I have been paying an extra $55/month on my car payments and things just happened to work out that my last car payment was this month. I could have paid off the balance a month or two ago, but decided that I would wait and let myself get the car title in the mail as a Christmas present. I know that the best thing I can do financially is to continue to set aside the amount of my monthly car payments for a downpayment on a future car purchase, but what is the best way to do that? I realize that it is all my money, but being able to keep it separate from the rainy day funds or the vacation funds might be useful. Currently, I have just a checking account and savings account. I transfer money back and forth as needed without really earmarking anything for specific purposes.
One more debt monkey off your back. I know it feels good.
And yes keep making that car payment to yourself. I have a credit union account for such things. I do like keeping it separate from my everyday money. I figure out of sight, out of mind. So check to see if you can join a credit union and have the funds deposited there.
Try these two sites to find a credit union
Hi Michelle, My father recently passed away. Since it was not a sudden event, we prepared for it and had no debts from the funeral. What I was not prepared for was being the beneficary of his life insurance. My parents taught me well, and I have no other debt. I've padded my emergency funds to six months, started a life happens fund and a house downpayment fund, and maxed out my retirement accounts for this year and prepared for next year. I even put some money aside in case other family members may need it. I still have money left. I want to use the money for something fun, maybe a trip with my mom. But something stops me from pulling the trigger and planning. I feel worried that something may happen someday and just want to add the rest to my life happens fund. But then I feel guilty because my dad never really got to use his life happens fund. He worked so hard for our family. I believe he'd want me to do something fun with it because I've been sensible with a good part of the money. Thoughts? Sorry that I've been rambling. Thanks!
You are not rambling and we are kissing cousins. I have a very hard time spending money or enjoying money I've saved.
But follow your gut. Take your mom on that vacation. You have checked all the boxes: emergency fund, life happens fund, retirement savings, even triflin family fund...
You can't prepare for every possible emergency but you've done a darn good job of covering the bases.
So go enjoy.
It's my order to you.
I have nearly $70,000 of it. I hate my job as a federal attorney at a non-Department Of Justice agency, we don't really practice law. I'm applying to go back to school for an LLM in an area of law I want to practice in. Is an additional $20,000 to $25,000 of debt worth it for a 35 year old?
I hear from so many lawyers like yourself who are unhappy with the law or not practicing what they thought they might.
If I were you I would concentrate on paying off that $70,000 before heading back to school. I wouldn't borrow another penny in debt for school.
Think about it with the extra debt you will have almost $100,000 in debt.
Don't do it.
Pay off what you have. And then save for what you need to get the LLM.
You're thinking this woman is crazy. I can't do that.
Yes you can! It will take a lot of discipline but you can do it. You should do it. I've seen people do it.
Why can't anyone put a link to Michelle's most recent articles on the intro to this chat? It's really simple html here folks and it would make it much easier to browse her articles before the chat starts. I know I can go looking for them, but why make it so difficult for us readers?
I hear you. I'll pass along your request to the tech folks. We've put up a new system and working out all the bugs.
Hello! My husband and I got married this year and bought a house. All of the related spending was very overwhelming, but fortunately, we were able to do it all without touching our emergency fund of $30,000 (amount recommended by our financial advisor). Next up...kids, if we're lucky. My question is...beyond our emergency fund, should we be saving large amounts for kids, and if so, how do we balance that with the need (okay, want), to buy pricey house things like a grill, patio furniture, dishwasher, etc.?
All I can tell you is save as much as you can for the kid or kids. The rugrats need a lot -- daycare if you plan on both working, college fund, clothes, medical expenses, etc.
But you balance by paying cash for the stuff you want while still saving for the kids. You can spend and save at the same time. Make a list of the pricey house stuff you want putting th least expensive thing at the top of the list. As you save for each item (while saving for kids) buy it. Then save and move to the next thing.
You can do it.
Good luck with the new marriage and future kids.
I completely agree with your order, Michelle! But I wonder if, even if the death was expected, maybe it's just too soon for this person to make the trip. Maybe part of the guilt is guilt for having any fun since it sounds like the death was recent. Maybe park the fun money somewhere for the fun thing, until the person feels ready to really enjoy it, not forced fun. Just a thought....
Good, kind thoughtful thought.
It's possible all that you say is true.
OR the person is like me and is always worrying about the next financial crisis.
So Guilty if this is just about the money, take your trip. If it's soon after the death, maybe take a little time to breathe and then go. Either way, go!
Hi! I was recently married and am going through the process of deciding what to do about health insurance for myself and husband. We both work for the federal government so the cost is identical. My question is who should pay for it, my husband makes considerabley more money so is it better for tax purposes or available income for him to pay or for me? Thanks!
It's all in one pot so probably doesn't really make a difference especially if you file jointly. But ask a tax professional who may be able to give you a better sense of whether it matters.
Happy holidays to you, your family, and our fellow readers. We very much appreciate your year-round gift of good advice. For some of us, this is life-changing.
Oh my, how very, very nice. Thank you so much!
I do try to bring sanity to the world of personal finance and common sense which is very uncommon these days.
Hi Michelle. Yet another person, this time a public official, has pled guilty to $4 million in tax evasion. He's been ordered to repay $5.4 million but you know that will never happen. Why are people so greedy? My family and I live modestly but comfortably on $55,000 per year and we've always paid every penny we owed in taxes. The same with billions in Medicare fraud. Sometimes it just seems overwhelming to even contemplate.
I know what you mean. Burns me up too. We, the regular folks, down here paying our fair share.
But then I have to remember, we do get rewarded for doing the right thing. We get rewarded by not having drama in our lives. By knowing that we are doing the right thing we have peace (or should have peace). People who cheat usually get what they deserve in the end. They often have unhappy lives even as they are driving, flying and living in houses bought with tainted money.
So don't get overwhelmed. Pity them.
Thanks for your suggestions on how to instill good money values in our son. You mentioned comparison shopping as one example. In this day and age, with brick and mortar stores and the internet, I could spend days comparison shopping. Same with grocery stores. I pass 4 different grocery stores on my way home, where I could probably save money if I bought certain things at specific stores, but when does comparison shopping really pay off? When does it stop being worth all the time it takes to go to three different stores or surf the internet for hours? As a working mom, I'm sure you've figured out a balance, so I'd appreciate any advice you have!
You are welcome. And I know what you mean. Sometimes I don't get the balance right. I search and search and the savings end up being small. So I've learned to pick my savings battles. Some things I just let go. I have a favorite grocery store -- like the people, the selection the closeness to my house -- so I mostly go there even if I could get a better deal someplace else. Airline tickets, up til dawn, checking and double checking because those dollars can be big.
If I have time, I search. If not, I do the best I can to find the best deal without being ripped off.
And know if you are the type of person who watches the pennies, you are doing just fine even if you miss a bargain here and there.
At the risk of stoking a fire here, I worry about the bigger picture of putting Disney mirrors and plastic chairs for tots on layaway -- and then having an "angel" appear to deliver the goods. These are not needed items by any stretch, and if you don't have the cash for them, you shouldn't put them on layaway. Period. By the way, the fees associated with layaway are usurious and clearly target people living on the edge.
Actually, I get what you are saying. And for a second I felt the same way about the story about the grandmother who couldn't even make the first payment on the layaway that was paid off by a donor. But I get it. People want their famileis to have a nice holiday.
So that's why I do what I do. Try to get people to live below their means. And not everyone whose layaway was paid off was like that grandmother. Many were trying to pay little by little to avoid debt.
You are also right about the fees.
Still it's such a wonderful story that even when people aren't doing the best they should with their money, others step in to help them out. If all of us were helped out only when we DESERVE to be helped none of us would be helped out.
Hi Michelle - I've always wanted to be a nurse, and after a decade of unrewarding work, have saved enough to cover my tuition and and living expenses, in cash, for the duration of the program. Unfortunately, I just learned that my home is likely $30,000 under water. I've applied to schools within an hour radius so I could commute, but had hoped to sell and take advantage of lower housing costs in the DC suburbs. I could rent for about $200per month, less than my total expenses. Do you think a bank would accept a short-sale from someone who hasn't fallen behind on payments, or do you have any other suggestions? I have excellent credit and have always been very financially responsible. My job requires long, erratic hours that don't allow for part-time study, so I would need to leave it regardless to start school. Thanks for your help. I was thrilled when I hit my savings goal and learned 2012 would be the year, so this is pretty discouraging.
I'm not sure I'm completely clear of your picture but it sounds like you could live in your house and commute and used your savings to pay for school while not working.
So why would it matter if your house is under water? A shorter commute to school?
If that's all, keep your house. Don't worry about being under if your savings covers everything. You may have to travel a bit further than you like but that's better than ruining your credit on a short sale.
Michelle, NOBODY should be taking out loans to go to law school for a J.D. or an LLM right now. The market is abysmal for attorneys, and I have several friends who have made that exact mistake-- graduates of good schools, unhappy with their lawyer jobs, getting LLMs from prestigious programs in other specialized areas to open some doors. Guess what? Not a single one of them has translated into better jobs/more money/better lifestyle/happier people. They are just lawyers in more debt than they were before, with a few extra letters at the end of their names. Don't do it!
Thanks for your testimony.
Totally, absolutely agree.
Hi Michelle - love your chats! :) Ok - I am terrible at saving money! I mean, seriously. I made a promise to myself that I would start saving (setting aside $50 every pay period) starting January 2012. I looked online and do not know which bank (online only) I should use. I have an account with BofA. I know I would be able to save better if it was "hidden" through another bank. I already looked into Ally and IngDirect. I can't use a credit union at this time, because I'm currently disputing a bill. Any suggestion? Thanks!
I can't recommend one bank over another but people I know like ING.
Doesn't really matter really. Just do it so you can build that savings. Oh and if you get a debit card put it away, don't carry it with you.
Happy New Year! What is your advice on the topic of giving or loaning money to relatives? We have always tried to avoid it, and our family members who never have money STILL never have money. So it seems like it wouldn't matter if we gave them money, they would still need more later. What if it is a downpayment to get out of the car and into an apartment? (Or to make a car payment, for that matter?!) What about something discrete like a bill for a medical procedure?
I believe that to whom much is given much is required.
But you are right, you should "give" with the intention of helping people up not as a handout.
So I have rules for giving (and by the way I NEVER lend people money). If I can't give it without needing it back, I don't give or loan it.
Anyway, I helped relatives with downpayment on a house. I help with education costs. And in some cases if they've lost a job or fallen on hard times paid a bill. But I pay the service provider directly. I've given relatives my cars (outright) when I was ready to get another car.
If you have relatives that are just triflin with their money and lives, offer advice and keep your money. But if they are trying to do better and you can help them do better, give if you have it.
Don't forget Craig's List and Freecycle for some of the items you may want. I scored a nice gas grill from Freecycle. The only thing I had to buy for it was the gas bottle, it works great, and I see items like this on my Freecycle all the time.
Thanks. Free is good.
As I understand it, coverage for a couple is really costly, much more than double an individual plan. So unless you have kids, it makes more sense for each of you to pay for your own individual plan. When you have kids, you can switch to a family plan paid by one of you.
Something to check out.
This may seem like an odd comment/question, but how do you learn to spend after so many years of following your advice. I am retired with an income that is sufficient for our basic needs, but I am having a great deal of trouble spending or even touching our accumulated savings. So I guess my question is how do you break the savings habit and actually experience those "golden" retirement years. By the way, passing an estate to the next generation is not an issue here.
This is my burden so I'm so on your street. But hoping to avoid it when I do retire or I should say not work as hard as I do because I probably will never retire completely.
Anyway, you have to just keep reminding yourself that you saved for a reason. Since you can't take the money with you, tell yourself to enjoy it prudently NOW.
So start slow. Take a nice weekend trip to a really nice place. Trust me vacationing at a nice resort with wonderful amenties could shake your frugality a bit. If you can do that, then graduate to bigger things withing your budget.
Replace the fear with the fact that you were a good steward over your money and you can enjoy it.
Michelle, I've been helping a famil set up their finances. They've paid off significant debt, accumulated savings, and generally done well. They're on track to pay off all debts in the next two years except their mortgage. Now the husband wants to trade in the car they're still paying off for a new one. The current car is 3 years old. It's got a lifetime warranty on the powertrain. They've had to take it in for minor (free) work every 1,000 miles or so. They asked my opinion, and I said they shouldn't buy a new car now. The husband still wants to do it, his rationale being that the monthly payment will stay the same. I've shown him that if they didn't do it, they'd have about 31,000 extra dollars saved over the next 6 years. That hasn't made an impression. I know I can't make the decision for them, but I feel like there's some way I could present the information that would make the downside of hopping on the new-car hamsterwheel self evident. Do you have any ideas?
As the cliche goes you can take a horse to water . . .
Really you've done exactly what I would have done. Clearly they are slipping back into old habits now that you've helped them have some financial room. What a shame. Keep pressing and then let it go. They may still have to learn the hard way.
You can just ask them not to send you one. Or ask for a card that's good for ATMs only and not for debit. Avoid the temptation entirely, especially since the letter writer admitted to being horrible at saving.
Good point. So no debit card for you!
For the person who has difficulty saving, try to avoid an on-line bank. That makes it too easy to "borrow" a little of your savings for non-emergencies. Look for the bank that has the highest percent interest on a money-market. Any bank other other than BofA or it will be easy to just transfer money from one account to the other. You want to have to actually write a check (and have to way 3-5 business days for the check to clear to get the full amount) or go to a bank to take that money out. That will help you defeat your lack of willpower at savings. You can set up an automatic transfer from your regular BofA account to this other account once/month to force the savings to automatically get transferred. Good luck.
Another good point. I actually belong to a credit union that doesn't have a lot of branches so it is a little harder to get to that money. And I've tucked the debit card away for so long I don't even remember the PIN.
Hi Michelle! Love your column! I have a bit of a delimma - I became employed earlier this year after a two year unemployment gap. Needless to say, I had a lot of debt to catch up on and my savings had plummeted to zero as a result of the long gap. Well, I've managed to pay off all my debt, except my grad school loan, and Ive managed to save $14,000 in cash reserve. So, going into 2012 Im resolved to start saving for a house. My goal is to put down $50,000 (about 20%) and have about $20,000 in cash reserve (this does not include my 401(k), which will go untouched). So, Ive been shopping around for financial planners and doing research into managing my own investments, and Im stuck. I feel like I could save the fees if I do it on my own, but maybe the planner know of things that I could be doing to maximize my money that I don't? Can you give any insight into what would be the best route to go? Happy Holidays!!!
Actually, if I were you I wouldn't worry about saving and investing for a house until I paid off the grad school loan.
Focus on that for now.
Then the house. As for managing the house fund to help it grow, later you could pay a one-time fee to a fee only planner and get an overall savings, insurance, investment and retirement plan that you can then follow yourself.
I have loaned money to family and friends over the years, sometimes fairly big amounts. However, in my personal finances, I consider it a gift that I will never get back. I call it a loan, however, as many people find it harder to accept large cash gifts. Even if they don't ever pay it back, it is easier to them to accept "a loan" especially when they are hard up. People will often refuse a charitable gift even when they especially need it, but will accept a loan. On a small amount of these transactions, I have actually had the money surprisingly returned and I consider it a bonus or "found money" when I get it back.
I get your strategy and it seems to work for you.
However, I've been trying to get people away from seeing debt as an answer even in the form of a loan behind the scenes you view as a gift.
I'm also trying to teach people to ask for help when they need it. Pride is not always a good thing.
So to be consistent I call a monetary gift just that but I give in it in a way that it's clear I'm helping them up.
Michelle, thank you for all your advice and encouragement through these columns. Many moons ago, I overcame *most* of my debt, knocking out consumer credit cards, paying off my car, and dramatically raising my credit score. The only thing that remained was student loans, which I have steadily and consistently paid down. Fast forward to today, and I'm back where I started. I've run my cards back up, using them to pay for basic living expenses when my job reduced my hours. Now add to that I also have a mortgage and medical bills that need to be taken care of. I feel overwhelmed. I'm late or behind on everything except the mortgage and student loans. Thankfully, I started a new (and better paying) job and have been paying off old things a little at a time. I even have a small emergency fund, of about $500 that I DO NOT TOUCH. I'm falling further and further behind just trying to make minimum payments. Sometimes I can't even open my mail or answer the phone for weeks. I'm looking now for a part time job so I can more aggressively pay off my mistakes, but I still feel stuck. It also sucks to know I dug myself out before but fell into the same traps. I live alone, modestly and frugally, and still cant seem to reduce my bills. Any suggestions?
First forgive yourself.
Second, stop looking back. Part of the reason you fell back to your old ways is because you had an income reduction.
It's not an excuse but a reason. It's Okay. People get up and fall down all the time. The question is always, are you going to stay down?
Like before you need a good plan. Open the mail. Answer the phone. Tell your creditors what has happened. I like the idea of the second job. You might also enlist the help of a credit counseling agency to help with the credit card debt. Go to www.debtadvice.org and see if you can set up a debt repayment plan. Going thu the non-profit might help lower some interest rates or get rid of some fees.
You dug yourself out once before. You can do it again.