Color of Money Live (October 11)

Oct 11, 2018

Send in your questions to Washington Post nationally syndicated personal finance columnist Michelle Singletary.

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

Stay informed.

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

Follow Michelle Singletary on Twitter (@SingletaryM) and Facebook www.facebook.com/MichelleSingletary

I'm so glad you all could join me today. No guest today. Just you and me.

By the way, my foot is getting better. I can put some weight on it.

Finally, always hoping to get more Thursday Testimonies. Love to hear you you are getting out of debt saving or resolving some financial issue.

 

I will not look at my 401K. I will not look at my 401K. I will not............

 

Read Michelle's column: How to handle a day of big stock market losses


Lol!

I looked. Ugly. I needed your mantra yesterday!

 

Hi Michelle, I had most of my winter clothing stored in a friend's basement for three months, during which time there were major problems with water/humidity and most of it ended up covered in mold (not toxic black mold, though). In one box, it was growing through six inches of sweaters and coats. Some of my clothes were salvageable and a few washes eliminated the odor, and other clothes I threw away. But I have a box of sweaters and wool coats for which I'm at a loss. I feel like I should be able to save them somehow, and avoid spending hundreds of dollars on a new winter wardrobe. But (a) I don't know how since you can't throw wool coats in the wash, and (b) maybe this is borderline hoarder behavior and verging on dangerous. What would you do?

Let it all go. Doesn't sound healthy to try. 

I get you on this. I recently purchased a really nice jacket. I was pressing it to get some wrinkles out and ended up scorching the material. I've tried all kinds of ways to fix it, including adding a brooch. But it still sounds and doesn't look professional. Yet it's still hanging in my closet. The penny pincher in me can't throw away the $40 jacket.

So I feel you. 

But in your case i would say goodbye.  

My credit score is in the mid-700s and I am looking to increase it. I have no debt, but have limited credit. I don't own a home or a car so have no associated loans, and have paid off my student loans. I only have one credit card that I pay off in full twice a month. I've heard I can increase my score by opening up more credit cards, is that right? I'm thinking of upgrading my current card and, in doing so, will ask if I can increase the credit limit. I'm also looking into getting another credit card. I hope to purchase a home at some point, but don't know when - anywhere from 1 - 5 years from now most likely so want to increase my score in the meantime. Any words of wisdom, and caution, would be much appreciated. Thanks for keeping me on track financially!

 

Read more:

How I got a perfect 850 credit score

No, you don’t need a perfect 850 FICO score to be an exceptional borrower

You don't need to do anything if your score is in the mid 700s. That's very, very good and should get you the top interest rates. Just keep paying off the credit card. In fact, you may want to not use it a few months and see what happens. Having credit outstanding even with one billing cycle could pull your score down a little bit if you happened to get it when you haven't yet paid off the bill.

Read the links for the columns. The No. 1 way to score well is to pay your bills on time and paying down debts.

And in fact, applying for a credit card will actually bring your score down as much as 5 points, although it will bounce back.

Frankly, I don't think you need to do anything right now.

Hi Michelle, I recently started a new position at a university and I'll be opening a 403b. I have a pension plan at my old university that I plan on cashing out and rolling over to my new 403b. It's balance currently is about $100k. I plan to invest it in a retirement target date fund (2050). I'd like to dollar cost average my rollover by investing it periodically over a couple months. How do I choose which time period is right for me? Should I invest it every month over 6 months? 12 months? Once a quarter for 12 months? Alternatively, should I just invest it as a lump sum at the beginning? Thanks, Brian

Honestly, this is a good question for a fee-only financial adviser who can look at your entire situation and advise you better. However, if you seek advice be sure you aren't steered to a managed plan and especially one with high fees. Just pay for advice. And for those who don't understand, when you dollar cost average, you invest at various times to take advantage of when stocks are low so you can buy more shares. So one monty with your $100 you might get 100 shares. If the market is down the next month you might get only 90 shares with your $100.

Now, get thee to an adviser soon because might be a good time to put it all in now while the market is way down meaning you get more bang for your buck. 

Do you have any recommendations for how people can incorporate donating to charity into responsible personal financing?

We make giving a top priority in our budget. 

My husband and I tithe 10% of our income to our church. And we give outside of that as well. All coming right up there with paying our mortgage.

If that's not your thing, you can set it up so you make automatic or regular payments to your favorite charity.

But you are on the right track. If you are able to give, make it a priority by not making it an after thought in your budget.

Talk to a dry cleaner. Wool will take high temperatures, just not tempature change + agitation. It may be that it would be too much work, too expensive, or too risky, but wool (and thus the sweaters and coats) is cleanable, and possibly salvageable.

Good point. Thanks for sharing.

Hey, that person with the ruined winter sweaters and items might want to check with her homeowners policy. Or renters policy. Might be covered! There may be a deductible, but given the cost of winter coats and jackets, it may be worth checking into. One of my jackets cost more than $400 new 10 years ago, and I plan to wear it another 10+ years.

True, but be careful about making a claim that could result in a spike in your premium. 

We need help with our finances, debts, etc. I've read somewhere else about an organization that has people who can help, they can talk with credit cards and maybe lower the debt, etc. but can't remember the name and don't want to Google and end up in a scam. Do you know what I'm talking about?

I do what organization it is. Go to debtadvice.org 

There you will find a tab to connect to a nonprofit consumer credit counseling agency that can help you set up a debt payment plan.

The Washington Post had a great article on this recently, about friends who bought a house together and then also rented to a another friend...and a baby being raised there too! I thought it sounded like such a great idea if done right and really opened my eyes to other opportunities beyond the standard get married buy a house, etc. Whether something like that ever happens for me or not, as a single woman in her mid-30s with no family nearby it was so nice to hear an option beyond buying something alone (not really interested in that) or forever living in a rented apartment. https://www.washingtonpost.com/lifestyle/on-parenting/group-house-living-with-baby/2018/08/20/edf0b674-9c01-11e8-b60b-1c897f17e185_story.html?utm_term=.f44ddd348533

As many regulars know I'm a HUGE fan of shared housing. 

My husband and I had our annual financial check-up yesterday with our CFP (non-commission). He and the Monte Carlo simulation predict a 97% to 99% likelihood we'll have money left, even if we live to 95, even if we retire in 5 years. We'll have capacity to spend a little more in retirement than we do now, too. And if one of us can't stay employed the next five years (layoffs, health), the plan won't derail. Yes, we are high earners. But we live like people making 40% of what we do. Spend less, save more.

 

Read more: The number of 401(k) millionaires hits a new high

 

How much money do you really need to feel rich?

Second mantra for the day: "Spend less, save more!"

Hi Michelle, Your chats are great! My aunt and uncle asked me to be an executor of their living trust that they currently have a financial advisor controlling investments (with their input, of course), in order to be a second person reviewing the decisions made and stepping in if necessary in case either of them are unable to make decisions due to illness or dementia. I want to do this for them but I'm not entirely sure what my responsibilities will be, e.g. meeting quarterly with the advisor, how to intervene if I think he's not acting in my aunt and uncle's best interests. Do you have any suggestions of how I can start researching this so I can be successful in this role? Thanks.

Before you agree suggest you have a meeting with your aunt/uncle , financial advisor and the attorney who established the trust. This way you all hear the same thing at the same time. Have notes taken and then distributed to all. In the meeting ask the advisor what he or she will be responsible for doing. 

Talk to the lawyer about what are the responsibilities as a co-trustee/executor/personal representative. 

Then yes, read everything you can on the subject.

I was the trustee/personal representative for three people. Hated it. Will never do it again. It is a lot of responsibility and if there are any ill will between any of the heirs it can be a nightmare. 

But, having said that, your aunt and uncle are smart to want to have another set of eyes watching over their money. Just be clear on what they want you to do and make sure you have the legal rights to do it. 

Hi, Michelle. Thank you so much for all the financial advice! I read the article about mortgages and retirement with great interest because I've been thinking about my long-term plan. I'm 40, am doing well with saving money, and have no debt other than my mortgage. But the mortgage is my one financial problem area. I'm currently under water because of how much house values have dropped since I bought in 2007, when I used a first-time buyer program and made a very small down payment. I recently decided I would pay down the mortgage more aggressively for the next 8-ish years so I can sell and buy the place I would want to live in indefinitely, but that might mean taking a mortgage into retirement. I could certainly stay in my house and pay off this mortgage before retirement, but I don't know that I want to live here forever (LOTS of stairs, parking situation, etc.). If I knew for sure that I would only need a 15 year mortgage at age 50, that would be great, but I'm not sure if that will be possible. What would you do? Thanks!

 

Related: 

 

These retirees say: Pay off that mortgage before retiring.

 

Yes, you should pay off your mortgage before retiring.

In your case since you know you want to move, I wouldn't pay anything extra on the mortgage. I would save like a crazy person in case when you sell you have to bring money to the table. But if the home's value goes up you still have equity that will be yours if you sell.

You just don't want to dump extra money into a home you don't like. You can achieve the same goal, just saving the money.

related to the question about how having no debt affects your credit, does paying off a mortgage affect your credit score?

It should help it go up because you are getting rid of debt.

Now, I know a lot of folks say, "Wait a minute. Don't you need to show you have debt?"

No, you just need to show you know how to manage debt. The FICO formula rewards you for having no debt.

You may not reach the perfect 850 score but you don't have to. As long as your scores are in the mid 700s you should be offered the best interest rate deals.

Sincere question. When people say they tithe, is it 10% of gross salary, 10% of net salary, or 10% of what's left after paying the mortgage, college loans, utilities, car payment, and food?

Well, depends. We tithe on gross. That's what's taught in our church.

But some do net of taxes. I don't think many would lump in expenses because then it would be like $1. 

If you are a person of faith and want to tithe the theory/scripture says  you give off your "first fruits" or "first increase" meaning income without any deductions. 

Of course this is a very personal decision and no right or wrong way if at the heart you truly want to give. 

Be careful with shared housing. My mom put her $45k savings into her sister's house with the understanding that she would live there as long as she wanted to and is now being tossed out and can't afford to go anywhere. She is now on the section 8 wait list, but in the meantime has to bounce between relatives and she is disabled. Get everything (downpayments, shared living expenses, etc) in writing!!

Read the last part of this. It wasn't the shared housing arrangement that wasn't good, it was the lack of getting it all in writing and spelling out what would happen should the siblings no longer want to live together. You might also consult an attorney. If there was some verbal agreement she might have a case to at least get a lien against the house so that when it is sold she can get back her investment. If nothing else the threat of a lawsuit might push the one sister to do right by your mom. 

I'm decently far from retirement (unless I can retire early), but am thinking about housing. Ultimately, I'd like to get out of my multi-story house and into a nice condo. But those have fees, which means my housing costs will never go down to just taxes and insurance like they would if I paid off my mortgage before retirement (which I plan to do no matter where I live) - they'll always hover at $1000-1500 or so (taxes, fees, insurance). How do I weigh the pros/cons of that kind of choice? Thanks

You just did!

Factor in long-term through retirement if you can afford the condo fees and include any possible special assessment and increase in those condo fees.

I had a condo. It was my first home purchase. I will never do it again for the very reason you state. 

However, it works for a lot of people, especially for those who don't want a house with a lawn, etc. to take care of. 

Two small pieces of advice. If you have the right plan in place, if you can train yourself, don't look at your 401k plan more than once a month. You will be too excited when the market is up, and depressed when it is down. I pay a percentage advisor. It may be more expensive than fee based but when I was out of work and not contributing (even taking $ out), he made me feel confident that this was just a blip. and now that I am back in the workforce we modified our plan. So having someone always looking out for my interests (they check regularly to rebalance funds) is worth it.

Thanks for the tips. I totally agree with the not looking part. 

But can I be honest, I don't follow it myself because well I'm a reporter/columnist and I'm watching for work but having said that it does make my blood pressure rise when we have times like this. 

To add on to the student loan discussion, wondering what your thoughts are on the terribly low approval rate recently announced under the Public Service Loan Forgiveness program. This past year was the first year people would qualify to have their debt forgiven. Out of almost 30,000 applicants who submitted for forgiveness after 120 payments, only 96 people were approved. That number is crazy! While I can understand certain categories like NGOs might not be as clear, I have to think that there were more state and federal employees that would have clearly qualified. WHile I understand the line of argument re: being responsible for education debt taken out, I also feel that without the PSLF program, a lot of vital positions to society may go unfilled (teachers, prosecutors, public defenders, etc.) without such a program given the associated education costs. My husband is a federal employee and we're a little over halfway through the 120 payments. Everyone in his office has an MA or JD. Applicants without those credentials don't make it past USAJobs. While he doesn't make private sector $$ that he could, he likes the work he does and feels that it really is making a difference. We're in our early 30s and definitely feel in line with the millennial-related articles about how student loans are impacting our decision making. The looming uncertainty over this program is driving us nuts!

I have so much to say about this and you just made me realize I need to do a column on this very thing. I saw that story too. 

But I've been telling people all the long don't trust that the program will be there or wipe away the debt. Still I get that many sign up for the income base plans and pay less than what will get them out of debt sooner because they are working in the public sector or nonprofit world. 

This is a very cautionary tale for the many people expecting to get rid of this debt. 

Hi Michelle! Hope your foot/ankle are feeling better. :) My husband and I just found out that we're expecting! We are big savers, and always have something socked away for emergency, life happens, etc. We also have enough saved that we could live if we both lost our jobs for at least 6 months (more if we drastically changed spending habits). No real debt--just a mortgage and a very very low car payment. What's the first thing we should focus on as my pregnancy progresses? 529 for college? Some other type of savings?

 

Related: The perfect baby gift? A small donation to a college fund.


Congrats!! Children are wonderful -- well at least until the dreaded teen years -- but then they get better -- okay most -- better stop here :)

Anyway, I want you two to practice know paying for all the baby stuff. Pretend the baby is in daycare if you both plan on returning to work and make those payments into a separate savings account. In this account put money for the monthly cost of diapers, wipes, etc. Act like the baby is here and you have to pull from your expenses now. And be very realistic. After a month or two you will see how tight it is or isn't then adjust your budget/spending accordingly. 

As for the 529 plan you can wait til the baby is born and then set it up as soon as you have a Social Security No. for the baby.

Or, you can do what some friends did. They set up plans in their name with their SSNs with themselves listed as the beneficiaires until the babies (they had twins) were born and then they names the babies as beneficiaires.

The benefit of doing the latter is that when close friends and family ask what you need, steer them to the 529 plan. 

Trust me you will not need all those toys and clothes. 

The question about the ruined clothing sparked an (unrelated) memory I wanted to share. Last year I hosted a clothing swap with a group of lady friends. It was a really fun way to get some new pieces, clear my drawers and closet, and help charity at the same time. My hubby built us some racks out of scrap wood, and I served a light lunch and mimosas. :) The price of admission was at least 1 piece of clothing/shoes/accessories, though more was definitely encouraged and some brought suitcases full! I strived for a wide variety of sizes in my invites, and everybody found something to take home. Plus, we had 9 boxes/bags of clothes to donate after, including a lot of professional wear that went to A Wider Circle's professional development program. It was a fun day of 'shopping' and everybody came out a winner!

I LOVE this idea. I'm going to suggest it to some of my friends. 

Regarding the mother who put in $45,000 of her money into sister's house and now has been tossed out. Definitely talk to an attorney. Even if there was no official contract, look to see if there are any written notes or emails about the money exchange. Those can be used in negotiating that she gave the money in good faith in exchange to live in the house as long as she wanted.

Good point!

I've been managing my finances like a hawk in recent years, after a very long time carrying credit card debt. I NEVER want to get back there, ever. I've become a dedicated saver, putting about 25% of my gross pay (40% of my take-home) in a combo of my 403(b) and my emergency fund, which has about 3 months of living expenses. I'm not maxing out my 403(b) contributions yet - I'm close - but have been increasing by a percent every few months to ease the pain. :) I'm currently at 14% plus a 3% match. I've also been thinking about the debt monkey and using online payoff calculators increased my mortgage principle payment to shave 5 years off my loan, and my car payment to shave off a year. I'm 46 and have about $225k in my retirement, or at least I did the day before yesterday. Is putting that extra money towards my mortgage and car loan the best use, or should maxing out my 403(b) contributions be a higher priority than speeding up debt payment? Thank you for all you do!!

Stay on track to get rid of the debt. AT 46 you've got some years to go before retiring. 

Get rid of the debt and then take that money and pump up your retirement.

Hi Michelle! My husband I would like to make it as easy as possible for the executors of our estate to locate all of our assets and liabilities. We've thought about creating a master document with a list of these things, including account names and numbers, but then wondered if it would be unwise to have such a document in print form. We've thought about getting a safety deposit box at a bank and putting this information there. Do you have suggestions for how to prepare and store for safekeeping the information necessary for the executor? Also, what information and/or documents should we include?

 

Related: Here are the documents you need to bulletproof your wishes after you die

Read the link for my column. As for storing if paper, fireproof and waterproof safe. We got one for under $100. 

You could also create a WORD doc with instructions. 

More in the column. 

Because of excellent grades and a very high ACT score, my daughter will be offered almost free tuition in engineering at the University of Alabama based of their published guidelines for automatic out-of-state merit scholarships. While she is excited at the prospects of almost free tuition, I have expressed my concern about her going to a place where more than 40% of the population in 2000 still voted to keep the state constitution's ban on interracial marriage even though it was declared unconstitutional in 1967. (This is personal to us, because we are a mixed race family.) As someone who have recently navigated the college admissions process, do you have any advice on balancing finance vs. fit? Thanks.

If your daughter isn't planning on living permanently there, I say let her go. Or while there perhaps she could become eligible to vote locally and get involved to change that backward thinking. 

There are a lot of good folks in Alabama.

Hello, My Friend ! Love your chats (tho i mostly read the transcripts later). I will turn 60 in 2 weeks !! I have a rollover IRA from my last job and 401k from current job + savings, home equity, etc. As retirement is on the horizon... I would love to sit down with someone and get One Big Review. I dont think I need someone to manage my stuff . . but who do I need? A Financial Planner? Advice?

Look for a fee-only planner. 

Hi everybody!I tend to monitor the market very closely and have been working on my bad habit of checking my portfolio every time the market drops. I'm proud to say that I'm actively improving and haven't checked my portfolio once this week since all of the ruckus started. Like I said, a mini-testimony, but a big win for me! :)

Nope. This is a BIG testimony. Good for you!

I updated my overall financial spreadsheet last night. It was because I had some unexpected expenses... really I swear. I try to let the day-to-day wash over me, and focus on the bigger trends, but still... This year has been a bumpy ride.

If you are patient and can avoid making rash decisions honestly it's not a big thing to look. BUT if you are prone to heart failure, don't look.

I DID look at my TSP this morning and now I feel better knowing why I saw such a big drop. Thanks!

Great. Glad to help.

Our combined retirement accounts are down five figures. Since we won't need it for at least a decade, I'm excited to be buying equities on temporary clearance! Warren Buffet said it best: "...try to be fearful when others are greedy and greedy only when others are fearful."

I'm trying to think that way too! Good advice.

Hi Michelle, I'm a federal contractor, whose boss has been dangling the option of conversion to a direct hire for over a year, but it seems more likely now. Doing that might give me a bump in pay (assuming no more Fed pay freezes, which is questionable). I met with a CFP last year who said to go for the conversion because of the great pension available after 20 years. However, when I've spoken with other colleagues who are direct hires, they say the Thrift Savings Plan (TSP) is essentially like a 401K--the Fed gives a small match but it's largely my own input, no pension. My contractor firm puts 10% annual annuity toward TIAA for me regardless of my contribution (17%, yay!), and I could probably stay with them indefinitely. So who is right? Is there still a pension opportunity with the Fed? I can't seem to get a straight answer from the actual hiring folks.

There is still a pension for the Fed and TSP.

Although that 10 percent contribution is great. Still there is the uncertainly of a contract job. 

Read up on this at Federal News Radio, a great source for federal workers or potential workers. 

Thanks for your response. It's been so difficult over the years to see my mom frittering away everything and now having to deal with the repercussions. We're focusing now on getting rid of her accumulated boxes and boxes of stuff, getting her moved, managing her funds though a local non-profit (30k in cc debt) and then will look for other attorneys (the ones we've dealt with so far are not real-estate specific). Thanks for listening and all you do in your work. I've recommended your column to many folks!

Let us know how this works out. Good luck.

Hi, Michelle. Glad your ankle is healing. My question is what to do when a grandson wants to cash the college fund because he says he needs money (never went to college) He has a child to whom we could transfer the funds. Due to fees incurred and because the money was specifically for education, we would prefer not to have him use this as "extra money."

Nope, don't do it. There is a 10% penalty if the money is not used for educational expenses AND you have to pay income tax on the earnings. Keep the account and make the great grandson the beneficiary with you still holding ownership of the account. 

We did a 21 day fast, and there was about a 1400 difference in what we normally spend in those 21 days and what we spent. Plus I got new rear breaks and a few other required expenses. It was eye opening. I would like another 15k a year in savings! We took a week off, and are doing another 21 days. I always thought I didn't need hard and fast rules-- but it made a huge difference. We were at Costco and these soft blankets were on sale, and if I weren't on the fast I would have said "why not?" instead I walked right buy. Every single day it was little choices that added up in a big way!

Related: Time to reboot your financial life? Try this 21-day fast.

Love it. Thanks for sharing.

As a nonprofit fundraising professional, let me say that we really appreciate those "automatic" monthly donations. They keep us going!

To whom much is given, much is required!

I think you have a permanent perch on my shoulder! I had scheduled (and budgeted for) routine maintenance for my 15-year-old car this week. Under $200. The best laid plans.... I had to have the car towed on Saturday and was met with a repair bill 10x that amount. They'd have it finished on Monday. Ok, I'll charge it and pay my credit card in full as usual. Bonus: get extra rewards points. Sometime on Sunday I realized that the charge wouldn't appear on my bill until NEXT month. No way was I going to pay off something that happened a month ago! So I transferred the money to my checking account, slapped down my debit card Monday evening. Boom. Done. Now I just have to replenish my Life Happens fund! Thank you!

Love this: "invaded my financial soul." Got to remember that.

Glad to be on your shoulder. 

I've been in the stock market since 1981 and have been through all of the ups an downs. Unless you have to withdraw/sell a stock today, there is no reason to panic. The value of portfolios changes regularly. In our case, we took advantage in our regular portfolio, not IRAs to sell and get losses which can be used against the profits in stock at the end of the year. If you have an IRA and have to take annual distributions, meaning you are 70 and half, you want the value to be down on Dec. 31 in order to have lower required distributions.

Good point. Thanks for sharing.

He doesn't want to have to pay taxes on this, does he?! He should roll it, and then he can still periodically roll the money into different investments within the plan. Don't cash it out because that is a HEAVY penalty with the IRS.

Right. I'm assuming he or she meant a rollover. And be sure it's a direct rollover meaning they don't send you a check but that the financial company gets the money directly. It's a tax thing. 

For the person rolling over, please do an online search on this. You'll find many papers on this. The gist is, if you have a block of cash now, invest it all now. Do not dollar cost average. Even after yesterday's big drop, buying now and holding for the long term is better. Dollar cost averaging is only good when you don't have the cash on hand. Invest periodically when you have some cash instead of holding it in cash and then making a big investment. A couple of articles - https://money.usnews.com/investing/investing-101/articles/2018-08-29/why-lump-sum-investing-might-be-better-than-dollar-cost-averaging https://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging-2014-12

Many opinions on this but totally agree about doing some research. 

Hey guys working on my Sunday column  on what else? The markets. Thanks for participating today.

What a fun chat. Loved your comments and questions. Such a great forum.

See you next week and bring a friend. Please follow me on Twitter and share my columns and newsletters. 

 

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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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