Dear Michelle, you answered my question last time about refinancing and told me to stop fretting after the fact. Thank you so much. I guess I just needed to hear someone say that. You give great advice and I love reading your chats and columns.
You are welcome and so glad I could put your mind at ease.
And so you know, I'm just like that. Always second guessing my financial decisions because I'm so worried about making the right choice. But once you made the choice got to let it go especially if you made it based on the best information you could get.
I recently lost a job of seven years and I'm not yet employed. What should I do with 401k and stocks accrued with previous employer...what financial advice would you recommend? Thank you for your time.
First, I'm so so sorry about your job loss. I've helped a number of people in your situation and I know it can be tough. I hope you have surrounded yourself with good people you can talk to.
As for your retirement plan for now leave it alone. Of course don't cash it out if you can made do. Also if you were happy with the choices in the old plan and you can keep it there, I wouldn't do anything with it. But if you didn't like the choices you can do what's called a Rollover IRA. That just means you take control over the money and where it can be invested. But if you decide to roll it over to an IRA (at you pick the company to put it with such as Vanguard, T.Rowe Price or even your bank) be SURE that the company doesn't cut the check to you. Transfer the funds directly to the new investment company. Go online and you will find a lot of good information about how to roll over money from a previous employer.
Good luck with your job search.
Michelle, I really want to make my full contribution to my Roth IRA but I am confused as to whether I can or not. My gross wages are a 120k but I maxed out my 401k so I would think this would bring my wages down below the threshold limit of 105k. Can you tell me if I can still contribute to my Roth IRA or not? Is there a penalty if I contribute to my Roth IRA if I find out later that I was over the income threshold?
I'm not 100 percent sure about how the money in your 401 k is counted toward the limits for Roth. But an adviser would be. Check with the company you are considering opening the Roth with. They can easily tell you. Also go to www.irs.gov and read Publication 590.
I wanted to write and say Thank You! I received my book from you, A Purse of Her Own. I was so thrilled when I opened the mail and saw that I had an envelope from you. I really appreciate all of your columns and I read the chat transcripts every time. I like to participate when I can. Thank You! Thank You! Happy New Year 2011.
You are so very, very welcome.
And so you guys know every month I select a financial book and recommend it to readers. I also give away books to random readers. At the end of last year I had some extra books from the 2010 selections and went back to give to readers who had e-mailed about books they wanted.
It was my holiday gift to my readers.
Hi Michelle, My husband and I (in our late 20's) make $120k a year (pre taxes) between us and have $155k in student loans from our graduate programs. The loans have interest rates ranging from 4%-8.6%. We have $15k in savings, and our monthly expenses are $3300 (pre loan payments). The 10-yr loan monthly payment amount is $1700. We rent our apartment, each own an '08 car outright, and have no credit card debt. We each put 12% of our paycheck towards retirement. We're at odds as to which is more financially sound - paying off student debt faster than our current 10-yr plan? Or building up savings? And if it's building up savings, how much? We have around $2000 extra each month. Thanks!
I would do both, save and aggressively pay off that high student loan debt.
So if you have pretty secure jobs, then save about two to three months of living expenses. Then stop and throw ALL your extra cash at the student loans. It's great you have at least a 10-year plan to pay off the debt because some people keep the debt around like it's a pet. I might also back off a bit on the retirement to get more money for the debt. If you are getting company matches for retirement savings at least contribute enough for the match and take the extra money and throw it at the student loans. You are still young yet so you can make the loans a priority over stashing extra into retirement.
P.S. Keep living like grad students with your older cars, tight budget, etc. Because trust me the feeling you will get in getting rid of all that debt will be so GREAT. And then you both can write to me for my Debt Defeater feature and get a big pat on the back.
Hi, Michelle. West Coast fan here. Sorry this is late, but time difference and busy schedule have caused me to miss previous chats. While I hope everyone is sympathetic to the hairdresser looking to get her life back together after her release from prison, the fact that she is a convicted gun felon is always going to pose a problem. There is a body of case law here in California, and I assume in other states, that if you hire a gun felon who later assaults someone or does others harm, you can be sued for a gazillion dollars and your business can be shut down. In fact you have an obligation to look into prospective hires' backgrounds (numerous Internet sites are available for this purpose) if they do not voluntarily provide this information. My brother hired a gun felon friend as a cook in his family restaurant (no public contact) and lost his house and his business after the friend lost his temper and threw a skillet of hot grease at another employee. The award was not large by these standards, something like $100,000, but his insurance company would not pay because of the assailant's prior criminal record. Good luck to the lady in question, but there's a reason prospective employers are going to be leery about hiring her.
Michelle's previous stories on the ex-offender looking for work:
To understand where this person is coming from you need to read my story from last year about the ex-offender.
And I hear you about your brother. But the judge or jury got it wrong. The insurance company was wrong for not honoring the claim. And we in society are getting it wrong. We can't keep punishing people for their past. The guy threw a skillet. But how many altercations on jobs are like that? Was it truly his criminal background that was the cause?
If no one hires ex-offenders than what will they do? The studies show go back to a life of crime. Perhaps we could use laws to protect employers but these folks have to work.
Good for your brother for giving someone a chance. Shame on society for punishing him for it.
Hello Michelle, What do you suggest I do if I can't get out of an interest only mortgage loan? Should I pay more towards principal? Will that help build equity? Please advise. Thank you.
Given the current market, yes pay more toward the principal if you can. And yes paying principal will help you build equity or at least reduce what you owe on the mortgage making it easier in the future to refinance out of that loan.
Thank you for your excellent advice. Although we had been planned to get a few more years out of our car, no one told the car and it conked out. Since it was 14 years old, the $3,500 repair bill did not make sense for us. Instead, we went to our car fund which we had been faithfully accumulating and took the $10,000 on hand and bought a nice three year-old car. No need for a loan because we listened to you and had been making monthly deposits into our fund for the past few years.
Love the car fund. Idea I got years and years ago from my Big Mama. When she had finished paying on a car she would take the money she had been paying on the car note and put it in her savings account. She was paying a car payment to herself even tho her car was paid off. So when she needed a car the next time she either had the money to buy it for cash or make a huge down payment.
My husband and I have been doing that for years so like you when we bought cars last we paid cash -- for both of them.
Folks it can be done -- cash for a car.
Hi, Michelle. Don't know if you can mention specific charities in your chat, but if you can, this one deserves a shout out. They take used vehicles in decent shape and make them available to needy individuals and non-profits. My husband and I have donated several cars to them and, while of course they don't give you the name of the recipient, it's gratifying to know that we helped a single mother keep her home by providing a means for her to get to and from work, or that a charity that delivers meals to AIDS patients and other shut-ins is now using our former van. You don't even have to fix up the car, although we always do -- volunteers take care of that as well. And you get a nice tax deduction. Definitely a win/win situation.
You didn't mention the charity but there are many like this. Goodwill for one.
I love this idea. And you know you can sort of do this on your own. We do. We just gave our old van to a cousin (an ex-offender) who needed transportation. We paid to fix of the car before we gave it to him.
You may know someone who needs a car. Or your church may know or a co-worker, etc.
In fact, we don't trade in our cars (because we have a car fund. see previous answer). We give them away.
Now if you do this, do it right. Make sure the person registers the car in his or her own name, gets insurance, etc. We don't let anyone drive away with our tags on, etc.
Michelle, My husband and I are pretty ready for kids, but I am hesitant because I don't believe we have enough money saved. We have a three-month emergency fund saved and the only debt we really have are student loans. We both make good money, but we just don't know how much a kid is going to "cost." Do you have any recommendations?
Honestly, I don't think you can EVER save enough for a baby. Rugrats are expensive :)
I certainly can't tell you if the time is right now but you are right to be concerned about the money. Too many people let their ticking clocks dictate their family planning.
You should consider your budget and all the things that go with having a baby -- food, clothing, daycare, health care,college savings plan etc.
So look at your obligations, including those student loans. Could you add a hefty childcare bill to your monthly expenses on top of the student loans should you both decide to continue working?
Are you really stretched now in your budget? If so, work to improve things. Make an aggressive plan to pay off debts before a kid. Work to save more in case one of you wants to stay home beyond the typical 6-weeks maternity or paternity leave.
Here are two calculators to help you in this decision
My wife and I will be looking to buy a house in 3-5 years. Since the mortgage market has tightened up, is there any general guidance on how much of a down payment one should be looking to save up for in order to get good rates? We should easily be able to swing 10%, but 20% might mean prioritizing cash savings over retirement/child's college in the near term. (We've no debt, so no concern there.) Thanks!
You have a good start with the 10 percent but aim for 20 percent. You can get a loan for less than that but better to aim for it anyway.
Also, the housing fund of 10 percent or higher should be above and beyond the six months emergency money, life happens fund, retirement savings and college fund if you have a child.
Actually, the poster did include the name of the charity "Vehicles for Change"--it was in the subject line.
Oh, thanks. Totally missed that.
I completely agree with you! I am in a bit of a different situation but am applying the same logic. My parents always paid cash for cars and it never occurred to me to do it differently. After I bought my current car, I changed jobs and took a huge pay cut. My current salary does not allow me to save up enough for a car in a short period of time. I plan to keep the car for at least 8 years and there is no reason I can't save up for a new car in that amount of time so I can pay cash next time. If you can pay off a car in 3 or 5 years (or whatever loan term), then you can take the next 3 or 5 years (less, actually because you're not paying interest) to save up for the next one!
But you know when I tell folks that they look at me crazy. I suggested this to a relative. She just stared at me. But I said, don't you pay off a car in 48 months or less (that's my standard because I do not advise a car loan for more than 4 years)?
If people thought this way they wouldn't be saddled with huge and lengthy care loans.
What is this month's recommended reading?
The absolute biggest expense is child care--in our area, annual child care for a baby is as much as public college! If both parents will be working, figure out how expensive that will be, and like the car payment plan, start setting aside the monthly expense now. It will get you used to not having that income, and create a nice savings account should there be unexpected baby expenses.
Great advice. It's what I did. Glad you reminded me.
A year or two before we started our family, we started to act like we had child care, etc. to see if we could handle it. Its a great way to test if your budget is ready for the extra cost of a child.
Our mortgage payment has decreased $200 per month because county property taxes declined. Is it better to pay that money toward reducing the principal of the loan or to pay down college loan debt ($5000)?
In this case if that's your only other debt I would get rid of the college loan debt. Then if you have a good savings cushion sure put it on the principal.
When you miss a payment, the creditors do not hesitate to report that to the credit bureaus. When you pay them, they take their time reporting that they HAVE BEEN PAID! Recently, we paid several debts (used cashier's checks so they could be easily tracked) and got confirmation from the creditors that they received payment. However, they did not report this information to the credit bureaus. When we applied for a loan, we were initially turned down, due to the payment history. When we provided documentation that they had been paid, it was cleared up and the loan was approved. Is there any guidance as to when the creditors have to report that they have been paid, not just keep records of "bad" actions, i.e., late payments? Thanks!
Such a good point. And nope no law that says creditors have to report the good stuff. But oh, as you said let you be late.
The law really covers the negative information.
Hi, Michelle. This isn't exactly a question, though your thoughts would be welcome. My mother was widowed 26 years ago at age 58. She always handled the family finances and filed their tax returns. Dad was a retired government employee who had a good pension, and Mom was a teacher and guidance counselor who worked into her 60's. They were well off, owned their home free and clear, and had lots of other assets. Mom gave us generous gifts and helped pay her grandchildren's college expenses. However she has now started to become disoriented and her children have had to step in. To our horror, we've discovered that she never notified OPM of our father's death, so for 26 years she has been receiving his entire pension rather than the survivor annuity (55%) to which she was entitled. We figure that, at a minimum, she has received $500,000 in this way, not counting interest and penalties. That's far more than her entire estate. We're not sure how to handle this, and some of us think it would be best to "leave well enough alone" and sort this all out after she dies. But what a mess! Trying to talk to Mom about it at this point gets us nowhere.
Thanks for sharing this story.
I feel your pain and worry.
Hi Michelle, My deceased brother's son is making our family's life strained. He chooses to listen to his bankrupt mother's advice when it comes to finances. Keep in mind his mother has a string of evictions from apartments and bankruptcies. She has convinced my nephew that it makes better financial sense to allow her to keep his money in a cookie jar than for him to open up a bank account. My nephew even has three years of college in business behind him and he still listens to her. On the other hand, we his father's family, have learned to live within our means and we try to give him information, but he listens to his mom. He just comes to us to get money when he gets in a jam. Any ideas of how we can get through to him?
Stop giving him money. Let him fall.
Like bike riding. You have to take the training wheels off to see if you can stay up.
Take his training wheels off by not giving him money when he gets in a jam.
Keep giving him good advice and maybe one day he will learn.
In 1994, we sold our house on a short paid mortgage. We have rented since...and lived abroad. What effect will this have on our current ability to get a mortgage?
Negative information on your credit report such as a short sale has to fall off after 7 years.
But that's not to say a mortgage company or lender won't take into consideration the short sale.
However, if you've been paying your bills on time and you have built up good credit a short sale some 16 or 17 years ago should not stand in your way of getting a mortgage now.
Unbelievable! This is absolutely hysterical! I feel the bigger lesson here is not to text while walking, driving or chewing gum! Was totally unprofessional of the security guard to risk his job by posting on YouTube. He was rightfully fired. But at least this texting woman was caught before she did more damage with the stolen credit cards.
This story is a trip. Read the link folks.
You are right about the lesson about not texting while walking, driving or whatever.
But since I'm a personal finance columnist I was looking for the money angle. But many lessons in this story.
Doesn't that prove that people shouldn't text and drive?
But think about all the things we do while driving.
Lesson for us all really.
Love your chats and really appreciated your book on financial fasts. My wife and I are just completing a month-long fast in time to celebrate her birthday in early Feb. I came up with an idea for putting aside more savings that seem to be really working well for us. We've dedicated all the reimbursement checks we get from our Flex Spending Account and expense checks from our employers, as well as payments I get from a state fund for furlough days into our emergency savings fund. By the time we get those reimbursements, we've already paid for the goods or services, so it's a way of paying ourselves first without even trying. We're able to put in about $300 a month in emergency savings, trying to build that up to cover six months of expenses...
First, thanks for your kind words. How sweet.
And love your idea. Thanks for sharing.
A lot of policies have language to this effect. You definitely have to read all the fine print.
Hi Michelle, I've written in a few times about student loans and credit cards and I wanted to send in an update. I just used my annual bonus (yes, I'm blessed to get one) to pay off all of my credit cards, so as of right now, the only debt I have are my student loans, which I'm trying to pay down as much as I can. I also took an amazing vacation that I could afford because I saved up for it. Thank you for all your good advice and I'm making a promise to myself to get rid of the credit cards I don't need, to only charge what I can pay off that month (or use cash) and to try my hardest not get into credit card trouble again. It is such a relief to know all that extra money each month can now go into savings and paying down my student loans!
Keep paying down that debt.
And when you get it paid off let me know. Send in your Debt Defeater story to email@example.com.
I profiled this week's Debt Defeater on my live video chat, which of course isn't live now :)
Michelle, my husband and I are debating whether to make extra payments on our mortgage. We both work, max out our 401ks, have an extra fund of 6 months living expenses and a good start on a college fund for our 2 young kids. We have enough extra money to make one or maybe even 2 extra prinipcal payments on our mortgage a year, but my husband thinks we may be better off putting the money into an additional fund for retirement. I'm more in favor of having no mortgage when we retire. Which do you think is a better use of our extra cash?
Tell hubby love him but you are right on this one.
If you make just one or two extra mortgage payments a year you can knock of several years from your mortgage and SAVE hundreds of thousands of dollars.
I'm in favor of retiring with no mortgage. Tell him for me to think about this.
Q: What's the biggest expense in our budgets?
A: Our housing expense. For many people it's 30 or 40 or 50 percent of their budget.
So if you retire with that knocked out, you don't have to tap so much of your retirement savings every year, which means your money stretches further into your retirement.
You have all the other basis covered so go for the mortgage.
Tell your hubby, he's got a smart wife. But don't gloat. Kiss him first before you tell him that.
Actually the federal Fair Credit Reporting Act requires creditors to report the good and the bad. One should always review their credit reports before applying for large loans and send letters to the creditors to correct their credit reporting to reflect payments. See FTC.gov for more information.
I'm going to double check this but the Act dictates how information is reported and the remedy people have if information is incorrect. I do not believe it "requires" creditors to report what you do. But if they do report it the law says how it's reported.
A landlord doesn't have to report if you pay your rent on time.
Your credit card company doesn't have to report how you pay your bills. In fact some creditors only report information to one credit bureau. Some report to all three but they don't have to report to any one or any.
Michelle: Let me see if I understand this fully. The women who was texting, worked at the Mall. Is that correct? She wasn't in a strange new place? Did she not know there was a fountain there? She walked into a fountain in a well lit public location with no distractions, but was texting. Now she is suing the mall. Perhaps the guard should not have posted the video, but I note he recorded something done in a public place, not a romp at the local NOTEL MOTEL. Perhaps he shouldn't have done so, but should he have been fired? Reprimanded perhaps, but does the penalty fit the practice? I hope the mall texter is well, but I can't help but not some people get so hypnotized by texting they think they are immortal. There's something to be learned.
You are right that she worked at the mall. But really people text and look down all the time. She says she wasn't watching where she was going. I've had people bump into me while texting.
As far as the guard, I might have given him a two-week suspension, etc. but really this is a case where I wouldn't disagree with the firing. He took an incident that happened while he was working and watching for the protection of employees, customers, etc. It was so wrong to post the video.
Was the punishment too harsh? We could debate it but you can't have employees posting stuff from work.
When you enter a privately owned space open to the public like a mall, you agree to be videod and that the video is theirs to do with what they want. She was dumb and has no right to sue someone for merely showing what she deliberately chose to do. She's continuing her stealing ways by trying to bilk the security company.
Interesting debate we have going on here.
So you wouldn't mind if a security officer took video from say a security camera in an elevator with you say tugging or pulling at your underwear and posted it on YouTube?
I would argue that the video is the property of the mall/building owners and not something that could be used by an employee or contractor.
It's a great idea, but please make sure you remove and cancel your license plate before you donate the car. We were unable to remove the plate because it was rusted on and the charity said they would do it for us and send it back to us. Despite several phone calls from us, they didn't do it and the new owners racked up tickets in the District we were responsible for. We didn't know and DC doubled the fine. THEN we found out. It took time and red tape to straighten it out. They told us afterwards that we should have cancelled the plate.
I did issue that caution. But thanks for the reminder. When we donate our cars we ALWAYS remove the plates. And in fact we make them get registration in their name and insurance before turning the car over.
We have an interest only loan on our mortgage and have for over 10 years. You can always pay more than a mortgage company asks. I have never ever only paid the interest on the loan - I'm always building up principal. When we have it (like from bonuses or raises) we pay even more, sometimes double, what the payment is. Yes, you may pay more. In fact, you'll never get rid of the loan if you don't.
Good advice. Thanks.
I keep reading about people who are trying to figure out how much advance to put on your mortgage. If you do it in small amounts, you'll be amazed how fast it builds up. I always round my mortgage payment up to an even amount ending in 00. Sometimes it's as little as $58. Sometimes as much as $800+ Applied to principal, that makes a difference. Every month, the amount that I pay in interest drops faster than it would if I didn't do this. So every payment of even $50 gets compounded monthly. I am on schedule to pay off our 30-year mortgage in just over 22 years (we've had the house 4 years now). It's much easier and better than the once a year extra payment which I never know if I'll have or not. This I know I can do every month.
Thanks. Another testimony to paying a mortgage off early.