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Color of Money

Color of Money

Personal Finance

Michelle Singletary
Washington Post Business Columnist
Wednesday, November 10, 2004; 1:00 PM

Need advice about how to handle your personal finances? Money troubles can include the struggle of giving to charity, organizing your bank files or talking about money responsibility with your spouse or loved one.

Post personal finance columnist Michelle Singletary offered her advice and answered your questions.

_____Michelle's Column_____
The Color of Money

A transcript follows.

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.

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Michelle Singletary: Well, what a joy to be back Live Online with you guys. I always get some very interesting questions and comments. You know I love to talk about all things financial. I'll do my best to help you out but please keep in mind I'm not a financial planner, advisor, tax accountant or guru. But as I said I'll do my best to get you on the right road to financial security, soundness and sanity.

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Washington, D.C.: Hi Michelle,

I hope you can help me by confirming my hunch. Here goes...

I have student loans that I have been paying now for 7 years. Anytime I would come into extra money, e.g. tax return or bonus, I would make a large payment to the loan. Recently, I have started paying double every month, and when I see that I have extra money in my checking account (I don't touch my savings,) I have been paying even more.

At this point, the ability to deduct the interest doesn't help much because I am only being charged $5-$9 of interest per payment.

Anyway, I am thinking of dipping into my savings to just pay the whole thing off. Were I to do so, it would put my balance a bit below the 6 month of expenses cushion one needs (down to about 5 months). But, I figure I can recover that amount within about 6 months, because the money I was paying to my loan I can now put in savings.

It's just that I can see the end of this tunnel and it's so close I can hardly contain myself. I just want to get this loan paid off!

I guess I should just scratch this itch and pay it off, right?

Thanks!

Michelle Singletary: I say follow your hunch. Go for it. Pay off the debt. As long as you have a cushion (and five months is still very good and frankly much more than a lot of folks have). So when you pop that bottle of sparkling cider to celebrate making your last student loan payment give me a shout. Congrats!

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Vienna, Va.: Dear Michelle,

Your column was helpful in terms of practical suggestions for developing a charitable giving strategy. However, as a person of secular beliefs, I would like to comment that religion is not the only reason for giving charity. There are many folks who work or give on behalf of the less fortunate just because they care about the issues and the people involved.

The critical thing here is not the particular religious/non-religious motivation, but to actually develop and use a plan to give.

By the way--what's the book club book for this month? I want to get started reading!

Also--loved seeing you last week on PBS's Simple Living!

Michelle Singletary: I agree giving is all important.

And glad you asked about the book club. I'm a week off because of the special section last week on charitiable giving (by the way if you didn't read it please check it out). Anyway, I'm announcing the book club selection this coming Sunday in the Post. If you read me elsewhere look for the column sometime next week. It's a wonderful book and I know will help a lot of people with rugrats (and I'm not saying any more.)

And finally, thanks for the note about Simple Living. And if you haven't been catching the PBS special please do. It's great. Check your local listings.

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washingtonpost.com: The Color of Money Book Club

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Washington, D.C.: Hi Ms. Singletary. I'm selling my first beginner condo next spring and my agent has suggested a number of changes that he thinks will increase the sale price. I'm all for maximizing my return, but I would have to take out a loan to do the $10K in upgrades he has suggested. I expect to do well regardless of whether I upgrade or not so I'm not sure I want to go into temporary debt on this (and am I being too greedy?). Your thoughts are appreciated. Thank you for taking my question!!

Michelle Singletary: Please. Do what is best for you. Remember the agent is a little bias here (no offense to real estate agents. I love them. In fact, my cousin is one). But still the agent wants you to get the most for the condo because he or she will earn more. But if you have to go into debt to make the improvements, it hardly seems sensible to me unless the $10,000 improvement (and loan) will greatly increase the value to the point that you will make a ton more money and be able to pay off the debt at little cost. However if borrowing $10,000 will only net you $10,000 on the home forgetaboutit. Do what you can with the dough you have. And please in this market people will pay dearly for a dog house -- not that I'm saying you might now own a dog house but you know what I mean :)

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California: Michelle, thank you for all your great advice. I'm intrigued by the possible plans for social security. While I can certainly see how this would benefit some people, I'm alarmed by the thought of people who already can't control their finances getting control of even more money. Social Security as it stands now at least keeps it safe. What do you think of this idea? My main worry is that some of my profligate relatives, who have ready spent themselves into a hole and lost a house on a get rich quick scheme, will end up with even less than a regular social security benefit. They're excited about it, so I'm really worried.

Michelle Singletary: Hey California!! I totally agree with you. I think the idea of letting folks invest any part of their social security money stinks. I think you are right to be worried. Every survey I see concludes that people have trouble investing wisely their retirement money. Will it be any better if they are allowed to invest a part of their Social Security -- NO. I say leave that safety net alone!

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Rockville, Md.: Hi Michelle, I just love the chats, I wish you could hold them very week! I have a question regarding credit cards. I'm a foreigner and got my first credit card here 7-8 months ago, for the purpose of building a credit history. My current limit is only $600 and I pay off my balance in full every month. I'm considering asking for an increase for two reasons, first a higher credit line would be helpful in case I need to ask for credit in the future (to buy a house perhaps) and if I were to make any large purchase (for relocation for example) my current credit line would be very inadequate. Right now my credit score 728 and I'd like to keep it high but I am worried that if I ask for an increase so soon, my credit might drop. What would you advise?

Michelle Singletary: With a FICO score of 728 you are in good shape and asking for an increase in your credit limit shouldn't hurt your score UNLESS you being to use more than 50 percent of your available credit limit. Sounds like you have been using credit wisely so ask for a higher limit for safety sake as you say. But be careful.

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Alexandria, Va.: Hi Michelle, You've said before what percentage of one's salary should be used toward rent. What is this percentage, and is this from gross or net wages? I'm trying to re-assess what I can afford for my next lease (since I'm still saving up before I can buy anything).

Thanks!

Michelle Singletary: You should stay in the range of 35 to 40 percent of your gross income.

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Denver: Hi Michelle, love your work and these chats! I've been wondering...since you and your family moved into your new home did you splurge and get the Neptune dryer you had your eye on? Your readers want to know!

Michelle Singletary: Ooh, so you want me to tell do you.

For those new to this issue. I wrote that I was considering buying a very expensive but drop dead I could do laundry forever dryer. It's to die for. It has a cabinet on top of a traditional dryer that allows you to air dry delicates. No more frequent visits to the dry cleaner.

Well, it was a hard decision. All my faithful readers know that I'm really frugal. I mean when my purse strap broke recently I just shoove the strap back into the metal part that held it together and bit down to make it stick. So you see I'm cheap.

But

I bought the dryer. Heaven help me :)I've gone over to the dark side.


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Alexandria, Va.: I've been told this is an ideal time for buying a house. It's also an ideal time to buy a car as well. I'd like to do both, but am concerned about what the ramifications of buying (or leasing) a car will do to my chances of getting a house. Can/should I do both? Thanks!;

Michelle Singletary: Now I know you didn't say lease. Please tell me you didn't write lease. Anybody sensible enough to understand the importance of home ownership would not be writing Michelle Singletary about the possibility of leasing a car.

Sorry, I got distracted.

Be careful about making a car purchase around the time you want to buy a house. Your credit rating might not be able to take the hit. But let's look at what you said. "I've been told." By whom? Gnomes? Buy a house when YOU want/need a house. Buy a car when you want/need a house. Yes, near the end of the year is a good time to get a good car deal. But so is spring or summer if you do your homework.

As far a buying a house near the end of the year well I've never been told that people are just dying to dump their house before Christmas. It could be that if that's the time of year you are shopping people would like to do a deal so they aren't busy with such things during the holidays but again, if you plan and do your homework you can get good deals on a home or (used) car any time of the year.

And if you lease a car, I'm going to smack you virtually, at is :)

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Richmond, Va.: I enjoy your writing and advice. In particular, I enjoy your referencing your grandmother from time to time.

I feel middle/upper middle class America has been --fooled-- into thinking we need to save HUGE amounts for our kid's college. (Fooled in that the mutual companies get padded with our money.) Do you feel middle class people, under 100k a year, can afford college from a combo of modest savings, grants, scholarships, work, and some reasonable level of loans? Your feedback on saving for college would be most welcome.

Michelle Singletary: I totally agree. Parents shouldn't kill themselves trying to save for their kids college. There are a number of options (which you list). On the other hand, I do believe that if you can afford to save for your children's college education do it and start early.

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Kensington, Md.: Thanks for the chat!; I have some questions......

How often are credit reports updated? How often should I check my credit report and score? And finally, is an average FICO score of 640 good enough to start looking for a house?

Michelle Singletary: You should check your credit report at least once a year and when you do get your credit score (all three credit reports and all three credit scores). Credit reports are updated all the time which is why you can always work to improve it by how you pay your bills every month.

And a score of 640 is okay. Not great but okay. You will be able to get a home loan but you MAY not get offered the best rates. And I say may because what you get offered depends on the lender and the credit score ranges each uses. So one lender might consider a FICO score of 640 good another average. Go to www.myfico.com for more information on how your FICO score can effect what rate you get.

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Vermont: Michelle, I don't think you should apologize for buying the dryer!; Being frugal doesn't mean living in a state of constant deprivation. It means living within your means and making choices wisely. If you can afford it and you want the dryer and there isn't a good cheaper alternative, then buy it. We are frugal in many ways-- use library, lots of home cooking, second hand toys and clothes-- but I do have a very nice camera, take loads of pictures and put them into nice albums. It is not a true necessity to have the 100th picture of my kids that I've taken in the past 3 months but it's what I want to spend money on.

Michelle Singletary: Bless you. I'm feeling better. But I do struggle with this issue. I make a good living but I always feel guilty when I buy something I really want (which is not often)-- like my new home and that dryer. It's a good problem to have but a challenge not to feel that you can and should spend when you do have it. I've just spent my entire live focused on saving that I don't know how to spend without the guilt. Any other comments?

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Frustrated, D.C.: Michelle, I need your help!! I am trying to save for my first house, and cannot keep up with the rising prices! In other words, the houses I am trying to save for are appreciating in price faster than I can save. I am so frustrated and don't know what to do! What should I do? (FYI - buying a smaller house doesn't work, I'm already at the low end, price-wise). Am I missing something? HELP!

Michelle Singletary: I feel and hear your pain. The DC area is a tough place to find affordable housing. But try not to fret too much. Continue to save and while you do look for alternatives, some of which may mean thinking outside the house-buying box. For example, have you considered buying a home with a REALLY good friend or relative (sister, brother, cousin)? If that's not an option (and believe me I would understand) is it possible to move to a lower cost area? If that's not possible and you are a first-time home buyer look for programs that can help you. For example, there is the The American Dream Downpayment Initiative signed into law last December. Under the program first-time home buyers could get $10,000 or six percent of the purchase price of the home, whichever is greater of down payment and closing costs. For more information go to www.hud.gov's.

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Powhatan, Va.: As a Pastor (No, not a part of the right-wing evangelicals!) I applaud your recent article on tithing. I DO NOT believe tithing does anything magic to our finances, but it does make lots of things line up rightly. (Debt, manic spending, etc.) I have seen people lives wonderfully transformed by tithing. And I have seen people with large incomes who lived in misery and give "spare change" to charity. My question: Do you see Americans become more or less generous to all charity causes, not just religious? And why?

Michelle Singletary: Thank you so much for your comment. I never expected that a column on tithing could generate so much mail. I've been overwhelmed with responses (both postive and negative). Some wondered why I was even writing about tithing in the business section. But I say why not? I write about all things financial and tithing is definitely about money. I didn't want to make anyone feel guilty just raise the issue for folks who wanted to tithe and couldn't see how.

Anyway, I think many people want to give but by the time they pay everybody and their mama there isn't much if anything left over. I understand that. But I think we all have to try to stretch our giving because frankly the need in this country and around the world is so very great.

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washingtonpost.com: Make Charity a Budget Item

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Central Va.: Michelle - You are so NOT on the dark side. You work hard for your money, and now your money is working for you! I work full-time and don't have anyone outside the family helping me with my housework (and could use a lot more help from within my family!) If a dryer frees up your time and helps you keeps your clothes in nicer condition (with that cool top shelf thing), I say go for it. I know what kind of dryer I'll be looking for when we're in the market next ... about 15 years from now.

Michelle Singletary: I hear you. I love it that you guys are so supportive. And I do work hard. And the dryer is so very nice. Sometimes I just stand in the hall and stare at it.

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A devoted fan: After several years of practicing your advice (some even before knowing of your existence), paying off one relative's home mortgage and helping my brother go to graduate school, I'm finally doing what I always wanted: getting a pilot's liscense

(So far it's cost $5,000 and I might be only halfway there.)

I might feel guilty if it was another in a series of expensive and unfulfilling toys; but I see it as my reward for a lifetime of frugality.

Michelle Singletary: Go go flyboy/girl!

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Alexandria, Va.: I'm thinking about buying a house in a few months and I have a question about the down payment. I have basically perfect credit and zero debt but since I'll be a first-time homebuyer, I'm not sitting on a pile of equity that I can use for a down-payment. A mortgage broker told me that I should take out a loan on my TSP fund to put down a 5% down payment or else my bid will not be "attractive" enough to be accepted, but that doesn't make sense to me. It won't make my overall bid any higher so no matter how I finance it, the person selling me their house will get paid the same amount. I've been pre-approved so there would be no chance of the loan falling through. I'm just not comfortable with taking money out of my retirement fund, even if I am paying myself back with interest.

Michelle Singletary: Follow your gut. I always say that's God and common sense talking. Do what you think is best and what I think is best is what you already know. Leave your retirement alone if you can!

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Arlington, Va.: Bless you for buying that dryer. Sometimes we forget that we save money for a reason. Once we're set for emergencies, and take care of the basics, it's good to splurge every now and then. Gives you a feeling that can't, well... be bought. Makes you feel like a King or Queen for a while, and you get something you needed to boot.

To butcher a cliche, "No one says on their deathbed, "I should have more money in my bank account, 'cause I think I CAN take it with me!""

Michelle Singletary: Amen! I will have to keep remembering that although my hubby tries to tell me that all the time.

Oh by the way I just celebrated by 13th wedding anniversary to what has got to be one the finest, most wonderful husband in the world. My grandmother, Big Mama, was right. I found me a good man. Thanks honey for 13 great blessful years.

I'm telling you all this because a lot of my good financial sense comes not just from my grandmother but from my husband too.

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RE: Spending without guilt: This would be a great topic for a live chat. I suffer from this daily. Due to a former, terrible relationship/situation (bad thing), I had to face my poor money management skills and learn how to act like a grown up (good thing). The relationship is history and my finances are on track, but I still feel guilt/fear when I spend money, even when it's a necessity (like a car repair). I have no credit card debt, no car loan, have 401k and mutual funds for retirement, and a 6 month emergency fund, but I still feel guilty when I spend money on a "want", rather than a "need". Help!;

Michelle Singletary: Well I'll do it. In a few weeks let's talk about spending and guilt. As you see I need some help on this front myself. So let me hear from fellow guilt-ridden spenders or folks living with people who can't spend (even tho they have it). Send me an e-mail in at www.colorofmoney@washpost.com. Put "spending without guilt" in the subject head. Let's talk about it in this forum and in my column.

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Boston: Michelle, you are such a mom. Your idea of a big splurge is something that makes doing the laundry easier? You know, regular folks splurge on cars, houses, clothes, trips, spas, massages, etc.

Okay, I admit it. My big purchase this fall was an extra large capacity washer and dryer. It is heavenly ! Pre-soak and second rinse ! Automatic bleach dispenser !Sometimes material things really are great !

Warmest regards,

A fellow mom

Michelle Singletary: LOL. (you know laugh out loud).

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Washington, D.C.: With respect to saving for college, I do think it is important to think about this early and to let your child in on your thinking early in the process (9th grade, not 12th grade). If you are expecting your child to work, take on loans, etc., go to a publicly funded school rather than a more expensive private school, etc., that child needs to know before he or she starts thinking about where to apply. We just sent one child off to college and heard of a couple of instances where the parents waited until their child was a senior in high school before explaining that they would not be paying for everything and that, therefore, some options were not available to their child. I think it's fine to say that you're not going to pay for everything, but don't spring this on your kid.

Michelle Singletary: Really good advice!

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Devoted Fan (appndx): Actually, when I decided to finally take flying lessons, I did recall one of your guests (Jean Shatsky?) saying that frugal people spend more on experiences and less on "things."

You know those commercials for credit cards that list the price of a bunch of items, and then conclude with something like "... the look on your daughter's face when... priceless."

Well, that's how I felt flying over the Chesapeake Bay with my instructor the first time.

Michelle Singletary: What a lovely thought and it was Jean Chatsky of Money magazine.

And you are right. I do spend more in experiences (two week family vacation etc.).

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Arlington, Va.: Last year I was laid off and was unable to pay most of my bills on time for months, usually paying about a month or more late. It has devastated my credit score. If I start making on time payments, will that undo the damage or is it going to follow me around for life? I want to raise my credit score but I am not sure if simply making on time payments is enough. Thanks!

Michelle Singletary: You are so right. Just start doing it right and before you know it your score will improve. Paying your bills on time is the biggest way to bump up your credit score. But remember don't revisit the past. Don't beat yourself up. We all make mistakes.

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Chicago: I'd like to know the best way to work through being overextended on a couple of credit cards. I don't trust these "credit counselors" and I don't own a home, so a bill consolidation or second mortgage is out.

BTW: Are you originally from the Pee Dee region of South Carolina? The Singletary surname is very popular down there.

Thanks for your time.

Michelle Singletary: If you don't want to use a credit counseling place that's okay. Call up your lenders if you have been late tell them you are to be better and than start paying down your credit cards as aggressively as you can. Start with the credit cards that have the highest interest rates. But you can do it by yourself but you have to cut expenses and pay way more than the minimum. And put the cards away while you are paying down the debt.

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Motown : Hi Michelle - Just a comment: I thought of you this weekend while browsing in my local bookstore. I came across a book called The Big Mama Stories. Lots of life lessons from lots of big mama's. Thanks for sharing all the wisdom big mama instilled in you.

Michelle Singletary: Big Mamas are the best. I'll have to look for that book.

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Burke, Va.: I enjoyed your article on tithing, and found it refreshing for someone to share the importance of church in their life. For those without church ties, how do you feel about setting 10% as a goal to give to charity in general?

Michelle Singletary: I say if you want to give -- give. I think that's a great idea.

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Michelle Singletary: Well folks I have got to run. Can't stay over like I normally do. Thanks to all of you who joined me live today. I'm so sorry if I didn't get to your question but I sometimes answer leftove questions in my column or in my weekly newsletter so keep an eye out for both.

See ya in two weeks. Be well and save!

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