My fiancé and I were recently discussing our need for a car purchase in the not-too-distant future. I made the claim that it's always a waste of money to buy a new car since a lightly used car can been purchased for much less. She disagreed. Am I wrong in claiming that it just doesn't make financial sense to buy new?
This is one issue where the two of you will have to agree to disagree -- or else each of you should buy your own car. It is absolutely true that -- financially speaking -- if you buy a "certified" used car from a dealer, you are getting a better financial deal. That's because of the huge depreciation the minute you drive a new car out of the showroom. What you don't get is that "new car smell" and the emotional security (if that appeals to you) of knowing everything about the car. Of course, the certification and warranty programs offered on used cars bought from a large dealership are supposed to give you that peace of mind.
But I would like to mention that this "disagreement" reveals different sides of your money personalities. Likely you will have different outlooks about other financial issues: buy or rent; save or spend. So you should have some of these discussions now -- before you are married!
Hi Michelle, my husband and I aren't quite sure how to allocate our extra money each month. He wants to put it in savings, I want to pay down my student loans. We have about 17k in savings, 40k in student loans. To have 6 months worth of expenses at our current lifestyle, we would need about 30k. However, we have stable jobs and realistically, if one of us lost our job there's a lot of room to cut back. Thoughts?
Hi, this is Terry responding -- because this is a financial question, but perhaps Michele will chime in. This is always a tough question, and one that I am asked frequently. My answer is always: BOTH!
I would suggest that you try to double the monthly payment on your student loans, to get them off the books and save a small fortune in interest. Of course, your husband may have the subliminal thought that his earnings are being used to pay YOUR student loans! But you can ease his mind by reminding him that without your student loans you will have a better credit score, and could get a lower rate on a mortgage if you decide to buy a home!
At the same time, and since you are both working, you should make sure you are contributing to your company 40l(k) retirement plan. And if your company doesn't have a plan, then open an IRA at Fidelity or Vanguard, and have an automatic contribution made each month. Make it a ROTH IRA -- you don't get a tax-deduction now -- but all the money grows tax free!
That way you will both have money building for your future and you will have a better financial footing for the nearby future -- which may include children! If that happens, you'll never get this chance to pay down debt and save again -- at least not in the same magnitude!
Hi Michelle. For LTC, is it better to buy just a LTC policy and buy a life insurance policy with a chronic illness rider? The life insurance policy one will be more expensive but have some payback upon the person's death. Thanks.
This is a tough question to answer in this forum and I don't know all the provisions of either policy. So I'll tell you what I do. Because these policies -- both LTC and insurance -- and have all kinds of clauses, caveats, etc. I try to keep things separate. A term life insurance policy just for that purpose. Investing just for that purpose without life insurance attached. Whatever you do, please, please read thu the policy to fully understand under what conditions payouts will be made. Finally, be careful about overpaying for things you can just save for yourself.
I received a gift of several thousand dollars. I am fortunate that I don't need it to live on. I am 50-ish with three kids in college (tuitions are paid for with savings). It is now sitting in the bank -- a dumb move, I know. Any advice on what I should do with it?
Well, as a registered investment advisor -- the first question I would ask you is: How much are you willing to lose?!
I thought that would give you pause! This is a windfall. I know you earn practically nothing on savings (there will be an upcoming article on that at www.TerrySavage.com). I call it "chicken money." If you aren't prepared to lose any of it, then leave it safely sitting in the bank for an emergency.
Of course, this presumes you aren't paying interest on credit card debt. It makes no sense to pay 18% interest on debt -- and leave the money sitting in the bank earning less than half of one percent. But otherwise, don't be in a rush to spend or invest this cash. It's amazing how much peace of mind you can buy with money in the bank!
I agree with Terry. If you have debt, use the funds to get rid of it. OR if you don't have a well-funded emergency fund and life happens fund, use this money to pump it up. For emergency fund, six months of living expenses. For life happens fund, a few thousand for the things in life that happen such as a major car repair.
Or if you have debt and want to build up savings, split the money.
I am a divorced woman. I accumulated a lot of debt (better credit) during our marriage. Now that I am single again, I can no longer afford my living expenses and debt payments i.e. furniture, credit cards etc. Every month I'm in the whole with something and don't feel like I can see my way clear. I've applied to part time jobs, even going to move in with family to cut expenses and try and pay off my debt. Should I file for bankruptcy and then be able to pay my living expenses or should I suffer though my debt and get it paid off? I'm starting to feel like bankruptcy is the better option.
You need specific, trusted, and personal advice on your situation. Immediately contact the National Foundation for Credit Counseling at 800-388-2227. That will connect you to the nearest local office. You can get counseling over the phone or in person -- but you will have to review all your debt, all your expenses, and consider all your earning power. They can help you with this decision. Congratulations on facing up to this now -- before things get worse. Yes, bankruptcy may be your only answer -- and they will tell you that. But before you take such a drastic step you should explore all the possibilities. The NFCC member agencies offer free (or very low cost) counseling -- and it does not go on your credit report unless you have them help you with a debt repayment plan.
So make the call now -- 800-388-2227.
I don't have one and in general I've never understood them. Why on earth get married and commit to raising children with someone if you're not willing to share every dime? But now that I've seen friends going through some really tragic divorces my opinion may be changing. That said, I think there's more to be said for prenuptial agreements that are focused entirely on any future children (i.e. our assets will be shared equally between our children) versus "my family's money is mine and always will be if we get divorced."
Generally prenuptial agreements cannot deal with either present or future children because they are actually protected by the court in any divorce. Thus clauses about children are NOT enforceable although they can indicate good intentions which help. Regarding the money issues, think of a prenup as NOT the old confiscatory type but rather a financial planning tool for your joint future . That is what we mean by "The New Love Deal".
Like you dear reader, I wasn't a fan of prenup agreements. Thought they were a plan to fail. But I like how the authors approach it. They make a good case that the discussions that have to be had to draw up the agreement help with having important money talks before you get married. That I can now see is worthwhile.
One of us has announced she wants a divorce and I have accepted. But with a 5-year old and no savings, but a big college debt, what to do first?
Sadly this is not uncommon and of course you both have to take care of your child first. You do not mention who is earning what and the college debt most often is the debt of the one who earned and has the education.
Is counseling out of the question? Have you tried it? Maybe the announcement is a chance to fix what's broken before the lawyers are called especially with such a young child.
What particulars would be best to make sure we have covered all angles in case of death?
There are more and more seniors in your position -- and you are wise to cover all the issues using an estate planning attorney in your state of residence. But here are a couple of issues to think about. First, have you each executed a revocable living trust, and perhaps, but not necessarily, named each other as successor trustee? And have you retitled your property in the name of the trust to facilitate the other trustee handling sales, leases, etc if you are incapacitated?
Do you have healthcare powers of attorney (since you are not married, a hospital would not give your "partner" access to your records or decision making if you don't hve these documents -- and be sure each of your physicians has a copy in your medical records).
Have you made a living will? Does your partner have a copy, and also your physician?
Have you looked at the beneficiary designations on all your insurance policies and retirement accounts? These pass directly to the named beneficiary. Make sure the beneficiary is correctly named. (You might want to leave some of these accounts to other younger people, who in the case of an IRA could stretch out the growth of the assets over their lifetimes -- so think carefully about this.)
Again, an attorney will give you legal and tax considerations. If you will closely succumb because of health issues, it might not make sense to leave all your assets to each other. So listen carefully to professional advice, and be prepared to make some tough decisions.
My sister is a professional, in her late fifties. She earns good money, but doesn't plan to "ever retire." She's been dating a man for a year who is 62. He has been living on student loans for the past few years and just graduated with a BA in English. Now his house has been foreclosed and he's being evicted. Sister with stars in eyes just told me last week that he's moving in with her and applying for a masters in French! I tried to ask, gently, some tough questions. She believes she's in love and is willing to support him, even if he never works, and never pays back any student loans. My final advice to her was to have an exit strategy and to get a co-habitation agreement. My question (finally!) is what needs to be in the co-habitation agreement? How can she protect herself? I feel helpless like she's falling off a cliff and I can't help her. Do I just throw up my hands and be ready to pick up the pieces (I've done this too many times before.)
All of your instincts are spot on and your sister is lucky to have you. I do not know what state she is residing in but she should check with counsel and get protected. They need to have an agreement as to who will pay which bills or I guarantee you that the stars will soon fall from the skies and her eyes. She should not set up any joint accounts or add his name to any titles and she should value herself and protect herself...especially if he does not want to !
I totally agree with Gemma. She needs to look out for her financial interest. But if she doesn't, you should not be there to pick up the pieces if it means giving her money. Be there for her with love, understanding and no "I told you so." But let her fall. It's by falling that she will learn to get up and stop making bad decisions because love does not pay the bills.
We recently paid off the last of our student loans and now want to start making sure that the next generation doesn't have any. I've been maxxing out 401K/TSP savings for the last fifteen years, so we have a sizable nest egg. We've about five years left on a 15 year mortgage and no consumer debt. I was thinking of cutting back on retirement savings to the level where I still get full matching funds and shifting the extra into 529 contributions for our nine year old twins. I'd rather get the benefits of the tax free growth for current contributions than tax deferred benefits later. What do you think?
If you are on track for retirement, which appears you are and you need to really boost savings for college so your children don't have to take on ANY debt, I think you are on the right track to divert some of the funds you've been saving for retirement.
I agree 100 percent about shifting some savings to a 529 plan. But be sure you choose the right one! Remember, you can invest in any state's plan, and the child can use the money for college in any state. (We are not talking pre-paid tuition plans, but investing plans.) Go to www.SavingforCollege.com to check out the performance and costs of your state plan. I typically open plans as gifts using the Vanguard plan, because of the lowest cost and broad investment choices. If your state gives you a tax break for contributions to is own plan, that may make a difference in your decision, but overall and in the long run, costs do matter!
Our car skidded through a stop sign in one of the ice storms and was hit by a SUV. It took out the front panel and since the cat is 8 years old the insurance company declared it totaled. We looked up its worth on the blue book but the insurance company is offering 2K less. They claim the use their own insurance database which is based on buying a comparable car. Well we looked on carmax and a comparable car is 5K more than they are offering. We looked on craigs list and a comparable car at what they are offering has a salvage title. We don’t think we should go out of state because it could cost an additional 2K to pass a Maryland inspection. Our car is a one owner car with front end and brakes fairly new. We need a dependable car and I don’t see one at one the insurance company is offering. What are our rights? Can we get another opinion? We don’t think the car is really totaled but we can’t look at it since the insurance company has towed it away claiming we agreed to the settlement. We did not and we still hold the title.
Check with the insurance company for the internal process to object to their decision. See if there is a higher up you can complain to using your research. Also contact your state insurance office to see if they can help or give you guidance.
Here's a link with info that may help
We have the option to refinance our house at a better rate and can either take on a 20 year mortgage paying the same amount we are currently paying or a 30 year at a very low payment that we could easily afford on one income. If we do a 30 year, we would put the extra funds into college savings and day care, but we can still afford daycare and save with the 20 year. Is there something we should be considering in making the decision? We plan to be on our house for the next 6 years, and then may move and rent it out.
Ok, there are a lot of variables in your situation. But the thing that stands out for me is that you are planning to move in 6 years. If you were hoping to stay in the house "forever" I'd suggest a shorter term mortgage to pay off your loan. But in your case, I would suggest locking in a 30-year fixed rate loan (do it now, while rates are at their lowest in history). The real isue is whether you will have the discipline to put money into a 529 college savings plan! Sign up and make it an automatic deduction from your checking account each month.
So, lets say I did something stupid, and never really talked to my husband about money before we got married and just let life go it's own merry way. We're not in any trouble or anything, but we're just not really together when it comes to our finances. What's the best way to approach this conversation now that we're a unit?
It is never too late! One easy opening is to suggest that as life goes on it is time to consult a financial planner. In that meeting you will both be asked about long and short term plans and goals and that can really help the dialogue to begin. If you respectfully disagree there are compromises that can be such as each of you keeping some "discretionary money" separate but both contributing to your common future. Money is the last taboo topic for couples which is odd when you think about it but it is because money and security mean different things to different people. Getting on the same page can be incredibly "intimate" and exciting. Terry and I always suggest that the discussion , even if it is just the two of you, be done in a comfortable spot with a glass of wine or ice cream if you do not drink because it is a process to learn to make the "money talk" into love talk .
I love Gemma's answer. I'm always the "dollars and cents" answer-er -- But Gemma is so good at relationships. And I think that is the basis of this discussion -- the friendship and trust that show through when you can completely open yourself up in a discussion like this. There's a chapter in The New Love Deal that explains how to start this conversation, and where the pitfalls lie!
I agree. It's never too late to get on the same page financially.
In your post to us you have the beginning of a great conversation. In addition to a meeting with a financial planner, look around in your area for a financial class or program you both can sign up for. That's a great place to help you start and continue the conversation.
Just a few considerations for a "gently" used car. (1) Ask about the transfer of the manufacturer's warranty and what notice has to be given before the transfer is effective. Inquire whether the previous owners did any kind of customization that would void the original warranty. (2) Get the carfax report and make sure that the car hasn't been in an accident or otherwise damaged. (3) Ask to take the car to an independent mechanic (such as an AAA shop) and have it inspected (you probably have to pay for this, but it's a good investment). (4) Ask your insurance company before-hand what the cost of insuring the car will be. (5) Buy from a dealer or a reputable re-seller, and avoid private sales.
All good tips. Thank you.
Actually, I think the basis for this kind of decision-making is a little different than the response indicated. For those who do not know how to diagnose or mend car problems, and who have been manipulated by unscrupulous mechanics, a new car can be the financially responsible choice, as it can go for a decade or more without need for a major repair. A used car is more of a gamble - you may not go even a week post-purchase without needing a major repair, there's no way to tell if you are unfamiliar with cars and/or lack a trusted mechanic. Which can cause a person to miss work and worse. Knowledge of auto mechanics, and the calculus differs. But NO - the "new car smell" and your dismissal of such concerns are by no means the "only" thing gained by a new rather than used car, which can be a great deal more expensive under those circumstances.
So, I hear this a lot. Many people are fearful of buying a used car. But my dear later model used cars are not your grandfather's used cars. It is not true that all used cars are a "gamble" as you say or that people all over the country with used cars are stranded on the road a week after buying one. Are there lemons out there. Sure there are. But if you do your homework you can get a reliable, safe used car and save yourself a lot of money.
They don't seem to want to consider it at this point unless they have already been through a bad relationship or know someone that has.
Approach it as part of the wedding planning...although it is really marriage planning. We are "selling" the concept of open discussions and financial fidelity as much as we are advocating for a document. The truth is that marriages break up over money issues more often than over other kinds of infidelity and the irony of a divorce is that it DIVIDES the assets and forces the parties to understand their finances and what Terry calls their "money personalities" in the end anyway. It is so much more constructive and even sexy to do it at the beginning when all the hormones and hope are flowing.
Love this line from Gemma and why I recommended "The New Love Deal": "We are 'selling' the concept of open discussions and financial fidelity as much as we are advocating for a document."
My car was declared totaled by my insurance company even though it was still drivable after someone hit me. I took the money and kept the car (-minus $2000 for what they called "salvage" money if I'd let them trash it) and then used some of my own money to complete the repairs. It was worth it because I spent far, far less than what it would have cost to buy a new or later model used car. Also took the opportunity to paint it a new color. :) The inside and engine were what they said were "near perfect" condition even after 10 years. If I'd wanted, I could have pulled off the damaged dangly parts and even continued driving, pocketing the insurance money...it was THAT drivable.
Thanks. Love it!
Hi Michelle -- I loved your recent column where the married couple discussed their allowance system. This probably saved my marriage almost 20 years ago! I grew up poor and assumed that "budget" meant "something you want to spend less than"; my husband grew up UMC and had the silly notion that putting money in the budget for something meant it was ok to spend it. Even though we could afford it, I would get really frustrated when he would buy $120 Oakleys when $15 Walgreens sunglasses worked just fine! So we gave ourselves allowances -- "stupid" money that we could spend without any second-guessing. He got his toys, and I got to save more than we had budgeted for. But most of all, I knew I couldn't nag him about being stupid, because it was "stupid money"! (And, btw, all that extra money that I didn't spend is worth about $40K now -- so hah, we both win!)
Michelle is so right and her answer is such a simple and straight forward and yet necessary piece of advice. What I have learned as a family lawyer ( and knew myself form my own hidden shopping bags) is that we each and all have different ideas of what is and is not extravagant. Allow yourselves that small indulgence with some kind of budgetary cap and neither one of you will feel deprived or that you have to hide your true self. Financial fidelity is the key to a relationship but allowing each other to be ourselves is also essential .
Thank you so much. Stupid money. LOL!
But it is key that you get to spend on what you think is worth it with no questions or nagging. Could help a lot of marriages. Just wish more couples were more intentional about such things.
I hate the idea of having a mortgage any longer than needed. I keep hearing how a mortgage is good and to keep the tax deduction and invest the money that could be used to pay it down faster. I see it as a monthly expense and once eliminated, there is a good chunk of money that I don't need to worry about earning each month. I know once paid off, I will have to take over the insurance and taxes which the mortgage company pays out of what I send them, but still, if I can reduce my monthly expenses by $1000, that is a big deal in my book.
Oh, I so agree with you! And I've done it myself! There is no feeling of security like having no mortgage! The only time I think otherwise is when people say they are going to move in a few years, and want to save money outside the mortgage. But if you are planning to retire in your home, the "mortgage-burning ceremony" should come first!
The financial gurus will answer this analytically but I would also note that financial freedom is a concept that can mean different things to different people. That is why we push so hard for people to seriously examine his or her own view of money and then , if they are in a relationship, share that honestly with each other.
Love Terry. One of the few experts who agree with me that the whole keep-your-mortgage-until-you-die-for-the-tax advantage is nonsense. If you are planning to stay put, heck yes it's better not to have that burden. And certainly aim to be mortgage-free by the time you retire. Now you don't want to be house rich and cash poor meaning all your wealth is tied up in your home. But getting rid of your largest expense is smart financial planning.
We are 78 and have adequate income with no debt. We want to build an addition to our house--about $250,000. I want to take mortgage on our home to pay for it. My wife wants to sell income producing assets (stocks). Maybe some of each. The loss of income would crimp our lifestyle a bit, tho not drastic.
Start by answering this one question for yourselves: Is this a good idea? Will you "over-size"your house, and have too much of your assets sunk into your house? Will you ever get a return when you sell the house? How long are you planning to stay there?
If you agree that its a good idea, I suggest you compromise: finance half with a fixed rate mortgage over your expected work lifetime. And finance the other half by selling some stocks. That way, whatever happens you won't be able to beat each other up! I'm serious!
Another consideration: if you're buying a car at the lower end of the cost spectrum, especially a highly rated one, you won't save much on a used versus new one. Maybe a couple thousand dollars, at most. I know when I was looking for a replacement for my very old and dying car, the model I wanted cost the almost the same used as new, and there were very few used ones out there to buy, so I bought a new one. (Paid cash for it.)
Good perspective. Thanks.
And by all means, I'm not suggesting you never buy a new car. My last cars almost ten years ago were new with CASH.
Make sure to find out how much extra the repairs would cost you out of pocket BEFORE you decide to take the money and keep the car, though...don't want any nasty surprises.
Very true. Thanks.
Hi Michelle - I just bungled a 10-year perfect payment record by getting a little mixed up over the holidays and badly missing a payment on my Macy's credit card, which I rarely use. Now my credit report shows that one 30-day slow pay! Can I get it removed, and if so, do I contact macy's, or the credit bureaus?
If you've been a great customer definitely call and ask for it to be removed. Call Macy's credit department. Don't tell anyone, but that happened recently on one of my cards. Holidays, kid sport events, etc. Lost track because statement went to email and didn't see it. Called, explained and got late fee removed and no bruised mark on my credit report. But that's because I pay in on time and in full consistently.
I like to think of it this way when talking about money with the spouse.... we are talking about the best ways for us to earn, save and pay for our best possible future together. Sometimes his "best possible" isn't the same as my "best possible", but how fun it is to talk about what we each want and how will we get there. Of course, we're both numbers people, so that may make a difference in the level of fun derived. :-)
Love your thinking and you are right that it is easier because you are both numbers people. The truth is that we all need to be numbers people in any relationship because it is dangerous to your own economic health to not know the facts; it is also negative for the relationship if one person feels too responsible or too resentful or any of the common financial negative feelings. That negativity can infect the couple and start to diminish the positives in their lives. You sound like you have already made and understood what we call "The New Love Deal" and congratulations to you and many happy anniversaries!
My ex and I were married 16 years. I am 68 and he will turn 62. I am already receiving SS monthly, but I understand that I may be able to claim a greater monthly SS payment on his account. Over the years he has made substantially more money than I. Is there a way to find out what the $ benefit would be to me before he turns 62... Or do I just wait.
Yes, go to www.SocialSecurity.gov to compute your benefits, and he can input his information to compute his potential benefits. (I'm assuming you're still talking.) If not, you can just assume that he will be entitled to the max benefits -- but reduced at age 62. You can't collect on his record until he reaches full retirement age -- unless he takes benefits early, which I wouldn't advise anyone to do.
But the subject of when to claim and on whose record is now becoming something of an "art form." There are strategies you can design depending on your goals -- maximum income now, or later, or if one dies, etc. I suggest using the calculator that can be found in the retirement section at www.TRowePrice.com. They have experts on this subject, and might be able to answer your question specifically -- and do the math for you.
Our son will graduate high school this spring, and hopefully attend college this fall. We will likely not qualify for financial aid, though we completed all of the applications -- as federal government employees I think our earnings our too high. Of course that does not mean we can easily fork out the cost of private school tuition each year. We do max our TSP contributions, and we have a little stashed in 529s for each son (the other is a high school freshmen), and we have about 40k in Series E bonds which we bought through payroll deductions when that was an option. The interest on these bonds is not taxable when used for education. So the question I have is, when we exhaust the 529s and the series E bonds, should we consider taking out a home equity loan (our outstanding mortgage balance is about 1/6 our home value), as an alternative to selling off our stock holdings? It seems that interest on the home equity loan is less than current returns in the market, and we should preserve our holdings as an asset, right? (PS we have no other debt besides the mortgage, and we own our two modest cars, and we're about 10 years from retirement). thanks
This question haunts the happily married and the about to be married and the about to be divorced , and everyone struggles with it conceptually. The court system has evolved a kind of pragmatic approach which can help the even happily together parents and that is to assess what responsibility if any your child should have for all of a part of this financial burden. Should your son be applying for any loans or stipends, should the decision not simply be about "the best school" but should the decision include the long and short term financial consequences for all of you . Some state schools are fabulous but sometimes far harder to get into than some private schools and saddling a child with debt is not something that any parents wants to do.On the other hand compromising your own financial future may be dangerous to your health and wealth. Luckily you have choices and the ability to make a good financial decision but please do not assume that the problem is entirely yours to solve without some hard economic analysis with your son> It will be good training for his future too!