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Color of Money

Color of Money

Free-for-All

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

In her recent columns, Post columnist Michelle Singletary advises seniors with their financial planning. What are key money concerns of seniors? What should you do about an elderly loved one who needs financial help? What if you are a senior and need advice on managing money -- who can you trust within or outside of the family?

Post columnist Michelle Singletary was online Wednesday, Sept. 1, at 1 p.m. ET to answer your personal finance questions.

_____Michelle's Column_____
The Color of Money

The 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: Welcome to the chat again! Let's get started!

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Waldorf, Md.: I am five years away from retirement. What should be my financial goals prior to retirement or is there any way to really prepare yourself.

Michelle Singletary: Five years from retirement, start screaming "I need money!" You need to start saving as much money as you can RIGHT NOW. I don't believe telling people so close to retirement that all is lost. But seriously, you have a lot of catching up to do. So start saving and you made need to put off retirement until you have a better nest egg.

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Williamsburg, Va.: Hi Michelle,

My problem is that it seems that come every payday I'm broke after paying bills and our tithes. Nothing extra for the "other stuff" that I have to get (e.g., clothes for school shopping, daycare, etc.) What can I do to break this cycle. Loans, credit cards are out of the question, Chptr 7 Bankruptcy. Should I cut back on items such as cell phone and cable - those are the only luxuries that we have. HELP!!! I'm going nuts!!!

Michelle Singletary: Great that you are still tithing even on these conventions because lots of people would stop tithing when they end up in debt. You have the right attitude -- you need to cut, cut, cut. It could be cable and the cell phone because that could easily be at least $100 a month. I challenge you to seriously look at all your expenses because more often than not, you can find things to cut back on. But ultimately, don't beat yourself up. Saving happense one day at a time.

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Fort Washington, Md.: Michelle,

I would like to know what do you think about the purchase of extended warranty on new vehicles? Do you feel it is necessary or just a waste of hard earn money? I purchase a 2004 Honda Accord and was considering getting the extended warranty but I am not sure if I will ready need it. I look forward in reading your thoughts on this subject.
Thank you
Carolyn

Michelle Singletary: Generally speaking, Consumer Reports, which I love, recommends that you don't have to buy extended warranty on new cars. So enjoy that new car!

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Baltimore, Md.: Hello Michelle. Just finished your book last week - loved it! I have a question about saving for a house. What type of account should I use to save for a down payment? We will be purchasing about 1-2 years from now. Thanks for all of your wonderful advice.

Michelle Singletary: I'm sorry to tell you but you're going to have to save your money in an ultra-safe vehicle because you're going to need the money in such a short period of time. So that means money markets, savings account, interest bearing checking or a six month to one year CD.

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Washington, D.C.: Thanks for taking our questions. I have a question about writing a simple living will. I'm young, 25, and don't have much to worry about in this area....however, it never hurts to be prepared. I am single and have no dependants and I (unfortunately) don't have a ton of savings or property to speak of (yet). I doubt that I need to worry about a fancy document with an attorney. I'm not really sure how to do this myself though...any advice?
Thanks!

Michelle Singletary: You're right that with so few assets, you don't need to spend thousands of dollars on a will. So, check out websites, go to the bookstore and pick up a copy at the library on how to write a simple will and that should cover you.

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Bethesda, Md.: I suspect that, like other middle-aged people with excellent credit histories, I have too many bank credit cards - some of which I barely use. Is it in my interest to cancel a bank credit card on which I owe nothing and which I do not plan to use reguarly? Would that have a negative impact on my credit rating? Thanks.

Michelle Singletary: The short answer is to keep the bank credit card that you have held the longest. That will really help your credit score. If you don't plan on getting new credit any time soon -- such as a car or house -- then certainly close the accounts that you have no intention of using any longer. Keep in my mind the first caviat that you want to hold on to the ones you've had the longest.

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New York, N.Y.: I'm trying to figure out how I will manage to afford childcare in a city where the cheapest alternatives for an infant are about 1500 a month. I'm not sure what to do. Even if I cut out all my 401K contributions, I'm still left light. Any suggestions? (I wouldn't qualify for any subsidy). Thanks so much for any guidance you may have.

Michelle Singletary: Move : )

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Michelle Singletary: If the impossible is impossible, then you'll need to find a situation where it is possible. That could mean moving.

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Arlington, Va.: My wife was recently denied application for a credit card. Amongst a list of valid reasons for the denial was a 'Delinguency reported on accounts'. The Credit Agency was listed as Equifax. We obtained an Equifax report which did not list any deliquency. What would our next steps be in investigating this issue?

Michelle Singletary: You should contact the person who denied you credit and have them be specific of what it is you were delinquent to. You have to get to the source of where the delinquency is coming from.

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Huntsville, Ala.: My husband and I are both 43 years old. We just had a new baby and have a 6 year old. We purchased 30 year term insurance the year the six year old was born (and we were 37). I'm concerned that since many in my family live to be ninety there will be no life insurance at all after we turn 67 and we may not be able to get a good rate or any insurance at all at that age. We are upper middle class. What do you recommend to make sure we are covered so our kids don't have to break themselves to bury us and get our estate in order?

Birt

Michelle Singletary: What? Your children will be grown and they don't need parents to carry life insurance on them once they are grown. As far as your funeral expenses, you can save up for that and instruct your kids on how you want to be buried. I think it would be easy for you to save up for the funeral if you are saving until you turn ninety.

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Alexandria, Va.: I've heard of a type of insurance that can cover assisted living expenses after a parent retires. Is this a good idea? I'm an only child, who isn't looking forward to his single mother's retirement. I fear she hasn't saved enough money and I haven't been able to make much yet either. It's hard to broach the subject with her.

What can we both do to prepare. I don't live near enough to her to keep tabs on her. Thanks.

Michelle Singletary: Read back on some of my columns on helping elderly on retirement. Look in the past book club as well because we covered "How to Care for Your Parents' Money While Caring for Your Parents: The Complete Guide to Managing Your Older Parents' Finances and Planning for Their Future." That will get you on the path of helping your mother.

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East Brunswick, N.J.: I am fortunate to work for a company that is offering a 401(k) plan. I have been investing for the last 4 years. Not being an expert and using their literature and web site quidelines, I chose a couple of funds to fit my profile (15 years to retirement, moderate risk etc) and show diversification and balance. Not only am I not close to the supposed increase (4% - 8%), I am not even making money, it seems I am slighly loosing. Is there anybody making money via 401(k) these days? How?

Michelle Singletary: Remember with investing you can gain or lose. The market has been crazy over the last few years. Go back and look at what funds are available and which have been performing. It might be time to look at the mix that you have -- maybe you don't have the diversification that you thought you had. Also, call the people that are running your 401K and get them to help you look at options that are available to you.

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Washington, D.C.: My husband and I rent in Arlington- we are looking to buy but the sticker shock is giving us serious pause ($400K for a small townhouse???)...we need to be close to public transit (metro) and are planning to start a family very soon, we both work in Northern VA so MD is out of the question. We are rethinking our plans to buy and are looking to continue renting for the next couple years -we'll be able to sock away a considerable amount of savings--but the pressure to buy is so great...what to do? Also, we have little to no debt, no car payments, and have been able to save around half of our net. Thanks so much.

Michelle Singletary: And why are you asking me because it sounds like you are doing all the right things?! There are lot of people that will scare you to death telling you to buy buy buy right now. You need to listen to your financial gut -- which is telling you to wait and save more. That is absolutely the right thing to do.

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Tarboro, NC: Hello Ms. Singletary
My question is after recently selling a home and ending up with a sizeable amount left over. My wife and I would like to put this money someplace other than a mutual fund or anything that relies on the stock market. I am in my 60's, my wife in her 50's and we have no desire for the stock market games. We would like something that would supply a monthly dividend as close to tax free as possible. You comments are welcome. Thank you

Michelle Singletary: I highly recommend that you find a fee-only planner and that person can help you look at your entire financial picture so that you can find the appropriate investment for you.

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North Carolina: Can you recommend a site where I can plug in the amount of loans that I have and the interest rate, and see how much sooner I can pay off the total by paying more than required (these are student loans)? I am planning on consolidating soon, but I certainly don't want to repay over the next 15 years.

Michelle Singletary: Go to bankrate.com and there are a series of calculators that can help you do just that.

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Silver Spring, Md.: I agree with the money market approach to the short-term savings for a house. It worked well for me over the course of 2 years, and provided enough liquidity at that right moments prior to and during closing. I've also kept my "emergency" funds in that same account since moving in, so that I have easy access should something happen. I think I may be making a mistake though - because that money is just sitting there and not working for me at all. Plus, it has been tempting to pull it out for inappropriate spending (although I've not ever done so; just thought about it a lot). What kind of an account do you recommend for emergency funds?

Michelle Singletary: Emergency funds means that the money needs to be there when you need it during an emergency. Since emergencies happen at the most inconvenient times, you don't want it in an investment that could lose money. As much as it hurts you to have money sitting in a place that has a puny interest rate, you want to keep it liquid. So you are doing the right thing.

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Newport News, Va.: Michelle,

Thank you for your insights on this matter. My question to you is if I have a chptr 7 on my credit report and would like to obtain a cc what's the best route to take or is it wise to even consider getting a credit card again? I was told that if you at least own a house your chances of bouncing back from bankruptcy is good, is this correct? What can I do to build my credit back up?

Michelle Singletary: In your case, I would suggest that you get a secured credit card. With a secured credit card, you put money in a savings account and you can charge up to the limit in that account. I suggest you charge something very small -- like $25 a month and pay it off every month ON TIME and this will help you to build a good credit history. After several months, you'll find that people will want to give you a regular credit card.

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Washington, D.C.: A few years ago I recieved 10 shares of stock as a gift. These are all the stocks I own and I would like to sell them. I'm told I'll need to use a broker to sell these and I don't have one. I would guess I would not be the type of client most brokers would welcome since I don't plan to buy other stocks. Can you suggest the best way to sell these stocks? Are there brokers for people like me?

Michelle Singletary: There are a lot of low cost brokers on the Internet. You should do a search and for example, you should try E Trade.

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McLean, Va.: Michelle,

My husband and I have had a term life ins. policy for the past four years. We are both young and basically the ins. was to cover the mortgage on our house if one of us died. We recently changed car insurance companies and the new agent is pitching "universal" life ins. It'll cost us four times as much, but you can surrender the policy for cash (eventually). I don't think this is a good "investment", but my husband likes the idea of getting some of the money back vs. getting none back with the term policy. We have other retirement savings, and I just don't think we need another vehicle for saving, especially with the return that's "guaranteed" by the ins. company, which is a guaranteed loss on our "investment". What's your take on this?

Michelle Singletary: That your husband should listen to his wife. You are absolutely right on this issue and if your husband disagrees, tell him to call me!

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Alexandria, Va.: Slightly off topic, what are your feelings towards those 3-in-1 credit reports from a signle reporting agency?

Are they as accurate as ordering single report from each of the three different agencies? I heard you say that they don't like to share information with each other, so how can these 3-in-1 reports be trusted? They're priced right, but at what cost? Thanks!

Michelle Singletary: The 3-in-1 means that it just makes the process easier. It's perfectly fine to get it. All it means is that you are cutting down the steps to get to all three.

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Cheverly, Md.: I was overwhelmed with debt and went to a consumer credit organization which has helped me to pay off 12,000 in debt (I submit a amount to the agency and they make the payments on my behalf) and I have a little more than $3,500 to go, I've been advised to get out of the program as soon as possible and begin paying my debts on my own to demonstrate that I can manage my debt. Should I opt out now or just complete the program.

Michelle Singletary: First make sure that you are in a low-cost program so that you are not spending a lot of money a month to be on the program. If you are getting results and your bills are being paid and you like the term, then stick with the plan.

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Arlington, Va.: Hi Michelle,

I have finally been able to save up enough money for a down payment on a new house or condo but I'm a little worried about my credit score. I missed a few credit card payments in college (almost 5 years ago now) but have since gotten car loan and paid if off without ever being late. Since I had some trouble in college I paid off all my bills after I got my first job and cut up all my credit cards. I haven't had one since. I have absolutely no debt but probably very little credit history now too. Do I have much of a chance in getting a mortgage at all?

Michelle Singletary: Oh definitely you have a chance to get a mortgage. Lenders want to lend and would love to lend to you because of your credit history, they will want to charge you more for the loan. Your challenge is to wait and spend time building your credit up so that you can get the best possible loan. You may want to get a secured credit card (find a list of companies at bankrate.com) and that way you can start to build a credit history.

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Washington DC: I have just sold my house and am currently renting for a year with an option to buy. Now that I have a wonderful sum of money sitting in my checking account, what should I do with it? After paying off credit cards, I don't want to fritter it away before I use it as my down payment. Any advice?

Michelle Singletary: Let it be.

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Union Station: Hi Michelle,
In your opinion, what percent of one's income should be spent when buying a house? I hear conflicting reports, but if the most common is true (no more than 3 times your income), I'll never be able to afford anything, much less anything in a safe area!; For those of us not making $100K plus, it just doesn't seem reasonable. (I make $40K.) At the same time, I have no debt, and my only bill would be mortagage + expenses. What are you feelings on this?

Thanks!;

Michelle Singletary: Generally, you want to keep your mortgage at around 30% of your gross pay. In some high cost areas, that is very difficult but it might mean thinking differently about buying a house -- such as buying a house and getting a roommate, etc.

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Elkridge, Md: My husband and I are finally getting close to debt free. We're thrilled, but a little lost. Would you suggest that we hire a financila planner to think of how we should deal with our new disposable income? I don't want it all to just drift away because we're not planning properly, but I feel lost. How does this financial planning thing work, and how do people find good, trustworthy planners?
Thank you.

Michelle Singletary: Take a look at some past columns.

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North Carolina: Thank you for your timely answer to an earlier question> Your answer made reference to a "fee only" planner. Could this type of planner be found in a bank or could you offer other suggestions? Thank you in advance again.

Michelle Singletary: You can go to NAPFA's website http://www.napfa.org and they should help you locate a fee-only financial planner in your area.

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Maryland: Hi!; We were gifted $5,000 from a very generous family member (we were not expecting this at all) and was wondering what your advice would be on how to use it.
We've already taken $2k and paid off the remaining balance on a bedroom set we bought (0 interest for a year- year is up in Jan.) and we took anouther $1k and put it towards our line of credit from when we refinanced our house (we used it to make some home improvements). So we have 2k left - part of me wants to put it towards paying off our credit cards (a total of about $3k) - although since it's not money we were expecting, I feel like we should use it to "treat" ourselves a bit. Maybe a small weekend vacation? We've been wanting to fix up our home a little more (retile the master bath, and finish a room in our basement) so this was another idea. Any thoughts? thank you!;

Michelle Singletary: It sounds like you don't have any savings. I think you should seriously consider using some of that money towards a three to six month emergency account.

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Woodbridge, Va.: My employer-sponsored 401K plan has some pretty bad funds (non-performing, high costs). Is it better to contribute anyway or not at all? Because I am not currently eligible (I'm a new hire), my husband is contributing the IRS max to offset my current situation. I think it's probably better to contribute when I am eligible, but what's the point of putting money into an account where I know I'm losing money? Thanks for the advice.

Michelle Singletary: If your employer matches your contribution then at least put in enough to get the maximum employer contribution -- because that's an automatic return.

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Capitol Heights, Md.: Hi Michelle, please answer this for me. Before my husband and I got married, he spotted a house he wanted for us. The realtor told him that he couldn't put me on the house because of my credit. We are now married, and my husband did get the house, so if I can now be put on the lease, what was the difference then?

Michelle Singletary: What he was talking about was that your credit history might make you qualify for a loan that was more expensive. But now that you have the loan, you should absolutely be put on the title for the house. Make sure husband puts you on that title.

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Baltimore, Md.: re credit report and score. Michelle, I've recently received mine and they're not that pretty. I am trying to rebuild my credit and have applied for a secure credit card. A question about my credit report. I have old parking tickets from Arlington County to the tune of about $350 from about 6-7 years ago on my report. Should I pay it off or will it be removed soon? I seem to remember a chat a while ago in which something old that gets paid off can actually hurt you?

Michelle Singletary: I love it when readers are so faithful and read past chats and remember good advice. You are absolutely right, if you are getting clost to when it will be removed from your credit report (which is usually seven years) than you may be better off just letting it drop off your credit report. However if you have a burning desire to make things right, contact the county or creditor collecting the debt to make sure that if you pay it, it won't make things worse -- they may file it as a new debt on your report.

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Michelle Singletary: That's it for today. Thank you all and I'm sorry I didn't get to more questions but I will answer more questions on my newsletter.

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