Color of Money Live (May 9)

May 09, 2019

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Thanks for joining me today. Lots of questions so let's get started.

I might have dreamed it but it seemed like a lot of people this week were trying to say that someone losing over a billion dollars over a 10 year period was the sign of a financial genius at work. Reminds me of a old joke the NPR Car Talk guys would always say about their "Capital Depreciation Fund." They would guarantee investors a 50% return OF their money, not a 50% return ON their money.

I know right!

It's crazy. Good businessmen and women wouldn't consider such losses a triumph. And certainly consumers are constantly chided for operating at a loss in their personal finances month to month. 

But these are crazy times.  

Hi Michelle, Co-signing stories have been popular in your chats. I wanted to share my goof in an effort to help the next guy. My sister has not had an easy life and she had become homeless. I really wanted to help her get back on her feet so I was her co-signer for an apartment. I foolishly did not read the entire lease agreement...I thought I was committing myself to a one year lease but as it turns out her lease had an "evergreen clause" which is an automatic renewal if proper notice was not given at the end of the first year. After the first year, I knew she was still in the apartment but thought she was month-to-month. I spoke with her landlord and was told I'm still on the hook for another year. Thankfully, my sister is paying her rent but I really didn't want to be involved indefinitely. Ugh, now I am contacting an attorney to figure out my options...at a minimum get out of a potential third year. I learned an obvious lesson here...read the entire contract!


Read Michelle's column: Co-signing a loan? That puts more than your name on the line.

Yes read. But the bigger lesson is don't cosign. I know your sister is paying as agreed but it's a risk to you. 

Or, if you are determine to cosign for someone (and the reason you gave is legitimate -- wanting to help her get back on her feet and be independent -- MAKE sure you can cover the monthly payment and not damage your own finances.

So if you're mom and dad and yo want to cosign on your new graduates apartment make sure you can comfortably make that rent payment.

If you are going to cosign on that car make sure you can make the monthly auto loan payment.

Keep in mind you are not a backup borrower. You are a borrower. This is your loan. This is your rental agreement.

I've also been in opsec my whole career and have gotten so much training to stay vigilant, be wary of the kind of info strangers ask, don't post your vacations on social media until you're home, don't plug into public terminals, etc. Yet I've been part of so many hacks like my company to OPM and Experian, so I'm sure my personal data is floating out there. You give great tips in your article, but is there really any way to avoid everything being public in this technological world eventually? As the adage goes, resistance is futile... Should we all go live in an off the grid commune!

 

Read Michelle's column: Here’s how to develop a criminal mind to protect your personal data

Love that line from Star Trek: Resistance if futile. 

And as much as it's true that much of our data is already compromised we can still resist by doing whatever we can to minimize an attack. 

We really do have to think like the criminals and become a force of nature when companies are asking for our information. I once had a furniture company tell me I had to give them my driver's license to put in their database to pick up a piece of furniture that I had paid CASH for. 

"No, sir," I told the guy. We stood there for quite some time before he went and got a manager. People behind we were so mad at the delay. But I would not be moved.

"No, I am not giving you that information. You can keep the chair and give me back my money," I told them.

I got my chair and didn't give up my information. 

I work for them, and since the last time Social Security was "fixed" all new federal hires have Social Security as one part of their retirement package. There is a pretty simple fix: increase the payroll amount on which FICA taxes is levied on (currently $124,800) either removing the cap or doubling it to about $250,000. Of course, business interests are agin' it since they would have to pay more (their share of the F"ICA tax) so it does not have any current traction. Nonetheless, the concept of cutting benefits is so draconian (and a political poison pill) that I expect it won't come to that. Nonetheless, I would plan as though full benefits will be available, but I would definitely not plan as though I needed nothing else in retirement.

Read Michelle's column: Will Social Security be around when I’m ready to retire?

Whatever fix proposed will be tough to get passed. But it has to be done. And it will make a lot of people unhappy. 

Yet, we all have to be willing to make sacrifices for the greater good. It will help none of us if millions of seniors slip further down the poverty line. 

We are our brothers -- and sisters -- keepers. 

I recently closed a credit card that had an annual fee (waved the first year) for a multitude of reasons. They offered a bill credit of the amount of the annual fee but I declined and went ahead and closed the account. However, now I'm kicking myself because I could have kept the account open and had a lower credit utilization rate (I'm usually at 3% for my cards, 7% average including my parents card I'm an authorized user on), and not had the annual fee. I'm looking to buy a house in the next year so I know my credit score and financial history are going to be closely scrutinized. Reassure me...did I do the right thing? If it helps, my current credit score is 740.

Read Michelle's column: Some guideposts for those lost in Crazy Credit Town

Another way to get a better utilization rate is to pay down any debt you are carrying. Just pay off all your cards and the months leading up to applying for the home loan don't use the card. Then you will be at 0% utilization. 

So, now I don't think you made a mistake getting rid of a card you didn't want nor need. 

A score of 740 is excellent. Depending on the lender you may need it a little higher but not by much. And even then it may not impact cost of credit. 

Between now and applying for the home loan be sure to pay all your bills on time, get rid of as much debt you may be carrying and you should be just fine. 

Thank you for dealing with the trolls around the “deserve” article. My progress to getting that monkey off my back is slow, but that article really woke me up. I have debt. And not just student loan debt. That scary CREDIT CARD DEBT that I have been working on, but it truly is a monkey on my back. Earlier this year, I finally figured out a way to get a better picture of my money in/money out and it was a great wake up call that no budgeting app was able to scare me with before. Back to the deserve, it is a bad word that I have decided to remove from my vocabulary. Yes, I want to reward myself for making substantial progress on all my debt, but this word “deserve” has hurt my financial, physical, and mental health. As I am walking this financial freedom walk, the biggest thing I am dealing with is not where each penny I make goes, but around the self-talk I have with myself about what I deserve and what I actually need. I deserve to give myself a retirement in 40 years, I need to get my S*** together to make that reality happen.

 

Read Michelle's column: If you’re in debt, you don’t deserve a vacation

You had me at "thank you." Because you got me. You really got what I was trying to do.

I wasn't saying people don't deserve a vacation. I was saying -- and perhaps I could have worded the explanation better -- you need to stop saying "I deserve," which keeps you in debt bondage.

So thank you for getting me, my intentions, my heart. 

I was giving back to people the one powerful word they use to do things they can't afford. 

I often hear people say something to the effect of "run your finances like a business." But businesses virtually never save money into a rainy day fund. They never save money ahead for capital purchases. Everything is about "financing," which is why the fed funds rate is so closely watched. I understand that many businesses borrow funds for their basic expenses - they constantly carry balances. I really think it would help if people would abandon that comparison. Financing one's life is nothing like financing a business. Are you going to do a cost-benefit analysis on putting your arm in a sling vs. getting it surgically repaired? Your child's?

Amen. Amen. Amen.

Many businesses fail because the owners are under the impression that finances are different. That you can keep having losses and just borrow your way to prosperity. The same is true with personal finance. 

Now you may say, "Look at Trump." 

Well, I covered Trump doing his casino bankruptcies. And do you know why he survived?

It wasn't because he was a great businessman. It was because he suckered so many bankers into lending him money they would have gone down BIG TIME had they LET him fail. 

So they were covering their mistakes by propping him up. 

There's a comedy bit that says if you owe the bank $1,000, you don't sleep. But if you owe the bank $1 million, the banker doesn't sleep. 

The figures change depending on who tells the joke but what it says is rich people get favor where the rest of us get ____. You fill in the blank. 

I SUPPORT the OP who declined to renew a credit card with an annual fee. And saying, "NO!" to "We'll give you a statement credit" is an excellent response. You'd only be in the same (needless + aggravating) position next year. Yes, you did the right thing!!

More support. 

Stop taking more money from people. Learn to deal with what you have EVEN FOR SOCIAL SECURITY! Seriously this program already takes SO MUCH money from us. Life expectancy was 64 when it was created. The answer is raising the age at which people get benefits but people do not want to discuss that. If you raise that cap then some peopel would be paying 80% of their income or more on their taxes. Our govt takes enough of everyone's money.

So what's your solution? Because Social Security is a safety net that keeps millions from poverty/starving. 

Right now the tax is 6.2% to employees. 

We can't just say let Social Security fail because that would result in at least a 20% cut for beneficiaries. 

Oh and by the way, raising the age may not help either since many people start collecting at age 62 long before their full retirement age. 

The bank that issued my Master Card reports my credit score to me every month. It also provides reasons why my score isn't higher. The number one issue they identify is "The highest credit limit on your open credit accounts isn't high enough compared to people with similar credit profiles." In other words, I need to ask the banks to increase the limit on my credit cards. Given that I could buy a (used) Mercedes and put it on my Master Card, I really don't think I need any more credit. I know you well enough from reading your chats and columns to guess you think this is ridiculous, and I'm wondering if you have any comments on their suggestion.

Read Michelle's columns:

 

How I got a perfect 850 credit score

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

Funny thing is I got a similar explanation. And I have an 850 score on several different scoring models. 

Ignore if your score is mid 700s or higher. 

The two things that drive your score up is paying your bills on time and NOT having outstanding debt. 

 

Hi Michelle - I am in a good financial position 10 years prior to retirement, but I am a single parent with three kids in college. My mortgage is about half of my monthly take-home pay, but less than 1/3rd of my total pay. I will be downsizing, but it's doubtful I'll get much less of a mortgage. Most of my salary goes to benefits. I put 15% directly into retirement and spend a lot on my share of health insurance, which, in a few years, will be a lot less. I only have debt on my home and have a healthy credit rating. I get child support for a few more years and that's what makes up the difference. Is this okay? I saved and saved and saved so that I could send my kids to college. Now I'm drawing from my savings (there is enough), but it's been years since my take-home pay plus child support equal spending. I just thought that was to be expected at this time in my life with college, but am starting to worry. Is all okay?

If you plan on moving or downsizing try to get your mortgage/rent way down to no more than about 36% of your take home pay. Also work on your other expenses too.

The fact that you have to dip into savings to balance out every month tells me you pushing forward a problem.

You are doing great with your retirement savings but with less money coming in from the child support ending you may find yourself more strapped financially in the future. 

What is a good personal savings rate to aim for? I want to make sure I've saving enough for retirement. 401K, IRA have limits, I'm maxing those, and I have mutual funds for additional investing. I am paying down mortgage at a healthy rate, paid off student loans on time, and no credit card debt. I'm in a good place, but when I look at my take home pay, is there a good percentage I should put in my investments? I looked it up online and I found what the US average is, but its quite low. I'm looking for what to aim for?

I'm not sure what you are worried about. Look at the big picture not what's left after you do ALL your savings.

Fidelity recommends you save about 15% (including any employer match) for retirement. If you are maxing out meaning you are saving the $19,000 allowed this year plus another $6,000 if you're over 50 that's great. 

You are working on getting out of mortgage debt -- also good.

No student loans, no credit card debt AND additional investing. 

Your take home is less because its being sent off to various pots that when added up mean you have a great financial situation. 

The other side - while I enjoy my net salery increasing every fall when I reach the cap, every time I think to myself - "This is dumb, of all people, people at my income level do not need a mid-year net income boost, and social security needs the money." Just seems like an easy fix. As to the other poster, who pays "80% of their income or more on their taxes." that is just such a false argument, I can't take him/her seriously.

I posted the comment with 80% because it's real. It's how people feel -- over taxed. But it's not true.

I wouldn't say raising the cap or removing it will be an easy fix. Lots of folks making those six-figure incomes are strapped because of various things -- living in high cost area, big mortgage, student loans, household expenses, etc. 

Unlike you doubt they will be saying, "Bring on the increase." 

But again, we all may need to make some sacrifices for the greater good.

... you were to express your opinions using less strident language, and react less defensively to criticism. As it is, your writing elicits strong reactions. If that's okay, carry on. But if you'd like to win over more readers, step back and consider how you come across to people.

I appreciate your feedback but nope, I stand by the language.

Because sometimes you have to come hard at hardheaded people. 

Again, the language I used came from the users. I hope to elicit a strong reaction because too many people won't listen unless you practice tough love. 

And trust me people who aren't ready for change won't listen no matter what word I use. 

So if I only got to ONE person, that's one more person who sees the light like the reader who just posted in this chat. And I consider that a win. 

Your column about when parents should stop financially assisting adult children really resonated with me. My older sister is in her early-40s and "temporarily" moved back in with our parents while waiting for her new apartment to be ready. That was over 8 years ago. And in that time she paid zero towards household expenses while overspending on everything and getting a dog that my parents explicitly said they did not want in the house. For personal reasons, I knew why my mother did not want to force the issue and potentially permanently damage her relationship with her daughter. It took a lot of gentle encouragement on my part to help build my mother's confidence to voice her opinions and demand my sister financially contribute without stoking resentment. Things have taken a turn for the better as my sister now has part of her paycheck directly deposited into my parents' bank account. And after a very late start is contributing to a 401(k). I just hope my sister has really gotten the message so when our parents retire and move out of state she's prepared to be on her own again. On my next visit home, I may have to be the financial advisor for all of them and really hammer home the hard truths they all need to hear.

Read Michelle's column: Stop sacrificing your retirement to coddle your adult children.

Good for you for speaking up and helping your mother/parents find their voice. 

Because enabling your sister hurts not helps her. 

 

Hi Michelle, I’m in the process of establishing a Will and TOD or RLT (which obviates the need for a TOD, apparently; it’s not clear yet). I have offers to prepare a $160 Will + TOD; $3,000 for a comprehensive RLT; and $2,000 for a RLT from the same firm proposing a $160 Will. I’m hoping you or the peanut gallery has some idea what is reasonable. Having experienced being an Executor with a problematic (self-prepared) will, which required significant lawyer fees to execute, I figure you can either pay the lawyers up front or pay the lawyers in the back end, but you’re going to be paying the lawyers. If $2,000-$3,000 avoids probate, it’s a bargain, right? Thoughts?

Thoughts folks?

Whatever you do at least get a will down by an attorney. That's what my husband and I did. Just a will and done thought the prepaid legal service with my company. 

I've been involved in two situations with a RLT and it didn't save much money or time. 

In response to the poster who thinks the government takes too much, I'd support far higher taxes if they were shared equitably among individuals and corporations and were used to provide a robust social safety net for healthcare, disability, retirement, and education. The Scandinavian countries, which have greater overall happiness and quality of life, got it right. Think of all that you and your employer pay for health insurance premiums, disability insurance, deductibles, retirement benefits, tuition, etc. We suckers in the US are all paying here, but not getting much benefit in such a fractured system.

Truth!

Um, who, REALLY, is "paying 80%"? 'Cause the highest marginal Federal bracket is 37%. And those IN that bracket are already well above the social security cap, so they [and their employer] aren't paying the 12.4% at that point.

Realty vs. what people feel. 

Not only did Trump write off the losses, the banks that loaned him the money to lose eventually would have also written off the bad debts. Normally that might create income to the borrower, but bankruptcy and other tax provisions could have taken that off the table. So we taxpayers pay twice.

People who know how to beat the tax system -- beat the tax system.

Any tips on buying a first rental house? My finances are good- no debt, no mortgage on primary residence, have an emergency fund, and I live in a MCOL area. How much should I have saved on top of my emergency fund?

Me, I would buy a rental with cash. Then save up enough to cover any maintenance issues and possibly have a property manager. 

If you are not covered at work by an employer, is there a private health insurance market for members of your family who do not quality for Obamacare?

When you say not quality for ACA you mean don't quality for a subsidy. Because even if your family member won't get money to help with insurance he or she or the family can still get insurance in the healthcare marketplace. And there are plans at various rates. Obviously the less expensive may not include certain services, access to certain doctors but they can still shop in the marketplace 

How do I know when I can 'afford' to save for college? I've prioritized saving for retirement for my entire career. Now I have two children and each time I go to put money into 529's I hesitate because I'm unsure I have enough for retirement so I fund my 401k and HSA and the 529's don't get any contributions. Do you have a recommendation for how to divide my savings? The kids are still young so at least I have time to figure this out.

If you can please try to do both. Definitely fund your retirement but you might not fund it to the recommended 15%. Or you cut other expenses so that you can save for both. I talked to a dad who said he couldn't afford to save for retirement and a 529 plan.

"Got cable?" I asked.

Looking down he said he paid about $250 a month.

"That's you kid's college fund money," I told him. 

My husband and I didn't max out in either of our retirement plans until this year -- now that all three of our kids' college funds were fully funded. But you know what, we are not behind. We just cut other places to be able to do both -- such as keeping our cars for 12 to 15 years.

We have enough by saving just $250 a month for each kid for over 20 years. 

You can't neglect the college fund unless you plan on using debt to get them through college and allowing them to take on a lot of debt. 

 

I actually meant not qualifying for Obamacare at all because of certain requirements the government may require about the status of a member of a family.

I'm still not sure what you mean. But your family member can certainly apply for insurance outside of the marketplace directly with the healthcare company. Or check if there are any professional groups that the family or person can tap into to get insurance through that group. 

To me, the point of these chats is so some of us, sometimes, can learn. Primarily from Michelle and on occasion from each other. A contributor who cannot, or will not, do BASIC MATH should not be given a voice. It's not only distracting; it's preventing other voices from being heard (since Michelle cannot post every comment).

But it's an important voice to be heard. I sometimes post such things because it helps people to see the misinformation out there. And maybe, with each person we correct, we build a community who will vote based on facts not rhetoric. So it does serve a purpose. 

I paid off my home equity loan today! It was scary. I liked having money in my savings account, but the Michelle voice in my ear said 'get the monkey off your back!' So I did! and no have NO DEBT AT ALL!!! Happy Thursday!

Hallelujah! Thanks for sharing this.

I can feel your joy! 

People deserve a lot of things, including a vacation. What they don't deserve to be able to go into (deeper) debt for those things. Hence, staycations, visits to (nearly-)free public attractions, camping, day-trips by inexpensive modes of travel, etc. Likewise, a nice dinner, but not beyond one's means (even if it means grilling steaks at a picnic ground rather than going to a fancy restaurant). I'm sure other chatters can offer examples of high quality for low money.

Lots of people got tripped up on the word "deserve" and I get that. I opened a debate and at the very least it has caused some to examine the language they use to overspend. That's a win for all of us. Financially healthier citizens benefits us all. 

The reason many people start collecting early is that they are forced out of jobs because pf age discrimination. Let's start enforcing age discrimination laws

You are so right!

This person's expenses will be reduced in the near future - she says health insurance will be a lot less in a few years (presumably as her children get their own insurance or drop off hers at age 26). Those college expenses will also go away ash those three kids graduate. If those are what is causing her to have to dip into her savings, can't she just wait it out (assuming she has enough savings to last)? Isn't that what those savings are for?

So many "ifs." 

Try to live today within your means. 

Is there a health care plan that doesn't pay any benefits but just negotiates a fair and reasonable rate for services? My LabCorp bill shows that their billing rate is almost 10 times the Blue Cross fair rate. That is before BCBS pays anything. So people without health insurance pay wildly excessive fees. I assume the best thing to do to save money is to just get a very high deductible plan that still negotiates fair rates.

And this is why we need to revisit the health care issue. 

My husband and I are buying our first house! Yaaayyy! We haven't slept in a week! Seriously, though, this process was not as horrible as I'd anticipated. We made some smart decisions (saving for a down payment, observing the market for almost a year, setting reasonable expectations, paying down debt and getting preapproved), and a few that I kinda question (Did I shop around for mortgages enough? Should I have gone to more companies about home insurance? Am I taxing our savings too much for the down payment?). But we're well into the process. The title search has been started, the inspection is done and repairs requested, appraisal is scheduled... assuming nothing blows up, we're going to be homeowners by the end of the month. As for what could blow up... the house was bank owned. The title search could turn up something nasty. The appraisal has come back low. I don't think either of these things are likely, but the possibilities are in the back of my mind. The whole process has been going so smoothly- is it because we did the work to make it go smoothly, or is there some other shoe out there that's about to land with a thud?

You did the work.

And if all goes well, congrats!

As always a very lively and informative discussion. Thanks to all of you. I appreciate your feedback and your time. 

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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