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Michelle Singletary
Thursday, July 8, 2010; 12:00 PM

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Michelle Singletary: Good afternoon everyone. I hope those living in parts of the country sweltering are keeping cool.Lots of questions so let's get started.

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Money = Happiness: Money may not buy happiness, but it certainly can stave off a lot of misery.

Sarah Halzack: Today's e-letter: The pursuit of happiness

Michelle Singletary: So for those not sure about where this comment is coming from, it's generated from a news story I refer to in my e-letter today (link provided) about a Gallup poll about what makes people happy.I agree money can stave off misery (love that phrase). But we still have to be very careful that we don't let the pursuit of money make us miserable.

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Percent savings rate?: A really basic question I haven't been able to find the answer to. When people say to save 10% of your income, is that gross or net? Should that be 10% for retirement plus your other savings, or 10% total (as the minimum to reach for)?

Michelle Singletary: I think the people you are referring to mean after taxes. But really the decision is all yours. I do both. I save some before taxes and after other expenses.But rather than approach savings based on a certain percentage, look at it based on what you need. And what you need will vary depending on your personal situation. For a retirement gauage to to www.choosetosave.org. And look for its ballpark calculator to determine how much you may need for retirement. Vanguard has a niffy calcular for saving for college. Figure out what you need to fund a good emergency, rainy-day fund. After you figure out what you need, then you figure out what percentage of your paycheck needs to be saved. So need first, then percentage will come.

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Traditional IRA to ROTH IRA Conversion: Could you comment on the pros and cons of T-IRA to ROTH-IRA conversion, the tax consequences and for what age group it makes the most sense?

Michelle Singletary: I frankly don't have the space to cover this here. Go to Kiplinger's Website and search for IRA conversion articles. You will find a ton of really good information. But I will say the conversation isn't a slam dunk as some might be suggesting. It really depends on your individual situation and whether you have the money to pay the taxes outside of your IRA.

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Help with Retirement Account: Hi Michelle, your chats have been so helpful to me - thanks! I'm a little embarrassed to say I have two IRAs (Roth and traditional) and I don't really understand how they work. I have a little money in each, but haven't been investing regularly because I am paralyzed by my ignorance. Right now, each account has one mutual fund holding. When I add money, can I buy different mutual funds? Can I take the money out of the fund it's in now and put it in different funds? Can I invest in something more conservative, like CDs? I think I'm really good at budgeting, but investing and retirement planning have me really confused, and I know I need to get those under control too for maximum financial success.

Michelle Singletary: Really, you need to contact the investment companies where you have your IRAs or the one in which you have your IRAs. Many have customer service lines that can answer your questions and in particular answer them with your full knowledge of your accounts. But essentially you are asking can you make changes. Yes, you can make changes and depending on the offerings by the investment companies holding your IRAs, you could invest in other mutual funds, etc.But please call today so you can stop worrying and get back to investing in your IRAs.

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Roth IRA contributions in this economy: Forgive me for asking what may seem like a silly question, but with the world economy still on pretty shaky ground, I've been holding back contributing directly to my Roth IRA this year. That's not to say I don't have the funds to contribute! I've just been withholding them for a while, as a sort of emergency fund in case the worst happens (e.g., I lose my job, capitalism collapses outright, etc.). Should I just contribute to my Roth as always, economy notwithstanding, or am I wise to withhold? (Again, I do have the funds to contribute!)

Michelle Singletary: I would also suggest, having a life happens fund in which you keep a few thousand dollars to pay for the things in life that happen -- car repairs or even to pay for vacations and fund.If you have both of these set up and you are funding them, then you should continue to invest. You can't "time" the market by trying to figure when to jump in and out when times are good or bad. Instead you save, keep out of debt as much as possible and invest for the long term so over time your money can weather the ups and downs of the market.

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Can Money Buy Happiness? - Comment: Hi! Having more money provides opportunities and different choices. It is not so much "buying happiness" as it giving you options. You can decide whether or not to go to your local Goodwill or to Nordstrom's for a new tote bag if you have money. Without money, even the clearance rack at Wal-Mart feels like it is "too much." I would like to live comfortably, without having to think about every cent.If I buy a cup of coffee, that $1 is automatically deducted from this week's cash. I am very aware of every single cent I spend on gasoline (don't dare spend $30. There is only $25 allotted for that.) I dread the mail delivery. What is coming NOW? I don't like to feel like this. I am not one for throwing money away, but I don't like to HAVE TO THINK ABOUT IT all of the time.I always grocery shop with a list and coupons. I plan our meals (I cook 95-99% of my meals at home) and I am thinking of baking bread too. Still, it is stifling to live constantly thinking about $20. KWIM? I used to have an emergency $20 in my wallet. Now, it is a $50 bill and it has been there for months. I shop online and return everything that is not needed. I have started selling off items online (eBay, Craigslist, etc.) and at sales for additional money. I want to build our savings accounts. Clothes that haven't been worn are being sold. Stores don't want to take them back, even with the tags on them. The pressure is crazy! It is not "fun" to live this way, having to pre-think every single purchase. If my son asks for a candy bar at the checkout line, I have to always tell him "no." It is sad. Not that I want to pay for an overpriced candy bar, but that I can not say "yes" even now and then. Our budget has been THAT TIGHT.

Michelle Singletary: First, what is "KWIM?"And I do understand tight. Been there lots of times in my life. But don't despair that you have to sweat every penny. At least you have the pennies to sweat. Just think of it as good financial planning. I ALWAYS ask myself for every purchase, "Is this a need or a want?" It's an important question to ask in good times and bad, because it makes the bad or tight times a little less tight.

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money...happiness: AND, too much money can make you depressed. I've known a few trust-fund babies and 2/3 of them had trouble with depression/alcoholism, etc. because they had no purpose in life. They had no reason to wake up, no one needed them or expected anything from them. There's a reason most lotto winners end up in bad situations. Too much money and idleness creates depression. We were meant to have goals, jobs, be active, create.

Michelle Singletary: True but there are also millionaires who do find purpose. Think Bill Gates and his wife, who have wonderful charities and purpose. It's not the money -- EVER. It's the person and how they were raised. If kids see that their parents have purpose and are giving back, they are more likely to do the same at all income levels.

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What to pay first: We owe $12,000 on his car and $16,000 on mine. I owe $20,000 on one student loan and $25,000 on another. We also owe $120,000 on our house. Part of me says start small and pay off the cars first. But another part of me wants to get rid of the student loans first. What do you think?

Michelle Singletary: First bravo and brava to you for thinking of giving some money to charity. Times are hard they sure need the money. Pay off the $12,000 first. Then go after the $16,000. With the monthly payments gone for the cars, take that money and apply it to the student loan with the lowest balance, and so on. House comes last.

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credit card transfer balance: I'm in a transition period right now. I am about to leave my judicial clerkship for a permanent position in late August where I will earn a higher salary. In the meantime, I just signed a lease and will be moving out of my parent's home. I have enough money to get me through to September to pay my rent, student loan payments, and day-to-day living expenses. One problem is that I have a large credit card bill due at the end of the month. I always pay my entire balance off each month. I want to transfer this month's balance to a credit card with a 0% interest rate for 12 months and pay it off over the next three months. I have calculated that the transfer fee will be $26. Is this a good idea?

Michelle Singletary: Normally I would say pay off the credit card bill in full but you have a lot going on so okay do the 0% percent thing. But please don't charge more than you can pay off every month. And frankly, I would have stay put at home until you built up a nice cushion to move (assuming your new job is still near where your parents live).Anyway, good luck with the new job. And remember start saving from that higher salary from the jump.

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KWIM=: Know what I mean. You're welcome.

Michelle Singletary: Thanks.

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Think Bill Gates : He had to earn his money, create his wealth. He worked because he had to. Many who inherit or win money don't appreciate it or the freedom it affords because they didn't earn it.

Michelle Singletary:

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nursing home: What can be done to protect income if a spouse needs a nursing home sometime in the future? To qualify for Medicaid, the non-nursing home spouse is left in poverty. I know the wealthy can set up trusts and tax shelters to protect money, but what can a lower income person do?

Michelle Singletary: Yes, you can set up a trust at any income level. You need to talk to an attorney familar with Medicaid.

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Too many requests for my credit history?: I recently paid off all of my credit cards, yay! and then my bank dropped my spending limit from $8000 to $1000. I recently called to increase my spending limit and was denied. I received a follow-up letter stating that I was denied because there had been too many recent requests of my credit history. Should I be concerned? I haven't made any purchases, switched jobs, or moved so there shouldn't have been any requests for my credit history. I don't know my credit score, but I do know that after paying off some debts and cleaning up a dispute, it should be fine. Are there any next steps I should take? Thank you!

Michelle Singletary: If you haven't already, you need to check your credit reports from all three credit bureaus. You can do that once every 12 months for free. Go to www.annualcreditreport.com (the ONLY legit site).Make sure everything is fine and someone hasn't been applying for credit in your name, etc.And really your credit card company might not be telling you the full truth, which is many issuers have been cutting credit lines just to cut them and reduce their risks.

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I ALWAYS ask myself for every purchase, "Is this a need or a want?" : If the only thing one can afford is necessities and never any thing for pleasure, (where I am right now) then it is it better to kill oneself then to live in poverty and despair?

Michelle Singletary: I'm not sure if y ou are kidding but I'll take this as a serious question.There are times -- seasons -- in life where you may only be able to afford necessities. But that doesn't mean your life is over or has to be miserable. And what are we talking about really, no cable or cell phone or eating out. If you are able to take care of the bare essentials then that is living and living well when compared to so many other places in the this world. I know what it's like to be hungry and to have plenty and I've learned to be happy with less when less is necessary. During those times I did things that didn't cost a lot or anything. Besides the real pleasures in life are free.

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I don't like to HAVE TO THINK ABOUT IT all of the time.: Letting yourself trust the budget you worked up can alleviate some of that. If you know $50 is a reasonable monthly allotment for clothing, you can spend that freely without stressing. Only let yourself stress when you're feeling tempted to spend beyond the allowable limits. Feel the stress and say no. But the function of a budget IS to do that stressing one time so you don't have to battle every month. You KNOW what is reasonable, don't reinvent that stress.

Michelle Singletary: Wonderful answer. Thanks!

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applying for car loans: We are currently looking for a car and were told that if we apply for more than one car loan (to see what our rate would be) within a 14 day period, it will only be considered as one hit on our credit file with regard to our credit score. Is this true?

Michelle Singletary: There were some changes to credit scoring to allow people to shop rates. I'm not sure if the window is 14 days however. Check with the lender or lenders before the credit check.

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Wedding Planning: I'm recently engaged. Hooray! My question is how to resist the pressure from family and friends to have some big to-do that we can't afford and don't want. In just the last two weeks, I've been told the neighborhood pub we've chosen isn't nice enough for a wedding, that an off-the-rack dress isn't good enough for such a "special day," that we should invite more people, that I should let everyone bring a guest whether they're in a relationship or not (no - we can't afford it, and a bunch of strangers at the wedding would give me stage fright), and even that my fiance makes a handsome salary so he should be paying for a "nicer" wedding for me. I understand this is coming from a place of kindness - they just want to make sure it's a happy day that we'll enjoy. They think I'm disappointed that a more elegant occasion isn't in the cards for us. But I feel like I'm being called a tightwad, and that I'm some ogre who just says "no" to everything. On a more random note, the pressure is mostly coming from girlfriends. The guys can't wait to have a burger and a beer at the reception and say I'm the coolest bride ever.

Michelle Singletary: I really do understand this issue. Peer pressure even as an adult can be a bear. But if you've determined what you can afford and afford without debt, just nod when your girls say those stupid things. Say, "Thanks for your opinion, but this is what I want." You don't need to say anything more or justify yourself or enlarge your guest list. This is part of growing up and becoming a married woman -- got to be strong and learn the power of a firm, "No." I got some of the same comments when I bought a used wedding dress. Ask me if I cared? First the woman who wore my dress first wasn't going to be at my wedding. Second, not a single person or girlfriend making fun of me or pushing me was going to pay my bills. I just kept those things in mind and had the wedding I could afford. And almost 19 years later still got the dress and the man and a happy marriage!

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Investing in His Home: Hello Michelle, About a year ago my partner purchased a home and we moved into it together. I declined to put my name on the mortgage and deed because I already owned another home. However, it was understood that is was our home and we purchased it together. I really love this home and spend a lot of time decorating and gardening. After tracking our housing expenses I realized that I've spent $5,000 of my own money on improvements alone. If we were able to marry then this would not be a concern for me. At this moment we have a verbal agreement that he would split his tax returns with me. But I feel a little like an idiot. We split everything down the middle including the mortgage, utilities and groceries. However, I'm concerned that I won't see any personal returns on his investment. I feel that in order to be truly fair that I should put the breaks on pouring money into his house and re-evaluate how much I contribute to household costs. What is your opinion on this situation?

Michelle Singletary: live in, then along with that comes making it a home -- and that might mean not getting back money you put into it. That doesn't make you a fool. It means you made a decision and you have to accept the consquences.

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Extra Money: Obviously, it would be a mistake to expand my "standard of living" to absorb the increase. What should I do with the extra money? And what is the order of importance (e.g., maxing 401(k) contributions versus creating an emergency fund)?

Michelle Singletary: Create an emergency fund, life happens fund, pay off debts (car loan, student loans, credit card, etc.) boost retirement savings if you think it needs boosting.

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Paying off Credit Cards: Thanks for taking my question! I have about $13,000 in credit card debt due to some really stupid moves when I was younger. I currently pay about 24% interest on this debt, and I was wondering - would it be smart to get a loan through my credit union at a lower interest rate to pay off the credit card debt? I am also working on continuing to pay off my student loans.

Michelle Singletary: If you can get a unsecure loan at a much lower interest rate it's worth a shot. Otherwise just keep plugging away to get rid of that debt.

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Graduate Student and Digging Out of Potential Debt: however, they seem more geared towards high school students. I need your help because I have reached a breaking point where my dreams are becoming a finanical nightmare. Thank you in advance.

Michelle Singletary: Wow, $80,000 and going into social work!Can you move back to a place where you can live with parents, friends, family? Because I fear you won't be bringing home a starting salary that will handle that kind of debt.If not, look into getting a job that pay help pay off that debt. Some public service jobs will do that. Also you may have to look into the Income Based Repayment loan payment plan for our federal loans. Go to www.ibrinfo.org for more information about this relatively new plan that sets your monthly student loan payments based on your income (however it's only for federal issued loans).It's going to be tough and that means you really have to make some tough decisions and live like a graduate student until you can get that debt down or paid off.

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Wedding Flak: We got criticized for using an iPod instead of a DJ or band, and I'm sure some people thought it was absurd we didn't have a full bar. Our wedding was about 50% of the cost of the average wedding these days, and I wish we'd found ways to save more. Stand firm--like Michelle said, those people aren't paying the bills.

Michelle Singletary: Full bar, half bar?Please.I told people they could go home and drink their own liquor.

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what to do with my savings?: My husband (26 years) and my (24 years) financial situation allows us to save $400 monthly. My question is: What we should do with it? we are both students (doing PhD) and we don't have an emergency fund nor an investment or retirement plan. My instinct tells me to put it in a saving account just in case something happens (kinda like build the emergency fund first), but at the same time I'm not so sure that that is the best alternative. Should we split it into saving and retirement, or saving and investment? or just savings? Thanks!

Michelle Singletary: Savings definitely. And if you have student loans that are private or not subsudized think about using some of that money to pay some of the interest so you won't have a huge debt load when you finish school.

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debt collectors: M - we received a message on our answering machine stating that my husband and "his social security number" were the subject of a lien and that we should contact this phone number immediately or "things we wouldn't know about" would happen to him. Dare I say that it sounds pretty bogus, particularly since we pay our bills and don't owe anybody anything? Don't debt collectors have to send you something in writing? I told him not to call the number back because it seems like a scam.

Michelle Singletary: They do have to justify a debt upon request. Check your credit reports and if there are no outstanding debts there or that you know about, it could be a scam or mistaken identity.

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Money, Happiness, and Depression: "AND, too much money can make you depressed."Study after study has shown that children from families of lower means are more distracted and more worried than their peers who are from families with more money. Not only that, but dang, you ever think that people who are cash-strapped and depressed just put off treatment because they can't afford it? I know a lot of people who have to go off their meds when money gets tight, or who couldn't afford meds in the first place. People with money aren't depressed at a higher rate, they're just better able to afford treatment, which means they can afford to acknowledge their mental health (as well as physical health) problems.

Michelle Singletary: Good points.

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Bill Gates had to work?: Bill Gates's dad founded what was one of the most prestigious law firms in America (before they merged with another prestigious law firm a few years ago). Don't get me wrong, I appreciate what the Gates Fdn. does, but son Bill could've been content as a mere millionaire if he hadn't decided to get into software.

Michelle Singletary: Didn't know that.

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Co-signing for a car: I co-signed for my daughter to get a car 2 years ago. She has since moved away from home with me and to another city. She has been behind in her car payments for approximately 3 months. The finance company is calling me and I have not seen my daughter in 2 months and I last received an email from her about 2 weeks ago. I can not afford to take over the payments of the car. Can the finance company sue me after reposessing the vehicle?

Michelle Singletary: Yup, they can sue you BECAUSE this is YOUR car loan too.That is what it means to co-sign. You are not the back up person, you are equally responsible.So sorry. But this is why I recommend you don't co-sign for anyone other than an spouse.

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Michelle Singletary: Hey everyone, I usually try to go a little longer but got to get my Sunday column done, choosing the Color of Money Book Club pick for July.I'll try to answer some of the leftover questions in my eletter. If you don't subscribe, please do. You may see the answer to your questions.Thanks again for joining me today. Great questions, wonderful comments. Always a pleasure.And I'll keep you posted on a new "addition" my video chat. Not replacing this chat, just an add-on.Take care and keep cool.


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