Color of Money Live (May 3)

May 03, 2018

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

“Knowledge isn’t power. The right knowledge is power.”

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Read & share Michelle Singletary’s Color of Money Column on Wednesdays and Sundays: http://wapo.st/michelle-singletary

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So glad you could join me today. The time I have with you in this forum is one of the best times during my work week.

As always looking for your Thursday Testimonies!

Let's get started.

Michelle, I may sell my townhome that I bought years ago for 80K. The sale price will be around 400K. What are my options if I do not purchase a new home with the profits? How long will I have to make a decision? Jack

This is best a question for a tax professional. But I do know that married couples can exclude up to $500,000 from taxes on the sales gain and singles $250,000. Plus ,you can subtract any capital improvements, which can help shelter even more of the gains from taxes. 

 

Hi Michelle! I have a teenager who I want to teach about investing and saving for college, retirement, and beyond. She doesn't have a consistent source of income (she babysits occasionally) and she doesn't have an allowance. Do you have any recommendations on what lessons for her to learn? Or any books that she could read? Thanks !

I get this question from parents all the time. 

There are a lot of resources to help teach children about money. Some of my favorite

-- Foolproofme.com

-- Jumpstart Coalition

-- Choosetosave.org

-- National Endowment for Financial Education

But the best teacher is YOU!

If you are a good money manager, teach her what you know. Model the behavior you want her to have. 

I never gave my kids a book or budgeting tool, etc.

I just talked and talked and talked about good money management. They had an allowance but for the most part all the money went right into a bank account they never really saw. 

It's not just about the money they have in their hands -- not at first.

It's what they see you do. We hardly ever went to the mall. We didn't use shopping as a form of entertainment.

We showed them the importance of giving by tithing and donating money and goods to charity.

They learned NOT to be spenders by our denying a lot of things they wanted. 

They learned to HATE debt from the discussions we had about how debt is like a monkey on your back. 

You think the kids aren't watching and listening but they are. All the time!

So show her how you saved. Show how you saved for retirement. 

Then to fill in the gaps you can take her to a financial seminar for kids or get any number of books geared toward children. 

But financial literacy -- the best kind -- starts at home with you.

Hi Michelle. Thank you for all the good information. We are fortunate to have good health. However at a recent appt we were charged not only to see the doctor but for a minor office procedure. The doctor did not tell us that the procedure was an extra to the office visit nor did he say it was an extra cost. Well...it’s costing me more than $200 for what was essentially looking in my nose. The office claims there was a statement in the paperwork about the extra charges. I don’t remember it specifically but I do know that there was no list of costs. I guess I don’t really have a question. But want people to be aware that you have to ask about the necessity of the procedure, no matter how minor, and the cost for every little thing before they do it. This specific event happened at an ENT. However something similar, with a lesser charge, also happened at the pediatrian.

Ah, that fine print. It's always the out for businesses whether it's for health care or your car. 

And frankly, I wouldn't have thought to ask if looking up my nose was going to cost me $200. 

But you are right. Read everything. Even if there is a long line of folks, stop and read. I have often found charges buried in the fine print. Sometimes I decide to continue with the purchase, etc. but at least I know. 

And even having said all that, I know it's a hassle. The print is small. It's meant to be overlooked. So do the best you can to catch stuff but don't beat yourself up when you don't. 

Need advice regarding life insurance coverage. I am 52 and currently have a great term policy that will provide $2 million. however the policy will expire when I am 61. Renewal then will be $40 k yearly which is out of the question. If I renew now for 20 years , premium will be $8 k yearly. I do have $1.5 million in 401 K and very little mortgage debt. Where can I find guidance regarding when the need for life insurance coverage is no longer needed or affordable. My wife thinks I should "always "be covered. Thanks for all you do and write.

You find guidance for how much life insurance you need by looking at what a dependent will need.

You mention your wife. Does she have a retirement account? A pension? How much will she get in Social Security off her record or yours? Is she likely to keep the house and want to pay off the mortgage? Could she pay the mortgage with income that is coming in without that big insurance policy.

I suspect that you don't need anymore life insurance if you have good retirement savings and fixed income (S.S./pension,etc.)

Keep in mind life insurance is primarily meant as income replacement for people you leave behind how need to be taken care of financially. 

My husband and I are getting close to the end of our 20-year term policy. But by the time it ends all three of our children will be in their 20s and hopefully gainfully employed. Should we die early in our retirement years, the house can be paid off with our retirement money. Or it can be sold since we don't plan on taking a mortgage into retirement. 

There will plenty money and then some to bury one or both of us. 

We don't "need" any more life insurance and certainly not at $40,000 a year or even $8,000 a year. 

So, if you are pretty sure your wife is covered if you die, you could let the insurance go. It has served its purpose. 

Now you might decide you want to leave her even more money and that's fine but not if the cost per year is crazy. Or you might want a small policy (not $8,000 a year either) to pay off the remainder of the mortgage. 

I can understand your wife's concerns but the fact is you don't "always" need life insurance. 

When I was in high school, my parents opened a Roth IRA for me and matched my earnings to put into the Roth. Then they went over the statements with me to show me how just putting a little in (and it really was a little!) can grow a lot over time. Not all parents can afford to do that, but it taught me a lot. And now I’m 40 and that money is still sitting and growing. :)

That was a good way to show you how to invest long term. 

With three kids to educate we used any extra money to save for college so they wouldn't have debt. And we showed them the statements. Same thing really.

Show them the power of compounding. 

Juat wanted you to know how much your advice has lead to a pretty good retirement, and we (disabled hubby and I) are using your strategies to improve our lives (and we were both single, irresponsible spemders until we married at age.60). First, we moved to a lower cost, but still near a city, area. Second, as renters, we kept to 30% of income for rent. Third, after 3 poor years before my early Soc Sec collection, we had a blast spending and traveling. However, boredum set in. I got a part-time job I love and will be doable for years. Now, following your advice, we will put down 30% on a senior complex condo with tons of amenities. Plan is to live on Soc Sec and save earnings until condo payoff in 4-5 years. (Where we settled, Tampa Bay has tons under $75K). When one dies, condo is 2 bed, 2 bath for roommate or with 8 months in bank for mortgage and HOA, sale if necessary). Never could have reached financial maturity without your columns and chats. Took until my 60's to hear what you were saying, but never too late. Debts paid, living within our means, and life happens funds too. Thank you.

WOW!

I love your testimony. And that you are proof of what I say all the time. 

It's never to late to make better financial decisions. 

Never. 

Thank you for sharing your testimony. And how wonderful to find your honey later in life. 

 

Longtime reader but first-time write-in with just a small testimony... I’ve got a long-time side hustle and have a new full time job with great benefits (getting a 401k match and better/lower healthcare costs, finally!) I’ve saved a little for retirement and paid down some student loans along the way, but was hit with some car trouble, health issues, etc that I couldn’t quite pay for with my “life happens” fund. But, since January, with the new job, I have been able to pay off two credit cards, increase my loan payments, and just stood up for myself and some friends at a “let’s just split this” kind of event that would have been SO costly. Thanks for your columns, advice, and encouragement! I’m not out of the hole yet, but I’m looking at the end of the year, or middle of next, worst case scenario, with the rest of the cards and to build up the life happens fund and to pay off the car! I’ve increased my loan payments, too and am looking to shave off the payment time from 8 to 4 years (fingers crossed).

Love, love your testimony. 

Your character trait award today is "tenacity."

It takes a lot to see what's not working and fix it. And then to have the patience to see it through. You will get to the end and when you do, let's shout together. 

But until you do, you still deserve praise for your progress. 

My fingers aren't crossed. I have faith in you. You got this!

Hi Michelle, I love your columns and chats! I'm preparing for retirement, mortgage paid off, no debt, drive a 20 year old car, and am looking forward to doing things I have put off for the past 40 years thanks to good planning and some luck. Wish everyone would follow your advice!

Thank you!

Wish more followed your example. 

Best thing we ever did financially was NOT move to a bigger house. We have a small family, myself, my wife and one child who's now grown and moved out (and contributes to a 401K with his employer!). Just the right size for us even though it was 25 years old when we bought it and is now close to 55. Sure there's some maintenance, but it's affordable, and enabled us to save for retirement.

You know, you are so right. We moved to a bigger house for a number of reasons but had we stayed at our last home, we would be mortgage free right now.

But it was a choice. And we still have been able to save for the kids' college expenses so there won't be any debt, still saving a great pace for retirement. 

Still...

I'm telling you all to say, as this poster points out, really think about what you are giving up for "more." 

A bigger home. Newer car. Vacations. 

More.

You might decide you want more and you can afford more but there is a cost to it. 

Thanks for sharing. 

When people are trying work, wouldn't it seem that "the universe" would help? They need internet access to apply for jobs or telework. Yet, secure internet (not the free kind at the library or Panera) is not freely available. They need a way to get to the job, but public transportation schedules don't always mesh with hours. My husband and I share a vehicle as we save for another. It's a pain, but we deal. However, we really need hi-speed WiFi at home. We had it before, but when he was laid off months ago, it fell behind and they cut it off. In order to get it turned back on, we have to pay several hundred dollars. So, I have a hard time working from home, since our office computers don't work on public networks (security). All I feel is frustrated. I want to cry. It feels so defeating sometimes.

I'm so sorry. I get it. Life can be a bear. And sometimes the harder you try the more that bear bites.

But keep trying. Because you can't do anything but.

Do this for me. Ask around to friends and family, even neighbors. See who has wifi and wouldn't mind you coming over to work. They might even be okay with you coming during the day while they are at work. 

This is the time to reach out to your network. You may be surprised at who will reach down to help pull you up. 

It's also almost impossible for the doctor to keep track of what insurance pays for what, what insurance you have, what your particular plan covers , what your deductible is, if you're met it (or have other pending claims that push you over that limit), etc. Some insurance will fully over physicals and not sick visits, for example. Such a great argument for single payor health care, which removes some of that uncertainty. At the very least, your insurance will have negotiated the rates for whatever procedure it is, so you are at least somewhat advantaged there.

It's true. The health care system we have is broken. Although, a good doctor's office will have a staff that can help patients with this stuff. For example, my dentist is fantastic. I had a glitch in my coverage and they helped me figure it out without making me pay what the insurance company said they wouldn't cover (Turns out they should have). But the billing staff at this relatively small office spend a lot of time understanding what insurance will or won't pay and then letting us know ahead of a procedure or procedures. 

So until we have a single payer system, if shopping for a healthcare provider ask about their billing department/staff. 

Michelle, I wrote in about how expensive my three teenagers have become...another reader wrote in about teens having jobs. My teens have all had jobs since 13... starting off babysitting or caddying at the local country club and now local fast food restaurant. I think knowledge is powerful and I think it's unrealistic to expect teens to cover more than just the simple costs associated with their normal social life and the few extras that I view as "wants" in their lives. An example of a want is my daughter wants her nails done...well she pays to have her nails done. What do you think are realistic expectations of our teens?

I love that you have pointed out this issue.

I totally agree with you that many parents have unrealistic expectations for what children --- children -- should pay. 

All my kids now have side jobs. But I still give them money. My husband and I still pay for everything except as you point out their "wants." Literally just transferred money to my youngest for expenses for her senior year in high school.

She came to with with a budget and sheepishly asked, "So what will you cover mom?" 

"All of it," I said.

She has a babysitting job and uses that money for the gas for her car (we bought it used). She pays for the movies, and the jeans with the holes (I will NOT pay for jeans that already have a hole). 

Yes, we need to help our children become financially responsible. But I don't think we should burden them with expenses that we can pay and should pay. 

-- We do the car insurance. She does the gas

-- We give her a clothing allowance. If she wants more, she pays.

-- If we are going to the movies as a family we pay. If she wants a lot of junk at the concession stand, she pays. 

There will be a time when the kids are out of your pocketbook but don't push them too soon. 

Without debating the big picture issues like single-pay or universal coverage, it would go a long way toward rationalizing the health care system and reducing administrative costs if all health insurance policies were standardized, like auto insurance. Companies could still compete on the basis of price and service, but "policy A with option C" would cover the same things for everybody no matter who issued it.

Man, this makes so much sense. 

 

you go several years living as an adult without getting used to "living" on your whole salary. I don't think I know what it is to live on my current salary. But I still have a great apartment, a car, and just got back from a trip to Europe. Oh, and save about $60K a year. Seems high, but I had a few years out of work over a decade ago and need to make it up. Was never in debt, but there was some lost time for saving.

Exactly. Debt limits your choices and life. 

I understand you get it. But get rid of it as soon as you can.

Hi, I'm the woman who wrote a couple weeks ago that I was having trouble pulling the trigger on buying a car, despite having more than enough money saved up in our car-buying fund. Last week, I finally did it! No qualms at all. Turns out it wasn't so much the idea of writing the check as it was that I wasn't completely in love with anything I had test-driven so far, even though a couple of them, on paper, looked like a good fit. Just like marriage, when I finally met the "right one," it was easy. I took a page from your book and bought a low-mileage, less than two years old, model, which saved me about $25,000 but still got me up-to-date technology, so that helped too. Thanks for cheering me on!

Good for you! 

I'm so smiling right now!!!

I got a new job with a 30% raise. I can honestly say that my previous salary comfortably provided everything I need with a little room for fun. So . . . I'm rolling the entire raise into a pre-tax 401k which will be enough to max that in the pay periods remaining in this year. It's over $1K per paycheck which was eye opening. I'll get an actual take-home raise in January when the 401k contributions go down to their normal level. It was a tough form to fill out but I think my future self will thank me.

Your future self will kiss you!!

I have a coworker whose wedding is later this year. She insists that she has to invite 200 people as her family expects it, yet she has to pay for it. At the same time she is trying to buy a home with a zero-down loan and with our market being crazy, homes going for more than asking and appraisal, her offers have all been rejected. We tried bringing up she could save money from the wedding to get a down payment, but we rejected as we didn't understand. Also complains about her rent, but lives in nicer apt and pays extra for a garage. We have said our peace and she is entitled to go her own way. Thought the daily complaining about no one taking her house offers is really making it hard to keep quiet

You can't make grown folks do.

When she starts complaining, get a cough and go to the water fountain. 

Sharing here because I am so proud of my husband and myself. Last month I received a HUGE increase in pay ( >35K) and the first thing we did was sit down with our budget/debt spreadsheet to figure out how to get ourselves on better financial footing. With you in our ear, we set our top priorities: paying down debt (7k on car, 13k on cc), bumping up his retirement to the max, adding to our emergency fund, and getting life insurance. Two paychecks in, and we've stuck to our plan! I made two lump payments on the car loan so it is now down to $2500, we increased his retirement so he's now maxing out (as am I), our emergency fund now has an automatic transfer of $500 every month, and we contribute to 529s. We are committed to still live as if I never received this increase (no fancy vacations planned yet) but it feels so good to be aggressively paying down and paying towards our future. More money doesn't mean I get to buy more shoes! (The one splurge? A storage unit so we can extend how much longer we can comfortably live in our townhouse.) Now, all that is left is life insurance: Do you have a good rule of thumb on how much coverage one needs? We have two children (19 months and one due in May) and two mortgages on two properties (sum = 650,000). But we could easily sell either house in a heartbeat if needed and have a fair amount of equity in both ( ~150 per.) Any guidance would be greatly appreciated! Thank you for your wonderful chats!

Wow, so proud of you guys. Now 2 things

1. Get rid of the storage facility. Seriously. Unless you are visiting it weekly to get stuff or look at stuff, it means you don't need the stuff.

2. I'd need to know more to give you a good answer on how much insurance you need. This is when a good insurance agent -- who can sell various policies -- can help. Stick to term. Get enough insurance that your dependents can live off the returns and not eat into the principal too much. 

Shop around for different service providers. There are cheap hotspots you can purchase that charge a monthly fee with no contract, or there might be a smaller company in your area (e.g. in DC, DCAccess provides service in certain areas of the city for less or the same cost as Comcast). People are always looking for ways to not be beholden to the Comcasts and Verizons of the world. There are also assistance programs for low-income residents. Just Google "low income internet assistance." This is also an important reminder that as soon as the unexpected happens and you lose an income, cut back EVERYWHERE you can, even if you're only expecting the set back to be short-lived. It's a lot easier to do with less for a certain time period until you're back on your feet, than it is to dig out of a hole because of late payments or bankruptcies.

Good tips. Thanks.

There was an additional fee for my doctor to tell me to stop smoking during my annual checkup "smoking cessation counseling" or some such thing. The next year at my physical I told her to skip the antismoking spiel, I couldn't afford it.

I'm speechless. Seriously. 

If your neighbors have WiFi, then you can likely connect sitting in your house. When I check my network connections, I can see about 10 connections all around me in the neighborhood. So find out if your next door neighbors have Wi-Fi and explain the situation. If this was happening to my neighbor, I'd give them a guest password and let them connect. But don't start streaming movies or youtube. That's a sure way to make them mad and kick you off.

Good point. I would help too. 

I agree with Michelle; once our (only) child is done with college and out on her own, we will not need life insurance as we have plenty for retirement. However, we did each allow the other to determine how much we were insured for, since insurance is for the surviving partner. I decided I would want enough to pay off the house and take off work for maybe a year, or go part-time for longer. My spouse wanted more insurance, so I'm insured for more, despite being the lower wage earner. So maybe consider letting your wife decide how much you're insured for, since she's the one who will have to live with the consequences.

You make a good point. I actually had the same conversation with my husband and I wanted more to pay off the mortgage.

Now, be careful. Because the wife still might want more than you can afford. 

Last year I quit my reasonably well-paying job with no future job lined up.I was able to do this because I'd saved several months of living expenses. I was able to do THAT by carefully tracking expenses and living below my means. My job had become a soul-killing wasteland with toxic coworkers, and I was able to just walk out. I lived on those savings for 4 months while I searched. I'm working again, making more money than before, refilling my savings account and taking the bus to save even more. I couldn't have done that with credit card bills and car payments.

Thanks for sharing. Although I love my job, I can't wait for that, "Peace, I'm out" time.

I am in the middle of reading Ilyce's book ("100 Questions Every First-Time Buyer Should Ask") which is proving very informative as someone trying to learn more about home-buying while saving for a down payment. What would be your top pieces of advice for a very hot sellers' market, like the DC-area is currently (with inventory very low)?

Read Michelle's column: Should I rent or buy a home? That’s not the only question you should be asking.

My top piece of advice is not to get a house where the expenses (mortgage, taxes, insurance) is more than 36% of your net income. 

Having said that, I know in areas like the DMV housing is taking up 40% to 60% of their take home pay. But that's dangerous and makes it very difficult to save. 

Whole life vs Term life - advisor is recommending a whole life policy that will yield dividends but reflects an increasing benefit, a problem with small kids who would need the money right away if one/both of us die early. Issue compounded by trying to add a long term care rider (not sure if its available on term policy) to protect our adult kids from HAVING to care for us.

Term. Get term. You get more insurance for less money.

 

Term!

Um, why not take that $8K yearly premium and invest in a mutual fund or EFT? You may not get to $2 million but you will have a solid investment that both you and your wife could tap into down the road if needed. I asked my spouse to get a term policy when we bought the house. Once it was paid off we stopped the policy. We save aggressively instead in investment funds. Retirement is looking pretty good right now.

Good advice. 

I'm so glad I followed your advice and created a Life Happens fund! A regular check-up eye exam turned into needing new frames/lenses, contacts, extra appointments etc that I didn't think I would be needing this year (totaling nearly $1k). Everything will have to paid out of pocket since I used my benefits last year, but I have the extra Life Happens cash on hand so it isn't quite as painful! (Though it will hurt to see the number in bank account drop lol)

The life happens fund is a game changer. 

Thanks for sharing. 

I'm super sorry but I have to go. Trying to finish my Sunday column. It's a good one. 

Anyway, I see all your questions and comments. Think I'll write a column on whether an allowance is necessary. 

Hint: I NEVER got an allowance. And when I hold a penny Lincoln screams. 

email me your thoughts on an allowance pros and cons - colorofmoney@washpost.com

See you next week. 

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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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