washingtonpost.com
Color of Money Live

Michelle Singletary
Washington Post Personal Finance Columnist
Thursday, April 10, 2008 12:00 PM

Need advice about how to handle your personal finances? Whether the struggle is saving for retirement, organizing your bank files, or talking about money responsibility with your spouse or loved one, Post personal finance columnist Michelle Singletary offers her advice and answers your tough questions. She will be joined by IRS expert Jim Dupree.

Read Michelle's latest columns, check out her Color of Money Book Club selection archive or sign up for her weekly e-mail newsletter.

A transcript follows.

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Michelle Singletary: Welcome.

I know this isn't a fun topic -- taxes...but got to do it.

So let's get started.

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Chicago, Ill.: I'm aggressively paying down my $48,000 in student loans. Payment required every month is $385. I send about $550. I'm wondering mathwise, if it's better to pay $550 on a $385 bill (with a note saying the extra is for principal, of course), or ask Sallie Mae to raise my monthly due to a number closer to $550, which would shorten the term of the loan. Thanks! LAUREN

Michelle Singletary: I know this is a non-tax question but I'll take some during the chat.

I would definitely send a note and perhaps even a second check indicating that the amount enclosed should be applied to the principal on the debt.

Not sure if you can ask them for a higher payment and furthermore I wouldn't do that anyway. Could be some months you don't have the extra money.

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Vienna, Va.: Michelle, My fiancee and I are preparing to merge our finances as our wedding gets close, and we would like to get some advice from a professional on our financial plans, medium term goals, and long term retirement plans. What advice do you have for finding a financial adviser who isn't just going to sell us on his or her pet investments? We are both young (27 and 29), and make decent salaries, but we are concerned that we might be missing something in our plans so far. Thank you very much!

Michelle Singletary: Congrats on your pending marriage.

Don't merge until you say "I do."

In the meantime, check out this Web site: http://www.napfa.org/

It's the association for fee-only planners.

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Fredericksburg, Va.: Michelle, I love your advice and could really use it. I have saved 8k in an emergency fund, which is a tad less than 4 months of living expenses, and have about 1k in a life happens fund. I recently had some major medical issues come up and put 3k on my credit card because I was afraid with the current economy to take the money from my emergency fund. I will be getting about $500 from the tax stimulus bill and plan to apply all of that to the debt and I have reworked my budget so that I can put away about $600 a month on the debt. I have two questions for you. One: is it wise to continue paying the $600 per month and take care of the debt in 5 months or should I have taken the money from my emergency fund. The second question is that I still need to have about 3k more in services done, these are dental problems that can't wait until next year and my plan is maxed out for the year. My dentist has agreed to reduce the service cost if I pay in cash. I'm just worried about everything happening with the economy if I use the 3k from my emergency fund. I need a big GET OVER YOURSELF from Michelle, pay for the expenses up front next time with cash, then take that $600 per month and build the 3k back. Thank you!

Michelle Singletary: Okay,

GET OVER YOURSELF.

Actually I wouldn't really say that.

I would say Good for you for saving that much. And I understand the worry.

But you saved that money for an emergency. Bad teeth is an emergency (I know, have had my share of teeth problems. No fun).

So get that cash, pay of that bill. You will still have enough to finish the treatment and STILL have savings.

You are so ahead of like 80 percent of the American public.

And yes, going forward just build up that emergency fund again. But this time. Build up the Life Happens Fund too.

This way, if you have to draw from the life happens fund you won't feel so bad. Keep future funds in the emergency fund for job loss or economy-type stuff.

But really either way, you have the money. That's the important thing.

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Hudsonville, Mich.: Quick tax question for you--I received a form 1099 in January that showed a capital gain from an insurance company dividend (it said it was taxable income), so I reported it on my taxes, which I filed online. In March....after I had already received my refund...I received a CORRECTED form from my "quiet insurance company," saying the previous form was an error and should NOT have been considered taxable. Now what do I do? Do I file a correction? Do I let it lie? It was around $400, so should I just forget it? What should I do next year???

Jim Dupree: Don't forget it. It's YOUR money... (smile) You can simply file an IRS Form 1040-X, "Ammended US Federal Income Tax Return." You have three years to do so.

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Charlottesville, Va.: Hi Michelle. I'm a college student who works full-time. I save between $2k-$3k for each semester (January, May, and August). I save the money in my typical checking account, which I use for everything. For this amount of money, is this best or should I be holding it in an ING savings account or something else? Note: I don't owe any student loans, and I'm about to start my 4th year! Also, I'd like to attend a pretty expensive grad school (if I get in). What's your opinion on grad school loans? Is there a point (amount) when it's not worth it?

Michelle Singletary: You could put the money in a higher yield savings account --same as regular we-ain't-paying-you-nothin-for-your-money account.

As for grad school. Try, try, try, try not to borrow. Why not look for a job where they will pay all or a portion of your grad school education.

Is grad school worth it?

For many it is. I went. Got mine from Johns Hopkins. But my employer paid. I didn't and won't have racked up thousands of dollars in debt to do it.

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Oxnard, Calif: Why do I have to file a tax return to receive a stimulus payment? I am disabled and had no income except from Social Security (disability payments)??

Jim Dupree: It's the law. It's also a way for the IRS to identify you as a qualified recipient, and not a dependent on someone else's return. You only have fill out a few lines on the IRS Form 1040-A, mail it in (or file it online at irs.gov for free), and if you qualify, you'll receive your stimulus payment.

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Bay Area, Calif.: Michelle, How can I convince my husband we need to completely pool our finances? Our current system is that we split "household" expenses evenly, pay our pre-marriage debt separately, and keep what is left over for ourselves. However, I earn about $20,000 more than he does, and am able to do all this while still contributing to a retirement fund. He cannot. I wanted to pool our money from the start, give each of us an allowance for discretionary spending, and save the rest. He balks because he doesn't like the idea of me paying his debt--even though, as I have pointed out, if I were to stay home with our future children, he'd be paying my student loans. What more can I say to him? It pains me to see him stress about money when the funds are there to ease his stress. That, and I would love to see him start planning for retirement!

Michelle Singletary: Shameless plug but get my book "Your Money and Your Man."

And read to him the last chapter that was written with the help of my husband.

Try telling him (while you are waiting to get the book) that you are a team. That's why you got married. All money and debt belongs to both of you (perhaps not legally but I believe practically).

Tell him he's no less a man or a husband by pooling your funds and acting like a couple and not roommates. Roommates keep things separate. Married people work together.

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Bowie, Md.: Michelle, I have the sense that the economic mess is bad for my country and bad for my neighbors but not especially bad for me and my family. Yes, I have to pay more for food and gas and energy and--well, everything. But the credit crunch doesn't bother me because I live within my means and have a bulletproof credit rating. The mortgage crunch doesn't bother me because I put down a lot of money and got a great fixed 15-year rate and can easily make the payments. The bear market doesn't bother me because my investments are diversified and aimed at long-term growth (and I'm 25 years from retirement). I'm in your amen corner and I know that everyone else in that corner follows these habits too. I just want to know whether I'm right or kidding myself.

Michelle Singletary: You are not kidding yourself!

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Seattle: With the tax "rebate" checks coming soon, are you going to do any columns about them? As they are essentially just borrowing from the future, putting this country further into debt, which is owned by foreign countries and affects our security, perhaps the suggestion that the most patriotic action would be to use the rebates to pay off debt? My husband and I will be using our rebates to pay down our mortgage (the only debt we have). It won't make a huge difference, but every little bit helps in getting us away from owing anything.

washingtonpost.com: Michelle wrote the following columns about tax returns: Tax Refunds Can Be Worth Their Wait in Gold and Use Your Foolish Refund Wisely

Michelle Singletary: Way ahead of you.

And before you pay down your mortgage make sure you have an nice emergency fund and "Life Happens Fund."

That's my idea for a separate account to take care of the things in life that happen, car repair, bad teeth (read earlier question).

If you are also contributing to a retirement fund and have money set aside regular or in total for any college expenses, than you are good to go. Pay down that mortgage.

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Washington, D.C.: Love your chats! My cousin is graduating from college this month and I want to give her a financial planning book that will encourage her to contribute to her 401K, use credit wisely, save for a house, etc. I don't want it to be "preachy." My family does not have a history of being financially savvy. Thank you.

Michelle Singletary: Love this book called "Spend Well, Live Rich." The author is so funny, good writer, makes money easy to understand.

Okay, my book.

Another suggestion "Smart and Simple Financial Strategies for Busy People" by Jane Bryant Quinn

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Columbia, S.C.: Will I get the stimulus even though I own them this year?

Jim Dupree: You might... If you paid the amount due when you filed your return, then you will receive your entire stimulus payment. Any outstanding tax balance you have will offset your stimulus payment amount, and could cause you not to receive anything.

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Washington, D.C.: Hello. Thanks for all the great advice you give. Question: My boyfriend and I are very different regarding money. I have already done my taxes and tend to be more proactive about money. He always waits till the last minute. How can I encourage him to stop being such a procrastinator without sounding like his mom? Thanks

Michelle Singletary: Well, still haven't done my taxes and I'm good with monty.

Give him some space. And then ask does his last-minute attitude actually cost him more money? If not don't sweat him so much.

On the other hand, if his waiting means he's not contribution to a retirement fund, hasn't gotten around to starting an emergency fund, etc. you are right to be concerned.

So then you need to continue watching how he handles his money. Maybe just slip him personal finance articles you read. Beginning the conversation with something like,"Honey I saw this. What do you think?"

Talk and don't be his mama. He's already got one.

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Chicago: Hi Michelle- My daughter is a college student, and I pay most of her expenses and have claimed her as a dependent. However, in 2007, she worked the entire year, making enough to actually file a return. First, even if I claim her as a dependent, can she also file a return in order to be eligible for the rebate? Second, because she attends school in Indiana, if she files, what form should she use, since she is still a permanent resident of Illinois? Thanks very much !!!

Jim Dupree: If your daughter worked, and earned enough to file a return, she should - and if she's earned more than $3,000, she'll qualify for the stimulus payment.

If she's over 17, she would not qualify on your return.

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Arlington, Va.: Follow up on the first question, about student loan payoffs: I'm in a similar situation, but my loan bill is only for interest, because when I started repayment it's all I could afford (it's Citibank's "graduated payment plan.") I'm making a little bit more now and have been making extra payments applied to principal -- should I call and ask to be put back on the regular plan, which will result in a higher required payment? It might be a little more than I'm paying now, even with the extra.

Thanks, and sorry this isn't a tax question.

Michelle Singletary: Don't be sorry.

I would say yes get off the graduated payment plan if you really can stick to a higher payment.

If not, give yourself a little more time but once you know you can change the payment plan.

Why?

Because it imposes discipline that you may not have on your own.

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Washington, D.C.: My SSN is incorrect on my W-2 and now the IRS won't accept it via electronic filing. I've received a corrected W-2. What do I do?

Jim Dupree: You should be able to go back into your electronic return, correct it, and resubmit it...

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life happens vs. emergency fund: If both of these funds are supposed to be kept in a high-yield savings account, why can't they just be merged into one fund? Do I really need separate ING accounts in case something goes wrong?

Maybe I'm just missing something about them...

Michelle Singletary: It's all mental.

Keeping them separate for me, helps me and keeps me from dipping into the emergency fund for stuff that really is about regular life expenses.

But if you are very disciplined and you can keep it together, go for it.

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All money and debt belongs to both of you (perhaps not legally but I believe practically): as a financial reporter, you should be honest about what is LEGALLY obligated and leave your religious beliefs at home.

Michelle Singletary: First I'm a COLUMNIST.

Get it right.

That means my views/opinions -- all of them -- matter. It's what they pay me for. And what I win awards for.

If you don't like what I advise, you're grown. Do what you want.

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Gaithersburg:, Md. Mr. Dupree, I realized more than $3,000 in net capital losses this year. Do I need to do anything this year to carry over the rest next year?

Jim Dupree: Yes - just keep your records from this year, and include your losses on next year's tax return...

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New York City: Loved the story about Olivia. What other things have the kids objected to you doing? Are there any penny-pinching things that they've taught you?

I am going on a money diet for the rest of the year. What do you think are the five worst habits that people have that changing them would help them to save money?

Michelle Singletary: To understand the reference to my daughter, Olivia, you have to read my eletter today.

Here's a non-penny pinching thing I learned from my kids?

Sometimes I have to let them spend and or make their own money mistakes.

For example, during spring break we went to Orlando and Disney. At the end of one day my kids wanted to buy some stuffed animals, mostly with their own money. I initially vetoed it. Too much of a markup at the park I said.

But my husband, who is so very wise, said I was being too hard. And I was. Yes, they may have been overpriced but sometimes I have to let go of my penny pinching ways.

They bought the animals and LOVE them now, taking them everywhere.

Five Bad Money Habits?

-- spending on a monthly basis more than they make

-- not saving money from every dollar they get

-- overspending on eating out

-- using debt too much

-- not being grateful for what they have which cause overspending on stuff they don't need with money they don't have

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Grad school: Hi Michelle,

I'm finishing up my PhD debt-free and have a few thoughts for the previous poster asking about grad school loans. There are fields that will pay YOU to attend grad school; in chemistry, a stipend of $25,000-35,000 is standard at any school, and many of the sciences work the same way. (May sound small to professionals, but living on a tight budget for a few years beats loans any day!) See if your field offers this. Look into fellowships; your college professors should be a good resource here.

Also, ask about the possibility of getting a job as a TA for your department or a resident assistant in the university dorms. These jobs take some time away from research, but again, better than loans!

Michelle Singletary: Thanks for the tips.

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McLean, Va.: Hi Michelle, love your columns, keep doing what you're doing. My wife and I are looking to buy our first home this summer. I've done a lot of research about mortgages and I feel strongly that a 15 year fixed rate mortgage is the way to go. The amount of each payment that goes toward principal each month is so much more than that on a traditional 30 year plan. I know the monthly payment is more on a 15 year rate, but not as much as I would've thought given the benefit of paying down the principal. What is your opinion of a 15 year mortgage and why don't people use it more? Am I missing something here?

Michelle Singletary: Many people don't get it because they can't afford the extra every month.

If you can, go for it. Good for you.

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Bethesda, Md.: Michelle, a wise mortgage broker taught me this many years ago and it's stood me in good stead all these many years. If you are paying down a mortgage or other fixed payment loan, and want to pay off an additional amount of principal, write 2 checks! On one, write: "regular mortgage payment." On the other, "additional principal." Or "extra escrow" if that's the case. Or whatever. That way there can be no doubt as to how that money was intended to be used. Several friends have been caught up in hairy disputes over how much of a larger-than-required monthly check went where. While it's a bit of a nuisance to write the 2d or even 3d check, it's worth it to eliminate these kinds of problems.

Michelle Singletary: Good advice.

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Stimulus check questions...: I can understand asking questions about it if you owe money this year or if you want to avoid receiving a paper check, but why are folks so concerned RIGHT NOW about how much they will receive?? Sounds to me like they are making plans to spend money they don't have yet. I figure I'll get however much I'm supposed to get when I'm supposed to get it and since it's going into savings if it's $600 or $1,200 what's so pressing about that that I would need to know RIGHT NOW which it is??

Michelle Singletary: Well, people do need it right now.

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Virginia: Dear Michelle,

You're the best! Just wanted to say thanks for often being the "voice of reason" when I find myself coveting some fancy thing or wishing we had extra $$ instead of saving/paying down debt. Thanks for all your tough love!

Michelle Singletary: You are so welcome!

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Williamsburg, Va.: For the question about the ING account (life happens vs. emergency fund), I -believe- that ING will let you set up "sub-accounts" within a single main account. Your reader might be able to cut down on paperwork and other headaches by having them both as sub-accounts within a larger interest-bearing account. I could be wrong on that, but I know it was a feature ING was touting for a while, and if true, it'd offer the best of both worlds.

Thanks, Michelle! I love your column!

Charlie Park

Michelle Singletary: Worth checking out.

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Amen!:"Talk and don't be his mama. He's already got one."

You couldn't be more right. When I met my husband, we made similar salaries, but I had a condo, a paid off car, ALL student loans paid off, an IRA, an emergency fund, and other investments; he had an apartment with a matched set of furniture from the store, a car payment, every toy known to man, ate out every night, and $3K in credit card debt. But by the time we married, he had paid off everything and was saving more. Why? Because we talked long and hard about our values. No nagging -- just about how I grew up poor and am NEVER going back, whereas he grew up with enough money and never really had to budget or think about it, because the money was always there for whatever he wanted.

If his values mesh with yours, you will not need to nag him. And if they don't, no amount of nagging will "fix" him.

Michelle Singletary: Love, love your posting.

You are so right on the money!

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Alexandria, Va.: In case there are any IRS types out there, I'd like to put in a plug for making electronic filing available for all taxpayers for free -- not just those below a certain income level. Apparently each person who electronic files saves the government money -- but no way am I paying $18 to file when I can do it for the cost of a stamp.

Michelle Singletary: I TOTALLY agree.

Let's start a "free for all" campaign for next year!

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RE: Religious Beliefs: I just have to chime in and say I don't believe your advice has anything to do with religious preaching. There is no law about how one must save money, share it, or spend it. In absence of this, we have advice to rely on. Your advice is based upon a lifetime of experience- a totality of everything that has shaped you into the person you are. Disregarding any part of this equation would be a disservice to your readers and a dishonest approach to what you know. Keep up the good work, Michelle.

Michelle Singletary: Amen!

Oh, right that might offend someone.

So how about,

Bravo. You totally get me.

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Anonymous: My college age daughter never filed her 05 tax return (about $3,500 in income). How should she handle this?

Jim Dupree: Dear Annonymous, she should file a return. There's a chance we're holding on to a refund for her.

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Texas: Besides filing your income tax return, what additional criteria must be met in order to receive a rebate check?

Michelle Singletary: Go to http://www.irs.gov/

On the home page is a pretty good section on the rebate checks. Here's some of what you should know:

What is it? It's an economic stimulus payment that more than 130 million households will receive starting in May. It's not taxable, and it won't reduce your 2007 or 2008 refund or increase the amount you owe when you file your 2008 return.

The stimulus payment -- both the basic component and the additional funds for qualifying children -- begins to phase out for individuals with adjusted gross incomes (AGI) over $75,000 and married couples who file a joint return with AGI over $150,000. The combined payment is reduced by 5 percent of the income above the AGI thresholds.

Are you eligible? The vast majority of people who file a 2007 income tax return qualify, and many who don't regularly file a tax return may qualify as well. You're eligible if you have a valid Social Security Number (SSN), can't be claimed as a dependent on a tax return and have either an income tax liability or "qualifying income" of at least $3,000. Qualifying income includes any combination of earned income and certain benefits from Social Security, Veterans Affairs or Railroad Retirement. Additional information is below, and a full legal description is available in Revenue Procedure 2008-21.

Both people listed on a "married filing jointly" return must have valid SSNs to qualify for the payment - if only one has a valid SSN, neither can receive the payment.

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Loan-Free Grad School: Another option for getting a graduate degree without going into debt is to get a job at the university you want to attend. Many offer tuition remission as a part of the standard benefits package. I'm getting my PhD that way, and even if it's a little slower, I'm so glad I won't be going into debt.

Michelle Singletary: Love it when you guys pitch in with great tips.

Thanks.

That's what this forum is all about --helping others save and spend well.

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Austin, Tex.: I know you do personal finance and not economics, but you must have some opinions about these things. So here's a question: The economy overall, from the point of view of a consumer, seems pretty bad. Gas prices and food prices way high. Dollar weak. Interest rates very low, so my "emergency fund" is earning almost nothing.

Do you get the feeling that this is going to go on for a long time, or do you think things are going to get better before too long?

Does all this uncertainty affect the advice you give to people about their personal finances?

Michelle Singletary: Good questions.

I think we are in for a bad ride for a bit longer. Many, many people were so overloaded with debt that this downturn just really took them out.

And no by advice doesn't change. If many people listened to me for the YEARS I've been doing what I do, many struggling now wouldn't be.

See my earlier answer about the five top money mistakes.

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Bowie: My mother hasn't filed in a couple of years, since she doesn't have to pay. Her income consists of social security, another pension, and a small amount of savings account interest.

What form does she need to use?

Does she have to file Maryland also (for any reason)?

Jim Dupree: Your mother only needs to fill out a few lines on IRS for 1040A. She can get the form online at irs.gov, your local post office, or local IRS office. She can even file for her stimulus payment online at irs.gov for free.

She won't have to file a state tax return for Maryland to get the stimulus payment.

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Hudsonville to Chicago: Hey Jim,

In your response to Chicago, you told the person who had a college student that her daughter should file her own tax return. I agree with that, but can't Chicago still claim her college student daughter as a dependent? We do this for both of our college kids, since we assist with their education and have 529 funds that we use, etc. and they also file separately, just filling out the part that says YES we are being claimed on our parents' income taxes.

So....what about these college students -- even though they file separately...will they get their own checks when we claim them as dependents? Mine are ages 20 and 21.

Jim Dupree: You're right, Chicago may be able to claim her daughter as a dependent. You are not eligible for a stimulus payment if you can be claimed as a dependent on someone else's return.

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Washington, D.C.: To hire a tax preparer or not? I am capable of using TurboTax, and hiring a preparer would not be financially prohibitive, but I don't personally see the value.

Thoughts?

Michelle Singletary: I did a column in which one survey found a tax professional on average about about $150 to $200.

Worth it if you need the help. I pay someone to do my taxes.

Probably could myself and husband did for years. Just like having a good professional do it.

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Stamford, Conn. : We have a 20-year-old college student whom we claim as a dependent on our taxes. She will file her own taxes this year to get a very small refund. Is she eligible for the economic stimulus refund?

We are hit with the AMT and maybe it doesn't matter if we have her as a dependent.

If we claim her...is she eligible for the rebate?

Jim Dupree: If your daughter earned over $3,000 and files her own return, she might qualify for a stimulus payment. If she is claimed on anyone's return, she will not be eligible...

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Fairfax, Va.: I have about 3.5K in an emergency fund in a savings account, which is roughly 1.5 months of living expenses. My credit cards have a combined limit of 26K (I pay off the bill every month). Am I ok in NOT building up my savings account, knowing that I have such a high and (thankfully) under-utilized credit pool from which to draw in case an emergency hits?

Michelle Singletary: You should NOT rely on credit as a financial safety net.

It's not.

It's borrowed money. DEBT

Would you really want to add to your burden should an emergency come up by using debt?

In an emergency you might run through your saving and then be forced to use credit but don't make that your Plan A. Or Plan A 1/2

Save as much as you can.

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Michelle Singletary: Got to run folks.

Thank you so much for joining me today.

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