The Washington Post

Color of Money Live

Aug 27, 2015

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

Send your money questions in early.
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I so glad you joined me today. So send in your money questions or testimonies. Have you paid off any debts? Debt free and want to share?

Also immediately following this live text chat I'll be live on Periscope. Follow me @MichelleSingletary

Let's get started.

We were given $5000 by my parents to start saving for my infant son's college education. Is a 529 plan still the best bet for saving for college or are there better options?

I think a 529 plan is the best way to save for college, particularly because of the tax break you get on earnings. My husband and I saved for all three of our kids that way and have enough to send them to state schools, including paying for room and board. We started when they were very little. And depending on the state that you live in you may get a deduction on your state taxes if you set up an account in that state.

Good Afternoon - love the chats and weekly newsletter. Not sure if you have covered this before or if our situation would make a difference. We are planning a few bigger changes to our (paid off) home (house value about $500k - work planned about $120k, will improve value of home) and are wondering if we should open a home equity line of credit or get a home improvement loan. What are the advantages/disadvantages of each. We would be able to pay for all the changes out of savings but it would severely drain them so I thought the credit line might be the easier route? Thanks for any guidance!

So, do you really want my opinion, the opinion of a person who HATES debt?

Guess you do. So personally, I would pay cash for the improvements. And if they aren't emergency type things do them in stages so that you don't have to drain your savings all at once. And of course don't touch your emergency savings to do the projects. 

My husband and I have done this in our house -- made major improvements -- without pulling money out of our home. Think of all the interest you will save. 

As for the difference a home equity loan typically has a fixed rate while a home equity line of credit has a variable rate. And you don't have to take all the line of credit at once.

Hello Michelle, would you please share your thoughts on how to handle merging finances as a couple? Both general ideas and nuts-and-bolts advice would be welcome. Our current system has been working ok but not great. Right now, I feel like we have too many accounts (our primary checking accounts are linked since we are at the same bank but they are not merged; we also have online "high interest" savings accounts). It is a headache to keep track of the money flowing in and out. My husband tends to be the "spender" with lots of little purchases and it's hard for me to always keep up on our savings and expenditures (especially when there are unexpected bills). We have been talking about joining our money into one main account with each of us getting an "adult allowance" to keep track of fun spending. I think we have different ideas about what constitutes "fun money," though. Thank you!

I typically tell couples to just have joint accounts. All income flows into joint checking. And from there you can transfer money to your various saving pots -- retirement, emergency, life happens, college fund if you have kids.

Make one person the CFO, which it appears is you. Then agree that you each get a certain amt of money to play or do with what you want. And the amt doesn't have to be equal. I don't spend a lot so my "allowance" is pretty small. My husband doesn't spend that much more, but still more than me. And that's okay with me. But the important thing is for you both to agree not to nickel and dime the accounts to the point that it is hard to keep track. Because as Ben Franklin said "A small leak will sink a great ship."

So sit down, come up with a plan and then agree you both won't be pulling out money beyond your fun money without a discussion.

Recently had hours reduced on my job (small business), and I'm using up my emergency funds until I can find another full time job. Without any benefits, except COBRA for medical, that expense is more than I can afford. Any suggestions on how to continue paying for medical during this work transition?

Have you tried the healthcare exchange? Depending on your state you will either go thu state portal or federal portal. Check out to see what rates you would get and given your work situation, you may qualify for a subsidy. 

Michelle, I was blown away when I opened your Sunday article and realized you included the break out of my $240,000 income. I really enjoyed reading the article and all of the posts to follow. What I found most interesting is the assumption that the less fortunate sibling is truly less fortunate. Excluding siblings that have real extenuating circumstances that makes them unable to support themselves...what income level do you draw the line and decide the sibling is less fortunate and entitled to have his chosen lifestyle subsidized by his parents? Would it make a difference to if the "less fortunate" sibling makes $80,000 a year (1/3 of my salary)? In life there is always going to be someone that has more than you and it is important to be grateful and to live within your means. But in my original question submission I had discouraged you from dividing up your willed assets and penalizing the child that has a $200,000 plus income...it is my belief that this can only hurt the sibling relationship after you are gone. In the end...I am confident that I am not "greedy" and we all are just going to have to agree to disagree.

So glad to hear from you. But you and so many others are making a big assumption of something I did not say. I have never suggested a parent give any money to an adult child they deem less fortune. Because as you indicate less fortunate is in the eye of the beholder. What I was addressing and what the original person asked in this very forum was how to NOT feel slighted if a parent or parents give to siblings making less or in jobs not making as much as he did. Or rather how not to feel hurt if same siblings are spendthrifts. 

So what's on the table is this. What if your parents give more to your siblings for whatever reason? What if those siblings don't appear to deserve the money when you have worked so hard to be a good saver and money manager? How do you respond.

That is where my advice came in. You feel grateful for what you have. 

Because we can't control what others do. I never said what anybody is "entitled to." 

Sure parents should be fair in their handouts. But what if they aren't? And frankly they don't have to be fair in your eyes. It's there money.

Do you sulk? Whine? Complain? 

You keep doing what you are doing, which is the right thing with your money and not worry about what they are getting fair or not fair.

My 45 year old friend is going to receive a large settlement in the next few months. He has two years left on his car note and no other debt. His retirement account is lower than he would like it to be. He plans to put 3/4 of the money in a retirement account and use the other 1/4 on a downpayment for a house. I think he should put 3/4 of the money in the house to ensure a lower mortgage payment and then he can work on his retirement. My reasoning is a lower mortgage will mean less debt and if he ever loses his full-time job he can still pay the mortgage with his part-time job. What would you do? Thanks!

I would pay off the car.

I would then make sure I have a well funded emergency fund (at least six months).

I would then make sure I have a well funded life happens fund (a few thousand for say if that car needs a major repair)

Then, I would see what's left for the house and perhaps a big down payment as you point out to reduce interest payments and get into an affordable mortgage that would leave plenty of room to make hefty payments into my retirement plan. Your friend should also go to choosetosave.org and do the retirement calculator. That will give him an idea of whether he's on track and how much more he needs.

Michelle, I love your chats and always appreciate your advice! Husband and I are very fortunate financially at the moment to have high incomes and low expenses (no kids yet!) and are saving a large portion of our take home pay. We are debt-free except for our mortgage and are maxing out our 401Ks. Our plan is to put our extra savings towards the mortgage. We decided we would prefer to be debt free than risk a higher return through investments. We live in a high demand housing market and can easily rent our place for more than our mortgage. Is there anything else we aren't considering? Do we have your blessing for our plan? :)

You TOTALLY have my blessings to get that mortgage money off your back. One of the best things you can do for retirement planning is to go into retirement with a great nest egg AND a paid-for home thus reducing about 30 percent of your expenses.

You are doing just what my husband and I are doing. We are aggressively paying off our mortgage ahead of retiring AND socking a lot of money into retirement. Because we don't want to be house rich and cash poor in retirement.

So, yes stay the course and don't let anyone else tell you different!

Definitely contact your local exchange or healthcare.gov. If you lost your coverage (and that's why you're on COBRA) that should qualify as a "life event." Then you can get a plan even though it's not open season. Through Maryland, I purchased insurance at an affordable monthly rate (no subsidy -- I had planned to be unemployed for a time and had saved up to pay a premium). It had a high deductible but as a healthy person, that didn't bother me. Now I'm employed and back to an employer-sponsored plan. Good luck!

Thank you for sharing and the extra info about the life event.

Hi Michelle, Two questions: 1) We have a high-deductible health insurance plan and have HSA accounts to go along with it, which we try to fund to the maximum each year as that covers more than our deductible on the plan (but even when we meet the deductible, we would pay co-pays until we hit our out of pocket expense, so that makes sense). HSAs, of course, carry over year to year and the money is always available to us for medical expenses. If we don't use it all by a certain age, we can take retirement disbursements as well. Should we just consider our HSA to be part of our emergency or life happens fund and adjust emergency or life happens down a bit since it covers any medical emergency, but not job loss/car breakdown etc? Since it's pre-tax, should we consider it retirement savings, since that's also what it could be? Personally, I don't like that. 2) Anyway, my husband and I love your chats and were wondering your opinion, as I am a bit of a multiple-pot/find it hard spend on extras even when we saved the money spender. My husband is a diligent saver, but doesn't have the same issue about spending when we've saved the money. We were both wondering -- would your husband ever be a guest on your chat and talk about how he deals with your different perspectives on money? You talk about him so much and his reactions to you -- it would be so interesting to have your family as guests!

First, I'm a pot woman too. So totally get your issue. But in this case don't really think it matters which pot as long as the funds are there. If it helps you to keep it  in the pot that is more of a "don't dare touch" and that's the retirement one, sure go for it. 

As for the idea of my husband coming on, I LOVE that idea. But it might be better to have him do a periscope live chat with you guys so you can see him and see us interact. The only problem of course would be going to his office or him coming to mine during the work week. But let me put the idea to him. If nothing else during his lunch break he might be able to join this text chat. Although I have to tell you, he's a bit media shy. Doesn't mind the spotlight on me but he rather stay in the background. Still I'll ask.

This is clearly a hot button topic as Carolyn Hax and Ask Amy also recently addressed it. In the Hax letter, a woman joined the military to earn money for college and worked 2 jobs to put herself through grd school. Of course she resented her younger brother, who not only got a completely free ride from their parents but they also bought her a car. Like you, Hax said she had a better life than her brother and to let it go. Really? The thing is, everyone knows that life isn't fair. Some are born into wealth and privilege, while others are born disabled or into less fortunate circumstances. For whatever reason, some seem to get more breaks while others struggle to make a living. But parents should try to be fair. I'm not saying fair means equal, but it should be more equal than the situations described in these letters. My younger sister was always the favored child, and even though I'm now better off than she is, I resent it to this day.

See you SO prove my point.

Who is worse right now? Her or you? That person who joined the military and served our country and did all the right things? Or the sibling handed everything. The ones who worked for what they wanted have  the reward of being a good and faithful servant and money manager.

You are letting this steal your joy? 

The resentment is unnecessary and frankly a little ugly, although I really don't mean to insult you.

My point, which I seem to have to make over and over and over again is doesn't matter what the parents do because that is NOT the issue. It is what it is.

She got more. You worked for your more. But there is so MUCH more to how you got your more. Resentment to me is a wasted emotion. A waste of your time because there is absolutely nothing you can do about it. It's a sign that you are not grateful for what you have because you are looking at what someone else got that you didn't.

In defense of my poor maligned accountant (August 13 chat), she neither profits from my investments (she does tax advising only) nor is she insane. Her point is that judging by my mortgage interest rate, if instead of paying off the mortgage I invested that amount, I could probably earn more than the mortgage payments in investment profits (minus tax). So I could probably (there's that word again) skim my mortgage payments off the top, as it were, and not actually spend any money. So I would probably (!) end up with more than if I paid off the mortgage, and slowly added the amount of the mortgage payments to my portfolio, even if I end up paying a lot more to the mortgage company. In fact, the mortgage company, the financial manager AND me (probably) come out ahead. Plus in case of emergency, it would be better to have the money more liquid than it would be tied up in real estate.

No offense but she should be only giving you advice on your taxes. Because she is still wrong and here's why.

Neither she nor you are considering "risk." Just look at what the markets have been doing this week. There is no guarantee of what gains you will get. But there is an absolute guarantee you will save mortgage interest if you pay off your home early. I wouldn't suggest you pay off the mortgage early if it steals away money to save for retirement. But if you have extra, pay down the mortgage. Additionally such advice never weighs the mortgage interest savings against what gains you might get in the future. Will you really earn more than you save in the hundreds of thousands of interest you pay? And that's still not apples to apples because you have to factor in risk. 

All I'm saying is get rid of the biggest debt you have before you retire. Do it as soon as you can to save interest payments. But most importantly do it to get rid what for most people is the biggest expense in retirement. Don't drag a mortgage into your retirement. 

 

Hi Michelle, I've enjoyed reading your columns and feel like I've gotten some great guidance for financial planning while in my 20s. What is your take on saving accounts at online-only/ non-branch banks (such as Ally, Synchrony, etc)? I currently have 4 "savings" accounts. One is my emergency fund in a traditional account that I can easily access at a branch. I have an index fund portfolio with that same bank, to which I contribute $200/month. Plus $400/month into my work 401k (non-matching). The fourth one is the one being questioned. It currently has almost $9k sitting in a savings account earning a paltry 0.05%. I try to add somewhere between $200-350 each month. Since I'm living with family and don't have any major upcoming expenses (won't need a new car for along while, no wedding anytime soon, etc), I would like to be able to put these funds somewhere with a better return. After looking at bankrate.com, I saw there are some non-branch banks that offer close to 1% interest, which isn't the highest return but still better than 0.05%. Plus it would still be fairly liquid (as opposed to being tied up in a CD or adding it to the index funds) in case I did need to access those funds. My hesitation is in the ease of transferring funds regularly to an online-only bank (would it be worth any transfer fees) and whether there's a catch somewhere that I haven't found. Or if there's a better alternative for these funds that I haven't thought of. Any suggestions?

As long as the online bank or non-branch financial institution is FDIC insured, I'm cool with your choice. And just ask about the transfer fees, which typically if there are aren't more than a few dollars, if that.

Hi, Michelle. We buy and hold our cars. I am 60 and drive a used 2002 Ford Taurus with 84K miles. It's worth about $2K as a trade-in (NADA), which is more than I spend on annual expenses (gas, insurance, and maintenance). I work from home and only put on about 3K miles annually running local errands. The car is in tip-top mechanical shape, and has no safety issues. There are a couple of cosmetic issues that don't bother me. I was going to look at a new car because during the end-of-year sales. I have the money to pay cash, have no debt (loans, mortgage, credit cards), and have saved diligently for retirement (low 7 figures). If I had a major repair, I would probably get rid of my current car. But in the back of mind, I hear your voice saying to hold off a little longer. Any thoughts appreciated to help me make a decision, please.

Lol!

Love your post. You sound like my twin.

So really this is a lifestyle question, don't you think. 

Since the purchase is completely affordable it's really of a question of do you like the ride you got and is it a nice ride for you.

I have a 2006 honda van. I have the money to switch to something newer, something that doesn't SCREAM Mom toting kids. One kid is gone and has her own car. My son will soon inherit his father's 2006 honda. So i could get another cooler car. But heck, I'm fine with van with some dents. Once I walk away from the van people can see I'm cute for my age and having had three kids :)

I say keep the car until you don't really like it anymore. And it looks like that time hasn't come just yet.

Sorry to take up space, but I've seen so many references to periscope, and I have no idea what it is. Can you link?

Don't be sorry. Always good to ask when you don't know.

Go to my Twitter page and you'll see a link to periscope. Sign up and then follow me @MichelleSingletary. 

Something for people to remember. You can realize treatment between siblings was unfair, and then just let it go. I've seen this in my own family. Some people got a lot more than others. We've all said "Well, that stinks" and moved on. Because why let them have the space in your heart? If you're still doing well, that's what matters.

Amen.

Amen.

Amen.

It's like forgiveness. It's not for the other person. It's for you.

 

I have accounts at Ally Bank and CapitalOne 360 and I love it. They are linked to my checking account. I send money over each week and it takes 3 days to transfer money back into my checking account. No fees charged. You do have to watch the transfers out as it is a savings account' can only do up to 6 per month per Fed guidelines (no limits on transferring into the account). AS these are my emergency/life happens funds, I don't transfer out that often.

Actually I agree with you, but wanted to explain my accountant's POV. I'm maxed out in (pre-tax) retirement savings (and have been for most of my career) and will still have some money left over to invest even after my mortgage is paid off.

Thanks. I appreciate the followup and the background.

And it was a good question to remind people of who they take advice from and to be careful in following it.

So, given all the comments that come in, how do you prevent this? It seems to me that the resentment starts in childhood, with favoritism shown in different ways. It reminds me that I need to reiterate to my teens that we are saving to put them through college, and that we won't be dividing the 529's by exactly 2. I don't think that's possible, when one might end up in a private college and the other in an in-state public one.

You are right. It starts with good parenting. Be fair as possible but also let your kids know by your words and actions that life isn't always fair. We at times do more for one than the other and when we do, we explain why. If they don't like it, we explain more but we don't try to do everything equal so one doesn't get his or her feelings hurt. They have to learn to accept thing and move on.

I'm in the opposite boat as most of your posters. My husband and I are very fortunate and have no financial worries. Our children's college funds are fully funded and we have no debt other than our mortgage that we will pay off early. My sister and her husband are fine financially but do not have as much as we do. I'm trying to encourage my parents to not be "fair" when it comes to giving money to us. I'd rather that they set up 529 accounts for my nephews and not for my children. Right now my father plans to divide any inheritance equally between us, and although I appreciate that he's trying to be fair, in a way I'd prefer my sister to get a larger portion...

See, this is exactly what I'm talking about. In this case fair may not be the way to go. Or it could be. Your sister may say, that's okay, give her the half.

The key is to talk about it and in the end accept what the person does with his or her money.

And you could also add extra to their 529 plans from the inheritance you get. 

So, I'm over time (computer issues), but I'm going to continue the conversation on Periscope live. @MichelleSingletary

Follow me on Twitter for the link if periscope is new to you.

Thank you all for your questions and follow up info, etc. It really makes this a conversation. And I love that!

 

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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