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Color of Money Book Club

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Michelle Singletary
Washington Post Columnist
Thursday, January 26, 2006; 12:00 PM

Michelle Singletary hosted author Jane Bryant Quinn for a discussion about this month's Color of Money Book Club selection -- "Smart and Simple Financial Strategies for Busy People." (Simon & Schuster, $26).

In a recent column , Michelle wrote that Quinn has written a book keeping with the KISS theory. You know, "Keep It Simple, Stupid." Except in this case, Quinn thankfully drops the stupid part.

A transcript follows.

Read Michelle's past Color of Money columns .

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Michelle Singletary: Well hello every one. I'm so please so many of you have joined me today. Man there are a lot of questions already. Great. So let's get going.

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Ft. Washington, MD: I can't wait for the Sunday paper, so that I can read your column. Even though I am 62 years old, I have learned so much from you and your grandmother. I wish that I had known you both a lot earlier. I am ready for retirement, and feel the frustration of someone who just didn't know early enough. I've made some big mistakes because of ignorance.

washingtonpost.com: Color of Money: Column Archive

Michelle Singletary: Oh how sweet you are. Thank you. Hope my editor sees your note :)

And don't beat yourself up. 62 is still young. You could live to 100 which means you have 38 years to get it right, right?

So don't get frustrated. Get busy. Read Jane's book. Keep reading the column and change old bad behaviors. Sure you may need to work longer but it's not over yet. You can still retire and do well. It might mean making some tough decisions but you can do it!

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Bethesda MD: This really isn't about today's discussion but I have a questions. I had an AmEx account 9-10 years ago and had a $2000 debt I couldn't pay due to unemployment. It has since dropped off my credit report a few years ago but now I am getting letters from AmEx offering to settle this account for the same amount. How can they do this if it is after the statute of limitations and will they report this old debt as a new one to the credit bureaus? Please advise - thanks!

Michelle Singletary: Well first American Express can come after you for what you owe them until you die (and there after if you lease an estate). It's your debt. There is no statue of limitations on what you owe. There is a limit on how long the negative information that you didn't pay can stay on your credit report (7 years). If you negotiate with AMX to pay the old debt or some of it the company could start rereporting the negative information on your report. If you do want to pay off the debt (which I think you should since you got whatever it is you used their money for, then be sure to make sure you get in writing that they won't report negative information on your credit report.

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Crofton, MD: You suggest a cash cushion of 3-6 months.

Is it more important to build up a larger cash cushion, or start investing in a Roth IRA earlier (I'm 21)? I don't have any credit card debt and I don't think my life is THAT volatile that I would need much more than 3 months...

Right now I'm thinking of putting all my extra money into savings until I reach that "3 month" point, then doing 50/50 into savings and a Roth until I have reached my 6 month savings mark, after which it all goes into the Roth until I hit the annual max?

It seems to make sense to me... does that sound like a good plan to you?

Jane Bryant Quinn: What REALLY important is the habit of saving, and you've got it! the data shows that today's 20-year-olds are saving more than the earlier generation did, which is just great.

I like your idea of the three-month cash cushion and then the Roth. Did you know that the Roth can be a cash cushion, too? You can withdraw your own contribution to a Roth at any time, for any purpose, without interest or penalties. The earnings on your Roth contribution have to stay there until you pass 59 1/2, in order to be tax free. But your own money--your cash contributions--are always at your fingertips. SO, you can use the Roth as a combined cash cushion and long term investment. If you need money for an unexpected expense, you can take it from money you yourself put into the Roth. If it turns out that you don't need that money, you can leave it alone to grow tax free. That's why I like Roths--they're dual purpose.

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washingtonpost.com: Are parents obligated to pay for a daughter's (or son's) wedding? And if you pay, do you have a say? Have you been in this situation before? Are you facing it now? Send an e-mail to Michelle at colorofmoney@washpost.com. In the subject line put "Greedily Ever After."

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Ballston, VA: Just wanted to say how much I like the book club- it's introduced me to some great books. In fact, I asked for a couple for Christmas, and my sister read them before she gave them to me! I didn't mind at all- I was happy that she did. Anything to help someone else get on track (which I hopefully am with reading all of these books!).

washingtonpost.com: Color of Money Book Club selections are online here .

Michelle Singletary: Thank you so much. I love the book club too. And you guys should see my office. It's a mess with all the personal finance books. I'm trying hard to vet them for you so I pass along recommendations of books that will really help. Jane's is obviously one of them. I think she's wonderful and really has the interest of regular folks at heart. That's what makes a good personal finance book to me.

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Washington DC: I've always done my own taxes (I am very methodical and keep great records). However, when I bought my first house this year, my realtor said I definitely need to have a professional do my taxes from now on, since there are so many deductions related to owning a house, and if I do it myself I will probably miss something.

I feel weird about paying someone to do something I can do myself (I am a penny pincher and even cut my own hair) but is it really worth it to hire a tax professional?

Michelle Singletary: I think you could probably do it yourself. But to be sure why don't you invest in a tax software. Many have the home deduction stuff down really well so you shouldn't miss anything.

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Leesburg, Virginia: Is there a rule of thumb for how much money to have in a "cash reserve" account? My husband and I are in our mid forties. We both work and make a combined income of 200k. We have a mortgage and two car payments, but no credit card debt. Our son is in his second year of college. His expenses are in savings and we really don't need to add to them. We believe we're on a good course with retirement as we've been putting the max amount away since our eary thirties. We currently have 40k in cash reserves. I want to keep it that way but my husband feels we would be just fine with less. What do you think?

Michelle Singletary: You should have enough in cash reserves, I think, to cover your expenses for three to six months. And that's everything, mortgage, car payments, gas, household bills etc. After that you could move the money to something more aggressive. So just ask yourself does $40,000 cover all your expenses (perhaps even continuing medical coverage) for three to six months. If so you're husband is right. If not you are.

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washingtonpost.com: You can sign up for Michelle's weekly personal finance e-mail newsletter by clicking here .

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Baltimore, Maryland: Good Afternoon Ms. Singletary;

I wanted to ask you to clarify an earlier comment you wrote in your column, "Repeat after me, CREDIT IS BAD!". I beg to differ. Credit is good! One of the major obstacles for peoples in developing countries is lack of access to available credit.America thrives economically because everyone has access to credi! That's why 70% of Americans can own their own home! Repeat after me "Credit is good!"

Thanks you!

Michelle Singletary: Repeat after me again CREDIT IS EVIL. Necessary but evil.

As it says in Proverbs 22:7 The rich rules over the poor,

And the borrower is servant to the lender.

Yes, almost all of us need to borrow to own a home. But all our other borrowing has led to some terrible habits.

You say 70 percent of americans own their home.

It's also true that we Americans have the worse savings rate..and it's because of easy credit.

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Washington, DC: I'm a single woman with a 16 year old child and a good job. I want to buy a house in the DC metro area later this year but I'm lost to decide or figure out what my best options for mortgages are. I have about $10,000 saved, my contract ends next year but can continue, & as of June will have outside income about $500/month. Please help.

Jane Bryant Quinn: Please consider the three plain-vanilla types of mortgages--30-year fixed; hybrid (three-year or five-year fixed, after which the rate will float);or a one-year variable, where the rate changes annually.

The 30-year fixed has a higher monthly payment, but it won't change--so you can build it into your budget.

The one-year variable will start out with the lowest rate, will probably rise next year, then will rise and fall depending on what happens to rates in general. You get a lot of savings in the early years with this mortgage, provided that the rate change is ok with you. Ask the lender to show you what the rate changes might do to your monthly payment. Over time, variables cost the least, for people who can handle changing payments.

The hybrid gives you a fixed payment for several years and a floating payment after that/

DON'T take a mortgage that lets you pay only the interest on the loan. Banks like these loans, because they earn extra money on them (that's because they cost you more, in fees and interest charges!) Lenders often urge interest-only loans on people with low downpayments. But you won't be acquiring any equity in your home with this mortgage. You pay and pay and the debt doesn't decline at all. (An even worse choice would be an "option " mortgage. that lets you pay less the the interest due. With that loan, the size of your debt goes UP with every payment, not down!)

If money is tight, do the variable rate, so you at least are paying off something on the mortgage loan each month.

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RE: Doing Taxes: You don't have to pay a professional. My husband and I have a house, investment income and rental income and we do them ourselves. Just buy TurboTax. Also, before I was married I owned a condo and did the taxes myself without the software. It's not that complicated.

Michelle Singletary: More confirmation. Now I don't mean to say that you shouldn't use a professional. Some of us do (me) because well hate doing taxes.

But for you self doers out there it can be done.

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Washington, DC: To Washington, DC--I too always do my own taxes, and was worried about doing it when I bought my first home two years ago. I used tax software, and thought it was really quite easy (as far as taxes go). No point in conceding the point of pride of doing it on your own!

Michelle Singletary: More tax advice. Love it!

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Silver Spring, MD: Just want to say how much I love "Singletary Says" on TVONE. I have it on series recording for my DVR which means it's automatically taped. I couldn't stop crying during the behind-the-scenes episode. Your husband is a wonderful man and your kids are adorable! Keep the good advice coming!

Michelle Singletary: Thank you so much. I'm so glad to hear so many people are enjoying the show. In case you haven't seen it go to www.tv1online.com for a listing of where you might see it in your local area.

Oh and what about my brother. He was so sweet. I cry every time I watch the tape. I do have great friends and relatives.

Most important however is this show is meant to help folks. Give them hope that they can develop good financial habits that will help them prosper.

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Jonathan Byus, Washington: Hello, Michelle! What advice would you give to a senior citizen about investing in mutual funds (and what funds to invest in) to preserve capital during retirement?

Thanks.

Jane Bryant Quinn: Hi--I'm so glad you're looking at mutual funds, not individual stocks! The funds give you a far better chance of growing your money without taking outside risks.

I like the varieties of asset allocation funds, that mix stocks of various types (including international) with bonds.

There's a group of funds called "target retirement" that give you a mix appropriate to your age. If you're still working, you pick one that is targeted to a future year, when you expect to retire. When you're younger, that fund is more in stocks; as you get older, it adds more bonds. At retirement, most are about 50-50 stocks and bonds.

If you are already retired, you can get a fund that targeted the year you left the workforce, such as 2000. It will contain the right mix of stocks and bonds for someone who retired them. The older you get, the more bonds these funds add. They turn into pure income funds in your later age.

There are three good no-load mutual funds that offer targeted retirement funds--Vanguard, Fidelity, T.Rowe Price.

Michelle Singletary: Hey Byus baby. Glad to hear from you. Folks this is a good friend of mine. He's such a sweetie and handsome! You still single?

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Alexandria, Virginia: Will you marry me?

Michelle Singletary: Sorry baby already taken. 15 years this year (Yeah!)

Wouldn't give up my Boo for anything or anybody. He's fine. He's kind. He's got a good government job.

And the man is as frugal as me. Ooh I get goose bumps just thinking about how he likes to save :)

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Annandale, VA: I have an old car I would like to donate to charity. But here is the catch: it began to blow white smoke out the tailpipe the other day, and from my understanding, that's a terminal prognosis for a car (or costly repairs). So here is my question, do you know of a good charity that has one of those deals with public auctions houses or U-Pick-Your-Part yards (where the charity receives some of the profit from the sale)? I would not want to just pass my troubled vehicle along to a charity that would need to use it for everyday operations. Thanks.

Michelle Singletary: Just call around to the charities -- Melwood, etc. You will find one that will still want your car in any shape.

Many have people who will fix up the car. They know many of the ones they get need repair. It's just so nice that you want to do such a good thing and you're concerned about passing along a clunker. Bless you.

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Northern VA: Michelle Dawling -

I really enjoy watching your show "Singletary Says" on TVOne. I especially like the fact that you speak to young people like those on last night's (Thursday) show. Is there a way to get a copy of that show?

The show spoke to two young women, one in particular was the one in college with a shoe, latte and cig habit.

I'm hoping my daughter will learn from that show. Also, if you could possibly piggy back on my suggestion to her that she should use her '05 tax refund to establish a monetary cushion (and not blow it all)that would be wonderful!

I love that quote you had out some time ago on what to do whenever you have a financial windfall. As a young woman just starting out - she really needs to hear that.

Thanks Michelle!

Robin in Northern VA

Michelle Singletary: Thanks again. You can tape the show. That particular show is coming on again on Sat. at 10 a.m. and Sun. at 2 p.m. If you still can't catch it contact TV One.

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Rockville, MD: Hi Michelle -

Have you ever felt that you just didn't have enough money, no matter what you did? I'm feeling the pinch now, and though I admit there are a few things I could cut back on, I get upset that I just don't have enough. I have a decent job, a decent place to live, a car that runs, and no debt. So why can't I get ahead? Ugh. How can I get out of this rut?

Michelle Singletary: Take a deep breath. Right now. Well after you read this.

Then realize that you are the master of your finances. You can get out of that rut when you decide you need to get out.

Then equip yourself with some tools to help motivate you. Start by getting Jane's book. Or my book (Spend Well, Live Rich) or any of the books I've recommended on basic personal finance.

Then count your blessings. Decent job. Decent place to live. A car. Job.

You are getting ahead. Maybe not as fast as you like but you're doing okay.

But to do better you NEED to cut back on the things you day you could.

Look take this phase I learn from my 5-year-old and put it on a note card in big read letters

TODAY IS TOMORROW

Now make today the day you get out of your financial rut and save more, invest more or put your financial goals first.

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Alexandria, Va.: Michelle, just wanted to say congratulations on buying your two new cars! I hope it does your thrifty heart good to realize that if you keep them a long time, 7 years or more, it's just as thrifty, if not more so, than buying used. You'll get more good years out of them and you'll know how they're maintained. Keep up that every 3,000 mile oil change schedule, and you'll be fine. Well done.

washingtonpost.com: Color of Money: Putting a Car Before the Purse (January 22, 2006)

Michelle Singletary: Child I'm still shaking. This was so out of my comfort zone.

But for the most part my husband and I keep our cars for 10 years or more. That's why we decided to buy new this time. Get all the great upgraded safety features plus some nice options cuz we will be driving these cars until we are on the first name basis with the local tow truck drivers.

And you know what some folks had the nerve to call me a "sellout" because I decided to let go of some of my money. Don't care. I know I'm a good steward of my money and can do a want every once in awhile.

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Mobile, AL: Dear Mrs. Singletary and Mrs. Quinn,

We are at a fork in the road and would like your advice. We have an option of paying off a student loan or paying down a credit card with $13K balance reducing it to $5K. Thanks to repairs after hurricanes, yes, plural. Credit card is 4.9% til payoff. Student loan payoff is $7500. Which option is more feasible? If we pay off student loan those loan payments will be used for the credit card. Thanks, Mobile, AL.

Jane Bryant Quinn: Pay off the loan with the highest interest rate first. My deepest sympathies about the hurricanes--what a trial for you. But it sounds as if you're getting things under control

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Baltimore, Maryland: I am a single parent in the military and have 2 girls, ages 8 and 10 . I currently have no real savings plan. So I elected a $30,000 tax-free advance on my retirement to invest.

I first looked at spliting it in half between a ROTH IRA and a 529 plan for each of my daughters. Then I read an article that suggested those types of accounts can affect any financial aid that my daughters may receive when they go to college.

How should I consider investing the money?

Jane Bryant Quinn: Hi--

I'd love to put another savings idea on the table. As a military person, you have access to the Federal Employee Thrift Savings Plan, for retirement savings. This plan is WONDERFUL. It's considered a national model for what a savings plan should be. You can contribute to it automatically, through payroll deductions. the plan just added a terrific group of mutual funds called lifecycle (or 'target retirement')funds. You pick a likely retirement age, go with that fund, and it invests properly for you. If you think you can't afford to invest, don't say no until you try. Start with 5 percent of your paycheck, invested automatically. I'll bet that your life will go on just the way it did before, except that you're now putting 5% into savings. I'll even bet you can gradually raise that to 10%, once you see that 5% works. The very best way to save money is to hide it from yourself, through automatic payroll deductions.l

As for the money you've taken now--

If you put money into a 529 plan, where will it grow tax free for college (or other higher education), the account should be in your name. A small percentage (5.6%, usually) will be counted toward your parental contribution for college), so there may be a modest deduction from college aid. Do not put the accounts in your daughters' names--if you do, the schools will want 35% for college the first year.

I think it's a good idea to put part of the money into a Roth. You can withdraw the dollars you put in at any time without taxes or penalties, if you need the money. If you don't, it's a start on a tax-free retirement account.

But don't forget that thrift savings plan!! It's easy, low-cost and something all the rest of us would love to have!!

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Reston, VA: Michelle and Jane

Sorry I do not have a question re: Book Club. But I do have an interesting question - I recently got married and am in the process of changing my name (credit cards, etc). I am curious how that will be reflected in upcoming credit reports. I have pretty good credit and hope it transfers over - but is it automatic or do I have to tell the credit agencies?

Michelle Singletary: You could let the agencies know about the name change but it will eventually be picked up as you apply for new credit with your new name OR as you change your name with existing creditors.

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DC: Hello Michelle and Jane,

I just got the book (it's terrific!) and am reading about life insurance. We need to beef ours up. We currently only have a minimal policy for me, and a good-but-not-enough policy for my husband, both through his employer. As you point out, these policies would not be portable.

My question is: I'm self-employed, have 2 chronic but well-managed (not fatal!) medical issues, and am pregnant with our second child. Do I have any chance of finding life insurance coverage on the open market? Is it worth applying for coverage now, while I'm pregnant? Or will I be automatically rejected, and having been turned down, be seen as too risky when I reapply after the baby is safely here? Thanks!

Jane Bryant Quinn: You can absolutely find life insurance. Got to insure.com, to check out possible prices. You can get an agent on the line who will advise you about health conditions and make suggestions. It's important you be fully insurance, as you are one of the breadwinners.

To recap what my book suggests ("Smart and Simple Financial Strategies for Busy People")--you need 8 times income for 20-years protection, 9 times income for 30 years, using low-cost term insurance. Add $100,000 worth of coverage for each child, if you want to help them with college.

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Friendship Heights, Washington, DC: Hello. Any advice on how a young professional can actually save money in this town on $35K a year? My rent is $850/month, plus my car payment at $250/month. (Car must stay). I live paycheck to paycheck, and it's becoming increasingly stressful. Thanks for any ideas/advice you have!

Jane Bryant Quinn: Set aside 5% of your paycheck, automatically. do payroll deduction, if you're working for a company that does that. Set up automatic deductions from your checking account, if you have to go it alone. YOU CAN DO IT! I remember being in exactly your situation when I was in my 20s--5% won't even be noticed. try it and see

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Somerset, NJ: Jane Bryant Quinn! My nominee for most admired woman in America (because of your steady work in providing financial information to women of all levels of income in a variety of venues.)

My question: in deciding on an allocation of a 401(k), do you count your expected social security income as part of the guaranteed, fixed income "leg" of your financial support, and therefore do you reduce that class of assets in your 401(k)? Also, when you calculate an allocation, do you do it on the basis of your total current financial profile, that is, for example, owning your own home counts towards a real estate asset in your calculation of a 401(k)?

Jane Bryant Quinn: Thanks so much!!

Count your Social Security (and pension, if you lucked into one) as part of your "bond" allocation

Don't even count your home equity unless you expect to cash it in--for example, by downsizing to something smaller or moving to a cheaper part of the country. And then, only count the amount you expect to have available for living expenses.

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Washington, DC: For the person looking for a charity to donate the car to: When my car needed a rebuilt engine (yikes!), I gave it to a non-profit technical college that used it to train students on how to rebuild engines. They may have resold the car after that, too. But that way I didn't have to worry that I was giving the car to someone who would have to pay to fix it.

Michelle Singletary: Great idea too. Thanks.

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Jane Bryant Quinn: Many thanks to all, for the interesting questions! It was fun being with you today, and hearing what's on your mind.

With my very best--

Jane

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Michelle Singletary: It's 1 already? Wow. The time goes by so fast. I'm so, so sorry if we didn't get to your question. There were so many. But Jane has agreed to answer more. So look for an upcoming column (probably next week) with answers to some of your questions.

Also please subscribe to my electronic newsletter. I'll also be posting answers to some of your questions in the eletter. To subscribe go to the biz section on the Post site. Click on the link for personal finance and then you will see another link on the right to subscribe. It's really a great way to keep up with all the personal finance issues of the day.

Thanks for joining me and see you back here real soon.

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Arlington, VA: Ms. Quinn:

Read your book recently and LOVED it. And was pleasantly surprised to find out that I had followed some of your advice without even knowing it! So thanks for helping all of us make some simple sense of our finances. Now to my question...

In your book, you say to only in invest in one mutual fund (otherwise your balance will get thrown off). But, do you mean, only invest in one fund per investment account? What I mean is, I have a mutual fund for my IRA, but can I have a mutual fund for my 529 account? Also, my husband and I have an account where we are saving for a house down payment. Can we have a mutual fund in that account?

Thanks!!

Jane Bryant Quinn: For the house downpayment, I'd save in money-market account or bank. That should be kept totally safe, not exposed to the market.

For the 529--choose the age-based options. It's like a mini target fund. It's mostly stocks when your child is younger and switches gradually to cash when he or she is 18 and you need the money for tuition.

Thanks for your nice comments about the book

Michelle Singletary: Oops. Jane got one more in. Bye.

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