Color of Money Live (March 10)

Mar 10, 2016

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

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I'm back. 

Love this forum. Let's get started.

I know that most of your testimonials are about great things you inspired people to do, but I would like to write about what you inspired me NOT to do. I am on track to be out of debt and have a down payment for a house by next fall, but last weekend I saw the absolute perfect house. It is on my street (a neighborhood I love) and had a perfect layout, including a private in-law suite for my MIL. In my excitement, I pre-qualified for an FHA loan and discovered that my emergency savings would just about cover the down payment. I wanted that house BAD, but your voice in my head told me that I would be making a horrible mistake that would stress me out immensely in the long run. Another house will come along when I'm ready to do it the right way. Thanks for being the angel on my shoulder!

I HAD to start with this comment/Thursday Testimony. 

Thank you. 

I usually find that my gut doesn't steer me wrong when it comes to my money!

I started a Life Happens fund years ago due to your advice. Woke up to a backed-up sewer in the basement this morning. No credit card needed, thank you very much!

Love that life happens fund!

And if you don't know what it is, it's different from emergency fund. Although a sewer back up might fit the bill.

Still having a separate fund for the things in life that happen, helps keep the emergency fund in tact in case you lose your job or income. 

Anyway, thanks for the testimony. 

Keep them coming!

Hi Michelle - My wife and I, married for less than 6 months, are considering hiring a fee-only financial advisor on a retainer basis. My parents use one that they really like to help them manage their assets in retirement. We have had discussions with this firm and they have offered us a rate to start our relationship at $500/quarter. My parents think this is a fantastic rate. Some background on us: We are both in our mid-30s. Our combined gross income is about $200K/year, which just increased to this level after a recent raise and promotion. We own a one bedroom condo but will be looking to expand to a house soon as we start a family. We save for retirement, but my wife has never been an active investor and has at least 3 separate retirement accounts that aren't doing much of anything. Additionally, we both have a history of financially irresponsible decisions. I ran up about $26K in credit card debt but will finish paying that off completely next month (April). My wife had never had a savings account until last year, and has had spending "binges" in the past - although none in the past 5 years or so. We have about $14K in savings right now so emergency fund is taken care of. We have now just started to track our spending regularly. Only other debt are my student loans that we make regular payments on, and have started to pay more than the minimum required. We both have Excellent credit right now. Given our histories, my inclination is to work with this advisor on an ongoing basis. Their first task would be to help us put together a cash-flow management plan given our upcoming needs (new car this year, house next year or the year after) and then consolidate our various retirement funds. After that, we can check in with them regularly on how we are doing plus we will have an annual meeting to review everything and make adjustments. And then obviously, if an unexpected event comes up, we can turn to them for advice. My wife, while not completely against the idea and realizing that neither of us are experts, is hesitant at spending the $2,000/year. I also realize this is a significant amount, but I'm further along in making this decision than she is, again given our history and lack of expertise. We believe we are asking the right questions on what we get, commitment, when rates raise, etc. I'd like to get your take on the situation, given all this. I know you may not be able to give us a GO/NOGO, but would appreciate your perspective. Thank you.

Wow!

Quite a bit of background and it's much appreciated.

I think $2,000 for a comprehensive financial plan isn't outrageous and is in line for a plan that would take several hours to put together and go over with you. Now, having said that, I'm not sure you need to pay another $2,000 every year. Once you've got a plan in place, just follow it. You may later decide to do work with the fee-only planner in the future and in that case revisit the fee and pay an per hour rate. Or in a few years pay to have your plan updated once the kids come. 

Hello Mr. Brooks! My husband & I became parents in our mid-late 30's. I was pregnant at 35/36 and again at 39. I work full-time. So does he. I have money growing in my retirement plan (TSP). We fully intend to send our children to college and we are actively putting money towards that regularly. (We are committed to paying for their Bachelor's.) However, I am eligible to retire in 10 years. I will stay at least 11 more years though, as I do not want to go into retirement with a mortgage. (The children are currently in 1st & 4th grade - all doing terrifically!) Would it be better for me to continue to work full-time until the children graduate or go on and retire in 11 years? I can do another 4-5 years if necessary (the years that they are in college.) Lastly, I currently have 10% in the TSP. Would you advise boosting that amount? We can go as high as 15%. I need to balance living now vs. living in the future. (We do not do exotic travel or anything.)

First, Mr. Brooks was last week. I'm back. 

I really think you should sit down with a planner. You've got a lot going on and some major decisions. But I get the want to retire but kids not thu college yet. I'm there right now. 

I've decided to keep working until my last kid is thu college. She's got two more years in high school and the four in college. Then I'll reassess but likely will be ready to move on to something different (Very much want to do full-time ministry work helping people with their finances in the community and in prisons).

But whether you continue work depends on a lot of things:

-- Will you have enough saved so that the kids won't have to borrow. Or you won't have to borrow?

-- Will you have saved enough for your retirement should you choose not to work or only work part-time?

-- Will your home be paid off? (That's one of my rules for retirement)

-- Go to choosetosave.org and put your numbers into the Ballpark Estimator to see if you are on track for your retirement savings. 

If you'll have enough saved and nobody has to take on debt and you want to retire, shoot go for it. 

My elderly mother just died, and she left a trust but no will, and not all of her assets were in the trust. Fortunately, some of her bank accounts had beneficiaries listed, so they can be disbursed right away. This has prompted me to name my adult children as beneficiaries on all my bank accounts and retirement accounts. This is easy, it costs nothing, and I was able to do some of this online. Please remind everyone that they should have a will or at least name their beneficiaries on bank accounts, IRA's, and life insurance policies. And make sure it's not your ex-spouses name. My siblings and I are not fighting over any of my mother's assets, but some families do.

Thanks for the reminder.

People please have an estate plan and update your stuff!

The bio in today's chat says Rodney is here with us again today, hence I believe the confusion in the previous question. :-)

That was my bad. Thanks for pointing it out! - Gene the Producer

Hi Michelle, love your column! You offer a lot of sound advice each week. My issue is how do I get my family to stop asking me for money? I would prefer to teach them how to fish rather than giving them the fish. I’ve loaned out a lot of money over the years and I don’t see a change in their behavior financially. I’m viewed as the “backup” which I’m starting to resent. I love them, but I’m not an extension of their bank accounts. Help!!!

I hear you. I was the family ATM for a short time.

But got smart fast because I was tired of it too.

Here's what you do:

-- Learn the most powerful word in the WORLD. "NO." You can and should say no if they are being irresponsible. I often us this example -- which is extreme. If they were on crack would you give them money to buy the drug? Of course you wouldn't. But when you give people who are being financially responsible money, you are enabling them to continue a bad habit. So you are actually helping by saying, "Love you but no."

-- Set up rules for when you will "give" not lend money. Never lend. My people know that I'll help with college. I'll help if they lose they job thu no fault of their own. I'll help for a downpayment on a home (if they are truly ready to be a homeowner). My husband have set up parameters for our financial aid. So now people know and you know what? They only ask if it's the things we will fund. The begging stopped because we said no and kept saying no.

You can do this. Be loving. Be kind. But be firm. Offer to look at their budgets, steer them to debt advice.org (credit and budget counseling nonprofits). But repeat after me, "I would love to help you but no I cannot give you any money."

What shall I do rent or buy I am 48 years old and I have no kids. I would like to buy a townhome but I don't know how much I need to save for a down payment. Right now I live with my relative. Thanks

Find a HUD-approved nonprofit housing agency and go in for homeownership classes. Try Home free USA. 

There are others but many have homeownership programs that will help you decide if it's time to buy. But keep this in mind. You are NOT a financial failure if you rent. You are getting something for your money. A roof over your head.

Oh Lord no, my hope is to not have to touch the emergency fund for that! Hoping to keep it under 1k but we have an emergency fund too - thanks to your advice!

You are welcome!

My daughter and son-in-law are very good at budgeting, saving, and living within their means. When it comes to investing, retirement savings (401Ks, IRAs), house buying, etc. they have lots of questions. Is there a good financial reference book that you recommend that explains the basics to a young couple?

Try Andrew Tobias "The Only Investment Guide You'll Ever Need."

Whenever I make a "regular payment" on my student loans, my lender charges me 28-30 days of interest on the loan (the days vary depending on the month) -- regardless of how many days of interest has actually accrued. Therefore, if I make a payment on Monday and another extra regular payment on Tuesday, the bank will apply 30-days worth of interest to my Tuesday payment even though only 1 day of interest has accrued, and even though the "regular payment" posts immediately. When I spoke to customer service, the representative told me that this is the system that they have and it has always worked for them. To me, this seems like fraud and/or breach of contract -- especially because there disclosure explaining how interest is calculated on "regular payments" and nothing in my promissory note that permits the bank to do this. How can my bank be allowed to do this?

File a complaint with the Consumer Financial Protection Bureau. 

Hi Michelle, I don't know if the person is reading, but last week, someone had saved a lot of cash and was wondering what to do with it. A lot of readers posted great advice -- including investing it. I wanted to add a note to that: if the person is nervous about investing that amount all at once, he/she could invest the minimum and set up automatic payments to do the rest over a longer time horizon. This helps if the person is emotionally invested in just having the cash handy (it doesn't seem as final) or if he/she is worried about hitting the market at exactly the right time. I'd love it if OP wrote back with an update sometime. This week is too soon, likely, but hello? If you're out there, let us know in a month or two about your decision and the process of how you got there!

Love your advice. 

Passing it on. 

Good Afternoon, After reading your book, I was awaken to the fact that as my mothers only child a day will come that I will have to plan/pay for her care and well being. I started to get over whelmed by the future responsibilities. I opened a savings account with a repeatable online bank that is FDIC insured, for the sole purpose of paying for longterm care and health expenses that will arise as my mother gets older. They will do a bi weekly ACH withdrawal from my primary bank. After I build up this savings account what should I do with the funds? Should I invest the funds to help it grow, leave it the savings account, buy CD's etc? Please advise. Thank you,

I love that you are thinking ahead. So many people don't.

Consider the following:

-- You may need to sit down with financial planner with your mom to figure out what she has and what she can contribute. Does she had a pension? How much is she going to get in Social Security? Start with knowing how much she has to help herself.

-- Look into long term care insurance if your mother is 60 or younger. Premiums jump significantly the older the person is but check. You could help your mother by getting a policy and you paying the premiums. But be sure you can afford it. I would hate for you to start and then a few years in realize it's too much for you. Or maybe your mom can afford the premiums or you two split the costs.

-- Talk to your mother about where she wants to live. Start now to think about where she might live if he needs care. 

-- Make sure you are also providing for your own retirement. 

AARP has a great resource page for caregivers. Go check it out to help with your planning. 

 

 

Hello. I know that a balance should not be carried on a credit card. If the statement is paid in full though, but there is a remaining balance (for what was spent in the next statement cycle) is if bad for my credit if I don't pay that remaining balance? Thanks for your help!

As long as you pay off the balance, don't pay late and keep what you owe on the card below 30 percent of the available balance, you'll fine. 

Have savings that want to keep fairly liquid and most of all pretty safe. Yeah, they don't go hand and hand these days do they. Checking accounts paying .001% are a depressing thought. Do you have any general thoughts on savings vehicles I'm not thinking of? And how do you verify the relative safety of internet only banks? Thanks!

You are right your safety money isn't your growing/investment money. So you'll have to be okay with pitiful interest. 

As for internet banks, just make sure the bank is FDIC insured. 

Hi Michelle. Thanks for all you do! I've learned a ton from reading your column and these chats. And you'll be pleased to know that I paid off my credit card balance in full this week. :) I'm in my early 30's, I'm single, and I'm working in one of those important-and-demanding-but-low-paying jobs (think social worker, minister, teacher, that kind of thing). And I am struggling to save aggressively. It is terrifying how quickly a few unexpected medical expenses and some necessary work on the old clunker car add up, hence the brief and horrible few months of a balance on a credit card. I'm tithing, I'm making the necessary contributions to get my employer's match on 401k contributions, I'm trying to live simply (i.e., I walk to work rather than drive, I don't have internet or tv or smartphone, don't go out to eat), but I am simply not saving at the rate I would like. While the Life Happens fund is growing, the emergency fund really isn't. I budget, I keep track of every penny, and I can't see much of a way to reduce expenses farther. It's hard not to attribute this simply to not making enough money. (And for what it's worth, although I've got much, much higher job satisfaction, I'm also making less money than I made ten years ago, which is.... depressing.) I don't know what the question is here, really. I think I am looking for some encouragement that it's ok to think about the long game: that those retirement contributions ARE savings, that it may actually take a while to build up that emergency fund, and that's all right. Is it? Or if not, what kind of options do I have? Many thanks!

It is alright.

You will be ok.

You know why?

Because you are doing all the right things. I know it's hard when you look around and so many others seem to be doing better and earning more. But I've gotten a look into their lives and many don't have even a fraction of what you have.

And they aren't being intentional about their financial planning like you.

Stay in you job if that's your gifting and your are happy. Sure it means you can't have it all. But all is overrated and expensive and leaves people broke.

So yes, retirement savings is savings. And you know what, save what you can toward the emergency and life happens fund. But don't worry yourself sick at the slow growth. The point is it's growing even it's just one dollar at at time.  

Thanks very much. Just to be clear, if I pay the remaining balance that is part of next month's statement on the next month (and then there is another balance left as part of the next month), is that fine? Sorry, I find it a bit confusing!

No problem.

The key to making sure your credit stays good is paying the bill on time. If you are paying the balance off even if there is something on the card in recent purchases, you are good. 

Pay on time

Don't charge more than 30 percent of the available balance.

Two key things. So to be clear you don't have to worry about the left over balance because it's part of a new payment period.

On top of Michelle said, if you truly want to help out a family member offer to pay a bill itself. Don't give them the money, say for example - I will pay your electricity bill for three months and send the money to the electric company. This way, you know where the money is going.

Very true.

We have a high deductible health plan and can open an hsa. Should I use this for medical expenses now or as additional retirement health funds? We can afford the medical bills out of our own pocket now.

Using a HSA saves on taxes so that's a good reason to use it.

Michelle - How do you tackle a heap of debt, when you've been managing it very well and can continue to "manage it" but not pay it down? It's a lot and it's a bit overwhelming.

Do the debt dash.

List all the debts starting with the smallest. Pay the minimum on all the other debts. Once you knock out that small debt, take those funds and any other funds you can get and apply it to the next debt. 

I've found that when you can quickly knock out debt you get motivated because you see progress. Then you attack the other debt so fast that even if it's at a higher interest rate, you don't end up paying much more because you've gotten rid of it.

You need some success. Try the debt dash.

Here is our situation. We're in fairly good shape. Our only debt is a mortgage, our retirement savings are healthy, and we have a good sized emergency fund. We have started savings for our sons' college education (both are in fourth grade) through a 529 plan. We should have around $100k by the time they graduate from high school, enough to cover a state school, but not a private school. Does it make sense to set up a separate investment account so that we could have that option? If the funds aren't needed for college, we plan to use them whatever mortgage we have at the time or even set aside for graduate programs. I don't want to borrow against our house, but would like the flexibility when the time comes. I should note that our sons are on the autism spectrum, so the right school may come at a cost.

I think that's a good plan and it's what my husband and I did.

We put money in 529 plan for Md for all three kids. At this point have enough for all three for in-state tuition, room and board. But we also have an index investment fund for extra college money. If the kids don't need it, it's ours to do with what we want. 

I think my husband and I have too much life insurance. We have about 500k left on the mortgage and 2 years of private college tuition. He s the sole wage eaner at the moment. We have a 1 mil level term on me plus a 500k term with a premium that goes up ever year. W have the same on him plus a 2 mil level term. We have 3 kids, all over 18. Any thoughts?

Once you finish paying for college you could reduce your life insurance.

Remember life insurance is intended as income replacement to help dependents and or/spouse pay for things that your income would have covered. When you get to the point that you're dependents (Your kids mostly) aren't dependent on your income, you could reduce the amount of life insurance you are carrying. 

Hi Michelle! My husband is an OTR Truck Driver. He currently drives a dedicated route 7 hours from home. Our children & I miss him a lot. He misses us. We used to be a 2 vehicle family. Then, the minivan died. (2 of our children require high back booster chairs for safety & in keeping with the law.) It was not a problem, since my husband is away from home for weeks at a time and only home for a few days, then, back on the road. So, we use the 2nd vehicle for everything. However, my husband now has gained enough experience that he can apply for local trucking jobs (as a newbie, you get to spend as much time away from home as they can push on you. Local employers want you to have the experience, but not get it locally! Ironic???) So, in order for him to accept one of these positions locally, we need to get another vehicle. His work hours and mine don't allow the 1 vehicle for our family to work out. I've been looking at used vehicles (we are pretty limited to minivans and SUVs - unless someone knows of a regular sedan that seats 3 young children in the backseat, including bulky high back booster chairs - I am open!!!!) Even used, and 5 years old, most are selling for $20,000. That seems expensive, but it's not $40,000 range that the brand new ones are going for. Please advise! I can live with a 2 year car payment. We miss having him home. I don't want to spend "that much" money! NOTE: The new vehicle needs to hold 5 people (2 adults, 3 children). Our oldest child is not at an age where he can sit in the front seat yet. I appreciate your suggestions! Affordability and used cars.

I want your boo home too. So, even tho I HATE debt, I think it's okay to get the van. Just really shop around for the lowest price on the safest van. Check credit union for good rates. Then do what you can to get out of that loan as soon as possible. THEN when you are done with the payment, keep making a car payment to yourself so that in another six, eight, 10 years when you need another vehicle you can pay cash.

Hi Michelle - I'm probably not looking for advice as much as dispensation. My husband and I are very careful with our money - our only debt is the mortgage, credit cards paid off monthly, maxing out retirement savings, 529 and prepaid college tuition plan for our son, other savings for when "life happens". After much thought, I recently hired house cleaners to do an every other week cleaning. It is welcome assistance with chores in our busy life, which includes a lot of work travel for me. It fits in our budget but I'm still struggling with the fact that that $240 per month could go into more college or retirement savings or just building our reserves. How do I get comfortable with this decision (or not)?

I give you permission to keep the house cleaners (smile).

Look sometimes something like this is OKAY. You are in good shape and if there comes a time when it's too much I can tell you will back off.

One small thing, if you think you son will want to stay on campus, make sure you are also saving for room and board. Set up a 529 investment plan for those expenses.

 

My son is in college, about 4 semesters from graduating from a degree that should position him for a job out of school. We want to help him start doing/learning financial things now so that when he starts work and is "on his own" he won't be on such a steep learning curve on both a job and life. He's had a checking and savings account all through school and pays all his bills, even those we provide the funds for (like rent and utilities). Our hope is that makes him sensitive to due dates, etc. He has a CC in his own name, no cosigner, through our bank's college financial package and thus far has gotten 2 increases in credit limit. So he must be paying it on time, good news there. And when we inherited a bit of money, we started an small IRA for him that he manages, hoping he would see it grow and begin to understand the benefit of investing early in life (this lesson concerns me, it's so tough to learn). What other areas should we start addressing now? Thank you

I think you got it covered. Seriously. Your son is so far ahead of so many other young adults.

Just keep talking about money and the importance of savings.

He's in good hands.

Hi micheal i love your advice and apply lots of it in my life... Am a stay at home mom with two little kids and my husband is the one working.. Our income is 70k. My question is we only have one car paid in cash and we r in desperate need of another one... We cant afford to pay in cash ... Can we finance?? We dont hany debt... No mortgage too we live in apartment. Nd we have 16k in savings... But we r new to the country and our credit his is not hight. Thanks

Try to find a used car for about $8,000, which is of course half of your savings. Don't deplete your savings but you do have enough to get a decent used car. You'll have to look hard but it can be done. Also, see if you can sign up with a credit union. Then get a "secured credit card" to start building up your credit. If you can qualify for a credit union account talk to your bank about a secured credit card. 

Just had to share that I went to my bank last week and asked to open 2 new savings accounts. The manager looked at me strangely and I confidently sat straight up in my chair and announced "Because Michelle Singletary of the Washington Post said we need a Life Happens Fund and Emergency Savings." And because of my (slight OCD) tendencies, having those accounts separate from my regular savings will keep everything in perspective for me. So thanks for that!

Lol!

Using my name. Love it!

Michelle, What are your thoughts on the value of a state school for an undergraduate education? Spouse and I are of differing minds. We are on track to save for in state tuition but one of us feels that college is a time to expand horizons and if a state school isn't the best match for child, they should look elsewhere. The other of us feels that a bachelor's degree isn't worth what it used to be so that a big name school won't make a big difference.

I went to state school.

Work at The Washington Post

Child should go where you have the cash to pay. 

Period!

Your well-being is important! Look upon this as helping you recharge and also helping the whole family with a. a good home environment and b. a relaxed mom/wife who has more time for family fun and doesn't demand we dust.

Amen!!!

Thank you for joining me again today. Love this forum. Such a helpful and insightful group.

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 and is carried in more than 120 newspapers.

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