Need tips on how you can get your personal finances organized?
What are the basics to saving and financial planning?
Join personal finance columnist Michelle Singletary on Wednesday, Oct. 22 at 1 p.m. ET to discuss your personal finances.
(The Washington Post)
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.
Falls Church, Va.:
Hi, I am 24 and right now I have two main goals for saving money: grad school and a house. I am not planning on going to grad school or buying a house in the near future, but I want to start planning now. If I go to school first, should I use all my savings and take out as small a loan as possible, or save some money for my eventual mortgage downpayment? (My third goal of retirement is already taken care of, I am already contributing 7% to my 401k and I have a govt job, so I will get a good pension.)
Michelle Singletary : Good afternoon all. Glad to be back and in your personal finance service.
Love people with good gov't jobs. In fact, my hubby has a good gov't job.
Anyway, I would say first you should save for an emergency. You should have 3 to 6 months of living expenses saved before you do anything else. You will need this is you go to Grad school even if you continue working.
Second, I think you should try to save as much as you can and pay for grad school as you go. So, take out as few loans as you can. In fact, check with your employer because you may find the gov't agency you work for might chip in some money toward your schooling.
Then I would aggressively save for my home. You are young so you have the best financial tool on your hands --- time.
As a Sallie Mae borrower who is working very hard to pay off her student loans ahead of time, I read your Oct. 19 column with great interest. Thank you for exposing this issue; it makes me very angry that when I apply for a home loan, a lender may not see that I have paid off two of my four student loans and could give me a higher interest rate! Is there anything that borrowers can do to encourage Sallie Mae to reverse their decision on withholding data from Experian and TransUnion? Is there anything borrowers can do when approaching another lender to make sure they are aware of a positive credit history? Specifically, can a borrower request that a potential lender pull a credit report from a credit bureau, such as Equifax or Innovis Data Solutions, which include student loan payment history?
Michelle Singletary : Well, if you read my column Sunday (and you should) you know how I feel about this topic. I think Sallie Mae is wrong to first not inform its borrowers that it was going to stop reporting to all three credit bureaus and wrong for thinking it's their place to act as people's protector. So, if you have a Sallie Mae loan write or call them to voice your objection. Next, write to your Congressional leaders. Sallie Mae still has to answer to the gov't because its borrowers loans are backed by the gov't.
Sallie Mae said it would supply any borrower with a letter detailing his or her repayment history. Until they change their policy at least that's something.
Lastly, you can't make your creditors report to any of the credit bureaus. By law Sallie Mae has to report to at least one but other lenders may not have that same requirement. You also can't make a potential lender pull your credit report from your credit bureau of choice. In fact, most lenders will pull your report from all three as a matter of routine, which is why Sallie Mae's new policy can potentially hurt many of its customers.
Peachtree City, Georgia:
The under 45 year old group (ages 18 to 44) can't do comprehensive financial planning because they don't know whether Social Security will be there for them. Do you believe Social Security should be privatized,
or at least partially privatized, allowing
them to save and invest their contributions?
George E. Barthel, Jr.
Michelle Singletary : With all do respect it's nonsense to say people under 45 can't plan because Social Security won't be there. I'm pretty sure it will be there. I also think it's nonsense to say it's broke. It may be underfunded somewhat but not broke so no I don't support privatizing it. Social Security was created as a safe, safety net. Isn't it enough that we already can't figure out what to do with our 401 k and other investments. Let it be. But in the meantime still plan and save and cut your costs so that you don't have to rely on it so heavily when you do retire.
I'd like your opinion on what I do whenever I MUST finance something, like a vehicle. It takes real discipline, but I've never had a problem doing it. What I do is finance it via a simple interest loan for the longest time possible, but use Quicken to create an amortization schedule for the shortest time possible. Then, I pay the amount for the shortest time, i.e. the highest payment. This gives me a back door in case something really bad happens, like a layoff, giving me a REQUIRED small payment, but -I- require myself to pay the larger. Seems no interest penalty, I get the item paid off quickly, but I have a payment I can make on unemployment if absolutely necessary. What do you think?
Michelle Singletary : You just want to show off :) (I'm just teasing). I love, love your method. It's what my husband and I do. I learned that method from my Big Mama. It's what my grandmother did without the fancy calculator from Quicken when it came to financing her cars. She just triple and doubled her payments when she could and paid off every car she owned early. This from a woman with a drunk husband, raising five grandchildren and a low wage job.
I'm 42, married with one child. My husband and I have no debt beyond our mortgage. We are making the maximum contributions to our 401(k)s. While we are paying for childcare (before our daughter starts public kindergarten), we are a bit stretched. We have some savings, other than retirement, but not 3-6 months living expenses. We do have a home equity line with no balance due. Can this suffice for the emergency fund?
Michelle Singletary : Hey, first don't beat yourself up. Sounds like you're doing pretty good. Most folks in your situation are up to their eyeballs in credit card debt.
Anyway, I don't like the borrowing idea for savings. Savings mean just that. You saved. Borrowing other people's money to save isn't saving...it's borrowing. Think about it. What if you or your husband lose your job. That money you would borrow to create your emergency fund would then become another debt you have to pay with less income.
So, it's good you have an equity line in place in case you need it. Now try to save what you can for your emergency fund, which you could use before HAVING to tap a home equity line.
RE: Falls Church, Va.:
I seem to be the person that Falls Church is talking about, I am a 26 year old govt. worker (since 1997) that is also attending grad school and that just brought a townhouse last november! I do the exact thing that Michelle is talking about - I save up money for school during the semester, I practiced this from undergrad, and am proud to say that I never took out a LOAN - and I plan to finish up the grad program on the same line. When I brought my townhouse, I brought a house that was worth $20,000 less of what I was qualified for and therefore was able to add the closing costs to the my mortgage loan. The bottom line is that - IT CAN BE DONE! good luck!
Michelle Singletary : Yeah. Good for you. See this person practiced what I preach all the time. Buy down a little when you buy a home so you'll have room in your budget for other priorities!
So, my wife of about 18 months blindsided me the other night that she's racked up $35K in credit card debt while trying to get a home business started and giving up on that to raise our new son after several false-starts at finding affordable child care. I'd already transfered $13K of her credit card debt to my cards when I had an opportunity to get a fixed 3.9 percent interest rate until the balance is paid off. I have $6K of my own CC debt that I've been aggressively paying off. We've already scraped together $10K in savings to pay off one card of that amount where she's racking up 25 percent interest, but I still feel like we're way deep in the hole. She says it's her obligation and she'll take care of it (even though she has no income). She's more concerned with cash flow and making minimum payments and that I'm trying to control her. I say I'd rather be savers not debtors, that our cash flow would improve dramatically without all this debt to service, and I'm only trying to control our financial future, not her.
My proposal: Use my $15K in savings to pay down as much of the debt as possible and maybe tap another $10K sitting in a SEP-IRA as a last resort. Then aggressively pay the rest off. She'd rather make minimum payments until son is older and she can go back to work. Only thing I'm unwilling to do is tap our home equity.
Thoughts? We're in our mid-30s. I'm trying not to panic, but I find her comfort level with consumer debt to be frightening and ultimately relationship threatening.
Michelle Singletary : Man. Where do I start. Really, I find how you defined the entire problem frightening. You are married so in my opinion you are a team. The debt isn't just hers it's yours and hers. I'm concerned that your wife would amass such debt without telling you. That was so wrong, especially since it's now impacting the family. But what's done is done. Now going forward don't panic. You're right to be very concerned but take it easy. Don't tap into your retirement accounts. And I wouldn't drain my savings accounts either especially since only one of you is working.
Look at the debt as a total picture. Consolidate as much of the credit card debt as you can on a few cards with the lowest interest rates. Then figure out a repayment plan for the entire amount using some savings and income that is coming in. You're right. Don't tap your home equity for unsecured debt--again because you are the only one working.
This is a real mess and in addition to trying to pay down this debt the two of you need to really talk about how to handle your finances TOGETHER.
I love your answer re: social security. It
was NEVER designed as the only means
why which people would fund their
retirement - it was ALWAYS designed as
a supplement (supplemental security
income - SSI). So go on about your
business, funding your retirement, and
when you get a check from SSI, you'll be
happy you did, but it will help out, no
matter how small it may be. Privatizing is
NOT the answer, because those people
who made poor investments would then
want to be bailed out by the government,
especially when they see that others are
getting more than them because they
may have made riskier investments or
whatever. So I love your answer....just so
Michelle Singletary : Actually, you said it even better than I did. I think this whole let's privatize Social Security is being back by rich folk who can't stand it that they don't have more use of that money. But we live in a country that was built on helping all its citizens out. Social Security does that. Again, leave it alone. Fully fund it and then leave it alone!
First I would like to say that I only recently discovered your chats and advice column and have been blown away by how easy finances can be to understand.
Now for the question, I'm a 35 year old female with great work experiences because I like to take those fantastic aid jobs overseas, but absolutely nothing saved because those same jobs pay just enough for one to get by. I have a decent paying job now, but am trying to settle old debts, and just as I'm getting to the end of that plan, I'm already thinking of taking another one of those aid jobs. Is there any hope for me? I don't think I should sacrifice great experiences for financial security. But am beginning to think several years in advance, so I'm hoping there is some small solution. Thanks,
Michelle Singletary : You are so sweet. I think it's great that you are helping people by taking those aid jobs. But really you do have to spend some time making sure somebody doesn't have to take financial care of you. Why not work a little while, settle your debts, and save some money. When you've done that take an aid job. Do that for awhile. Come back work for more and save more. Who says you can't have it both ways. But I disagree that you shouldn't be concerned with your financial security. As the good book says, God helps those that help themselves!
I love your column and your chats. I have a ton of paperwork mainly because I don't know what to keep and for how long. I know easy stuff like if you no longer have the product ditch the warranty, but how long should you hold onto receipts from paying bills? I've recently received bills from a year or two ago; some receipts I have, some I don't. What's a good rule of thumb before I have to get a storage room to hold everything?
Michelle Singletary : Ah, I wish my husband were standing by me right now because he would say this is the wrong question to ask the biggest pack rat in the state of Maryland. I keep everything and my desk area should be declared a disaster area. So, I'll try to help. Generally, you should keep receipts for bills about 6 months to a year. The idea is to keep receipts for as long as you think a problem might arise. For example, you want proof that you paid a bill. But after 6 months is is unlikely some vendor is going to say hey there where's my money. They let you know right away.
Your weekend column is a current problem for me: The fact that Sallie Mae only reports to one credit bureau (Equifax). I had my bankruptcy discharged in June of this year and was going use student loan to show "revolving credit"; after all, it was the only debt that was not discharged.
I want to start paying down the loans, but there's no incentive (of course, except no debt) The main reasons for me to pay off my loan were because I thought it would be interest friendly during tax time (I find out it won't-because I am still enrolled as a student, I cannot report the interest. I also cannot consolidate with Sallie Mae for a lower rate because I am still a student).
I want to have at least 10,000 for my down payment (I think after a bankruptcy it's the only way a mortgage banker will take me seriously). I am concerned about my debt to income ratio-I estimate by the time I am ready to buy a house my income will be 55,000; my student loans are $19,0000. I have made a plan to save $500.00 a month (more if I can spare it) for the next two years, plus a few savings bonds so not everything is swept up buying the house.
My question is, should I even bother paying my student loans now, if the amount won't be taken into consideration? If Sallie Mae does not change it policy about reporting to all agencies, I would prefer to put more savings towards a house than to pay on the loan since it wouldn't make a difference anyway to the mortgage company.
What are you thoughts on this?
By the way, I resolved not to take out anymore student loans. I will take the classes as I can afford them in cash.
Michelle Singletary : Again, I think what Sallie Mae is doing is wrong. But my friend you would be so wrong not to pay off your student loans as agreed. Your paying your loans have nothing to do with Sallie Mae. You took out the loans and got something in return -- an education. Therefore, you should pay back the loans. Besides if you don't you could end up in far worse trouble, especially if the loans were federally back. The gov't don't play. There was a time when some student borrowers did walk away from loans without much recourse but not now. The gov't will hunt you down like a dog! And they should.
Hi Michelle! I'm going to grad school full-time starting in January. Can you recommend some books or online resources to help financial planning and budgeting for the lean 2 years to come? I'll be working part-time and taking out loans - it's important to me that school be my "main job" during this time. Thanks!
Michelle Singletary : You should read the very first book I recommended for my new book club. It's called "The Richest Man in Babylon." Great book for anybody but especially for a young person starting out.
Michelle - I love your chats, your column, and your radio work. I know you say you should not buy a new car until you are on a first name basis with the tow truck driver. Well I am almost there. My wife and I have two cars, one a 93 Honda and the other a 99 Honda. Both are paid off and our only debts are the mortgage and kids private school tuition. No credit cards period. My question is when making a car purchase ($30,000 to $35,000) do you think it is wise to put a down payment down or would it be best to save that money and invest in something safe for a rainy day?
Michelle Singletary : Actually, I said you shouldn't buy a USED car until you're on a first name basis with the local tow truck drivers.
And for $30,000 to $35,000 you can buy two USED cars :) I say put down as much as you can to get rid of the loan as fast as you can. Or if you want a little breathing room put down what's required and then double or triple your payments to pay off the loans early. That's what I do. I put down enough to get the payment I want but not too much to tie up my cash. Then I pay off the loan early if I can (which I always do).
Silver Spring, Md.:
My mother told me when I got married that I should keep a bank account in my name only along w/ credit cards, vehicles, etc as a way to build credit in my own name w/out my husbands attached. (she also takes out loans periodically and pays them off right away for good credit) She said I should do this in case anything happend to my husband and that otherwise I wouldn't have any credit to survive after his death. What is your take on this? (My name is on our lease, my cell phone, my student loans and our bank account.)
Michelle Singletary : Mom is partly right. You just need to establish credit in your own name (using your married or maiden name). So you should have a card with your name on it not one that you use with your husband's name. Otherwise I'm in favor or jointly titling everything. You're getting married not taking on a roommate.
Somewhere, USA Clarification:
Just a clarification: SSI (supplemental security income) is not the same as social security for retirment. SSI is a separate program of the Social Security Administration to help low income and disabled indivduals of any age.
Michelle Singletary : You're right. I should have caught that. Thanks. Just too busy giving my opinion on privatization.
Perhaps I should make myself more clear. I am still a student-I don't owe on my student loans now. I don't owe on my loans until December 2006. My question was should I pay now knowing it may not affect how much home I could buy. I have every intention of paying back my loan, but am questioning whether I should wait until graduation or start paying now and lessen how much I put in savings toward my house.
Michelle Singletary : Oh, glad you clarified that. Sorry about the misunderstanding. If I were you, I would wait to pay until I had to and save my money until then.
Washington, D.C.: I'm confused -- if Sallie Mae only reports to Equifax, and most lenders pull info from Trans Union, Experian, AND Equifax, is there really a big problem??
Michelle Singletary : Yup. Because a lot of lenders don't pull reports from all three bureaus. Home lenders do but many others don't. So what if your lender only pulls the report from Trans Union. It wouldn't contain information about your on time payments to Sallie Mae, which in turn could lower your credit score for that particular credit file.
I just wanted to say that I love your columns and your chats, and I really am making an effort to live according to your advice.
I have a relatively small amount of consumer debt, a large amount of student loans, a car note and some other obligations. I occasionally feel overwhelmed, but I am glad that there is such great advice available to me.
I feel like your advice is encouragement -- it keeps me working hard for my financial goals!
Michelle Singletary : Ah, thank you. And it's okay to feel ovewhelmed but don't give up. The last thing I want is for people to feel bad about being in debt. Debt sometimes happens and to good people. Just do what you can to get a handle on it. Don't hide from it. Take it one day at a time. Every day is a new day to get back on track financially.
Michelle, I really enjoy your articles and chat and whenever I am able to catch you on the radio, it is a delight.
Here's my situation: I am 27 years old, a homeowner with no other debt, and a good-paying job. I tithe, invest in my 401k, max out my IRA, and still have money left for savings and mutual funds. I have worked very hard to maintain good credit.
I met someone that I am very interested in, but I can't seem to get past his less-than-perfect credit and overall money management skills. I know that I need to be ok with the fact that everyone isn't like me, but what things should I truly be wary of in a potential mate, finacially speaking?
Michelle Singletary: Often financial opposites get married and have a wonderful life together. You just need to be upfront with each other and have a plan. If your intended is a spendthrift give him or her an allowance that he or she can spend without worry. The most important thing is to talk and have a plan.
Phoenix again. I agree with you that wife and I are team -- this is what I keep telling her, and why I want us to work TOGETHER to tackle this debt instead of her regarding this as separate accounts and that the debt is ``her'' problem. The ONLY reason I defined it as what was hers and mine was to give you some idea of the cumulative total. I'm also leery of moving TOO much of the debt into my name because we'd have to pay off the amounts in her name first due to higher rates and what if we had to buy a car or furnace before we can chip away at what's in my name?
Michelle Singletary: Listen, sounds like you have a very complicated financial picture. Her cards, your cards...doesn't really matter. Whatever you do going forward will impact both of you. You may have to work harder and longer and worry because of the debt. I just mean it's a problem you both share. So, again, try to find or transfer the higher interest debt to a card in her name only if that's what you want. Just don't panic to the point that you use all your emergency and retirment money to pay off the debt. Take it slowly.
Herndon, Va. again:
"But after 6 months is is unlikely some vendor is going to say hey there where's my money. They let you know right away."
Actually you would be surprised. I think sometimes companies accounting gets screwed up and they don't realize until way later that they think you didn't pay them. I've gotten bills 2 years later that I paid when first received. I had to have the bank send me copies of the check to prove that I had paid.
By the way, why don't banks seem to want to give you your cancelled checks back anymore?
Michelle Singletary : Good point. But as you point out if wasn't paperwork in your house you used but a cancelled check you got from the bank. And they don't want to give back checks because they say it cost so much to send back all those checks.
I am a bit confused... my mortgage, bank accounts, etc. have both my name and my husband's name on them. Does this mean I am not establishing my own credit history? Do I need to have credit cards/mortgages, etc. with ONLY my name on them to establish good credit?
Michelle Singletary : You should be fine if your credit card has only your name on the front of the card. It can be a joint account but it will still show up on your credit report as credit in your name. Really don't sweat it. Getting credit is so easy these days I wouldn't worry about this particular issue.
Wow, the new picture is great! Just that touch of glamour but you still have the intelligent gaze.
Michelle Singletary : You're so nice. I told my husband you can be sexy and smart too. Just glad it's a head shot. Three babies later and the hips are expanding like my bank account :)
Michelle, I am 37 and going to get married. I have about $250,000 in savings (cash, mutual funds) nothing else. My husband to be has a home with about 30K equity and not much else. He is a big spender, spending $20 a month to wash each of his cars, etc etc. That is his mindset. I am a brownbagger with a mindset like yours. WE have no kids but want to have them. I seriously am panicking b/c I think we will end up poor due to his spending habits and I don't want to end up poor. He grew up poor thus can't see depriving himself of ANYTHING. I can't stand it. We have had many conversations about it but the bottom line is I can't change his mindset and he can't change mine. When do I give up and not get married. I have always felt that "my money is my life" and that I will always be fighting this battle and I just can't sign up for a life of this. Any thoughts?
Michelle Singletary : Okay, hold on. Don't panic. You and I wouldn't spend $40 to get our cars washed but that doesn't mean your husband to be is a debtor deadbeat in training. (I have to tell you this. My children got so tired of my van being so dirty (too cheap to pay to clean it and too tired to clean it myself) that they used wet paper towels to try clean it.)
Sorry, back to your question.
Listen, sit down with a financial planner and work on this. It's possible to have financial peace even if your husband is a spendthrift. But it will take work. You just have to talk about how you want to handle the finances, set up savings goals, pay bills, how you plan to save for retirement etc. If after talking more about this you don't see how you can handle your money together then you may be right. He may not be Mr. Financial Right for you.
Just wondering why you didn't also recommend a credit counseling agency to the guy in Phoenix. They could help lower some of the rates on his wife's cards, and help educate her about proper use of credit. It's a terrible situation and it sounds like he can use all the help he can get!;
Michelle Singletary : Was typing too fast and didn't get think of it at the moment. But good suggestion. However, working with a credit-counselor does not mean the credit card companies will lower the interest rates on the cards. They are getting a lot tougher about that. In many cases all the agencies can do is consolidate the debt so you make one easy payment. The guy in Phoenix could achieve the same thing on his own.
Love your chat.
My fiancee and I are at a point where we can save significant amounts of money. Our short term goals are the purchase of a new single family home. Long term goals include paying off his 100k worth of student loans. We have both maxed out on our 401k's and save 10% of our income automatically.
Is there a benefit to paying off the student loans early with the interest being 4% for 30 years? Or would you save the money for a big down payment on the house? Or save the money for an extra large emergency fund, fun fund, and/or college fund for the future kids and put minimum down on the house and pay off the loans over 30 years?
Michelle Singletary : Wow. $100,000 in student loans is big. I would be sure to have an emergency fund and then save for home. If you can you might want to try and pay off that student loan debt as soon as you can.
Good afternoon and thank you for taking my question. My husband and I are in our mid 20s and want to start really saving for our future. We both have retirement accounts, but are looking at other savings vehicles (cds, money market). Our income isn't great and we have a lot of debt which we are working on (home equity and student loan) and won't be free of for another 5-7 years. Any advice for us on how to start really saving, considering our debt and income situation?
Michelle Singletary : You should start looking at your expenses. If you can't make more money that's the only place you're going to find money to save. Really try to find things to cut. No cut is too small. When you go to the movies don't get popcorn. Then be sure to take the savings (could be as much as $20) and put it your saving account. Focus on building up your emergency savings. But you're young and you've got time.
Well, I have got to run. Wonderful chat. Great questions. As always, I'm honored you used some of your precious time to join me in this discussion (or read it late in archives). Be financiall well. Come back real soon.