Color of Money Live: "Cash is still king"

Jul 13, 2017

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

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So sorry for the delay. 

But let's get started.

What was supposed to be a simple plumbing repair resulted in a house fire and my house condemned needing major repairs. I've spent a lifetime listening to my frugal parents and to Ms. Singletary, the personal finance superwoman for the rest of us. Soooo, it's gonna be okay, the house is insured, the insurer is going after the plumber's insurer and because I've been able to save, save enough life happens fund for my personal cat 4 hurricane.

I'm so, so sorry for your loss. Man that's awful. 

But I love you attitude!

Hi Michelle & Erin-- I have taken both of your advice on checking into my accounts and yikes, I found there are higher-than-necessary fees and possibly some questionable fiduciary-ness going on with a mutual fund. I want to leave and find some lower cost/socially responsible ETF options, but I really don't know how to handle the transition, both logistically (do I have to sell things to move them? what about taxes?) and socially (is my current advisor going to make this difficult?). Where or who can I look to for some shepherding through the process? I also have to mention that having you two together for a chat is my personal answer to "who would you have dinner with and why!" Thanks for being my teachers and motivators!

First, thank you so much for such a kind comment! 
Sorry to hear you're worried about some questionable fiduciary issues with your current planner. I do highly recommend always going with a fee-only CFP who should be default have a fiduciary obligation, but is also willing to sign as such with you. 

When it comes to moving your ETF, you should be able to do an "in kind" transfer from your current brokerage to a new one. For example, if you're currently with Schwab and wanted to investing with Vanguard, then you should be able to move that ETF without selling and triggering any taxes. Vanguard does answer this a bit on its own site

Your current advisor may give you the hard pitch for staying, but shouldn't make it difficult for you to actually move your funds. In terms of help with the process, I've found many customer service departments with brokerages (I've spoken with Vanguard, Fidelity and Schwab myself) are incredibly helpful and patient. 

Finally, in terms of socially responsible ETFs -- it depends on how much socially conscious investing you're aiming to do. Some companies are starting to offer such funds (but you should always check to see what's actually in there before just hopping in). For example. Fidelity has ESG (Environmental, Social, Governance) mutual funds and ETFs as its answer to socially responsible investing. 

Hope that helps! 
Erin 

Michelle, I am a federal employee and just turned 60. My FEGLI (life insurance) premium more than doubled. My husband and I think that we are over insured now that one son is out of college and we have the money in savings to get the other out. Is there some sort of calculator we can use to help us decide the right amount? Thanks!

Funny you should ask this. My husband and I were just talking about rolling back our life insurance coverage. And you are on the right track.

Keep in mind life insurance is primarily income replacement for dependents. If, as in your case, if you have enough saved that your children won't need the life insurance you can but back or cut it out totally. 

You can talk to an agent to get a good idea but here's what we concluded based on three dependents -- 22,19, 16 

 

-- Our oldest just finished college and is headed to grad school. We are paying. But she has enough left over in her 529 plan (She got some scholarships) coupled with other savings we have to cover all her expenses. So she's good. Girl going to get a job so we no longer have to support. 

-- Our son is going into his 2nd year at UMBC. We have the funds saved for his college, plus money in our retirement accounts will get him through, even paying off the home, covering taxes, food, utilities until he gets a job once he finishes college.

-- Same is true for 16 year old. She's got money in her 529 for undergraduate and graduate. Our savings will cover any living expenses she'll need until she graduates from college and gets a job.

Therefore, we have determined we really don't need much life insurance if any. 

 

I am at the upper age range for the millennial generation. Growing up I observed the relationship my parents and sister had with money. Dad and Sis weren't good, but Mom was. She was also smart to have me sit with her and watch/help her as she went through the bill-paying process: watching and mailing checks, balancing the checkbook, filing paid and unpaid bills to know what was done. It, along with the general middle-class upbringing, helped prepare me when I struck out on my own. I have a stable job, multiple retirement accounts (401(k), Roth IRA, pension), and am still learning what my future could hold as I help my parents through their retirement process with Social Security and Medicare. My advice to my generation: don't live by FOMO (fear of missing out). Be brave enough to say no now so you can say yes to bigger opportunities later. And even if/as your career grows and you make more money, keep living cheaply & smartly as before to keep perspective.

Couldn't agree more! Starting early and being consistent is so important as is passing on healthy financial behaviors to the next generation. Living below your means and saving are key to getting to live the life you want forever instead of going large young and paying for it in the future. 
- Erin Lowry

Can I adopt you?

WOW! Such wisdom. 

And the quote for this chat: "Don't live by FOMO (fear of missing out." 

I love that. I get it that young adults want to live it up before more obligations tie them down --house, kids, etc. 

But I find so many millennials are doing too much living it up. 

Live a little. Save a lot!

Hi Michelle, I just bought a condo (yay!) and have gone from having no rent and no bills to a mortgage and bills. Do you have any advice for a novice budgeter or any suggestions for tools that make it easier to figure out how to allocate my remaining monthly funds for practical things and entertainment/travel? Also for budgeting for decorating/cosmetic things around the apartment.

Congrats on being a homeowner and for being proactive about getting your finances in order quickly. 

I'd recommend considering the percent budget first in which 50% is for living expenses (mortgage, bills, any other debts, utilities, cell phone etc), 20% is for saving and investments and 30% is for day-to-day living and entertainment. You could even play with the percentages a bit, say 25% for savings and 25% for day-to-day in order to better pad your savings for the new home. 

In terms of saving for decorating and other things around the house, it may be helpful to have a dedicated savings account just for your home. It shouldn't just be for decorating, but also for any potential emergencies as well. Don't get over excited about buying everything to decorate ASAP and instead consider just going one room at a time. 

I love Erin's answer. Really good advice.

I would add just one thing that has always helped me stay focus on budgeting and keeping my spending under control.

Come up with some financial goals. 

3 to 6 months

9 months

 12 months

Lifetime.

Be specific.

I want to save for retirement and this is how I'm going to do it. 

I want to save for when I need to replace the washer/dryer

Then keep those goals front and center. Talk to yourself about them. Knowing I wanted to put all three of my children through college debt-free helped me measure my spending on decorating my home.

For example, we have a beautiful spacious master bed suite. But only recently have we finished decorating it the way we want. Been in the house for 13 years! 

We wanted to sure up the college fund first. We wanted to make sure we were on track for retirement savings. 

Now I can enjoy my meditation/devotion room knowing my goals were met AND I have a cool room to relax. 

Hi, Erin - Why do you think so many milennials are broke? Does student loan debt play a big part in this or are there other consumer-spending issues at play? (expensive coffee, expensive travel) etc. What have you discovered?

There's no one easy answer to that question. Overspending can certainly be an issue for some, but it largely hasn't been a bigger issue (in my observation) for millennials than in other generations. Nor do I think the entire thing can be blamed on student loans, wage stagnation and a tough job market for millennials who graduated in the throes of 2008 and shortly after. 

It's  a combination of many factors. Often it has to do with young people not knowing better (yet), never learning how to handle money, having a sense of delusion about salaries after graduation or earning potential by their early-30s. That last one is a big problem when people take out six-figure student loan debt to enter jobs that pay mid-30k to mid-50k.

As the generation is aging, I am seeing a lot of positive signs that we're starting to focus on getting our financial lives together. I've started to receive a lot of questions about how to invest, best places to save for down payments on a home or how to financially prepare for a baby or how to aggressively pay off debt and the like. 

Michelle, love your columns and your advice. If you take article suggestions, I think an article on treating paid time off as an asset to be saved would be helpful to a lot of people. Obviously, many people don't have access to paid time off, and many more can't save it. But the many federal employees in the area can save unlimited sick leave and up to 6 weeks of annual leave. This can be a huge asset when things go bad, or when planning to have a child. Sick leave becomes the equivalent of short-term disability insurance, and saved annual leave is like having extra time saved in your emergency fund. I think a lot of people don't look at leave as part of savings, and an article from you would help.

I love your idea. And you are right. The leave is like a saving for the future in case something very big happens health wise.

I also realize that for folks with kids, it's hard to save up that leave. 

Additionally, more and more companies are doing "take it or lose it" approach to stockpiling leave.

My partner and I are in our late twenties and each earn around $65,000/year. He saves 15% of his income for retirement (401k/ROTH split) with an employer match of 6%. I have a state pension that I pay 3.5% into, plus I save 7% in deferred compensation (457b/ROTH split). We keep our rent below 20% of our net pay and neither of us have car payments, although our cars are older and may will need replacing in the next 5 years or so. I have graduate student loans of about $65k, and I should be eligible for Public Service Loan Forgiveness in 8 years. Other than my student loans, we have no debt. We each save $500 per month in our own savings accounts (emergency fund/ life happens fund). My question is this: How do we balance saving for retirement and saving for a house down payment? And at what point should we consider our emergency funds/ life happens funds fully funded? I can save more than my current $500 level, but I'm not sure if the extra savings should be applied to my retirement account or toward saving for a house. We don't want to buy until we can save a 20% down payment (~$70,000), but at this rate, it feels like we'll never get there. And should I focus on the student loans, given the possibility of PSLF? The current political landscape has me worried that that may not pan out.

Sounds like both you and your partner are both in-sync when it comes to talking about money (so important!) and on the right track. 

When are e-funds fully funded? -- It depends on the person you ask but if the two of you have six months of living expenses covered, then you're in good shape. If you have a low risk tolerance, then it's also nice to have enough to cover housing costs, the deductible on your insurance policy and auto policy and an additional buffer. It's the doomsday, "if everything in your life went wrong all at once, could you survive for a couple months?" 

Once you're comfortable with your emergency fund being topped off, I'd recommend re-routing much of that money towards the home fund. You may want to split that savings with other short or medium-term goals, depending on if you two want to get hyper-aggressive about saving for a home or still want to be about to take a trip, send loved ones nice birthday/holiday presents, attend other people's weddings etc. Perhaps $350 a month per person goes towards home fund and $150 goes towards your other short-term goal. 

If you can save more than your $500 a month, it sounds like it makes sense to put it towards the home and other short or medium-term goals as you are both are on a very healthy track with your retirement savings. Assuming your e-funds are all set, you should also plan on putting any bonuses, tax refunds or similar funds towards your down payment as well. 

Finally, when it comes to PSFL, it's unfortunately a bit too hazy right now about what's going to happen in the next few years (hopefully people currently in the program get grandfathered in if they shutter it in the future). Keep making the payments on your current income-driven repayment plan. Be sure to keep meticulous track of your paperwork now as you're going along. Get supervisors to sign off each year instead of having to retroactively hunt people down. But I'm betting you're already on top of that!

Can I add one thing to what Erin said?

You say "partner" meaning not spouse?

Until you are married, I would not buy a home together or mix money. 

That's the mom in me talking. And someone who sees a lot of unmarried couples mix money and things go very bad.

It can go bad with marriage of course but,  well, I'm still advocate for the institution. When done right and preceded with good counseling you get a lot of bonuses being married. 

For both: what is the single piece of financial advice you ever received?

It wasn't so much a specific piece of advice as more of a parable my dad told me about the stock market. In life, I have a pretty low risk tolerance, so I think he wanted to make sure I felt comfortable investing and didn't just equate it to gambling. Around 2010, he told me exactly how much money my parents' investment portfolio went down during 2008. After my eyes stopped bulging out of my head, he told me that he didn't panic and instead, he kept the money in and even added a bit more. "The market is cyclical," he told me. "If you're investing wisely and diversifying, you shouldn't panic when it starts to go down." He also clarified that their portfolio had recouped its losses and then some. That moment is still seared into my brain and made me a smart, early investor who doesn't panic over market fluctuations. 

My advice came from my grandmother Big Mama.

She told me to save something from every piece of money I got. 

So from the time I began earning money in a part-time tutoring job at 14 I've saved from every single paycheck I get. 

And can I throw in a second piece of advice?

Live below your means. Whatever you make, live below it.

I know there are many people who are just barely making ends meet. I get that. My grandmother was a nurse's aide who never made more than $13,000 a year. 

Yet, by living frugally -- even while raising 5 grandchildren -- she still lived below her meager means. 

Those two pieces of advice have served me so well over the years. 

Hi Michelle, Can you and Erin share some different tips for younger readers on how to save money? I'm so tired of reading that the key to wealth is to stop buying Starbucks every day and contribute to a 401(k). I already contribute and I get Starbucks maybe twice in a year! My husband and I (early 30s) own both our cars, have no credit card debt, cut out cable, have no smart phones, and do our best to save, save, save. What's next? What else can/should we do? Thanks!

Awesome, sounds like you and your husband are on a great path towards financial independence. 

Given that you're already crushing the frugality game, my first piece of advice/question would be: are you just saving or is it coupled with investing outside of your retirement accounts? It's great to have healthy savings accounts liquid for short-term goals and emergencies, but you also need to be investing outside of retirement savings to build wealth. 

It sounds like there's no need to be giving you frugality advice and I'm betting you don't routinely raid your savings accounts -- so the next steps would be learning all you can about investing wisely and aiming to earn more in addition to your aggressive savings tactics. Have either of you recently negotiated for a raise at your jobs or picked up side hustles. Side hustles are necessary for all, but if you're interested in just aggressively earning more you can just invest/save, then it might be a good next move.  

Can I piggyback on Erin's side hustle advice.

People often talk about cutting to save. But how about earning extra to save.

I wrote books- one of my side hustles. 

Think of the skills you have and how you can profit off them so that you have multiple means of income. None of our gov't-corporate-working-for-the-man jobs are safe. 

For years, I watched the remaining balance on my mortgage slowly get smaller. When it was at $10,000, I really wanted to just pay it all off, but I waited. I called the mortgage company yesterday and told them to use the remaining escrow balance to pay off the loan. I bought my home August 1998, so I am just done with the mortgage payments in just under 19 years. It feels so good knowing that was the largest monthly expense. I always tried to pay a little extra at least rounding up to the nearest $100. I was lucky that I purchased my home when the prices were low. I think the assessment value is more than double what I paid, and I was young, only two years out of school when I bought the home.

I can't wait to be where you are! Congrats!

People, don't drag a mortgage into retirement!

Any steps that you recommend we should take (budgeting, 529, life insurance, etc)?

Have your wills in place too. It can be a tough conversation, but it's important. It will also encourage you two to discuss who would watch the child if something happens to the two of you. 

As soon as your child is born, set up a 529 plan.

Don't listen to folks who tell you all the things you "need" for the baby.

In fact, stay out of the baby store/section. Just don't go. Way too tempting. 

Talk to your kid about money the moment he or she asks for stuff. And they do from their car seats. 

Be the financial person you want your child to be. Model the behavior because children learn what they live. 

And here's the most important piece of advice. 

It's powerful.

It's life changing.

"No."

Learn it. Practice it. Be bold about it.

Say no to your kid and/or kids. 

"No, you can't get a smartphone at five."

"No, we are not going to McDonald's. We got food at home."

"No, you are not going to get that North Face jacket (Or what the must-have brandname thing will be when they ask). Just face north with this discount jacket."

 

It's exciting enough to have your own place, at this point; don't blow your income on interior design. You may have many relatives with basements full of well-used but usable items which they would be thrilled to "keep in the family." The only thing you need to buy new (in my opinion) is your mattress.

I so agree!

As well as aiming for a percentage, you need to know exactly how much you're spending. I suggest you track all parts of your budget, but obviously special interest to 'new' repeating ones as a new homeowner e.g.: electricity monthly, heat pump yearly. Also check how likely your condo building is to have a special assessment - how much are reserves, how many special assessments they have had in the past. This tracking will give you a good idea of the effect of changing from renting home ownership - as far a day to day costs are concerned - but not really life happens.

Good advice. Thanks!

to set up my paycheck to go to savings, not checking. Having to be deliberate each month about what goes into checking to pay for life and leaving the rest to be saved automatically makes things easy. It saving that becomes mindless while spending requires effort. I know it isn't the trend, but not using a debit or credit card for everything helps too. Spending cash is harder than using the card. Now, you still have to sweep the savings into other places like ROTH IRA, investments, etc. but not putting it in the place you do your spending from as a default makes all the difference. Even if you go a few months without doing your big financial work, at least you haven't spent it.

I like it. Smart.

And as anyone who has done my 21-day financial fast knows I've a big believe in cash is still king. Studies show that when you swipe -- debit or credit -- you spend more. 

When I was 24 yrs old, I met a veteran teacher who convinced me to start a 403(b) asap. 1980. She told me to invest, invest, invest. " I had time on my side", she said. Fast forward. I retired at 56 ((now am 62 yrs old), with plenty of savings that are now in a Rollover IRA. I can speak of kind mentorship from a work peer who told me of 403(b)s, parental sensibility on frugal living - yet with yearly travel and disciplined and generous giving, and the power of compounding. To all I am grateful.

Great testimony. Thank you for sharing. 

And the takeaway folks: Speak financial life into someone's life!

For Michelle: In a previous column, you said that you will not maintain life insurance on yourself past the time when your children should be on their own. I can see the logic in that approach in most cases, but what about parents who need to provide for the long-term support of children with special needs? If a child will need assistance and support well after the parents are no longer on the scene, what arrangements should the parents make ahead of time? Thanks!

You are absolutely right. In such cases, you may need to carry more life insurance. 

And please talk to an attorney about setting up a special needs trust. 

Hi Michelle, I'm hoping you can help. My husband and I are debt free (except for our mortgage). He maxes out his 401K. We have $70,000 in the bank currently, (probably about $450,000 in equity in our home) and save about $1,600/mo., after putting $5,500 in each of our 7 year old's (twins) college savings, annually. The problems is A. We have no investments in terms of stocks/bonds, etc. and B. I work only part-time and do not have a retirement plan. I have a bit from my past, full-time work, pre-kids, but not much. I think that we can't open Roth IRAs because there is an income limit (I think that's correct.) How do I best start my retirement savings? How much should I be putting aside? Also, should we be putting more aside for our kids' college plans? (Our goal is to save enough for them to go to an in-state school, debt-free).

What kind of PT work do you do? If you're self-employed, then you could consider a SEP IRA. I'm not sure of your modified AGI and therefore can't recommend if you can put money in a Roth IRA or not, but here's the IRS.gov table with that information. 

It sounds like investing makes sense as the next part of your financial plan. 

You may also now be in a position to consult with a CFP to help you work through next stages of your financial planning. 

I agree totally! One way that concept has always helped my husband and me stay financially strong is that when one of us got a raise, we would keep living as though we didn't have that raise, for a while. We would only adjust our lifestyle, to allow for a little more luxury after several years of living as though we were still on a lower income.

Such good advice. It's what my husband and I do as well. 

Is something that has really stuck with me since my parents did it. They never explained it as such, but I saw it through their actions. So much of our money goes into "savings" because we have plans with that money: life happens, emergencies, car fund, vacation fund, extra life insurance, etc. Living below our means allows us to have all those pots so when we need it (like the 1500 in car repairs that I had to get this month...sigh), I don't worry about it. Sure, I hate taking it out, but that's why we keep saving for it.

You are so right.

Was on vacation recently. Drove. 

Air conditioner blew out. At the beach. Got kids with asthma. 

Bill: $1,100. 

But I didn't cry. Cussed a little. But no tears.

Because we had it in our life happens fund. So we could continue having fun on our vacation. 

Hi Michelle -- I'm the chatter from last week who is overwhelmed at trying to dig out from debt, and I already have an update. I went to debtadvice.org, and I have a session with a counselor tonight. I also took a fellow chatter's suggestion to get a part-time job, and I had an interview last night. If they don't hire me, I'll keep looking. I already feel better about the future, and I wanted to say thank you. I'll check in from time to time and let you know how things are going.

Thank you for the update. So proud of you taking this step and please so let us know who your session goes. 

This is a community. We care. I care. 

Thank you all so much for joining me today. Thanks to Erin.

Take care and I'll see you back 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 Wednesday and Sunday and is carried in more than 120 newspapers.

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Erin Lowry
Erin Lowry is a millennial personal finance expert, speaker, and author of the book, “BROKE MILLENNIAL: Stop Scraping By and Get Your Financial Life Together.”
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