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Color of Money

Color of Money Book Club: Organization

Personal Finance

Michelle Singletary
Washington Post Business Columnist
Wednesday, October 27, 2004; 1:00 PM

How many times have you filed something away and then couldn't find it? Ever get frustrated with your partner over missing financial papers? Disorganized financial records may be a source of financial pressure and stress.

This month's Color of Money Book Club selection is "Homefile Financial Planning Organizer Kit" by J. Michael Martin and Mary E. Martin (Homefile Publishing).

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The Color of Money

Both authors join Michelle Singletary online Wednesday, Oct. 27, at 1 p.m. ET to offer advice on how to get your finances and paper work organized.

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: Hello everyone. Glad that you are here for another Color of Money chat. So let's get going.

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Washington, D.C.: Ms. Singletary, I love your chats and your advice is sound. Sorry to ask a question which is a little off course, but it should be a quickie. One of my credit cards offered a 0% rate for all balances transferred. This rate will last for one year. I saw this as an opportunity to save on interest and use that money to pay off some nagging bills. Is there any negative consequence to this? Does this reflect negatively on my credit rating? Thanks for being the voice of fiscal common sense!

Michelle Singletary: Thank you hon (as they say in my beloved hometown of Baltimore). I think it is a good idea to take advantage of such an offer, especially if it's one of your current credit cards. Just be sure to read the very fine print. For example, often with these deals if you miss any payments or pay late the interest rate could jump really high, much higher than the rates you may already be getting on the other cards.

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Westport, Mass.: Hi Michelle.....I love your column. Thank You!!!

I've got more questions than you have time I'm sure but to you and/or your guests here is one. What, in your learned opinion, is the most vital first step to taming the "Paper Monster"? Broad yes but I can't seem to get started because it is so overwhelming and the first step looks huge.

Thank You Again.....
Dianna

Michael Martin and Mary E. Martin: Do have a routine for processing incoming mail. Sort mail right as it enters your home, into categories such as: Trash, To File, Read Now, Charities, Catalogs to save, and or course, Bills to Pay.

Michelle Singletary: Oh, that's a really good answer. I really, really need to do this. I have mail in my pocketbook, date planner, kitchen drawer, etc. I tell you if it weren't for my wonderful, organized husband I would be a paper mess.

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Omaha, Neb.: I realize that this week's chat concerns the book club. Perhaps Michael and Marywould also like to weigh in on this current news topic.

David Vise recently wrote an article, A Card to Borrow Your Future, concerning a new innovation in the 401k industry that would allow participants to obtain a Visa card linked to their 401k balances. I understand that you and many financial consultants strongly discourage consumers from taking any loans from their 401k plans. I further understand that allowing easier access to plan funds through the use of a Visa card could dramatically increase the frequency that individuals would tap into their retirement savings. The "Life-Cycle Hypothesis" theory behind this card earned Franco Modigliani the 1985 Nobel Prize in Economics. The theory states that if consumers have easier access to their retirement funds, they would be more likely to save when they had surplus funds. I could see how this might work, but I am suspicious of this innovation. It also appears that this is another opportunity for banks to fleece fees off of susceptible consumers. What are your thoughts about this subject?

washingtonpost.com: Washington Post staff writer David A. Visewas online Monday, Oct. 25 at Noon ET to discuss the unveiling of the new 401(k) credit card -- which allows American workers to easily borrow money from their own retirement savings.

Michael Martin and Mary E. Martin: Borrowing from your future in this case doesn't make a lot of sense to me. I'd much rather "save" for the future. The more painful it is to borrow, the better it is.It seems like an advantage to "borrow" from your own account, but too easy.

Michelle Singletary: I agree with you Omaha, Neb. Keep an eye on my column because I'm going to be writing about this soon.

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Delray Beach, Fla.: Great column Michelle. I have a small business which is incorporated, is over 7 years old, and has a Fed EIN. The businesss credit history is excellent. A number of credit card offers come to the business on a regular basis. I am thinking of getting another card that has a rewards program. The applications I have come across ask for the owner's social security information. I don't want to use that being that they will do a crdit check and don't want that to affect my personal FICO (which is around 830), and the business will use - I will never use personally. Any suggestions on credit cards with rewards programs that only go on buisness, not personal credit history? Thanks.

Michelle Singletary: Well with an 830 FICO score getting one business credit card that requires a check on your personal credit reports shouldn't hurt you much at all. I mean I don't even have an 800 score :)

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New York, N.Y.: Hi Michelle. I can't shake this feeling that I'm forever doomed financially because I do not own a house. I'll be paying high NYC rents for the indefinite future, because I very much love the freedom that comes with renting vs. owning. Is there any way to make the best of this situation, assuming I will continue to rent? (I'm in my late 30s, if that matters). Thanks.

Michelle Singletary: Well, first of all you are not a failure if you rent rather than own. But it does mean you have to be very, very good at saving as much as you can. The truth is much of the wealth Americans have come from the equity they get from their homes. But if you don't own a home that means you have to save like mad to make up for what you may not get in appreciated equity in a home.

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Bloomington, Ill.: Can I destroy statements for retirement accounts, inactive savings accounts,etc. when the next quarterly statement arrives, or should I be keeping all of them for a certain length of time?

Michael Martin and Mary E. Martin: The IRS has many regulations about retirement accounts. It depends on the kind of retirement account. Some statements are cumulative, that is they contain information for a certain number of transactions. You need to be sure you are saving all the transactions, if they all appear for that year on that statement you could dispose of the previous. It seems like a tremendous amount of paper that you are saving, but in this case it could be years before you retire. You definitely don't want to have to go back and try to retrieve records to determine whether you have used deductible or non-deductible funds to invest in your retirement account. So, it depends on this one.

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Washington, D.C.: Hi Michelle,

Submitting early--I have a platinum Master Card issued through MBNA and my college alumni assn. I've had it for about 8 years now and it's the only credit card I've ever had.

I think the APR is 16.99%--but it generally doesn't affect me because I almost always pay my balance in full every month and therefore only rarely pay finance charges (Therefore, MBNA probably isn't making too much money on me.) My current credit limit is $37,000.

I recently received notice that MBNA will 'upgrade' my account to an American Express card. Cynically, I believe this is because they aren't making enough money off me from the current arrangement for the reasons noted above, and since I am generally using the Master Card like an Amer. Express anyway by paying it off each month, maybe it is to their advantage to switch me.

However, there are plenty of places that don't take American Express, and there may be times when I won't be able to pay the full balance each month. I have the choice of opting out and keeping my Master Card, which is what I'm leaning toward doing. Is there something I'm missing? What do you think? Thanks

Michelle Singletary: Opt out my dear. Really, the nerve of them telling you how you should use your credit. You are right I think on all points. You do know that AE card comes with a hefty annual fee. I like AE but for your purposes I would stick with the MasterCard until they kick you to the curve for not making them enough money :)

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Rockville, Md.: Greetings from under a massive pile of old bills, invoices and credit card reciepts. If I suddenly stop talking, it's because I can no longer breathe!;

I am the power of attorney for my mother, and I also have a toddler son. So I have her various investment accounts to take care of, issues with the house - utility bills, and so on, and my son's immunization records, doctor bills, not to mention my own life insurance, car insurance, phone bills, and 401K plan stuff.
Every day I get a TON of mail that I end up shoveling into my home office and closing the door. I can't even LOOK at it there is so much.
HELP!;

Michael Martin and Mary E. Martin: Welcome to the "sandwich generation". The best solution for you is, not to be prejudiced, but buy a Financial Planning Organizer, make that 2! Set them both up,you'll both be on the same system and be able to find all your's and your mom's papers at the drop of a hat. Then take a break with all that time you'll save, you deserve it!

Michelle Singletary: And by the way you can get the system at www.homefile.net

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St. Louis, Mo.: Michelle, my credit card debt increased to $13000 last year when I lost a freelance project. My husband is very nervous about it, yet I am making monthly payments now. But I'm confused about his concern. We have over $1 million in savings (retirement accounts, individual stocks, CDs). My car is 5 years old and paid off. Our mortgage is low, and there is no other debt. Our 2 kids are under age 10, so college is a way off. Yes, I wish I hadn't increased the debt but part of the problem is that I knew I couldn't point out to him that cash flow needed to come from somewhere-it was easier to accept the fact that I needed to pay the credit card interest myself than to worry about his stark fear of 'getting poor by having less than $1 million." I know that this is his personal anxiety (his parents were/are very frugal; in their mid-80s, they now spend maybe $200 a year tops on our children, their only grandchildren, but have a net worth of $800,000 and an annual retiree income of $45,000, plus fully paid medical retiree benefits!! They, too, feel that they are just 'squeaking by'). I have no data to share with him about the real financial pressures others face ...he says "everyone has than a million." Could you give me some comparison to see if we are in bad shape or not? If I only listen to him I'd think my credit card debt was a horrible horrible thing and that I have a major character flaw because of it. Thanks.

Michelle Singletary: Oh sweetie you ask a lot of me. But the fact is you are both right and wrong. First of all your husband is so wrong. Most people do not have $1 million in savings and investments. Far from it. And you are right that with that much money having $13,000 in credit card debt won't send you to debtors prison. But my question is why don't you use some of the savings to pay off the debt. I know you can't be getting enough interest in any CD to make up for the interest you are paying on a credit card. And why are you using "my debt" to describe the situation. You may keep your money separate but honey it's clearly an "our" problem. Talk to your hubby about using some of "your" savings to pay off the credit card debt. And I see you put in a little dig about his parents about only spending $200 on your kids. Remember it's their money and the best grandparents don't necessarily come with gifts in hand.

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Herndon, Va.: Hello Michelle,
Great job!; Love your column. I do a pretty decent job of filing, but its gotten to the point where I want to decide what I need to store and what needs to be thrown out. How long do we typically have to store financial documents eg. If I get audited, how many years worth of papers do they audit. This would help me organise a little better.
Thanks.
Jyoti Iyer

Michael Martin and Mary E. Martin: Don't throw away tax-related income and deduction receipts. Remember, the IRS still requires you to keep documentation and receipts to support your tax return. This is important to note if you use your computer to pay your bills. The Irs has 3 years to raise routine questions about your tax return, and 6 years if it feels you substantially underreported your income; of course, there is no limit in cases of fraud. There are some docuents that need to be kept longer...examples are confirmations of securities purchases that show your tax cost basis for investments in non-IRA accounts, and costs for capital repairs to real estate that may one day influence your cost and therefore your capital gain tax obligation.

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Fort Washington Md.: We have our financial paperwork a little bit of everywhere and anywhere. I am also decluttering and throwing or giving stuff away. Just by clearing out space, I could finally put my hands on financial papers, now in a pile. Now how do I organize it?

I know Savings Bonds can be replaced if lost or stolen, but do I need to have every number on each bond?

How long do we need to keep our bills that have been paid in full, e.g., electric, newspaper, Visa?
Please answer my husband and I disagree (me until the next bill comes in, him years...)

Michael Martin and Mary E. Martin: Sounds like you have a good handle on the bond question.

About ordinary household bills...unless they have an influence on your tax return (most don't) we suggest you keep bills for the current and previous year just for referrence...as when you wantto see how much your gas and electric bill is up from last year...or if you want to look back at your insurance payment to compare to a new policy you are considering.

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Bethesda, Md.: Hi,
I'm glad you're doing this chat right now because I need to do a lot of cleaning out of papers I have been filing for years. What is the recommended length of time one should hold on to:

bank statements? - I have some going back about 2 years, but have been tracking all transactions, since opening the accounts, in small bankbooks which I never get rid of.

credit card bills? - They're paid, of course.

Utiltity bills? - A year's worht? 2?

Investments statements?

Paycheck stubs?

Thanks a lot!!

Michael Martin and Mary E. Martin: Bank statements have loads of data you want to check when they come in...being sure the debits are yours, the balnces are correct etc. We suggest keeping the statements until you have completed a year's tax returns, then you can let them go...just keep checks that have some relationship to your tax returns (for example charitable contributions). Some new statements have copies of the checks instead of returning the cancelled checks...so in this situation you'll want to keep the check copies that represent tax deductions etc.

Michael Martin and Mary E. Martin: back to your other items...

Credit card bills, unless they are your only record of a tax-deductible expense...are good to keep for the current and previous year for comparison. Same for utility bills

Investment statements are a little more complicate. You want especially to keep documents that show the cost basis of securities you buy in non-IRA accounts so that when you eventually sell them or donate them or give them to your kids, you will know the cost. Some investment statements are cumulative (like mutual fund statements that show when you male each monthly deposit) and when this is the case, your latest statement may suffice. Keep the last one for each year.

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Alexandria, Va.: Michelle, You always give such good advice - I have a question for you. We got a call from our mortgage company encouraging us to refinance, and they quoted us a fixed rate for a 20 year loan that would only raise our payment about $75 above our current payment on our 30 year loan. What would be the advantage of this? We don't plan on moving any time soon, and I don't have the impression that mortgage debt is a terrible drag on our credit rating (we have no other debt). Other than having our house paid off in our early 50s rather than our early 60s, why would we want a 20 year loan? Thanks!

Michelle Singletary: Well if the cost of the new loan is something that you can handle I don't see a down side. However, you didn't mention whether there would be fees and how much. Consider that. But if you plan on staying put paying off your mortgage before you retire sounds like a good deal, especially considering how much interest you will save.

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Washington, D.C.: Ms. Singletary,

I don't know if this question makes sense. I am a renter who plans to buy a house in the next 3-4 years. I currently own a Saturn (97) that is paid off and I have had for (now) 8 years. I know that my car will not last for (maybe) a couple of years (I am hard on cars). Does it make any sense to get a new car and pay it off around the time I'll be ready to get my house to keep me from having a car note in addition to my mortgage and other future bills ? Thanks.

Michelle Singletary: How about this. Save as much as you can now for the time when you have to buy a car rather than buying a car now when your old one is doing just fine.

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Bloomington, Ill.: Is the 1992 edition your "Kit" the most recent edition?

Michael Martin and Mary E. Martin: No, the current edition is 2004.

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to St. Louis, Mo.: Amen to the comment about the best grandparents don't come with money in hand. I can't remember anything my grandparents bought for me. I do remember the blueberry coblers, learning to bake, laughing together . . .

YOU DON'T have to spend all your worth on presents. With the holiday season approaching, remember that people.

Michelle Singletary: Can I get another "Amen."

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Bowie, Md.: Do you have a method for implementing all the discounts one is supposedly entitled to when on a routine shopping trip?

Among clipped coupons, membership cards, and manufacturer rebates, I'm sure I leave a lot of money in the store (figurative speaking). Is anyone but a CPS capable of buying groceries or pharmacy items?

Michael Martin and Mary E. Martin: That's hard. They all want you to carry "their" card now. How big do they think our purses or pockets are? I have discovered that if you play the "I don't have it" game, they'll take your phone number!

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Bethesda, Md.: What things require secure keeping. I.e. what things can I file in a file cabinet, what things should I file in a fire/water proof safe, and what things should be in a bank safe deposit box. I have a small fire/water proof safe at home - but it certainly isn't big enough for everything. Also, with that, does it eliminate the need for a bank safe deposit box.

Michael Martin and Mary E. Martin: The things that you need to keep in your fireproof safe/bank safe-deposit are the records that would be so difficult to replace. Today, time is so valuable that it is something to think about keeping things that you could replace but at a time of loss would be very difficult. Originals of Valuable documents like birth, death, marriage, divorce certificates and the like. Personal property inventory of your property for insurance claims...great idea with all the hurricanes we've had this year. Other legal papers ie powers of attorney, trusts and like that. I would recommend a copy of the forms that include all kinds of information that would make your life so much easier if you needed to recover from a loss. Things like account numbers, banking info, will information and other information.Gold coins and valuable heirlooms. Also many people keep negatives of their most valuable, irreplaceable photos! To name a few.

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Washington, D.C.: Hi!
I am 28 and have a credit card that I (through the help of my parents) opened at 15. I have an excellent credit history, due in part to the length of time it has been opened, since I pay it off every month.

There are a number of gold an platinum cards I can upgrade to due to my credit. This would mean of course, an even lower debt ratio, but I am concerned this history would be eliminated.

Is this correct?

Thanks! I just love the columns!

Michael Martin and Mary E. Martin: why would you want to "upgrade"? lower costs (many actually cost MORE) or bigger credit line (would that be a temptation?)

If you have one of the mainstream cards with a line that more than accommodates your use, you should be fine.

But if you get another card, be assured it will not make your good (or bad!) credit record go away.

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Houston, Tex.: Hello all -

Question and a comment. I've kept every bill and bank statement (seriously) since I graduated from college and moved out on my own in 1996. I've actually found it useful to compare charges on my phone bill and to protest to the PUC when my utility company double charged me for one month (and then dared me to prove it - I did). I've found that hanging folders work fine, especially since most bills are a max of three pages per month, if that. Is this overkill?

On to the question: I've recently begun using Quicken to help track finances (very useful). With so many banks and investment firms pushing paper-less statements and online transactions, what recourse do we have if something DOES go wrong? I tend to print out copies of things, but I don't know if that is "official" enough.

Michael Martin and Mary E. Martin: Computer bill paying has raised lots of interesting questions. Yes, the IRS does require receipts for any items that are on your tax return. I would keep the print outs of your bank statements which you can get for only a limited amount of time online. You can always obtain a copy of your statement for a fee and a time wait. Copies of statements you print out are "official" enough. By the way good job in keeping such good financial records, it is a good way to prepare for the future.

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Northern Virginia: about the IRS auditing question - what's the difference between under reporting your income, and fraud?

Michael Martin and Mary E. Martin: That's one for the IRS, I'm not alaways sure how they arrive at their decisions.

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Maryland: In my personal filing cabinet, the very front folder is labeled for my relatives, and contains a listing of my accounts, beneficiaries, personal property deeds, etc. It also has a copy of my will, and living will, etc.

It's kind of a grim idea, but just in case, I want everything to be easy for people to deal with.

Michael Martin and Mary E. Martin: It's not grim, it's an act of kindness. Anyway in 200 years none of us will be here.

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grandparents : Just wanted to add -

While I was growing up, my grandparents were in their native Pakistan and were unable to send me, my siblings or my cousins in America any birthday gifts or money. But they don't spare their affection in other ways when we see them. Not one of their 18 grandchildren miss the monetary materials.

Michelle Singletary: I see we have an Amen corner on the issue of grandparents spending on their grandkids.

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Virginia: I anticipate selling my condo in the next year and I will likely end up with over $50k cash after paying the outstanding mortgage balance. There are a few large purchases I'd like to make (new computer among other things) as well as perhaps donating some money to charity. I want to keep a sizable amount as a downpayment for a future home (I'll probably be renting for a while after I sell). How much is it okay for me to spend and how much should I insist on saving for a future home?

Michael Martin and Mary E. Martin: $50 k is not a lot for a downpayment, the way home prices have been going, so take it easy on the sp[ending and donations, ok?

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Montgomery County, Md.: Hi,
This isn't an organizing question, but I really hope you can help nonetheless. My bf bought a car about a year ago and has been paying the monthly payments plus a little bit more each month. He didn't have much credit when he first got it so his interest rate is on the higher side, although it was reduced from the initial suggested rate. I want to suggest that since he's never been late in his payments and has built up his credit some more, maybe he should look into refinancing.

If I understand it correctly, if he were to refinance and get a lower interest rate, it would reduce the required monthly payments but stretch out the time, right? Now, following that logic, if he were to continue to pay the amount he is paying right now (but with the lower interest rate that a refi would give him) won't that be getting more bang for his buck?

That is what logic is telling me, but I want to make sure. If so, I am thinking we can try talking with the dealer and maybe his bank to see if we can compare. Does this make sense?

Thanks a lot!

Michael Martin and Mary E. Martin: Your logic is excellent! The bank, not the dealer, is the place to go. Tell them your situation the same as you just explained it and see if they can come up with a better-priced loan secured by the car.

As to stretching out the payments, it would reduce the monthly payment, but a car is different than a house in this regard because a car has a shorter useful life. If your bf can manage the monthly payments as they are, he'd be better off getting a loan with a lower int rate and less time

Good luck.

Michelle Singletary: I agree with the Martins. Your boyfriend may be better off staying the course rather than stretching out his payments and paying more money, especially if he is handling the current note.

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Vienna, Va. need advice on how-to: Can you give me a breakdown of how I should organize my statements? How long should I keep my bank records, my credit card bills, car records, etc.? Also, if I don't itemize, is there a need to keep all records past the year?

Michael Martin and Mary E. Martin: Lots of people have a similar question. For routine bills that are not useful for tax reduction, keep for the current and most recent past year.

It's also useful to think about bills (a monthly routine) and filing of financial records other than bills (an ongoing routine with annual dimensions) as very different projects.

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Washington, D.C.: Hi Michelle. I have finally gotten ahead of things financially. Now I'm investing in mutual funds (mostly pretty conservative). Of course, they are going nowhere this year, it seems. Please reassure me this will eventually be worth it!

Michael Martin and Mary E. Martin: Do some heavy reading. Investing is not as simple as it may sound and the buy and hold strategies that worked in the 80s and 90s when everything went up may not work in the next ten years.

I'd sugest (Michelle are you listening) is to read Bull's Eye Investing by John Mauldin

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Michelle Singletary: Well folks, our time is up (and so soon). Thanks to all who joined me today and as always I'm sorry if we didn't get to your question. But I asked the Martins if they would answer some more in my print column and they agreed. So look for your questions and their answers in an upcoming column. Also, if you haven't already please subscribe to my weekly electronic newsletter. I also answer leftover chat questions there as well.

Have a great frugal day.

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