Color of Money Live (Nov. 13)

Nov 13, 2014

Washington Post nationally syndicated personal finance columnist Michelle Singletary answered questions in an online discussion.

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So glad you could join me today for another talk about money. I love these chats because I get to see what's on your mind.

Let's get started.

Michelle, I recently discovered your column and find a lot of good information! Is there a place with past and "way past" Color of Money archives? The link under your picture doesn't go back terribly far. Thanks for the good advice you've provided over the years!

Wow! Thank you. I used to have an online archive that went back about two years. But alas, no more.

I'll take the issue up with my editors and see what might be done.

Thanks for asking and glad I could help.

I'm turning 70 soon and I'm still working and earning a generous salary. I'm required to withdraw money from my IRA's when I reach 70-1/2. Since I don't need the money yet, someone told me to take the money and redeposit it into another account. Two questions: how munch is the minimum amount I must take; and what kind of account should it go into?

I can't answer the second part of your question but you can get info on RMD or required minimum distributions go to irs.gov. The agency has a worksheet you can use. there are also RMD calculators online. But if you don't have one already would be a good time to have a sit down with a financial planner to figure out how best to park the money you don't need.

Ah! Just got pregnancy test results- positive!! This is our first child and as long time readers/followers of yours, we are debt free except our mortgage. What do we need to do from a financial perspective to prepare for baby and new responsibilties?! Thanks for your advice.

Ah, congrats! I have three and kids are wonderful --- and expensive.

So budget, budget, budget.

If you don't already, be sure to have a good, solid emergency fund. You may find one of you will want to stay home longer than you had planned. Be sure to have a solid life happens fund, which is different from emergency. It's for car repairs, and not new baby expenses that may come up that you hadn't planned for.

Start now pretending you have some of the baby expenses, such as daycare if you will need it, medical expenses, clothes, food, etc. See what your budget can handle now and put that money away. 

Also, try a few baby expense calculators online to get a sense of what you will  need to add to your budget.

 

Like so many others who have written in, I am 32 with massive student loan debt (150k), another 6k in credit card debt and now am behind 10k in taxes. I sold most of my belongings and am renting a room but its still 1k a month. I only make 50k a year and am currently completing a CNA so I can get a part time to make extra money. Even then, I just don't have enough. MY credit is shot am i m ready to throw in the towel and apply for bankruptcy, but don't know if that's the right step. When is enough enough?

I'm so sorry. You sound so overwhelmed and no wonder. First, you really would only be filing bankruptcy for the $6,000 in cc debt because you can't get rid of the student loans in bankruptcy. And you'll still have to pay the taxes. So from the information you provided bankruptcy isn't the answer either.

Can you rent an even cheaper room? 

If not, time to map out a plan that will get you out of debt. Start making a list of all your debt starting with the one with the lowest balance. I call it the debt dash. You will make the minimum payment on all other debt. Throw all extra money at the first debt on the list. Once that's knocked off go to the next, etc. 

Will it take time?

Sure it will.

But you can do this. You really have no choice. 

Also in the meantime, be sure to explore all the student loan repayment plans. IBR or income base repayment might work for you know, bringing down what you owe every month and freeing up money to attack your debt one at a time.

Please don't lose heart. It's a daunting about of debt but you can dig yourself out in time. 

If you live locally in the DC metro area send me an email and I'll tell you about the program at my church in which we work with folks like you to have a master plan and mind change about their money.

Hi, Michelle. While no one likes to sue a family member, I think the daughter would have a good case against her father. Even if there's nothing in writing, the daughter relied on this to her detriment. Had she known he would renege, she might have chosen a less expensive college or otherwise worked to reduce expenses, Obviously parents 't have no obligation to pay for their children's college educations, but in this case he promised to do so. He acknowledges he promise and has not done so, even though he has the money. It's not as if he went bankrupt or came down with a terminal disease. I gather there's a fair amount of money involved. If so, I would definitely consider this.

I understand your wanting to right this wrong. But I wouldn't advise her to sue. Just creates more family drama and frankly she would have a thin case. And where would she get the money for the attorney?

The father could just as easy say his finances changed and he couldn't do it.

The daughter is stuck but hopefully she is reexamining how much she is taking out in loans and minimizing that as much as possible.

Good term - college students & young adults need that parent to oversee things; give them support, keep their moral up. I am the parent of two Senior daughters, one HS, one college. We do provide financial support to the college senior, as she has no time for a job, and (music major) we knew that going in. Thanks for your wit and wisdom every week.

Exactly!

They need us especially in the economy we have. 

Love that "wit and wisdom." Going to show that to my hubby.

 

Thank you for your column today. I moved from a house into an apartment after getting divorced, and it will be a long time before I'm in a position to purchase a home on my own. (I'm focusing on my emergency fund and paying off my car loan first). Going from homeownership to renting has been a blow to my ego, and I feel discouraged that I'm "losing" money instead of building equity. Your column made me feel better about my situation. I'd love any additional advice for the renting vs owning decision in the future, especially if I don't remarry. I have a good job, but I have a hard time believing that I will ever make enough where the amount I save as a renter will be greater than the equity I will build as a homeowner. Thanks again.

I'm so glad my note of the study about renting vs. buying made you feel better.

It's something I've been saying for years. Not everyone should get a house. You are not a financial failure if you rent.

But going forward, you may be in the position to buy but if you aren't just be sure to save. You will be just fine.

Michelle - Thanks so much for talking about whether buying a house makes financial sense! I'm in my early 30s, and grew up in a generation where my peers rushed to buy homes/condos really young, and now some are underwater or can't sell the homes at the price they want. Or even maintain them properly. My husband and I plan to pay off our student loans and cars all while maintaining an emergency fund, and saving for a healthy down payment for a home. We see no reason rush into buying a home and want to work on building our wealth with more liquid funds. We don't want to be house poor or struggle to make renovations and repairs. We, as a society, have to get past the reflexive "renting is a waste of money" when that isn't always the case.

You said it!

Rending IS NOT a waste of money. You are getting something in return. A roof over your head.

You are doing it just as I tell folks. Take the time to get out of debt, build up an emergency fund, life happens fund and down payment. Then buy if you can or want or it makes sense. 

I am finding that car repairs are not just about money, but also time. My car has been in the shop four times this year, including three times since October 1st. The past two times has been for the check engine light which came on again today which means it is going back to the shop. I have had the car since 2008 and it has more than 100k miles. I must say that the recent series of trips to the shop have me on the verge of buying something new. The car has been paid off for a few years, although I never officially set aside the car payments for a new car, I do have savings and the trade in value (assuming it still is worth something with the check engine light issue) I would rather not need to buy another car, but having something that I can rely on and don't have to take into the shop would be wonderful. I have known for a while that I would eventually need to replace my car, but the thought of spending the money is never easy. My most likely choice is the Chevy Spark, which is one of the smaller, cheaper, and more fuel efficient cars available, so even with a new car, I won't be spending a fortune.

I always say that the time to replace your car is when it you get in the car and pray it starts. Or you can't be sure it will leave you stranded on the road. 

But if you can plan repairs and still save on the way to paying cash for another car, hold on to it to the bitter end.

So for you hold on to the car until you have the cash for the next one. Sounds like you are almost there.

And going forward, you are right. Make a monthly car payment to yourself so that you have the cash for the next car. You only have to do it for four years and there it is. 

Michelle, I am new to your column and post. Do you have any advice to get out of credit card debt? Are credit consolidation programs worth it, and do they really affect your credit negatively? Thanks

First, stop using credit at all. 

Just say no.

Stop.

If you've already put the cards card, list the 8 cards starting with the one with the lowest balance. Tackle that debt first making just the minimum on the remaining cards. Once that card is paid off move to the next one.

No I don't think consolidation is worth it. You end up paying more in most cases. Yes, you make one payment but often have to stretch it out to make that monthly payment lower. 

Plus I want you to suffer. Cut out every expense you can. No eating out. No vacations, etc. I want it to be painful paying off the cards so you can remember that pain to avoid having 8 maxed out cards in the future. 

I often find that people who consolidate debt and clear cards end up right back maxing the cards out because they didn't change any behavior. The one payment of the consolidation made them feel like they had done something about the debt.

So take it slow. And suffer for the greater good.

Want to share my experience in case anyone else is in the same boat. When I got divorced 10 years ago from a compulsive spender, I only had $30,000 in my retirement account (at age 52!). Immediately increased my contributions (not that painful when it's pre-tax) and now I have more than 10 times that. Met a man along the way (now my husband) who shares my thrifty philosophy and we are having a house built near the beach that will eventually be our retirement home, mortgage-free once we sell our house in town. I think my experience is proof that it is never to late to make a change, set new goals and achieve them. We both love your columns and chats...thanks for the great advice you have given over the years.

Lover your testimony.

Thank you for sharing it. 

And good luck with new hubby and house!

Congratulations! Read up on your health insurance to see what they cover (many now completely cover prenatal and maternity care, breast pumps, etc.). If not, see if there's a better option to change to. If you have a Flexible savings account, increase it a bit, especially if insurance won't cover everything. And if you're going to need daycare, start looking very soon. Honestly, the daycare people knew before we told work and the news hit facebook. There are some loooong waits. And if there's a dependent care account, plan to fund that as well. And finally, relax. Early on, babies need carseats, a safe place to sleep, some clothes (but not as much as you'll get!), a way to be fed, and diapers.

Thanks for sharing your tips.

Hi, You have a great perspective on money issues. I need help. I have a mid forties daughter, single, condo owner with mortgage, who quit her almost 60K job because it was making her physically sick due to the stress. It's been two and half months and she's no closer to finding a job. There's always one excuse or another. She not doing much to help herself either physically or mentally. Unfortunately, she knows there is "the bank of Mom" available. However, I'm torn between letting her savings go to zero, or waiting until she asks for money. At this point, it would be a loan. I've tried to maintain a positive attitude towards her, but it's hard. Any suggestions? Thanks

Close "the bank of mom." And that may mean your daughter will fall. However, for some folks they need to fall to get up. 

Don't enable her.

Give her good advice, love, support but not a check. But no loan (I don't believe in lending folks money anyway. If you need the money back, don't lend or give it otherwise creates major issues). 

For the person writing about his/her debt. I think that that person said that they were pursuing a CNA. If that's a certified nursing assistant, I would suggest trying to get a job with the VA or another federal agency which has a student loan repayment program. You have to agree to work a specific number of years, but you get up to a specific amount ($10,00 at my agency) per year for student loans. The money is paid directly to your bank, so you can't use it for anything else.

Right. Thanks for passing that along.

In my experience the institution holding a regular IRA will notify an individual of the amount needed for a RMD when one reaches 70.5. There's always a warning that if IRAs are in more than one institution, the total must be taken into account. Whenever possible, consolidation of IRAs into one institution makes the RMD requirement easier to do. The RMD cannot be moved into a non-taxable account such as a Roth. If the IRA is in stocks, the stocks may be moved as a RMD as long as the total RMD required is met.

You guys are so helpful today.

Thanks. 

Passing along.

 

I'll second that. Daycare waitlist once the test is positive (or even before). It's harder to get into daycare than it is to get into grad school.

Lol!

Right on that. 

About 9 months ago, I asked Michelle a question about this on the chat since house prices here were still out of our price range. She said the exact same thing: renting is not a failure, you have a roof over your head. We kept saying that while we kept saving. We went into house hunting not with the idea of it being an investment, but a place to have our family that was less cost than renting a bigger home. We closed a few months ago, and we're still saving for emergencies and life happenings as well as paying for the mortage and all the other random things you need with a home (like a snow shovel...don't want to be without when it finally does come). If we didn't find a home that allowed us to do this, then we would have still kept saving for it while being thankful for the roof over our head. Thank you Michelle for everything you do. I know I'm one of many who greatly appreciate it!

You are going to make me cry!

I really appreciate your testimony.

You waited and are the better for it. 

That's always, always my goal with my chats, columns, eletter, etc. To just get folks to stop, think, plan, work the numbers. Stop listening to what people say you should be doing and do what you can afford. Even if that means renting and never buying a home. 

And contact the IRS about the $10,000 tax debt. While you are responsible for the money, the IRS will work with you on a payment plan and can also counsel you on other government assistance that might be available. Be proactive with them and they can help you avoid penalties and such. In spite of the mass media's reputation, IRS employees are dedicated public servants and want to help you.

I really do agree about IRS. I had a friend who was also about $10,000 in debt to IRS. She was afraid to call. I sat with her while she called and they put her on a payment plan. Then I worked with her to cut her expenses, including suggesting that she move  in with her sister and she was free of the tax debt in less than 2 years. 

So much of the decision whether to rent or buy is based on factors beyond anyone's control. My friend and I both came to Washington in 1985. She rented -- and still rents -- a nice 1-bedroom apartment in SW with great river views. I rented for 5 years and then bought a two-bedroom coop apartment in 1990, which I still own. If I sold my place now, it would sell for more than twice its purchase price, close to three times that. My friend, in contrast, has her great river view. But we were in Buffalo or another Rust Belt city, rather than the District, she might have been winner. So, I would just tell people to do what they want and don't worry about what happens 20 years down the road.

Very true.

But I would add that your friend may also have a lot saved. 

So you may both be winners still.

I have a ton of student debt from three degrees. I'm gainfully employed and now making six figures. A few years ago, when I was making a lot less, I did use a non-profit credit counseling that got me back on my feet. I eliminated all credit cards (except one for business travel) and use my debit card if I need a credit card. I still have a bit more debt on the credit card than I wanted (again, trying to break old habits) but I'm bringing it down. The biggest thing I did is exactly what you said - I suffered and I suffer. I gave up buying lunch and meals. I make myself cook. I make my own coffee. I turn down dinner offers. I'm still not out of the woods but I can see the path. It can be done!!!

Yes, it can.

It can be done.

And good for you. 

Oh what a feeling you will have when it's all done.

Hi Michelle, I'm looking for resources/options on how to combine finances (or not) in marriage. We've been talking, and our opinions are tempered by family history: My parents combined 100% and are fine, while his parents combined and the resulting disagreements played a big part in divorce. He also sees joint spending as a loss of independence and potential for conflict, while I see it as an investment into our life together and fundamental accountability. FWIW, we're in our early 30s, no student/credit card debt, excellent credit, fully saving for retirement, etc.

First congrats on the engagement.

I would highly recommend you sign up for a premarital counseling class with a strong focus on finances. Or see a family counselor to help iron out the differences.

I believe in combining everything. But so did my husband. Or to be truthful he wanted to combine everything and initially I wanted separation because of my family background (men running off, etc.)

But the key is making sure before you get married that you have the same financial values, which it appears you do and a plan you both feel comfortable with.

Don't get married until you settle this because it won't get easier once you are married.

Tackle the family history and his fear, because that's the root, of mixing the money. 

I think you mostly there. 

I will be 65 in a few months. My dependents are my wife (64) and a disabled daughter, age 34. I can't seem to get my arms around how much life insurance I need. I know that I want it to be enough to pay off the mortgage, but with savings/retirement accounts, social security and half of my military pension going to my wife, how much more should I have to be insured for?

First, thank you for your service. Just had to say that.

I really think, if you haven't already you need to sit down with a financial planner/independent life insurance agent and attorney. With retirement income your wife may be okay but you need a master plan and a special needs trust for your disabled daughter. What if both you and your spouse dies? Who will take care of her and/or manage the money for her.

Don't try to do this all on your own. Get professional input. 

I'm 35 and MANY of my friends are hesitant to buy because the economy might go south again and they'd need to move to get a job.

Really, that is a good reason not to buy. 

If you think you may need to move to get better employment and the housing prices aren't stable in your area, renting may be the better option. Many people need to move but can't because they are underwater on their home.

Maybe I don't understand what it costs to go to college these days -- I'm 22 years out, but I also don't understand taking on $150K in loans for a job that pays $50K. Are there financial lessons in this?

There are. It doesn't make sense to me.

But it is what it is so now the person has to buckle down and pay it off.

I think what happened was people heard they need to go to college at any cost without counting the cost if that meant a lot of debt.

Sometimes it's helpful to look at renting instead of buying a house like health insurance. You have to spend money for it which you will never see again, but it does provide "a roof over your body" in case you ever need it. A good way to transition to a home is to rent in a condo community. You have a sense of both that way.

Good point. 

 

Could have been my former brother in law. Parents had traditional investment accounts -- not 529s -- for the two kids. Each parent got control of a fund in the divorce. As the market tanked, my sister pulled her daughter's money out (truly stuck it under a mattress, another story entirely) but former b-i-law left his son's money. We explored 529s and other accounts as nephew was a senior in high school. BEGGED father to pull the money out. He refused and the account lost more than half. Then father said he'd pay $6,000 a year for school. Neither kid saw a dime. Ever. It's sad, but people do this sort of thing all the time. Hang in there for your niece. And it's never to early to introduce her to Michelle!

I agree. People do some funky stuff.

But I am here to help when they do!

Michelle - I love your chats, and have been a regular follower for years! I would love your advice on what you would do in my current situation: newly married couple, combined income 140k a year, own a home with a $500 (!) mortgage + insurance/taxes, less than 4k in school loans, 13k in credit card debt (I know, I know), 25k in car loans, maxed out 401k. We have 18k liquid, for "life happens" and "emergency reserves." During the sequestration, I realized my job could easily be cut (I was then a govt contractor), and we took a hard look at our budget. We could scrape by on his salary (45k) for 6-9 months without a major cut to our essentials and without really touching our liquid savings... so all, in all, I feel so fortunate for where we are financially. Both of us have near complete job security (medical mishaps notwithstanding) so ... we are good. I am selling my first home (purchased in 2006 before marriage) next month, and will likely come out 50k-70k on top. (It is a cash sale, not sure of closing costs). Either way, this is a big deal. What would you do with the money? My inclination is to keep aggressively chipping away at our debt every month and put that lump sum in a CD/Money Market. We're both 30, looking to start a family soon and realize in 5 years we will likely outgrow our current home (if we are lucky!). My thoughts are that we could grow the money and use that for a down payment, and either sell the current home for additional payment towards the new home OR keep it as a rental. Rentals don't scare me, as I have been one for years and he is a contractor. Does that make sense? What would you do? And also, I would love words of encouragement - i'm getting quite a bit of flack for not signing a pre-nup and being willing to share this windfall with my hubby. From my perspective -- this is our nest egg to share together! Just because I did not know him when I purchased the house doesn't mean the home was meant just for me! I did it with my future in mind, and I am so happy where I am in my marriage/life/family/finances.

Ok, so much.

WWMD or What would Michelle Do?

I would pay off all the debt. 

That will take a large chunk of the net proceeds from the home I know but why pick at it when you can get rid of $42,000 just like that!

Besides you want to buy a home soon, so I wouldn't risk the money in the market if you plan to buy in less than 5 years.

Take the remaining money and let that be part of the down payment.

As far as the flack about the pre-nup, don't pay those folks any mind. You are one, and that includes all that comes into your house. I merged everything and just celebrated 23 years of marriage. We have no money issues because we have always seen any money as our money. 

I'm so, so sorry if I didn't get to your question. But as I say week after week, I read every single comment and questions. And don't lose heart, I often take the leftover questions and turn them into columns. So keep an eye out you may see my answer. Or resubmit next week (and if you do, let me know so I can move you up the queue.

Thanks again for joining me today.

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 and is carried in more than 120 newspapers.

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