Color of Money Live (June 2)

Jun 02, 2016

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

Send your money questions in early!

Read Michelle's recent columns

I see your questions. 

Let's get started.

This isn't a tax question, just a WWMD? I have a newer fridge that needs to go. Similar ones on Craigslist are going for $100 at most. I could donate it to Habitat for Humanity and they would sell it in their store. What would Michelle do?

Love this questions. Because you are thinking about just not profiting but giving.

I would give it away. As example, my husband and I never trade in a car. We fix it up and give to to someone who needs transportation. 

I have a choice between Roth IRA or 401k, my company match my 401k 3% , my question should I fund both plans

I would fund both. Definitely put in enough in the 401 (k) to get the match. Also remember you put more pretax income in the 401 (k) than the Roth unless it's part of a workplace plan. 

So use both if you can. This way you have taxable and non-taxable retirement money.

Hi, Michelle! I'm thinking of buying a house. I have about $6,000 in student loan debt that I could probably pay off in two payments at this point. Someone recently told me that I may want to keep the debt because having installment debt may allow me to get a better rate on a mortgage. Is this true??? Thanks!

Don't listen to that "someone." Crazy.

Pay off the debt because there are two main factors that help you get a better credit rating.

No.1 Paying your bills on time

No. 2 Having no debt.

Lenders want to see that you can use debt and pay it off but you don't have to keep a loan balance or carry credit from month to month to show your credit chops.

Get that monkey off your back. Today! 

Hi Michelle, Thanks for all that you do! I've been reading your columns forever but I can't remember, do you recommend term or whole life? We are a young married couple, no kids yet, with a mortgage and a rental property. Thank you!

Term. Definitely term. You can get more for less. 

Later this year, I'm looking at two milestones: 1) completing my Masters degree and 2) potentially paying off my undergraduate loan. Even though both my undergrad and grad loans are in deferment because I'm currently a student, I've continued making payments on both and am just a few payments away from wiping out that undergrad debt. Right now, the undergrad loan has about $2,000 left on it at a rate of 1.625% and the grad loans will end up around $20,000 at a rate of 6.21%. Setting aside the psychological draw of declaring victory over the undergraduate debt and assuming that I'll be consolidating or refinancing that graduate debt once I've graduated, is there any financial benefit to keeping the undergrad debt around for consolidation purposes because of that low interest rate or will it not make any difference? Thanks!

Student loan debt = monkey on your back. 

Get it off. Now. 

As I often tell folks, it doesn't make a difference what an interest is -- even if it's zero -- if you lose your  job. You may not be able to pay it regardless. 

So get rid of it. The benefit if freedom. One less shackle.

I know I'm in a "bubble" of retired folks who have prepared well financially, but my mind is boggled with recent articles about the large proportion of Americans who couldn't come up with $400 for emergency expenses. In a recent Atlantic article, a writer describes his plight. http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/#article-comments. i think this case study is a classic teaching moment for many families. How would you counsel him and others?

You know I've been working with folks for so long nothing surprises me. 

But a number of you have asked me about the Atlantic article. I appreciated the authors's candor. And I understand who this well-paid professional AND those not well-paid all end up in the same financial boat.

For the less paid, it's a matter of making a living wage. They literally can't afford to have $400 just sitting in an account. For the better paid they succumb to what mandy do -- living above their means. They think their paycheck is their savior until it's not there anymore. Or it's not enough to cover all the wants they've added to their budget.

But I do find that many people, when they take classes or courses that teach what I teach, which is to get rid of a sense of entitlement, make better financial decisions, go through a financial fast at least once a year, learn to say to no to yourself and others, they can find $400 or more. 

But it's hard when our economy is built on spending not saving.

Should I buy a house for 300,000 at 48 years old. I was told that I should not accrue that much debt since I only have 10 more years to retire. Thanks

You should buy a home you can afford, one in which the monthly cost is not more than 36 percent of your NET spendable income. I wouldn't want to drag a mortgage into retirement but if you are discplined and have extra money in your budget, you could make enough extra mortgage payments to pay it off before you retire. And by the way, many people work past 60. Not saying you would want to but look at your total financial picture before declaring a home off limits for you. Will you have a pension? Do you have enough savings to help pay the mortgage should you retire at 58. Could you get a roommate to help pay the mortgage. 

There' sa lot to consider that is beyond just your age.

any ideas from you or the chatters to make it feel a little special? I'm a little torn between taking an actual week or so and making it a real vacation, but just doing stuff around here vs. just making it a summer when I see an interesting thing happening someplace like the Library of Congress or a museum, and just deciding to take a day of vacation to actually do it, rather than sighing and wishing I didn't have to go to work. Other ideas include using a "free week" pass at a local gym and pretending it is a spa week (and resisting the hard sell they are likely to give at the end of the promotional period) by brining cucumber water or whatever in my own bottle. I have the vacation days - I just haven't saved up the funds to *go* anywhere and choose not to eat into my normally scheduled savings calendar to change that.

I love that you are embracing this. And really how many of us live in places like DC where we don't get to the places tourist come to see. 

Me, I would take the week so it feels like a vacation and not just a day off. Spend a day treating yourself to some alone time at home, reading, walking the block, just chilling. Then a few days make a list of places you want to go. Plan out the week like you are away. When we are away the first day or so -- or three -- we just chill. Do nothing but rest. 

I do like the gym idea too. 

You got this. And keep up the good attitude. 

Hi and thanks for all you do...I really want to tithe but don't have any money saved because I just got a new job paying more than the old one but since I don't have any savings I thought maybe I can build up my savings then start tithing...I feel really guilty for not tithing and I know I should...I also wanted to cashflow an undergrad degree since I'm in my 40s and work as an HR Generalist and a degree may keep me competitive in the field...I do live on a tight budget, have no debt, no retirement or savings...just wanted to use the extra money I have to build my savings and get an education...thanks

So tithing is about faith. If that is what you believe -- and I do -- it comes first, before anything else. 

Trust and tithe. I've seen where people started faithfully tithing and the money they didn't have came from others, scholarhips, etc. 

Not a tit for tap, but tithing can make you more disciplined. That guilt you feel is  your gut telling you to do what your faith says you should do. 

And you know I believe in saving too.  But trust your gut. Believe.

I think it's also important to think of your time, and what it is worth. Yeah, you could sell it for $100 on Craigslist, but how much time would you spend then answering emails, weeding out the cons, waiting for (non-creeper) people to come to your house to look at it/pick it up, and so on. Even if that's 5 hours, you're basically making $20/hour for the fridge. Donate it--you could even look for a local homeless shelter or food pantry to see if they need it.

Really good point. And don't forget you may get a tax deduction. But more importantly, you'll be helping someone or a family by donating the frig

Michelle please help!!!! I am SOOOOO tempted to sign up for one of those multi level marketing companies. I use their products and like them a lot, and I don't know why I'm so tempted. It's a high cost to "buy into" the company- money that I have, but was planning to put towards other things. Is it the glossy advertising? the promise of "flexibility", a "beautiful you and a beautiful life"??? What is the appeal of these companies? How do I resist???

Ok, so to be up front, I am NOT a fan of multi-level marketing, which often works for people at the very top who are good at recruiting vs. selling the product you love. So if you want to be a recruiter and you don't mind bothering strangers, friends and relatives to buiild your network go for it. But I'm not reading in your note that this is work you long for. I believe you are enticed by the promises of riches, which is the appeal. But many, many, many people don't make any money or just a little bit. 

So resist by asking do I want to be a recruiter?

Do I want to be a salesperson? Am I good at sales? If this my life/work passion?

If not just enjoy being a customer. I like UTZ chips but I don't want to recruit people to sell them or sell them myself. Just saying.

I am starting a 529 prepaid for my daughter. I could pay it cash year by year but I registered for monthly payment. Is there a difference between the two. I feel safer when the money is in my account.

By putting in little by little every month you take advantage of  "dollar cost averaging."  It allows you to buy more shares when prices are low and less when high. Since you can't time the market, when you make a lump sum investment you might catch the market at a high. 

Here's a good article that explains the concept

http://www.investopedia.com/articles/mutualfund/05/071305.asp

Hi Michelle - my husband and I have a life happens fund and 4 months' worth of an emergency fund. Do you consider having supplemental insurance coverage with AFLAC a good choice until we have the full 8-12 months of emergency money? Currently, we have the accident coverage for our family, and the dental and hospital policies for both of us. Thank you.

Do you mean you have disability insurance? If so, many people need to carry it. And it's good to have while you are building your emergency fund and even after. 

If you become disabled there may be some period befoer the insurance kids in and then you'll need the emergency money. Plus the insurance doesn't replace 100 percent of your income.

This may also be due to the fact that it's so easy to get a credit card, and interest rates for savings accounts are so low. More people rely on their credit card for emergencies and think it's a waste to have savings in the bank not making money. Not that I agree with them, I'm on team Michelle :)

You are so right. Lots of folks complain to me or justify not having an emergency fund by citing the low interest. But this money isn't suppose to be growth money.

It's money that needs to stay liquid or not put at risk. 

You don't have to like it but you do have to accept that you need a rainy day fund because it's going to rain at some point.

Back in 2012 I refinanced and took a 15 year mortgage because of a great interest rate and to have my mortgage paid off well before I retire.However, as my mortgage broker pointed out, that means that your interest tax deduction keeps going down, which means you will have more in taxes taken out of your paycheck as time goes on. That is something you should think about when deciding if you can comfortably afford a mortgage.

I appreciate your input but let me also point out that the mortgage break is a deduction and not a dollar-for-dollar tax credit. So even tho you aren't getting much of a tax break as you pay down your mortgage you are ALSO saving a LOT of money in interest. You never get a deduction equal to what you pay in mortgage interest. 

Put simply, suppose your mortgage interest was $100. You get a 25 percent tax break for the interest. But you pay off y our mortgage saving on interest. Sure you may now have to pay $25 dollars in interest but that's less than paying $75 in mortgage interest. It's a super simple example but the points is don't keep a mortgage for the tax break. Don't morn the loss of the break when it means you've broken away from paying interest and being in debt. Debt-free is freedom.

I own a car outright and I am also leasing a car. How do you feel about leasing?

 

Read more here.

Leasing bad. 

Leasing bad.

Leasing bad.

 

Dear Michelle, I will be meeting with my immediate supervisors next month where I will be handed the reigns for what my actual job description entails since I've been ""training"" for the last year or so. While this meeting is meant to be a follow up and to set up expectations for my impending job function, I also don't know whether it will also be appropriate to 1. involve their boss, also my boss-boss (because I feel that I need a more impartial observer and someone with influence and sway in the room) to discuss how I feel slighted and put at a disadvatange in comparison to my peers who have had a better experience getting to understand the breadth of our job function, and to 2. bring up grievances I've had since I started including the belittling and condescending behavior of one my supervisors (who will be at this meeting) toward me and the fact that another woman in my department put her hands on my neck in frustration (jokingly...?) when I was trying to ask for clarification on a very confusing, albeit not difficult project. (She later apologized and I accepted her apology but at the moment, I was so aghast, I could hardly sum an appropriate course of action -- this was fairly recent.) (Also, we don't really have an HR person.) I don't work with the condescending supervisor as much anymore, but I might if I get handed some of her responsibilities at the meeting. I am not quick to bring attention to "personal" issues because I am generally not a confrontational/assertive person (I can be, but I struggle with this even more so with authoritative figures). This is my first job out of college and I have so far completed about a year in this position where I have been "training," but really, I've been doing very menial tasks that have hardly prepared me for what I actually signed up for. For a while I was starting to feel like my career was stunted, but with everything I just mentioned, I chalked it up to the growing pains that come with being entry level... but I don't know if I should bring this up because, worst care scenario, I get fired I'll have to live at home (I have a very toxic relationship with my mother and she's too much of an irrational actor to reason with -- trust me on this one) and given the job market, I am fearful I may have to end job hunting from home when I am so close to filling my savings pot for a car, a vacation and moving out. - To bite the bullet or not. Thank you

Wow. This is a lot. And I'm almost out of time.

I'm going to run your question by an HR expert and answer it in a column. So please stay tune. I'll write something soon.

In the meantime, I will say don't try to accomplish too much in the meeting about setting your job requirements. Don't air your concerns in a group setting. 

Hello Our first grandchild is due so soon! We are still recovering from (happily paying for) college expenses for our three children. And thinking about that experience, we would like to start a college fund for grandbaby #1 and, obviously, for all subsequent grandbabies. We live in VA, the baby will be born in NY, but probably won't spend his/her whole life there. Who knows where any other grandbabies will live. What's the easiest, but most cost-effective thing to do?

 

Read more: A reader says I’m wrong on college savings plans. These experts have my back.

529 plan. Best way for parents and grandparents to save.

You can save in a Va. plan and get a state tax deduction.  I've written several articles of late on investing in a 529 plan. 

Hi Michelle! We are having two new babies soon, and adding in our toddler, dog, gear (double strollers are huge!) and penchant for renovation (we regularly transport lumber and buckets of paint), we're thinking we need to upgrade from a station wagon to a minivan sometime this summer. We are fortunate, and the station wagon is paid off (though worth only $1000 as a trade-in, plus needs some repairs), and we have emergency and life-happens funds and no debt not even a mortgage. And in theory our non-emergency fund savings could buy a safe post-2010 under 50K miles used minivan for cash, though it would wipe us out. However, we also live in a very tiny house, and hope to move to something more workable by the time the twins are walking. Those savings are supposed to be for a downpayment, which would be enough by this time next year or so. Then we could keep this house as a rental (we have one already and manage several others, it's a good market here). So on the one hand, I see us in a year with a mortgage and a small car payment ($350), which is pretty normal for a family in their 30s, and we would fit in both the car and the house, and have two rental incomes. On the other hand, I've learned to be wary of "normal"! I really value your advice - do you think it's okay to get the car payment in order to stay on the house-buying track?

I would pay for the car with cash. Push back the house buying until you build your reserve up. You've got a lot of financial balls in the air and if some drop, you may not want a monthly payment staring at you.

Your non-emergency fund sounds like the life happens fund and such an account is meant for things like this. So it's ok to wipe it out. 

Also, I get wanting a bigger house but they are little people for a while longer so you can take is slow. 

I moved into a new house last summer that boasted a 10 yo fridge in the basement. As I had no need of this extra fridge, I had Dominion Power remove it. They advertise in WaPo. Provided your fridge meets certain criteria (10+ yo, secondary fridge, and a few others), DP will send a contractor to remove your fridge and will send you $50 for recycling it. With all my moving expenses, this was a welcome dividend! You can sign up online at the webpage and schedule your fridge's removal. This keeps it out of a landfill and gets it out of your house, too!

Good tip. Wonder if other companies do the same.

Take the week and treat it as a week away as much as possible -- stop the mail and the paper, don't watch the local news (and national if you wish), if you have a land line, turn off the ringer and don't listen to the messages.

Love it. Thanks.

Great idea! I agree - take a week and make a real holiday of it. Plan for when there are things you really want to do like at a museum etc, a lot of these are posted months in advance. A couple of thoughts: can you treat yourself *once* to a spa/dinner - perhaps with a friend/family member, a little splurge? Is your birthday in the summer? If it is and someone asks you what you want - ask them for an 'experience gift' while you're on holiday - dinner / movie / museum etc with them. Do you have a project at home that will take one day tops? Nothing like re-painting your bedroom for a lasting glow. Love the gym idea!

More good advice. Thanks.

Pretend you're planning a DC vacation for someone with your tastes, using your house as the hotel. Plan outings, picnics, relaxing days in, etc. as if you were on a "real" vacation.

Ok, really like how you think. 

And put the work phone away. Tell coworkers you are on vacation and their emails can wait. :) Enjoy the week! You'll wonder why you never did it before. :)

Yup, yup...

I was able to pay off all my medical bills they were lingering for about 2 years I accomplished through discipline and staying focused on my goal!! It took a lot being that I love to spend, spend, spend but it feels so good to be free of those bills! Now on to my credit card bills...

Way to go. Thanks for sharing.

Original poster here with a follow-up. First, thank you for the response. My question wasn't about pay off or not. I know the answer to that is always to pay it off. It was more about whether there was any benefit in still having a balance on that loan at the lower interest rate to consolidate with the newer, higher rate loans. I'm not stopping paying off the loans (either of them); just trying to decide whether to just get the smaller one out of the way before I consolidate/refi or not.

No benefit I can see. 

We are planning a weekend trip to Philly. I can book hotels outside the city, and use my reward points to pay for the entire stay, or book a more expensive hotel in the heart of the city, but with no reward points. Obviously, staying outside would save several hundred dollars, but that means driving into the city everyday, parking, etc., versus just walking out of the hotel and seeing the sights.

I like to be close to things and avoid traffic, etc.

If it's in your budget, I would stay close. Philly and parking and traffic can be so expensive and time consuming. 

accumulate sick leave or annual leave or both if your office allows it. I have about 9 weeks of sick leave accumulated and 6 of annual leave (maximum allowed to accumulate).

I hear you and if you can -- because not everyone can -- accumulating sick leave helps. But it's not a solution if your disability goes on for a long time. And it could. 

I'm pretty sure that I am going to be eligible for retirement around 59 or so. There is no chance I will end up being able to retire until 70, health allowing. Unless you have a pension that will replace your whole salary, increase robustly with properly measured inflation (taking into account that we use more health care as we age and health care seems to increase more quickly than general inflation), or have a huge amount of money set aside, retiring while you have a good job that will let you stay is as valuable an asset as you can have.

Yes, true. But some folks don't wan to work til they are 70. My hand is up.

Perhaps the person wants to just chill, or pursue a second career or volunteer or....

But your points are well taken. Folks make sure the money works. Do the math.

Michelle, I totally agree with you on paying off the mortgage. But one should make sure one can afford the mortgage payment without considering the tax break.

True. Make sure you can afford the mortgage. The break if you take it -- and by the way many people don't because they take the standard deduction -- is a bonus but not good enough to keep a mortgage.

Stayed much later than I'm supposed to but for you, it's joy. Love your help, comments. 

I read all the questions and comments. I've already identified two of your questions for upcoming columns. So look for them.

Have a wonderful weekend. 

My son is graduating from H.S. tomorrow. So proud of him. Send well wished out way. 

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.

Recent columns
Subscribe to Michelle's newsletter
Color of Money Q&A Archive
Recent Chats
  • Next: