Color of Money Live

Columnist Michelle Singletary was online to field questions about everything from retirement planning to protecting your credit rating.

A transcript follows.

Read Michelle's latest columns, or check out her Color of Money Book Club selection archive.

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Michelle Singletary: Hey everyone. As the kids say, "Let's get this party started."

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Picking up the lunch tab: You know, it occurred to me.. Those who complain about ordering a salad/iced tea "because they are being frugal" and then getting stuck with a shared bill anyway... Another way to look at it is - if you KNOW you are going to fork over 25 bucks because everyone else is eating well.. Why not eat well yourself? Since it's being split anyway it's more even, and everyone else is "subsidizing" your meal, too. (Not really, but I think you get my point).

washingtonpost.com: Check-Grappling Can Ruin a Good Meal (August 4, 2005)

Michelle Singletary: Ooh, I thought I start off today's chat with --and I'm not kidding -- one of the most controversial columns I've ever written. Seriously, I've received hundreds of e-mails on this issue of how group diners should pay. Here's my take -- as I've said in TWO columns.

We are all grown people. No one way is the right way when it comes to paying the restaurant billw with a group of people. I think it's perfectly fine if someone doesn't want to order tea/salad to save money. I mean please people. At the beginning of the meal just decide how the bill is going to be handled. Split equally among all or each pay for what they want. I recently returned froma convention and went out on many group lunches and dinners and we did it both ways with no fussing or hurt feelings.

And it makes no sense to spend more money than you intend because everybody use is doing it or will do it. It's your money spend it or eat it up the way you want. Just establish the bill paying rules rules upfront.

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Lanham, MD - The land of pleasant living: I swear you're too fione!; But on to my money question:

I recently refinanced my home because the value has skyrocketed. The refinanced mortgage is nowhere near the value of the house. I'm concerned that the value of the house will decrease as the interest rates increase (Or if the housing bubble pops).

Should I pay down this mortgage, even though the value of the house, should it decrease, will not be less than the mortgaged amount.

Michelle Singletary: Ah sucks. I needed that compliment today.

Look don't worry so much about the value of your house. That only comes into play if you sell or refinance again. If you plan to live in your house for awhile and you can handle the mortgage for the long haul if you don't plan to sell. If you're young or have children I would suggest you take any extra money and invest it for your retirement or your child's college fund. If you're near retirement than you may not want a huge mortgage in retirement.

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Arlington, VA: Hi Michelle,

Apparently, I am an idiot according to a friend of mine when it comes to saving for retirement vs. paying of credit card debt. I would appreciate your advice.

I am 34 and contribute the maximum amount to my 401(k) each paycheck and have over 60K saved in this account, not to mention another 10K in my ROTH IRA account (plus my wife also has just over 60K in her 401(k)-- she will be eligible to re-start contributions to this account in about 3 months due to a change in employment). We have 12K on a low interest credit card (3.9%) due to our wedding, honeymoon, and myriad home repair bills which all occurred at once (no other credit card debt). We can put at least $1700/mo towards paying off this credit card since we just paid off our car loan and will be applying that payment each month toward this debt until it is paid off.

My friend says I should reduce my 401(k) contribution to 8% and use put the extra money towards the credit card, then increase it back to the max after it is paid off. I disagree. Since there is a short timeline for when this card will be paid off, I think I will make more money through contributions to my retirement and the joy of compound interest than I will by saving a few dollars in interest for 7 months. If I was only making the minimum payment on the card and was looking at a longer timeline before the card is paid off, I would agree. As far as our emergency fund goes, well, we are working on it (only have about 1 month worth of expenses saved now. The credit card payment, once the card is paid off, will go towards the 3-6 months living expenses account).

What would you suggest? Your advice is greatly appreciated.

Michelle Singletary: Stop talking to that friend about your finances. He or she is the idiot. You are very much right in your plan. Just be sure to get that credit card debt down.

But keep doing what you're doing, you're right on the money!

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Severn, Maryland: I have equity in my home and was thinking about opening a home equity line of credit to use as an emergency fund. I could then use more of my savings towards retirement and mutual funds instead of saving money in my emergency fund. Is this a bad idea?

Michelle Singletary: It's not a bad idea per say to have a home equity line of credit in case of an emergency but it SHOULD NOT BE YOUR ONLY EMERGENY money. Here's why? What's an equity line of credit?

DEBT.

If you get into financial trouble you should have a stockpile of money (three to six months of living expenses) that is liquid that you would tap first before using debt. The worse thing that can happen is you find yourself in financial trouble and then have to compound that with adding on more debt, such as maxing out credit cards and using an equity line of credit with no incoming INCOME.

So yes, it's a bad idea to just have that equity line of credit as your only rainy day fund.

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Crystal City, VA: Hi, Michelle - Your advice has always been very helpful!; I read your column from a while back on overdraft protection. My fiance has this, free of charge, from his bank. He thinks it's great and doesn't worry when he gets a notice that money was moved. I think it's too good to be true and he needs to pay more attention. Do overdrafts get reported on your credit report, or is the bank really shielding you from any negative impact?

Michelle Singletary: Overdrafts are not reported on your credit report. But you're right that he shouldn't be purposefully overdrawning his account because he has a backup. A backup is a BACKUP not a replacement for balancing your checkbook and only writing checks when you have the money in the bank. However, it could be he has somthing similar to what I have. That money is transfered from my savings account if I should overdrawn my account. As long as I keep a certain amount of money in my savings account -- no charge. But if I or your honey goes below that limit watch out because free won't be free no more.

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Alexandria, VA: I know that it hurts your credit report to cancel old credit cards, but what about lowering the credit amounts? I have nearly $50,000 in credit between two cards and I'm uncomfortable with that amount. If it makes any difference I have a good credit rating and am getting married next year when we'll buy a house together.

Thank you!;

Michelle Singletary: If you are buying a house in a year, don't change a thing. Stay tight. And by uncomfortable do you mean you are scared you might lose your mind and actually max out those cards for $50,000 or that some alien might force you to charge $50,000? If not don't worry so much right now. Check out the archives of my column and online newsletter in the last few weeks because I addressed this issue of credit card limits.

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Baltimore: Michelle, am I missing something or are I Bonds a much better deal for stashing away cash then CDs or money market funds. I know the are not liquid for a year and that if you cash them out in under 5 years you lose 3 months worth of interest, but still. At 4.8% they pay a better rate then most 1 or 2 year term CDs. Plus they have tax advantages and in some circumstances can be used to pay for tuition. I don't work for the Treasury Department, but I just don't understand why more people are not buying these bonds, especially as a great place to park intermediate cash. Any thoughts?

Michelle Singletary: You are right that I Bonds aren't a bad idea. They do have a place in your investment plan. The most important thing to remember is that these bonds only really guarantee that your money will keep up with inflation. Some people -- as they should -- want to beat inflation. But as you point out as long as you have some emergency money you can get your hands on right away, it might be worth it to look into I Bonds.

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Washington, D.C.: As a full-time waitress (paying her way through grad school), I'd just like to comment on the split-checking issue. The majority of times when people split checks, the server gets stiffed on their tip as only some of the group members tip. This is especially the case when one person pays cash, another on credit card, etc. Also - if you split checks many ways, remember that this might take the server a little longer to process - please don't get impatient. I know that this is really a Tom Sietsema issue, but please, when splitting checks remember to work out who (if everyone or only one person) is covering the tip, and please do so!;

Michelle Singletary: Good point. People how ever you pay the check don't short change the server.

And I have heard from other servers, not as nice as you, complain that they don't like to split checks or have people pay for what they eat etc. That it imposes upon their time. Tough! Taking the check and getting it processed is part of the job. But as this server so nicely pleaded be patient if you are in a large party.

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RE: Splitting a restaurant check: Michelle - It seems to me that the salad/iced tea crowd knows what's coming (in polite, professional society, diners that sit at the same table for the same length of time usually end up splitting the bill unless one person had lobster) but goes ahead and gets mad at the predictable result anyway. Your earlier reader's suggestion of working out the check-sharing details at the beginning of a meal is a perfect one, except for one thing...the salad/iced tea crowd would then be forced to be upfront and obvious about a (take this with a grain of salt) socially unacceptable behavior.

Your thoughts?

Michelle Singletary: My thought is again talk it out. This is not like planning a mission to Mars. I think penny pinchers can go out wtih a crowd, state their bill paying preference and then all go on to have a nice meal. It's not really that big of a deal. Now if after a few outings you have a friend or family member that makes a big deal about this or doesn't put in what he or she should, don't eat out with that person.

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St. Petersburg, FL: The only time i ever got upset about sharing the dinner tab was at a birthday dinner. It was agreed up front -- so that there could be no mistakes -- that the dinner bill would be split evenly amoung those attending (alcohol would be put on a separate tab) so order accordingly. One diner STILL made a fuss when the check came b/c she had ordered only a salad.

Peer pressure prevailed and she ended up with a very expensive salad. i am sure that was the last time she pulled that stunt. And she was a CPA!!!

Michelle Singletary: See problem solved with a problem person. If she couldn't afford more than that salad and knowing that ALL agreed to split, she should have declined to eat out with the group. And that's okay.

Or if she really made a fuss, would it have been so hard to just let her pay for her salad and the tip on top of that? Maybe she really wanted to be there but could only afford the salad. That would have been a nice thing to do, again without much trouble.

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the tab: I have to say, I'm amazed and flabbergasted at the fact that check splitting seems to be such a big deal. I'm nearly 40, have a variety of friends and acquaintances with no connection to each other scattered across the country and can't remember this --ever-- being an issue. In fact, a big chunk of the time (after passing around the check and everyone throws in their guesstimate of what they owe including tax and tip) we come out with more than we need in the pot and have to pass around refunds (or sometimes just leave a really big tip). Who are all these people fighting over restaurant bills, and why do they even spend time together if they waste it fighting over petty stuff?

Michelle Singletary: Amen!

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Laurel, Md.: Greetings Sis. Michelle,

We have the same Pastor!;

My question is, how many points does your credit rating go up each month when payments are on time, someone told me 20.

Michelle Singletary: Same pastor. Great. My pastor, John K. Jenkins Sr., is just wonderful.

Anyway, you heard wrong. It's hard to say how your credit rating is score with paid bills each month. Just know that when you pay your bill on time and pay it off those two factors are the two biggest factors to boost your score.

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Washington DC: Just a comment: Thanks to your regular columns and books like "The Millionaire Next Door" I am losing weight and feeling healthier. Let me explain . . .

I used to be something of a vending machine addict. At work I could easily make 4 trips a day to the vending machines. A poptart in the morning. A canned juice. A candy bar after lunch. And a soda in the afternoon. My attitude was "I'm working, I need a little treat."

Even though I knew it was unhealthy and making me fat, I couldn't overcome the habit.

But all of your columns about pinching pennies made me think about 4 x $0.75 per day. That was at least $3 a day, which is over $700 in a year.

Now I have a strict rule that I only eat a drink what I bring from home. Leftovers, home-made salads, peanut butter sandwiches for a snack. I drink only liter bottles of seltzer water.

Of course, that costs something so I am not saving the entire $700 per year. But the cost of my worktime eating and drinking now, compared to the cost of cafeteria or take-away food from the nearby food court, is a lot lower.

Example: the seltzer water costs between fifty and ninety cents a liter. An equivalent amount of vending machine soda pop would be $2.25 (3 x .75 per can). And the seltzer has no calories!;

Pinching pennies and losing weight!; It's great. And it was the combination of both that finally motivated me to do it.

Thanks!;

Michelle Singletary: Ah, you are making me tear up. Thank you so much for such a wonderful posting. And folks she read the tip in my columns and my book "Spend Well, Live Rich" (out in paperback, which is cheaper :)

Seriously, you hit the nail right on the head. I'm always preaching that it's the pennies that add up to big dollars!

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Overdraft, MD: Michelle,

Just to clarify on the overdraft protection on a checking account. Some banks charge an annual fee and some make the overdraft line available with no annual fee for their better customers. But, if it is activated (meaning you overdraw your account), the amount overdrawn is charged interest -- generally in the 19% range. But, most people consider that worth it because insufficient funds fees are getting pretty high, with most banks charging over $30 on both sides of the bounced check. Let's do some quick math:

overdraft annual fee: $15

interest rate for overdraft of $300: $57 annually. If paid back after, say, 1 month, it's only $4.75. Cost of 1 bounced check, $30. So, overdraft typically pays for most checking customers, as long as you remember to pay back the overdraft as soon as possible. No bank will do that automatically once the funds are available in the checking account -- you have to request it yourself.

Regards,

A Bank Executive who knows....

Michelle Singletary: Good points. But my bank doesn't charge anyting, even an annual fee for activating the overdraft (guess I'm a better customer)

The point is just know the ins and outs of what overdraft protection is available and the true costs. (Wrote a column about that too. Check out the Post archives (for my columns it's free)

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Colorado Springs, CO: Are you available as a guest speaker and how do we contact you if so?

Michelle Singletary: Hi. I am and you should just e-mail me (singletarym@washpost.com)

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Washington, DC: HELP! Can you steer me in the right direction for the best lending option in my situation. There seem like there are dozens of options.

My situation. I owe $150k on a house that is valued about $450k. I want to do $150k in renovations (home in the neighborhood are now going for$500k -$1M). I can easily absorb that extra cost into my monthly expenses and plan on living there at least 5 more years. I'm single, have no other debts, and am maxing out retirement savings through 401k and Roth IRAs.

Also, what does the recent Gov rate hike mean to these options? Should I be running to a lender to lock in rates today?

Michelle Singletary: With a profile like yours, you shouldn't have any problem finding a lender who can help. In fact, you may want to start with your present lender. The lender may not want to lose your business. Check the local papers for the names of lenders, ask friends who they've refinanced with lately (and many have) or try a mortgage broker. You have so many options.

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DC: Oh good lord - "Socially unacceptable behavior?" Not wanting to pay for what someone else ate is socially unacceptable?

Ok, I'm one of the ones who tends to owe a larger part of the bill when in a work or family group. (In a group of friends, we tend to eat more alike, and so our shares are a lot closer.)

I don't want someone else, someone who's broke like I have beenin the past, to pay more than their share. Seems to me that if everyone's expenses are close - within a dollar or so - splitting is fine. But if there are people with big differences, take that into account!;

And yes, don't forget, in DC the tax on your restaurant meal is 10% and you should tip. So add up what you owe, add 25% (tax and 15% tip) and then round up to the nearest sensible amount. (That is, no need to go down to the penny, but don't owe 9.99 and give $9. Give $10.)

How hard is that? Are all these people THAT intimidated by simple arichmetic? Or do they really want the broke ones, who are stretching to join in on the meal for social reasons to have to pay more than they owe and so, decide never to come again?

Michelle Singletary: A very sensible person. And who asked me about all the mail I've gotten on this topic. Even in this chat the debate rages.

Who knew!

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Laurel, Md.: Sis. Michelle,

Yes, our Pastor John K. Jenkins, Sr. is wonderful!;

So are you saying my credit score will go up higher if I pay it off instead of just paying it on time.

Michelle Singletary: Yes maam.

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Washington, DC: I have a pretty high school loan that has defaulted. I am interested in a payoff amount but cannot afford the whole amount. What is a ratio that may be accepted?

Michelle Singletary: I really couldn't tell you. The thing to do is to contact the lender. Seriously, call the lender and see if you can work out a plan.

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Silver Spring, MD: Hi Michelle,

After living frugally for, well, my whole life, at almost 50, I am finally able to buy myself a condo. I know this is a good thing, but with a 30 year mortgage, it means that I would have to work until I'm almost 80 to pay it off. Does it matter? Should I try to pay it off early (by making extra payments)? That means I'd have to live on a tight budget, well... forever. I have never gone on a vacation other than to visit my family, and I admit I get jealous hearing friends talk about great vacations. I am well educated, but have always had the kind of jobs where I am helping others rather than my own pocket-book. What's a single gal to do? (And no, I'm too old for a roommate.)

Michelle Singletary: Girl, buy your condo and as long as you can handle the payments in your old age, don't worry about paying it off. That would be great but over the years you may want to move and chances are your condo will appreciate so you can sell, take the equity and go live in Fla. if you like.

And don't make extra payments if it's going to squeeze you to the point that you can't have fun. Times have changed and many people know they will never pay off a 30-year mortgage.. and that's okay.

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Washington, DC: My husband and I are in our late twenties and currently make a combined income of close to 300K. Over the last few years, we graduated from school, paid off all student loans, got married, maxed out our 401Ks, and managed to save 100K. We have no debt and hate the idea of being in debt. We did not, however, buy a home due to the craziness of the DC housing market. We are throwing around the idea of just saving money for the next few years and buying when we feel we can afford something we like (and renting in the meantime). Do you think this is a poor financial decision? We feel like we are in a holding pattern and are a bit confused - our 100K is simply sitting in a 3 percent interest bearing savings account because we don't know what to do with it. Any thoughts or suggestions?

Michelle Singletary: I think you are doing exactly what is wise for you. Buy when you can afford it. If you don't think that's now than don't buy. However, with $100,000 in savings that's a nice chunk of money that could get you into something in this area.

So why don't you work with a real estate agent and just see what you can afford. If you don't see what you like in your price range, I agree that you should continue to save until you can afford what you want.

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Washington DC: Re: your profile of the woman who transports cans and bottles across state lines to collect the recycling deposit - you should be discouraging, rather than encourging that behavior. Not only are you encouraging illegal conduct among your faithful readers (see http://www.deq.state.mi.us/documents/deq-wmd-swp-mibottledepositlawFAQ1.pdf), the fines imposed for violations of bringing in out-of-state objects would negate any income generated from the practice. Plus, all the local jurisdictions participate in can and bottle recycling efforts, and you're depriving them of the income.

washingtonpost.com: Don't Meet Frugality With Hostility

Michelle Singletary: In my online newsletter I mentioned that the practice is illegal (something neither the penny pincher nor I knew). I am not encouraging that behavior. Please. It was one bottle for 5 cents. Hardly worth throwing the woman in jail for. And how likely is it that people will haul empty bottle to Hawaii. I picked the winner as I did others because her efforts just made me laugh out loud.

But yes, people please don't take a bottle with a redeemption value across state lines to collect 5 cents.

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Bowie, MD: For all you salad and ice tea haters, I stopped going out in large groups because of you. It's no fun at all to be among friends/associates that only care about keeping up with the Jones.

I know fair well that many of you don't have the funds for $40 dollar lunches and only wish that you had the backbone to say 'this is ridiculous, I'm not paying $40 for lettuce and cheese.'

Penny Pinchers Unite!;

Michelle Singletary: Here. Here. I'm with you!

Of course we may just be dining with each other and our salads :)

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Springfield, VA: Didn't I hear something about legislation being passed that would make consumer's credit reports available to them - free - on a yearly basis? I was in lending for many years, but at that time a consumer only could get a copy of their credit report if they were denied credit. Do you know how I could get a free credit report? I know there are internet scams out there..

Thanks

Michelle Singletary: Yup you did hear that. And by Sept. 1 every body can get their credit report for free from the three major credit burueas every 12 months (you have to ask).

Go to annualcreditreport.com

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washingtonpost.com: You can sign up for Michelle's e-letter here .

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Marbella, Spain: Michelle,

Just checking in to say Hola! from the Costa del Sol. Although the Euro is pretty strong against the dollar, we are still very happy to have invested almost 20 years aqo in our Spanish apartment on the southern coast. It is a beautiful and relaxing escape from Washington, DC.

It shows the value of starting to save early (from your first job!), spend wisely and safely, and letting compound interst work for you!

Best,

Don and Family

Michelle Singletary: Hey back. Can't believe you are joining my chat from so far away (and on your vacation).

Folks this is from Don Blandin, president and chief executive Investor Protection Trust, a nonprofit investor education organization that is trying to help people invest wisely.

And Don's right, even us penny pinchers can have fun. After all that's what we are saving all this money for.

Have fun Don. Catch some rays for me (but of course use Sun Block). Wouldn't want my faithful to think I was encouraging bad vacation behavior :)

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Washington, DC: Hi and thanks for hosting these important chats. I'm buying a home with a partner and no, we won't merge funds, but how should we handle the legalites if one of us dies? Life insurance or???? Thanks again.

Michelle Singletary: Okay, I won't fuss about not living together, shacking up, cohabitation.

At the very least get a living together or cohabitation agreement written up. Get an attorney to make sure all issues are covered, such as if you break up how will the property be handled, if one of you is putting up more money for the house who gets what back if you sell, etc.

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Memphis TN: Michelle, regular reader on vacation.

One area in which it's easy to implement false economies is health. I saw Super-Size Me on DVD last week, and have decided there are more important elements to a vacation than saving money on food.

Can you suggest dining alternatives to hamburger- & fried chicken-base fast food while traveling that are healthier and about as economical. But don't suggest making our own food from the grocery store; not cooking is part of the vacation for us.

Michelle Singletary: Okay, you people on vacation -- go have fun. Why are you in my chat :)

I'm so happy you are but really :)

Seriously, you are right. But you can pinch pennies and still eat well. When I go to a fast food joint, I just order the salad and water. Really with the prices of fries and burgers these days the bill comes to about the same. When I eat out in restaurants I also watch what I order, green, leafy veggies, not so much red meat, etc.

Again healthy eating isn't that much more than junk food.

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Trezevant Tennessee: I received a postcard from Consumer Watchdog that I may be entitled to settlement monies from settle class action lawsuits, but they want me to pay them to get the information I would need to claim monies, please tell me how I can find out myself what this is all about and what I need to do to claim monies and a list of the companies involved in the settlement- I never even heard anything about class-action suits before, so I am lost. Any help will be appreciated, sincerely, Pat Cook

Michelle Singletary: First, don't pay anyone a dime to claim a settlement. Trust me if you are party to a settlement you will likely be notified.

And honestly, most of the settlements aren't worth much at all anyway -- coupon of 10 percent off to buy a product from the company in the future, a $1 off coupon on future services, etc.

Don't go for this scam.

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Cincinnati, Ohio: Here's another penny-pinching technique: Do not buy snacks or beverages from your office's vending machines. Buy them in bulk and bring your own water, cans of soda and snacks and you'll save a ton of money! As an aside, I'd like to comment that although I have my own little penny-pinching techniques, people should realize that all the penny-pinching techniques in the world aren't going to bring you total financial freedom. It's one piece of the pie, but saving, investing and building your own business are far more significant, in my opinion. Question: who do you think is more financially free, a self-employed entrepreneur who can take vacation days when he or she chooses, is his or her own boss and is doing a job that is rewarding and challenging, or, a penny-pincher who works 9-5 at a job for 35 years, only having those 4 weeks a year to take off and being a slave to a paycheck and an ungrateful boss? To Michelle and the other personal finance advisors: Don't get too wrapped up in helping people pinch pennies. Instead, help them become truly financially free.

Michelle Singletary: You were doing okay until you started to limit people. If you want to work for yourself fine. But honestly most self-employed folks I know NEVER take a vacation. I think it's a myth that people who work for themselves are living it up with no boss to tell them what to do. Not true. You boss are your customers and they can be as demanding and unreasonable as any boss. It's probably the 9 to 5ers that are sitting on my chat today on vacation?

I say do what you want (work for yourself or a company) as long as the money is right for you.

And the first part of your missive is right. It's a total picture, not just the pinching pennies. But all the actions add up to financial freedom.

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Michelle Singletary: Man, is it 1 already. Wow. Unbelievable.

Well folks I have got to run. Thanks so much for joining me today. My producer tells me I had 250 questions submitted -- for an AUGUST. That's wonderful. But that also means I couldn't get to all the questions. As always, I'll try to answer some in my print column and in my online newsletter (if you aren't subscribing please do. Information about it can be found on the Post Biz page under my name). So look for my column and newsletter.

See you in two weeks (Aug. 25) where I'll be talking about making money on eBay.

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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.