Hi Michelle, My husband retired early from teaching and will begin drawing his pension in two years. We are living comfortably (no frills) on my income and have $60,000 in liquid savings. We'd like to pay off our second mortgage of $40,000 which would enable us to qualify to reduce our first mortgage rate from 5.15 to 3.25 percent, but are afraid of using our savings to do this. The monthly savings from reducing our interest rate would be $350 a month. We're torn -- can you give us your usual good advice? Thanks!
This is a tough one. On the one hand, I'm very worried about your only having $60,000 in savings. Paying off your own would make you house rich but cash poor.
But if you have a stable job and you truly capture that $350 a month in savings by refinancing, I would pay off the house.
However, work your buns off to rebuild that savings. Could your husband get a job to bring in some income while you wait for his pension to kick in? If so, you could quickly rebuild your savings over the next two years.
Michelle, love your column and it has helped me. But I am very very late. I am 59 and really had no idea what to do early in life. So I have a small 401(k) and make a modest income. I have a small condo. What to do? My debts except for condo will be paid off soon. I really don't have any "lattes" from Starbuckets in my budget to cut... no cell phone. I want to have something to look forward to. Suggestions greatly appreciated.
Can I give you some hope? You are still fairly young. And if you stay healthy, you could work another 10 years or so to catch up on your savings. Once you pay off your debts, take the money you were using for that burdent and save some and invest some. You can do this because I have seen others do it.
You've already done the hardest thing and that's recognizing you had to do something.
I am 61 years old, worked hard all my life at a job that I thought was recession proof, and raised three children alone. I can't believe that I now find myself at the brink of bankruptcy. I have a question about creditors and debt, please. If I declare bankruptcy, who does not get paid? Is it the credit card companies or merchants (like my landlord) with whom I've used my credit card? I'm having a huge moral problem with all of this. Thank you very much.
I used to cover bankruptcy so I've talked to a lot of people going through the process. And I didn't meet one who didn't feel bad about having to declare that couldn't pay their bills.
Generally, I do try to get people to do what it takes to avoid filing for bankruptcy but sometimes it is appropriate if you just don't have the money and won't have it, especially because of a job loss or illness.
So don't be so hard on yourself. You did a lot of things right. As for what gets wiped away, all unsecured consumer debt. That means if you include in your filing all your credit card debt it gets wiped out. But generally the credit card company, not your landlord takes. There are some rules about running up debt before filing so ask your bankruptcy attorney about that (and you should get one).
I'm actually relieved that you feel bad, because that means you care that someone won't get paid. But we have a bankruptcy system to allow people to get a fresh start. It's unfortunate for the businesses but it is the cost of doing business.
Hi Michelle, As always, LOVE the chats. What do you think of products such as Lifelock that protect against fraud? I've heard mixed reviews and I've done my own due diligence (setting up fraud alerts with the big three credit agencies). Do products like that really give any more "protection"?
I tried one of the credit monitoring services and found it didn't really help that much. Monitoring only tells you something after it's been done to your credit. Other programs offer to help clear things up if you become a victim of identity theft. So there is still little upfront protection. It's like insurance. You hate paying for it but glad it's there when you need it. But generally, I don't think most people need any of it. You can put fraud alerts on your credit files and you can be sure to get your reports once every 12 months to protect yourself (go to www.annualcreditreport.com and only that site).
I think you can do this alone by being proactive yourself.
I'm the poster you provided advice to about helping family after the hurricane. I appreciated your honest words and sent a gift card to a home improvement store.
Thank you. Did you take the advice? What happened?
By the way, lots of folks took me to task for recommending that you help the relatives who had not been good money managers and therefore didn't have the resources to help themselves after the storm.
But I believe in compassion.
Both a money and family question, but I value your take on both. My fiance and I are planning a summer wedding that is small and simple enough to stay within our budget. My parents have offered to give us $2,000 toward the catering. I know I should be grateful, but knowing that they gave my sister $10,000 for her wedding 5 years ago, I can't help but feel a little hurt. Any advice on how to get over it and be grateful?
Be grateful. It's really that simple.
What is intended for you is intended for you. What was intended for your sister was intended for her.
I tell my kids all the time life isn't fair. They are constantly bickering that I do more for one than the other or somebody got a bigger slice of the pie or whatever. As a parent you look to see who needs what and give it. Maybe she was spending too much and your parents wanted to be sure she didn't end up in debt.
You are getting $2,000, which sounds like more than you need. I understand your hurt, but you are still receiving.
Michelle, first thank you so much for your advice over the years as it has helped a great deal. I am hoping you can help out with a current issue my wife and I are facing. We currently both have very well paying jobs that will allow us to put away a lot of money in the next few months. We have at least 6 months of living expenses, a fund for "stuff" and have recently paid off our student loans. The question is, now what? I will be losing my job and my wife will be taking a pay cut in June but I am currently looking and we should be able to easily live off of my wife's salary even at a reduced level. In the meantime, what should we do with this temporary windfall? Look for a house? Invest in the stock market? We both have retirement accounts and are maxing those out as well. What resources would you suggest? Unfortuneately we are abroad so finding a financial advisor is very difficult. Any advice is appreciated.
Until you have that new job and your financial life is back to truly being stable, I would bank the money. Don't worry about how much interest you are getting. The job market is crazy right now and I've known people who were SURE they would find another good job and it took them 12 to 18 months to find an equally good paying job. Better to plan for the worse and hope for the best. Just save the money until you know for sure you won't need it. Then you can talk to an advisor (and you can call and do planning over the phone) about how to best invest the extra funds.
Hi Michelle, I know you got a first-rate education at your state univeristy, and I know you and your husband have been saving for your children's college educations. That said, would you let your children go to whatever college they wanted as long as they could do so without incurring debt? I ask because I'm not convinced that an expensive education is worth the money (compared, say, to a state university), even if you can afford it. Thanks!
Oh you are so on my street right now. We are exactly facing this situation. My daughter has applied to 4 schools (two in-state, two out-of-state). Part of me hopes she will choose to go to University of Maryland, College Park, where both her parents graduated from and is about 30 minutes from our home. But she of course wants to go out of state. I really, really don't want her to overspend for undegraduate when I know she had to go to graduate school (she wants to be an educator). So my husband and I have been constantly talking to her about how to leverage the savings that we have. If she doesn't overspend for undergraduate by going out of state (assuming she doesn't get any scholarship money) she can keep whatever money if left over and use it for graudate school. It's a hard sell. But you know what? We are the parents and we have a say in this big time and we will continue to have that say pushing her in the direction we think is financially better (like staying close to home will save in traveling costs, etc.)
I filed for bankruptcy 3 years ago. I am trying to rebuild my credit. What is the best way to do that?
Pay your bills on time. That has the biggest impact on increasing your score.
And don't be in a rush to return to credit anyway. It's a trap, a monkey on your back.
To tell someone that they could work past 65 is buying into the myth that people can't work past 65. Michelle, I really love your columns, and know that you help a lot of people. But when social security was enacted, a long time ago, people barely lived til 65. Now if they live til 65, chances are they will live way past 80. Which means - when they are healthy at 65, and they can't really afford to retire, or even if they can, working past 65 isn't a terrible thing. Most people can't afford to not work for 30 or so years (my grandmother collected social security for almost 40 years, it was NEVER supposed to work that way!). Just a pet peeve - if we never get past our strongly held ideas that are outdated, we will start borrowing $2 trillion a year with no hope of ever paying it back.
I hear you but the truth is also that many people can't and don't work into their 70s because of health reasons. So it is not a myth to make people realistic about how long they might be able to work or even want to work at a grinding 9 top 5 job. I actually am an advocate for continuing to work but at something you like, is fun and not taxing. I don't expect I will ever "retire." But I hope to one day get away from all these deadlines that stress me out.
Michelle, please clarify. Why are you worried about a couple having only $60,000 in liquid savings? The husband has a pension and the wife is still working. If you assume that they have no retirement assets and that the $60,000 is their only nest egg, that makes sense, but most families I know don't have anywhere near $60,000 in cash sitting around. That seems like a more than adequate emergency fund to me. Why doe s this concern you? FYI: I'm 42 and have $120,000 in retirement investments and will have a paid-for house the year I turn 55. My husband and I have about $10,000 in cash. I'd like to have more, but we live beneath our means and I thought we were doing OK. How worried should I be?
It concerns me because what if the wife can't work anymore? What if they still have a morgage, which many seniors do these days. And I don't know how large the pension is? Is it enough, often it isn't to cover retirement expenses.
There is a difference between an emergency fund and retirment assetts to supplement what typically is small pensions and Social Security. Go to www.choosetosave.org and do the retirement calculaor. For many $60,000 would be woefully not enough.
Hi Michelle, I am newly married. My husband and I are early 30s with no kids yet. I paid off my student and car loans in the past year and now have no debt at all. He has about $35,000 in grad school loans, which we're working hard together to pay down. We have about $16,000 in savings and our combined gross annual income is about $100,000. We want to buy a house soon. We're currently paying $1200 a month to rent an apartment. We've been assured that we'll qualify for a home loan of $250,000 or so, although we would want to keep our budget under that. In our area that would allow us to buy a no-frills home in a decent neighborhood, which is fine as we don't anything fancy. But is this smart? We keep hearing how its a great time to buy, interest rates are low, and really we are eager to own and to start a family. We're just worried that we'd be cutting it financially close given our relatively high debt and low savings. Can we handle this now or should we wait?
I would get rid of the rest of the student loan debt before buying a home. Then you would have some of that room you are worried about. Also, you need to save not just the money for a downpayment, closing costs, but a nice starting emergency fund (based on the projected new mortgage payment). The right time to buy a home is when you can afford it. And for me that's when you don't have $35,000 still in student loan debt. Don't be in a rush. It will happen and if you do it without the debt load, you will feel so much better and secure.
I believe in compassion and smart spending, so the gift card was the best option. As usual there were lots of extravagant Christmas gifts purchased for my nieces (over $1500 each), just as with every other Christmas past. I can't control their spending, just my reaction to it.
I think you did the right thing. And you will be rewarded for your compassion.