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Color of Money

Color of Money

Free-For-All

Michelle Singletary
Washington Post Business Columnist
Wednesday, June 9, 2004; 1:00 PM

Whether you are buying a house or working through your student loans, Post columnist Michelle Singletary will give you tips and answer your personal finance questions.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

_____Michelle's Column_____
The Color of Money

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Washington, D.C.: I enjoy your chats/columns. What is your view on tithing while saving, and reducing debt. Specifically when the church makes appeals to offerings while you are trying to manage your in/out cash flows.

Keep up the good work.

Michelle Singletary : Good afternoon.

What a great question to start of this discussion. Many folks will probably be surprised at what I'm about to say. But I'm a Christian and I believe that I should tithe. It comes first before everything else (well except Uncle Sam but I don't control that). So the real issue is, if you believe in tithing how to make everything balance. Well it's like anything else you plan for. If you rent or own a home you pay that right? You have to. So put tithing in your budget just like everything else. But that means you MUST do everything in your power to make your money stretch. That might mean cutting expenses. But you can do it without shortchanging God, your landlord (or mortgage company) AND your creditors.

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Arlington, Va.: If you have already consolidated your student loans, can you re-consolidate them to get the interest rates at a lower fixed rate? Do you know what those rates currently are?

Michelle Singletary : Sorry, if you have already consolidated your student loans you CAN NOT refinance/consolidate them again to take advantage of the new low rates UNLESS you take out a new student loan that was not part of the first consolidation. And the new rates as of July one will be 3.37 percent for Stafford loans, the lowest in more than 35 years. The news gets even better for students who are still in school, have deferred paying their loans or are within their grace period, meaning the six months following graduation. Their interest rate will fall to 2.77 percent, from 2.82 percent.

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Hunt Valley, Md.: Dilemma..... I absolutely hate my job. Coming in everyday is starting to wear on my mental health. I know others feel the same way so it's not just me. The problem is I need the money. I am moving in four months and will be leaving my job altogether, however, I don't know if I can wait that long. I need out. I pretty much have job with a former employer on a part-time basis if I want it. I am seriously considering that offer. I would only be taking a slight pay cut since I will be paid hourly than I am on salary. What would you do?

Michelle Singletary : Well, I'm a safety nut. Me, I would hang in there until the move is complete and I'm settled. That's me. But I'm not you and ultimately it sounds as if your mental health is at stake and that's worth more than any paycheck.

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Baltimore, Maryland: My family has recently taken in my elderly aunt with dementia. She does not have prescription coverage. Apparently for several years, she has been using her credit card to pay for her medication and food. We cannot pay these bills and her pension is very small. Where can we turn for some relief from the creditors and the debt?

Michelle Singletary : I think you should contact AARP right away. This organization has so many resources and can really help you sort this all out. For the debts you may try going to www.debtadvice.org to seek the help of a debt counselor. But ultimately, your aunt might have to file for bankruptcy. But for now get some good advice from a professional.

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Washington, D.C.: Michelle-
Desperately need advice, I am going back to school and will be living on student loans. I already have hefty loans from my undergraduate studies. Although I'm pretty good about budgeting myself I'm sure you have advise to offer that I would have never thought of on my own. As always, thanks for your help!

Michelle Singletary : Do you HAVE to go back to school right now. Have you really crunched the numbers. Will you immediately get a pay raise to cover all the loan payments you will have. Maybe you should consider working for awhile before going back to school.

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Rockville, Md.: About what percent of a house price do you need for a down payment? I'm saving to buy a house in 2 years, and I was just wondering about a ballpark percent.

Thanks!!!

Michelle Singletary : The answer to your question is it depends? Are you are first-time home buyer? If so there are a lot of programs that wouldn't require you to put down a lot to get a house. What price range are you looking at? These days you can get into a house with very little down. If I were you I would consult a real estate agent and get some ballpark figures for the price range of home you might want to buy. He or she could give you a better sense of how much money you will need because remember it's not just the down payment but taxes, fees, points etc.

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RE: Student Loans: Michelle- You forgot to mention that the rate that you get is the weighted average of the rate of the new student loans and the rate of the old student loans.

Michelle Singletary : True. Thanks. But the rate I quoted is the rate for students who have not or will not consolidate. The rate changes annually and you don't have to do anything to get the new rate. Your lender will just adjust your payments.

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Upcoming appearance at Arlington library: Michelle, I enjoy your columns and chats. I was excited to pick up a flyer from Arlington Central Library on N. Quincy Street that you will be lecturing there on June 16 at 7:30 p.m. I don't work for the library but visit there frequently to check out books.

You should publicize the lecture in your chat. There's plenty of free parking, or it's about a 15-minute walk from the Ballston subway stop. I'm sure your grandmother would approve - partly because it's a free lecture!;

kay

Michelle Singletary : Why thank you. So folks there you have it. I'll be at the Arlington Central Library on N. Quincy Street JUNE 16 at 7:30. Trust me, you will have a blast. I'm just as crazy in person as I am in these chats and in my column. So come. Besides there are no new TV episodes anymore!

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Washington, D.C.: Hello! Love your column.

What is the answer to avoiding AMT? Does contributing more to a 401K help?

Thanks.

Michelle Singletary : Thanks. And if I knew that I would be a CPA. My advice is to consult a professional tax person.

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anywhere USA: Dear Michelle,

Hubby and I are buying a new house for $453k, selling our townhouse (current mortgage $185k) for $390k and thus will put a nice down payment on new house to reduce new mortgage. We have no credit card debt and have two decent paying jobs. One car payment. One daughter. Problem is mother-in-law cannot get on the bandwagon to support our move. Says "why not just stay in the townhouse and save your money?" We think our move is a good one and that we're doing it at the right time. She has avoided coming to see the new house under construction and shows no interest in conversation about the new house. How to get her on board with our enthusiasm? We've always been careful with our money, already have an established college fund for our daughter from inheritance. We'll be a little tight at first, but we're prepared for that. I can't see why she can't support us on this. Advice?

Michelle Singletary : You're kidding right? Are you adults or children? Listen, if you have done the math and are good stewards of your money than poot your Mother-in-law. Poot (old neighbor slang for forget what she thinks because what matters is what you do with YOUR money and YOUR life.) I understand your wanting to please her and respect her opinion but she is wrong. And you can't always please other people about your life choices. So invite her over for the home warming party and if she doesn't come just call and say "Sure missed you. We had a blast!"

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Washington, D.C.: Hi Michelle-
My basic question right now is - Where do I start?
I've had limited finances since graduating college, but will soon come into an inheritance that could help me eliminate debt and serve as a down payment for a home. I have no idea where to go, however, to get the best advice on which debts to pay, which to keep, how much immediate spending money I have, etc.
I guess I need a financial adviser, where can I find one and how much should I expect to pay?
Thanks so much!

Michelle Singletary : Well, slow down. Take a breathe. So where do you start. Take a money inventory. Be sure you have a good sense of what's coming in and what's going out (especially with a big lump sum coming your way). Next make a list of your debts (credit cards etc. that should be paid off). When you get that lump sum of money make sure you first put away enough to cover three to six months living expenses (that's your safety net-- everyone should try to have it). Next pay down high cost debt first (those credit cards). All if you can after putting aside your safety money. If after that there is still a large amt. of money left over I would recommend you seek advice from a financial adviser. There are fee-only advisers or ones that charge for a plan or don't charge anything but earn their money through commission. Check my archives (both chat and column) because I've written a lot about how to find a financial planner.

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Leesburg, Va.: Hi Michelle!

My husband and I are currently saving over 1K a month very easily, even with all our vacations and tons of splurges. I know, we should watch those expenses. We're working on that.

We currently have a condo and we have a car that will be paid off in a few more months. We have over 60K saved for the house and we'll still have extra money for emergencies.

Is it ok to get a house that costs as much as our current mortgage and condo fee PLUS the amount our car payment was? I'm thinking it will be ok since I know we can still save the same amount as we do now - even more when we cut expenses.

What do you think? Is it a good idea?

Michelle Singletary : Do the math. I really can't answer this question without knowing all your financial business. Only you can tell if getting a house will be okay for your budget. But that's easy to figure out. As I told a previous reader, take a money inventory. Really get a handle of all the money coming in and all your expenses (and this would be a good time to get handle on those splurges because trust me there are expenses for a house that you don't have with a condo). Once you have a budget then look to see if you can stretch to get a house or if what you put out now would be about the same and thus you can handle the mortgage.

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Fort Washington, Md.: My wife and I make a small amount of money for living in the D.C. area - less than 70K together. We have about 14K of debt which we're aggressively paying down.

After it's all gone, we'd like to buy a house. So, I know we have to have 6 months of an emergency fund. But how much should we put down? Do you suggest waiting until we have 5, 10, 20 percent AND are able to cover the closing costs?

Michelle Singletary : I think how much you put down depends on a lot of factors, all of which should be discussed with a real estate agent or mortgage broker. But I do think that you shouldn't buy a home if it's going to wipe you out. There ought to be some money left over not just for closing costs but for all the other things that come up with you move into a new or existing home. AND don't forget you should have that 3 to 6 months living expenses put away.

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Washington, DC: Michelle, HELP!; I'm usually SO very conservative with money, but I got a new credit card in April and I've gotten the balance up to $1500!;!; I can't stop using it, it's like a drug or something. Slap me on both cheeks or something, gimme some Big Mama-ism, SOMETHING!; I'm sitting here now surfing the net for stuff to buy with this credit card...

Michelle Singletary : If I were next to you right now I would SLAP you (that is if you promised not to sue me). Look sweetie you stop by stopping. Not surfing the net. What are you trying to buy so much that it's making you lose your everlasting mind?

Listen, when you get home take the credit card out of your wallet. Apply for one of those debit cards with the Visa or MasterCard logo on it so you can have a credit-like card for an emergency. Also, if you want to really get a grip. Take your credit card statements since April and total up the entire balance. Now without looking at the itemized list of what you purchased see if you can remember what you bought -- ALL OF IT TO THE LAST PENNY. If you can't let that be a Big Mama you are wasting your financial future away on STUFF wake up call.

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Washington, D.C.: Hi,
I am a 23 year old "young Professional" and recent college graduate, working in D.C. and trying to do two things: Save money for the near future as well as further down the line, and pay off about 700 dollars of credit card debt. I am looking for realistic suggestions/ plans to get myself into a good spending/ saving pattern. Any advice is greatly appreciated!
Thanks!

Michelle Singletary : Make your savings automatic. See if your job has a credit union or a way for them to deduct money from your paycheck right into a savings account. Don't get an ATM card for the account or if you do don't carry that card around with you. That way you will have to go thu a lot to withdraw money. The best way to save is to make is automatic. And save the same percentage every paycheck. Start with 5 or 10 percent of your take home pay. Next put the credit cards away until you pay off that bill.

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McLean, Va.: Do you have any resources to recommend for creating a budget? I'm not very good at creating my own, I always forget to add in things and still don't know where all my money is going.

Did you ever get your Neptune Dryer?

Michelle Singletary : My husband and I do our budget on Quicken but you can create a budget sheet yourself. Just create a word document and sit down with all your bills for the last three months. Type in all your expenses. The key is to keep an account of what's coming in and out. Do you balance your checkbook? Are you making frequent trips to the ATM? Are you pulling out your credit cards all the time to the point that you are really spending money you haven't made yet? These are all questions you need to ask so that you can figure out where all your money is going.

And no haven't broke down to get the dryer yet. You guys know me just too cheap -- but I may do it. Stay tune.

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Mother-in-law: So she doesn't approve of a new house? It may be sticker shock at the thought of a $450K house. Unless you're going for a huge mansion it may help if you talk to her about the going prices of houses in your area. We bought our house 19 years ago and the value is more than double. Could you be dealing with an older generation that just doesn't know the current market and thinks this is a sky high price? It sounds like you have your feet on the ground to me!;

Michelle Singletary : Good advice. But again in the end if she still doesn't approve. Her problem.

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Maryland: One thing that annoys me is monthly charges that are easy to miss. Phone bills, for instance. Having a second line added $5 a month just in taxes and surcharges alone. After playing how-many-times-can-I-change-long-distance-suppliers with all the checks I was given to switch, I have finally dropped all long distance. The long distance carriers all have their own taxes, surcharges tacked on in addition to the Verizon bill. We considered getting a more pricey cell phone plan to get free long distance, and then realized, after number crunching, we were better off getting prepaid phone cards from Sams Club at 3 cents a minute.

Looking at the bills closely each month pays off!;

Michelle Singletary : Amen! I do it all the time and often time charges that are wrong.

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Baltimore, Md.: Hi Michelle. I'm a new fan of your chats. I'm 32, single, no debt, don't own a home. But I am and have been a spender (on stupid stuff). I'm finally "growing up" and trying to save money (have a 401(k) here at work but have opened another savings account). I could take up this whole chat asking you questions, but I know your time is valuable. What books (by you or others) could you recommend for a cool chick who is finally getting her act together. Many thanks.

Michelle Singletary : Ah shucks, thank you so much. Well, yes buy my book "7 Money Mantras For a Richer Life"(it's really good, funny and easy to read if I do say so myself). I also like anything written by Ric Edelman. I would suggest you join my Color of Money Book Club. Every month I recommend a new personal finance book. Go to the my page on the Post site and you will see a link for the book club. Get the first book I recommended, "The Richest Man in Babylon." Excellent book and will put you on the right track to keep and save your money.

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Washington, D.C.: Hi Michelle,

I need your help in getting over my anger. My husband and I have been married a little over a year, and we're ready to buy our new home. Let's just say our financial situations were/are very different coming into this marriage. He has a decent amount in savings, but as a car loan and a student student loan. I, on the other hand, have no debt whatsoever, and have over 100k in savings. When we decided to buy the house, it obviously made more sense for me to contribute more towards the down payment of the house. I have accepted the fact and have instructed myself to never use that as an advantage if/when we fight about money, or anything else.

I know you encourage both partners to pool their money together, and then it's "our" money. How does one get over that one person contributes over 80% of "our" money?

Thank you.

Michelle Singletary : By getting over it! Really. You married the guy. You decided to join in union with him and to me that means everything is on the table and it does become "ours." It has to. So if you truly believe that then don't be angry. For real I was in a similar situation. I came into a big pot of money because I took a buyout from my last job. It was that money my husband and I used to buy our current house. And you know what not once --EVER -- did I resent the fact that it was "my" money (100 percent even) that put us in this house. I really, really do think couples in our society have marriage and money all wrong. We go into marriage almost like we are roommates and need to evenly divide all the bill lest someone is short changed. Married life is never equal. Get your house, enjoy it, be blessed if you found a good man that wants to share a life with you and stop focusing on how much money you brought into the relationship. Just remember your vows -- you are one and so should your finances be (I know not good English but hey it's good preaching)

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Washington, DC: For the person wanting to know how much money is needed to buy a home, they should contact a mortgage lender. A real estate agent is an expert in the housing arena, not financing.

Michelle Singletary : A real estate agent is still able to help people figure out what they need. I know because my cousin is an agent and he has always helped me with housing and housing finance questions.

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Baltimore, Md.: For Aunt with dementia - Please, please make sure you have Power of Attorney. It may now require a court since she's already suffering. And you're not alone. With my late-grandmother-in-law, we found out she had been charging food and drugs for years only about 6 months before her death. I was so heartbroken about all the pain she was going through (hers was made worse by an adult child who demanded - and was given - money before her creditors). She passed in the process of filing bankruptcy. However, you need to take control and charge now, and if bankruptcy is the answer, go ahead and do it. While I dislike it, it is a safety net.

Michelle Singletary : Thanks. Good points. Boy, I have some really well informed readers. You guys make me proud!

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Washington, D.C.: Any tips for someone who is struggling to make ends meet? Student loans and car payments eat up most of my paycheck, another thing I have to worry about in D.C. is rent, any suggestions on how to either find affordable housing in a good area or reduce the payments on my student loans (fortunately I have no credit card debt)? I budget myself yet find that money is tight, any suggestions on how to cut costs?

Michelle Singletary : Get a roommate.

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Washington DC: Hi Michelle!; I am going to graduate school in the fall and will be taking out a subsidized Stafford loan. I might also take out some portion of an unsubsidized Stafford, since the rates are so low. Fortunately for me, my mother has put about $30K into savings bonds for me, which are continuing to earn interest (they are worth about $40K now). Assuming the interest I'm earning on the savings bonds is higher than the interest I would have to pay on an unsubsidized loan, is there any reason to just cash in the bonds and skip the loans? Thanks.

Michelle Singletary : If the bonds are earning about the same or less than what you would pay in interest on the student loans I would cash them and pay for school without taking out loans. But really why was your mother saving the money? Was it to help you get through school? If so use the money. Why burden yourself with more loans if you don't have to.

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re: tithing: You should tithe WHAT YOU CAN AFFORD. Too many churches try to make congregants feel badly if they aren't giving "enough." If your church does this, find a new one. Too many ministers are living in houses in places like Potomac and vacationing in Vail (yes, Vail) or me to think that God's seeing most of the money in modern churches.

Michelle Singletary : You are WRONG. Listen, your religion is a personal thing and I often hesitate to go here because people believe so many things. But in my faith tithing is not a matter of your paying what you can afford. You should tithe period. What you pay in tithes (and offerings) should have nothing to do with what your minister gets paid or how big a car he drives or house he lives in or whether he vacations in Vail. If your minister is not a good steward of his/her money that's between him/her and God. If you believe in tithing than you have to really get a handle of your money to make it work.

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DC: How do you feel about cashing out capital assets (mutual funds, stocks) to cover modest down payment and closing costs (around $15K total) for a home in DC? I've done the math and can afford monthly payments on a 200K home but I don't have cash to cover the up front expenses and wouldn't want to deplete my savings to do so anyway. I'm very interested on your take.

Michelle Singletary : Well, I don't think you should cash out your retirement money to get into a house. If you have to do that than I don't think you are ready for the house.

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Fairfax VA: When you say to have 3 to 6 months in savings, is that liquid cash? Or does that include 401ks, IRAs, savings accounts, etc.?

Michelle Singletary : No liquid cash as in it's easy to get to and won't result in some penalty. Keep the money in savings, CDs or money markets.

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Charlotte, NC: Thank you for taking my question Michelle. I enjoyed your book and have been enjoying your column for about 6 months.

My husband and I recently bought a house. When we went over all of our financing options, an 80-10-10 seemed to be the best bet for us. This is our second home, so we were familiar with the whole mortgage process, but with the 80-10-10 we mortgaged 80%, paid 10% down, and took out an equity line for the additional 10%. Our interest rate is 1 over prime, so for this statement it was 5.25%. When I got the first statement everything looked fine. It was all pretty straight forward. We have now received the 2nd statement/bill and the balance looks skewed (it went up and then went down again with the first payment.)

Basically I thought I understood how all of the interest and payments work, but now I am left confused. Now we feel like we have paid the down payment with a credit card and we have to scramble to pay it off. I do understand that the interest that is paid is tax deductible and we are planning on making extra payments each month to help speed up the pay off.

Can you explain/give us any advice or tips for equity lines?

Thanks again!;

Michelle Singletary : You paid the down payment with a credit card? I'm not sure that was a good idea since clearly you don't have the money. But if you're not sure what happen to your monthly payment you should call your lender and have him or her walk you through everything again.

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DC: Here's a question:
I currently owe $30,000 on my home equity line of credit. I have $20,000 in savings. I can pay off a good chunk of my debt, but then I'm out of my savings. Reasons for paying it off: Don't have to pay interest (debt is 4 percent, savings earns 2 percent). Reasons against paying it off: Don't have the cushion -- although not really a reason, because if the car dies or something I can write a check on the home equity line.

So what do I do: continue to get -2 percent interest on savings I don't need? Or pay it off?

Michelle Singletary : Keep a small cushion and use the rest of the money to pay down that debt!

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Washington, D.C.: Hi Michelle,
I have somewhat of a basic question. I am 28 and single, and just recently finished paying off my undergraduate and graduate school loans. I have no debt and a 6-month emergency fund. After paying bills and incidentals each month, I have about $500 left over. I am not used to saving much because until this moment I was focused on getting rid of my debt. That said, what do you think I should do with the money? Put it all in a savings account? Money market account? I am at a loss! This is the first "good" money problem I ever had! Any advice?

Thanks!

Michelle Singletary : Make sure you are saving for your retirement and if you want to own a home soon start saving for that. So with an extra $500 a month I would put half toward retirement and perhaps the other half toward a housing fund. Find out if your job has a retirement savings plan and put the retirement in that plan. For the house start by putting it in a savings/CDs if you think you will want to buy a home in the next five years.

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Silver Spring, MD: We found out that our house is worth more than we thought. We are refinancing and planning to "cash out" some of the equity to pay off student loans. Student loans are at about 6% and mortgage will be 5%. The new loan to value ratio will be 65%. Is this a good idea?

Michelle Singletary : Sounds like a good plan to me!

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Kingstowne, Va.: Michelle - I really enjoyed your article about training your kids for college. My parents did EVERYTHING wrong when it came to preparing me for college and real life. Never set a budget for spending, never gave me a set allowance to work with, never talked about debt/credit cards. My folks never filled out the paperwork for financial aid, and given my age (under 22) I was supposed to use their tax returns (to which I was told their money was none of my business). I bounced my tuition check and got kicked out of school (later reinstated) because my parents didn't deposit the full amount needed, but neglected to tell me in advance what I would be responsible for. I never knew from month to month what my budget would be (even with a part time job). I had to take a year off of college to make some money to pay back Visa and save for living expenses. On my own, I was able to get a student loan to finish school (finally got old enough), and my job offset other expenses. I graduated with two degrees, I paid off my loans within 5 years, but I was stressed about money the entire time I was in school. I spent far too much time and energy worrying about that when I should have been studying.

My suggestions for parents would be:

~from a young age, teach children about money and budget and (good and bad) debt.
~don't think you are doing them any favors by paying for all their high school activities - It only makes it harder when you cut their purse strings later. Start budgeting with them in high school. (i.e. Mom pays for yearbook and photos, but Jr. uses allowance to pay for prom tickets and tux)
~educate yourselves about college financing options. If you expect your children to apply for loans and scholarships, be prepared to fill out paperwork with them.
~tell your child exactly what you will and won't be paying for (i.e. tuition yes, sorority no, books yes, food no)
~prepare a realistic monthly budget for your child. Discuss food, housing, books, social activities.
~continue to talk about money regularly to your child throughout his/her education. The LAST thing you want is a frantic phone call because the Visa is maxed out and the lights are about to be cut off.

Finally, and I wish I knew this then because I use it all the time now, teach your children to follow Michelle's Big Mama's advise: If you can wear it or eat it, it's not an emergency!

Michelle Singletary : I don't think I could add any more. So yes, listen to me and Big Mama, we won't steer you wrong.

Well, folks got to run. My niece (Lauren) is graduating from high school today. Take care and join me again in two weeks.

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