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Thursday, September 14, 2006; 12:00 PM
Need advice about how to handle your personal finances? Whether the struggle is saving for retirement, organizing your bank files, talking about money responsibility with your spouse or loved one, Post personal finance columnist Michelle Singletary offers her advice and answers your tough questions.
Read today's column: Some Answers to Your Budgeting Questions , and Sunday's Column: It Pays to Do the Math In the Budget Game .
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A transcript follows .
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Alexandria, Va.: Could you possibly post the link to your original how to budget column? I missed it and could really use the help. Many thanks!
washingtonpost.com: It Pays to Do the Math In the Budget Game , Sept. 10.
Michelle Singletary: Sorry for the delay folks. Computer trouble. Anyway, as requested here is the link.
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Washington, D.C.: Michelle,
Do you have any budgeting advice for people with high amounts of debt. Your Sunday article suggested that one whould put 10-15% of their income towards debt repayment. However, the minimum payments on my husbands student loans are 30% of our combined salary! How should be adjust our budget to accomadate this? I'm reluctant to cut back on our savings. Thanks for any advice.
Michelle Singletary: Ouch! 30 percent of your income is going to debt. That's rough.
I'm sure I'm not telling you anything when I say your family is in crisis mode.
And you may not want to hear this but you may need to cut back on savings to tackle that debt.
Keep saving because you don't want to be caught without a cash cushion if something happens but look at how much you are putting in retirement, college fund if you have set up one or two or three and emergeny savings.
Dial the savings back enough so that you can begin to make a dent in that student loan debt. And I say that because if you are spending what most people do on housing and that's 30 to 40 percent AND then 30 percent for student loan debt that doesn't leave you much room for anything else.
Good luck.
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Chevy Chase, Md.: In your Sunday column, MMI recommends 14 percent of one's budget go to personal debt (credit cards, personal loans). This is third only to housing and food. Doesn't this go against everything you stand for? What is this personal debt for? If you follow Michelle's mantra of only buying what you can pay for, eliminating this personal debt would let your $60K sample person spend $9,000/year on travel, rather than $600. Just reinforces how staying out of debt allows you freedom of choice. Keep on preaching!
washingtonpost.com: It Pays to Do the Math In the Budget Game , Sept. 10.
Michelle Singletary: You are absolutely right. Read today's column. I talk about that debt line item. The truth is if you want to achieve financial freedom you do have to eliminate the line item for personal debt. And yes it's a HUGE drain on most folks budget.
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Fredericksburg, Va.: Michelle,
When figuring out a household budget, how are the calculations dertermined for a marriend couple? Is the budget based on annual income after taxes?
Thanks, Denise
Michelle Singletary: Good question. Some budget items are done on gross. For example if you tithe (as I do) you tithe on your gross salary.
For other items use your net pay meaning after taxes are taken out.
The confusion with net and gross is that when you go for a home loan your debt-to-equity ratios use your gross incomes. But practically when you sit down to figure out what should be spent on what use net, since that's the pitiful amount we complain we get.
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Silver Spring, Md.: I recently had a two and half year relationship end suddennly. In fact, two weeks before I was going to propose to her. It took me totally off guard and I have been trying to recover the best I can.
In trying to get my self back on track, I have been spending much more money then usual. Co pays for a therapist, and psychiatrist. Money for a yoga and dance class to make sure I am not becoming a hermit. I am even looking at new sheets and head board to take away the painful memoires and give me some confidence that I have a nice adult looking bedroom since I am a year out of grad school.
I have not wracked up credit card debt, but I have been slowly dipping into the money I saved for all of the expenses I was expecting for the engagement and proposal.
I feel really guilty but I think they have also been helpful. Do you have any thoughts and opinions on this? I am hoping that the inital outlays will keep me sane enough to keep my job and that I can return to try and save in the near future.
Michelle Singletary: First, I'm so sorry for your lost. Really. It's a cliche but as you've found breaking up can be hard to do.
Second, I think spending on your physical and mental health to get over this is a good use of your money. But yes you are right to be concerned about keeping that spending in check. You know I often have folks tell me I'm not in credit card debt but I'm still broke. And they are broke because instead of charging their way to happiness they spend their cash. But the results are the same --- less money and savings.
So why don't you sit down and figure out how much on an annual basis you want to spend on the therapist yoga etc.
Also just because you don't have the wedding expenses doesn't mean that money can't be put to good use. Don't see that money as expendable because the reason you saved it is gone. In your mind transfer it to some other priority -- buying a home, increasing retirement savings, helping a relative with college expenses etc. Make that money you saved mean something again and you won't waste it.
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Washington, D.C.: Hi Michelle,
I love your column and TV show, Singletary Says.
I want to be a good steward over my finances, but I am not. I am a tither, but not good with money management. I'd like to know how to develop a budget and stick to it. I know that I probably need to track my spending for at least a month and try to balance my checkbook (which is something I've never really done) among other things. How do I get started and stay on track?
CD from DC
Michelle Singletary: Thank you. And hey the second season is about to start next month. All new episodes (14 in all). Go to www.tv1online.com for more information. For example, I'm still looking for guest for the new season.
Anyway. Instead of starting with your budget begin with your financial goals --priorties. What do you want out of life -- to be a home owner, send your kids to college, retire more you have to use a walker. For me I can stick to my budget because is follow this mantra "Priorities Lead to Prosperity." So I don't waste money going to the mall or on clothes because I know I don't want my kids to have to spend 30 percent of their income on student loans like the earlier poster.
You have got to decide HOW you want to spend your money and WHY. Then budget. And I mean do it. Don't just pay lip service to it.
I do advise you spend a month writing down penny you spend. I'm telling you it will shock you. Also spend the next month not using credit. I call it a Financial Fast. It will change your life.
Most important stop letting money rule you. You keep on track financially by keeping your eyes on the prize -- your personal priorities.
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Pittsburgh, Pa.: A quick comment on budgets: You are SO right about the need, but Money Management is SO wrong about the percentage of the budget that child care comprises. Who in the world are they paying? If a family's net income is $30,000, they're paying someone $30-$40 a month?!? Not happening. Full care is rarely less than $700/week (and we're in a "reasonable" market), and you must include summer camps when school children need care if both parents work year-round. Our household income is about $120,000 and child care (I work 3 full days a week year round) is $540 for our preschooler, and about $200/week (and these are medium-priced camps!) for a summer camp for our 8-year-old. And yes, I do ask relatives to help out over a couple of weeks in the summer, so to reduce costs and increase our child's family enjoyment. Not everyone has reliable family to help. Our 7-year experience is that child care is easily 10-11% of net income. Love the column!
Michelle Singletary: You are right. But keep in mind the budget template from MMI was just a starting point. And the range for misc. was 1 to 4 percent. Because not everyone has child care they didn't include it in the basic budget.
However your point is well taken. So if you have children you know that you have to cut somewhere else to make your budget balance.
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Fairfax, Va.: To Michelle -- I read your Sept. 7 transcript and wanted make this comment on the subject of women making more money than their men: Years ago, I happily dated a man who made less money than I did (he was a freelance writer, which I found so romantic). He was devoted and very loyal, but we broke up because he was also irresponsible, and I was tired of having to pay for everything, and because he had NO PLAN for his life (at 28, he still lived with his parents, floated from one bartending job to another, wrote articles off and on, and was basically a schlump). So, it has taken me awhile to not associate a man making less money than me with a man with no plan. I admit that immediately after that breakup, if I met a guy with a less-than-stable career, I ran in the other direction. Now I am much more focused on the values and goals of the men I meet, and not so fixated on the amount of money he makes. In fact, a flashy guy turns me off. I just wanted to share my perspective. Thanks and keep up the good work.
washingtonpost.com: Mating, Marriage and Money Discussion , Sept. 7.
Michelle Singletary: Really good point. And look at ALL the red flags you ignored -- lived with his parents, floated from dead end job to the other....So he was basically a bum. Maybe a cute and romantic bum but a bum nonetheless.
So I'm so glad you came around to see it wasn't that he made less than you. It was that he was doing less with his life. There is a HUGE difference as you have discovered.
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Wash, DC Financial Fast???: Please give more details!!! Can I look forward to seeing it in a column???
Michelle Singletary: Oooh that is tempting. Perhaps I should do a column on it.
I've done this twice in the last two years with the women in a ministry I run at my church. At my church I started this group "Prosperity Partners" that links women who are good with their money with women who are challenged in that department. The Senior partners as I call them serve as mentors. They aren't financial planners etc. but just women who have learned to handle their money wisely. We meet once a month to talk about various financial issues and challenges.
Anyway, as part of the group I challenged them all to spend a month on a Financial Fast. Much like a food fast they were to restrict themselves only on this case it was about money. So they could not use their credit card or cards AND they could not buy anything that was not a necessity. That meant only food, medicine etc. Do this and it will so open your eyes at how wasteful we are and how addicted we are to credit.
I also purposely chose months in which we have to buy gifts. One year it was Feb (Valentine's Day). This year is was in the month of May and Mother's Day.
Instead of buying presents I charged the women (and the men in their lives) to write letters, spend time etc. just not money. One woman did this and ended up writing a letter to her mother instead of buying the usual card or gift. She said it changed her relationship with her mother.
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Arlington, VA: Michelle,
Is your budget based on your net earnings or gross earnings? I take home about 25% less than I earn.
Michelle Singletary: It should be based on net. Just makes it more real.
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Rockville, Md.: I think that depending on your income, there can be a lot of wiggle room in the template budget. I remember 10 years ago I was living on half of what I make today. Back then, half of my salary went to housing, and the other half to other expenses. It was tight, but it was doable. Today, half of my salary still goes to housing, however, I live much more comfortably on the other half than I did 10 years ago. No longer as tight because it is so much more than it used to be.
Michelle Singletary: RIGHT!
That's what I'm saying. The budget template I wrote about is just to get your started and to show you where you might be WAY off compared to others. So people do have to adjust it for their particular siutation.
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Pearl River, N.Y.: What do you find to be the biggest money waster that people do not realize?
Thank you!!
Michelle Singletary: Eating out and shopping.
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Maryland: Why do you always pat yourself on the back for tithing? It's, like, we GET it already. Some of us don't choose to do that, and hey, look at all the savings I have because of it.
Maybe one day I'll choose to do so, but honestly, what is the immediate benefit to it?
Michelle Singletary: I won't get defensive at the very offense comment.
Anyway, I talk about tithing because I hope to inspire folks to look at giving as something that should come first.
If you want to be selfish well then that is your right.
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Reston, Va.: Thanks for the great column on Sunday. I realize now that I need to budget for the year, not just the month at hand.
Michelle Singletary: Good for you!
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Rochester, N.Y.: You stated that Personal debt should be in the 10 to 20% range. Do payments on educational loans fall in this category?
Michelle Singletary: Yes they do. A car loan would go under transportation and obviously home loan under housing.
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Charlotte, N.C.: Hi Michelle! Love you chats! Need some advice on my savings goals. I just started a new job and am planning to buy a house in a year. Would it be better for me to save $10,000 for a down payment or pay off a $10,000 student loan that has a high interest rate (8.5% and it goes up each quarter with no cap)? I really want to pay off the loan because I HATE being in debt. My salary is in the lower 100s and I have excellent credit, so I don't think finding financing with a low amount down will be too difficult. Thanks!
Michelle Singletary: Pay off the student loan, especially at that high rate. Look you say yourself you hate having that loan. So follow your gut. It might mean putting off buying the home for another 6 months or a year but at least you will move into your home without that debt hanging over your head.
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DC: I read Jane Bryant Quinn's book (Smart and Simple Financial Strageties for Busy People) and found her advice about budgeting right on. Most of our largest expenses are non-negotiable: mortgage, basic utilities, health and life insurance, daycare/tuition for the kids. Add those up, then add on what you need to save (retirement, college, and rainy day funds) and have the savings come out of your checking account automatically every month.
Then you live on what's left over. All other expenses are basically optional (cable, eating out, vacations), or at least negotiable (food doesn't need to come from Whole Foods, clothes don't need to come from expensive stores).
I love her approach b/c I take care of all of the basics first, including savings, but don't have to account for every penny I spend each day.
Make sense to you?
washingtonpost.com: Michelle hosted an online chat with Jane Bryant Quinn about her book last January: Click Here
Michelle Singletary: Perfect sense.
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Apple Valley, Minn.: Hello!
I have a question re: tithing - in my past, when times were extremely tight, I tithed. Even though I didn't think I could afford to. Nowadays, due to relocation and having to 'start over' I've learned to budget, save, etc. but I don't tithe. I haven't found a 'church home' since my relocation. Prior to leaving the DC area, I'd stopped tithing, and kind of left my church. I know I could donate to organizations, which I do regularly (Salvation Army, Vietnam Vets, etc.) but I don't contribute the standard 10 percent. We've even donated a vehicle to charity. I've been looking, but have not found a place of worship where I feel comfortable. What do you suggest I do to 'speed up the process?'
Love you column and TV show!
Michelle Singletary: You could continue to tithe to your old home church until you find a new place of worship.
Clearly tithing is important to you. So make the effort to put it back in your budget.
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Budgeting: I don't think people realize how expensive it is to eat out. We were forced to eat nearly every meal out for 5 weeks when our new rental lost water due to serious mold/plumbing issues (eventually, when it was clear our landlord would not help, we moved again). I think we easily spent over 2k on food, and that was not at fancy places! Now we have a set amount available for groceries and spending money, and don't go over it.
Michelle Singletary: Good point. And it's not just restaurants. It's picking up lunch or breakfast at work.
It's munching all the time.
It adds up.
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Washington, D.C.: On the issue of charitable giving, I am bombarded almost daily by groups that want me to give for this cause or that. But what stuns me is that major companies like Safeway (a dollar at the register for this or that cause...) and SunTrust (buy schools supplies and donate...) ask for donations for causes they could easily fund from their own profit coffers.
My question here is, isn't it fiscally irresponsible to donate to organizations that already have major sponsors. I feel like I am being duped into carving more out of my charitable giving dollar for groups that already have the cash.
Michelle Singletary: Don't feel duped. The best way to handle what you want to give is to come up with a list of charities that you want to support. Then you don't feel guilty or duped to give to others.
And I've been on the board of directors for a charity and the need is always so great that they need corporate donations as well as individual donations. Also keep in mind even the corporations have a budget line item for charitable giving.
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Arlington, Va.: Well, if we are going by net earnings, then I am spending 42 percent of my income to pay down my law school loans. (And I went to undergrad on a 100 percent paid for academic scholarship.) Jobs aren't paying what they should be, and I'm not talking about the top 5 percent of lawyers who go on to big firm jobs and make hundreds of thousands of dollars. I'm talking about the other 95% of lawyers who start out. I could technically pay less, but then my interest rate of 9 percent will cause me to pay about $50-70,000 in interest over an extra ten year period and I'd prefer to keep that money.
Just curious about your thoughts on this student loan epidemic.
Michelle Singletary: I'm so sorry for your heavy burden, really.
But I do think far too many people are taking on far too much student loan debt. And many of those folks like you are realizing they aren't making the money to pay it back before they are wheeled into a nursing home.
I'm not sure how to cure this epidemic other than to encourage people not to go into that kind of debt. Of course people don't want to hear that because it might mean not going to the school they want to go to. It might meaning paying for classes when they have the money.
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Alexandria, Va.: In response to the tithing comment.
Michelle, I'm glad you didn't get defensive on the last comment. One thing you may want to observe is that Michelle always qualifies the statement that tithing is based on her personal beliefs.
If you didnt feeling slightly guilty about not tithing then her suggestions to tithe would not bother you.
Michelle Singletary: Amen!
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Alexandria, Va.: How do you figure a budget item for a one-time expense, and whether you should borrow or pay for it outright? For instance, we want to finish off our basement. It will probably cost somewhere around $30,000, plus we'd like to replace our siding and windows (house is about 25 years old). We could take this money out of savings, fortunately, but would it be better to take a home equity loan for it and keep our money invested? How do you figure this type of thing?
Michelle Singletary: Right not I'm in a place of encouraging people to stay away from debt. It's just so crippling. It so enslaves you to the lender.
So if you have the money and it won't delete your emergency stash and security pay for it with your cash. Isn't that why you saved it -- for things like this?
If you pay with cash and one of you lose your job or get ill or whatever that's one less bill to worry about.
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Falls Church, Va.: Hello Michelle:
Thanks for your great advice, I really enjoy your column. I currently contribute 11% to my 401-K at work and my company matches that amount. Does it make sense to put in more than what the company match is (in this case 11%)? Instead of increasing my 11% should I instead be putting the maximum amount into my IRA instead? Thanks again for your advice!
Michelle Singletary: May I suggest you start with calculating how much you may need for retirement. That way you can see if you are on track. If you're on track then you don't need to save more.
Go to www.choosetosave.org and use the ballpark retirement calculator to see how much you will need in retirement.
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Little Rock, Ark.: I think in addition to shopping and eating out being key money wasters, always having a financed vehicle (especially leasing!) should be added to the list. I'm on the 2nd car of my life...I kept my first car 11 years, and paid it off in 3 years. It really helped my savings having 8 years of no car payment. I'm doing the same on my current car.
Michelle Singletary: OOh. I'm sorry I didn't remember that.
You are so right. I'm with you on keeping my car until they push me off the road. How much more money so many people would have if they didn't stay in a car loan.
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Washington, D.C.: Michelle's belief on tithing is her own personal preference which she is entitled to have. Tithing and your level of understanding regarding why is based upon your level of faith. Everyone should give not necessarily to tithing if you do not believe in that. Everytime Michelle has a column YES she does mention it GET OVER IT. How many of us has she help to improve our finances and get out of debt. ORGANIZE YOUR PRIORITIES, WE COME TO HER COLUMN TO GET OUT OF DEBT NOT ATTACK HER BECAUSE OF HER BELIEFS. GET OVER IT. If you do not believe in tithing fine. Replace the word TITHE with GIVE. EVERYONE should believe in giving.
Michelle Singletary: Thanks for having my back.
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Silver Spring, Md.: I love your columns! We are tithers and I calculate our family budget using the net (after tithes & after taxes and other payroll deductions) amount. It's good to have another point of reference for people that come to me with financial stewardship questions. Thanks!
Michelle Singletary: You are welcome!
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Washington, D.C.: I want to tithe, btu I have credit card debt. Should I pay my card down and wait to tithe or split it up?
Michelle Singletary: You know what you believe. It's it's in tithing then you should do it now. Give first.
But you also need to keep your word to pay on your card as agreed.
So that means you tithe and do whatever you can to find the money to aggressively pay down that credit card. Of course the first step to that is NOT using the card. Put it away.
Then look at your budget. Are there places to cut..deep.
If not are there ways you can increase your income at least while you pay down your debt?
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Washington, D.C.: I'd just like to second your comment that eating out is one of the big drains on a budget. My husband and I used to buy our lunches each day and often go out for dinner either during the week, on weekends, or both. We had a baby (and were consequently home a LOT more!) and I noticed a lot of leftover cash that I finally figured out came from cooking dinner at home. Even tho I keep a close eye on our spending, I hadn't realized quite how expensive those meals were. We're trying to take our lunches at least twice a week, which saves us even more (every day just isn't realistic for us!). We're saving the additional money, except for the occasional splurge on a babysitter.
Michelle Singletary: That's why keeping a spending journal for a month or two can really point you in the direction of where you are wasting money.
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Column idea for you!: Michelle, could you someday look into CharityNavigator.org (I think that's the web site) as well as other online resources for evaluating charitable organizations? It would be very helpful to have your unbiased (or even slightly biased) take on the value of these resources. For instance, some people swear by CharityNavigator but organizations that don't rank very well using CN's metrics are not necessarily unworthy.
After all, smart charitable giving goes hand in hand with smart finances.
Michelle Singletary: Thanks. I have written about them and other organizations that try to help givers give wisely.
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Washington, D.C.: I'm confused. In your article you state that monthly mortage or rent payments + taxes and insurance should be 27 percent of income minus taxes. But in the same article in the example your calculation is based on total income...which is it?
Michelle Singletary: Sorry about that. In editing we should have clarified that.
The minus taxes refers to using your net income so minus state and federal taxes.
So the housing budget percentage is mortgage and taxes related to that mortgage etc.
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Fayettville, N.C.: For those who are not money conscious but would like to become more aware of their spending is there a class or program that can help. YOUR ADVICE IS PHENOMENAL. I just think my learning style is different or I made need more discipline.
Michelle Singletary: Have you tried finding any classes at the local community colleges. Many have personal finance classes. Also check local community groups, your local bank, credit union etc.
Many offer basic money management classes. In Maryland for example, the park and planning agency has money management classes thu local colleges for very low fees.
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Laurel, Md.: Hi Michelle!! You are so right--eating out and shopping are the biggest money wasters. I've never had a problem with shopping since I loathe the "sport", but eating out is my vice. I've managed to bring my lunch 2 weeks in a row and already I've noticed that I'm not scrambling to find gas and metro money! Keep your fingers crossed for me!
Michelle Singletary: Fingers crossed!
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Michigan: Simple budget advice from my mom (which she got from her mom): Give 10%, save 10%, spend the rest with thanksgiving and praise.
Works for me and I don't obsess over every nickel.
Michelle Singletary: Smart mom!
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Atlanta, Ga.: I am so proud of you. I'm also from Baltimore (graduated from Western-class of '83) and "found you" on TV One. I moved to HOT-Lanta in '94. I was so surprised and thrilled to hear you on our local AM station twice- once covering for Clark Howard and also with Elise Glink! I also understand you will be here for a private meeting this weekend sponsored by our gospel station 97.5. YOU GO GIRL!! I am now an official "groupie" and disciple of your teachings. Clark is good but I can totally relate to you!
I do need lots of help getting my finances back on track. Do you have any books I can borrow from the library (see it's already working :-)
Cathy
Michelle Singletary: Oh thank you so much. I'll be in Atlanta this weekend. Say send me your information via e-mail and I'll see if I can get you an invitation to a talk I'm giving called "Divas Don't Have Debt." My e-mail is singletarym@washpost.com.
And I'll be filling in for the wonderful Clark Howard again on Sept. 19 and 20th from 1 to 4 p.m. You can listen live via the internet at www.wsbradio.com.
If you don't know who Clark Howard is please go to the web. He host a great syndicated personal finance show on the radio.
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Austin, Texas: No Question, just wanted to say Thank you Michelle for your comments on finances and debt at the recent Congressional Black Caucus forum. Keep up the great work, Tiffany
Michelle Singletary: Oh, how sweet. Thanks.
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Washington, D.C.: I read your column to say housing costs should be roughly a third of net income -- I always thought it the max should be 28 percent of your gross income.
My net income is $3000 a month (I put 6 percent into 401k); my gross is 4400.
Do you think spending 1200 a month on a mortgage is dangerous for my level of income, given I have no other debt at all, and at 35, I have some time to save for retirement?
Michelle Singletary: Well, you are running high percentage wise for your housing. As long as you keep your debt down and watch the other areas you should be fine.
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Michelle Singletary: Well folks I'm WAY over my time. Thanks for hanging with me. I'm really sorry if I didn't get to your question or comment. But as always look for answers in either my column or my weekly e-letter, which I hope you subscribe to. I try to keep you posted on all the latest personal finance issues.
Take care.
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