated in real time like a bank account. Any extra payments reduces the amount of the loan and all future interest calculations. There are two ways to get ahead on a mortgage. May each payment earlier than needed, i.e. sending in two payments instead of just one. Or, sending in a few hundred extra dollars with each payment. Both will reduce the principle and shorten the length of the mortgage. One advantage of making early payments is that your next payment won't be due quite as soon. If you run into a little financial problems one month but are several payments ahead on your mortgage, you don't have to send in the next payment right away. Instead, if you send in an extra $100/payment, you may be several thousand dollars ahead of schedule, but the next payment is still due on the 1st of the month (or whatever day it is comes due.) You can't use any of that prepayment to avoid a late fee this month. I usually round up my payment to the nearest $100 for easy record keeping and try to stay a few months ahead. Over the years, I have cut out 5+ years of the term of my original mortgage. This means I will be done early and save thousands of dollars in the process.

Love it.

My husband and I are doing the same, making extra payments and we has seen a lot of movement down in what we owe in interest. We are determined to be debt free by the time we retire. We only have our mortgage.

When I got to a certain amount in the account, I started to re-balance my Roth regularly, putting my original contribution amount into fixed-income (like a money market) so I don't risk it and letting my earnings/interest ride the waves. This has paid off nicely so far.

Good strategy. Thanks for the tip.

The person planning ahead for the impact of their illness should talk to a Certified Aging in Place (CAPS) remodeler or builder to understand the options. The National Association of Home Builders (NAHB) has information on their website. There are also real estate agents that specilize in housing that is more accessible and helps with "aging in place." "Universal design" or "accessibility" would be key words that would help with the search.

Thank you so much.

I will add this. My husband and I have helped take care of elderly relatives who could not climb stairs or climb them easily. If I had it to do over again, we would have purchased a home with most of everything on one level. It just makes is so much easier for the person who can't do stairs, the caregiver and family. 

Thank you, it was somewhat of a shock getting the news this morning. I hadn't thought of contacting others with the same condition and what their homes are like or what it will be like waiting to move until I am less mobile. Lots to think about.

Just this morning. Oh my. 

But look at you. You're already taking control. That's huge! 

Definitely talk to a lot of folks. I sent along some tips from folks on the chat that are really good.

There is so much you might not think about so talking to others will lead you to talk to even more folks. Since you have time, take it. And keep in mind what works for one person may not work for you but the more information you have the less money you will waste.

Most importantly get connected. Don't go try to do this alone. There are so many wonderful organizations and people willing to help you. 

I wish you well.

Michelle, We try to live without debt, as much as we can. But with two kids in child care in Fairfax, we don't have a lot to put away and save right now. We need to put on a new roof, fix a leaking chimney, and had to get a tree taken down before it damaged our house or a neighbor's house. And, it's all hitting at once. We just don't have a spare $20,000-$30,000 tucked away. Are we better off looking at refinancing our mortgage (the house should appraise higher, given recent comps, so we might be able to get rid of PMI/MIP--whichever one we pay with an FHA mortgage) or taking out a home equity line of credit. I'm nervous about a variable interest rate on the HELOC, but on the other hand, we have a 3.75% interest rate on our current mortgage, and I don't think rates are quite that good right now. How would you handle the situation?

Run the numbers. I think given your situation it's not terrible to use a HELOC or refinance to fx home related things that "need" fixing. 

So talk to your lender and see what might cost less especially if a a refi can help get rid of PMI. But again, work the numbers. 

I'm so very sorry if I didn't get to your question. Looked up and it was 1 p.m. already.

But I read all your questions and comments. Stay connected thu my column, weekly electronic newsletter or follow me on Facebook or Twitter (@SingletaryM) because I may answer your question in one of those forums.

Take care and see you 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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