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Michelle Singletary
Thursday, September 2, 2010; 12:00 PM

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cost of living, family loans, and relocation: Hi Michelle, My husband and I decided to leave the DC area for Texas. A great opportunity came up, and in his line of business, they don't come to Texas very often. So, we took it, and we are moving our toddler and baby to Texas. My employer is allowing me to telecommute from Texas and keep my position. We are selling our house at $50k less than what we paid for it (if we're lucky).Our options are: 1) Rent for a year until we have the 20%, 2) take a low interest loan from my parents for the 10K and buy immediately or 3) dip into emergency funds, which would leave us with about 3 months of expenses assuming 0 income, or 4) try to get loan approval with less than 20% down.Other factors: If we didn't have concerns about the effect of so much upheaval on our toddler, we'd choose Option 1. But she is already showing some ill effects of having the house on the market and having her Dad travel for work. I think moving her twice over the next year would be really hard on her. (Not the end of the world, I know, but still a consideration.) It also presents some significant logistical issues in terms of child care, wait lists, etc. The baby will roll with it, as babies do. We have excellent credit. Life happens fund is in good shape, and Emergency fund has about 5 months worth, if we went down to zero income. We have the mortgage and very manageable student debt, and no other debts. We contribute to our 401ks up to the statutory limit. My parents are willing and able to provide the loan. We both make good money, but our daycare is equal to our mortgage, so our ability to set aside additional $ is limited. What would you recommend we do?

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Michelle Singletary: Wow. You have lot going on. I read thu your note and then read it again and I still come up with the same answer.WAIT.I think you should wait on getting a house in Texas for a number of reasons:-- You will be moving to a new area, one I assume you don't know well. So live there for a year or even two years so that you buy exactly where you need to be.-- Wait to make sure the Texas job fits and you are happy there.-- Wait to make sure your telecommuting works. If it doesn't and you lose your job or realize you don't want it, you will have more flexibility in your budget.-- Don't take money from your parents. You don't have to to do it.-- As you point out the move will be hard but the little people in our lives can adjust even to two moves.

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Michelle Singletary: So sorry, I jumped the gun and published the first question without giving all of you a proper greeting.So hey. Let's all hope and pray that Hurricane Earl doesn't do much if any damage. We certainly don't need that in this country right now.Lastly, I've postponed the video chat for this afternoon. My fault. Trying to do it from a different computer today just couldn't get the technology to work right. This is a new format so please bear with me (us) while we get all the bugs worked out. But I really love doing this and I hope those of you who have viewed the video chats are enjoying them. If so, let me know. Also let me know what you like to see live.And for those still concerned that you can't view it, please stop sweating about it. There's still plenty of my sage advice in text form.Anyway, let's get back to your questions.

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Estimated Taxes: Since my employer is no longer withholding my taxes, I understand that I should probably pay estimated taxes on a quarterly basis. However, I'm not sure how to actually pay the government what I owe and how to estimate, considering I was also a FT employee for half the year. Is there a good resource or should I just hire an accountant?

Michelle Singletary: Honestly, you really need to hire a tax person. This is one area you don't want to mess up. The professional can help you with this including giving you guidance on the dates you need to pay the taxes.In the meantime, here's a link from the IRS website about estimated taxeshttp://www.irs.gov/businesses/small/article/0,,id=110413,00.html

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Link to the columns?: Any chance we could have a link to your column archive from the chats?

Sarah Halzack: Ask and you shall receive: Color of Money archive

Michelle Singletary: I'll talk to my wonderful chat (both vidoe and text) about that.Thanks.

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Mortgage for second home: Michelle, I know you're anti-debt for most things except a mortgage. What about a mortgage for a second home? Our only debt right now is our mortgage on our primary home. I'm thinking that prices where we want to retire (coastal Florida) are about as low as they're going to get, and that they will get much more expensive once the economy starts to recover. So, it would be a good time to buy on a 15 year mortgage. The payoff would coincide with when we're thinking about retiring. We have enough income to pay the entire mortgage payment, but we'd probably rent it out some of the time to offset some of the mortgage and maintenance.Am I nuts? I regret that I wasn't in a position to buy in the late 1990's when property there was even cheaper, and that is driving my desire to buy now while things are low.

Michelle Singletary: Yup, anti-debt and I would NOT buy a second home unless I could pay cash for it.Actually my husband and I have talked about this. We want to do the same thing and we were thinking about Fla. too.But if this recession has shown us anything, it's that you can't predict what will happen. Sure you can afford that mortgage now, but what if one of you loses your job or get sick? What if the property is badly damaged by a Hurricane and you can't rent it out? A second home is a luxury and thus should be bought with cash.

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Refinancing after bankruptcy: We filed Chapter 13 bankruptcy in 2009 and still maintain our principal residence as well as a rental property. We would like to refinance our principal residence which is a ARM 5-1 loan. When would be the best time to start the proceedings and what is the best way to build our credit back up?

Michelle Singletary: First, the best way to rebuild your credit even while you are fresh into a bankruptcy is to pay your bills on time. Best way!Seond as to the refinancing check with lenders. You may not get a good deal because you are only about a year into your bankruptcy. I don't see you getting a good rate to make a refinancing a good deal. But I may be wrong. See what lenders will offer you. So in other words, do some homework first.

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Glad you found each other!: Michelle, a couple chats ago a woman said she and her husband had $2 million in assets, including $600,000 in cash. she wanted to spend $25,000 to remodel her kitchen, but her husband disagreed. You gave sort of grudging approval, but said you were sympathetic to the husband's point of view. C'mon, girl, that is just nuts! Accumulating more money should not be yur top priority when you already have $2 million in assets. Quality of life is important, too. As my husband said, her husband sure must love her, because she sounds like a pain in the [rear]. We do agree, debt is bad, but there's a huge difference between debt and $2 million in the black.

Michelle Singletary: I'm really confused about your comments. First, why would the wife be a pain?And I think you are recalling my advice all wrong. I did not give "grudging approval" to the wife. I believe I told her she was right and that her husband was using fear to run his finances. Or that is what I would say today. I believe I said I understand her husband's fear because I can get like that BUT you have to let go money sometimes especially if you have all your financial ducks in a row (savings both emergency fund and life happens fund, retirement, college fund if you've got kids, budget, etc.)If this couple had cash for the remodel I would have told her to show her husband the numbers and try to get him to see he didn't need to fear their situation and deny her a new kitchen.

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Downtown DC: Michelle, I've got a question about life insurance. I'm single, employed, and own my own home. I've never seen the need for life insurance because I don't have any dependents. But a friend of mine--also a single homeowner--says she always keeps a small policy so the beneficiary can keep her mortgage from going into default while her estate is being settled when she dies. I can see her logic, but I'm still not sure I need to buy a policy myself. Do you have any thoughts about this?

Michelle Singletary: I'm inclined to agree with you if your estate has enough cash to bury you and take care of short-term expenses while the estate is being handled.

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Thanks, Michelle!!: Thanks to you, I was able to convince my wife that the security of being debt-free (except for our primary mortgage) was worth giving up a huge chunk of a recent inheritance. To her, it was a matter of having a "security blanket" (over and above our emergency and "life happens" funds), so I mentioned that not only would we be saving $x in interest payments, if the time ever came that we DID need that money for some sort of major crisis, it would be available as increased credit/equity because of our lack of debt. If that time never came, she knew that paying it off would be the obvious move, but she was worried about the "what if"s." So we also opened another savings account at our credit union and started automatic transfers in the amount of the previous loan payments. We might use it for home improvement, or a vacation, but for now, we're just trying to pay ourselves first.

Michelle Singletary: Oh how wonderful. You are a smart man to have listened to me (smile).Seriously, you handled this brilliantly. Major kudos!I especially love that you are saving the same amount you were using for the debt. Exactly what I would have done.

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One More Time: Michelle what is your recommended breakdown for a budget? ie. the percentage that should go towards rent, food, medical, etc. I'm guessing you've described it a thousand times, would you mind once more? (Or could you link to a column where you describe it?)Thanks!

Michelle Singletary: Go to the main page for the Post. Type in "The Power to Prosper." It's a site created for my new book. On that page you will find some budget templates that give you guidance on what percentage of you should aim for to spend on rent, food, etc. Hopefully you have excel.

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Student Loans: Michelle - I'm 25 years old and have been paying off my student loans on time since they became due about three years ago. Will this alone help me to build up good credit or do I also need to get a credit card (I currently only use a debit card)?

Michelle Singletary: You are building a credit history by paying the loans off (and on time I hope).And since you have the student loan debt, don't worry about getting a credit card right now.

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Budgeting style differences: Is there a website or book that could help us start the process? Thanks.

Michelle Singletary: Why don't you do this. For a few months (mabye 3) you try both budgeting methods. At the end of the trial period see which one worked the best in terms of peace of mind, savings, etc.But in the long run if you really can't settle on one style certainly wouldn't hurt to talk to a family counselor that specializes in dealing with couples and financial issues. A quick internet search can help you find someone or check with your health care provider or church or ask around for a recommendation from friends and family.

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Replacing My Car - Decisions, Decisions: Hi Michelle. Warren Brown hasn't answered my question, so I'm hoping you will. My 2000 Honda Accord needs replacing, after 228K miles of reliability. I love Hondas (I've owned 2 Civics and 2 Accords), and I want to buy another. I'm trying to decide whether to buy new or used. Since Hondas depreciate slowly, I don't think I would get much of a break on price unless I bought a significantly older car. I have the money saved to buy a new Accord, but I like to be frugal. I know the new car smell wears off quickly, and then it will just be a way to get from point A to point B. I'll be happier in the long run if I pay less for my ride, but I've never bought a used car, and I don't know a mechanic to check out a used car for me. I'm worried I'll get ripped off and buy a lemon. I've also considered buying a new Civic. I keep going back and forth about it, so I'd like your opinion.Thanks!

Michelle Singletary: I typically tell folks to buy used mostly because they mostly need to borrow to get a car.But if you have the CASH to buy the car you want and it won't deplete your emergency savings or life happens fund, I say go for the new Honda. You clearly will keep it for a very long time and totally get your money's worth out of it.It if helps, about four years ago my husand I bought new cars and paid cash for both. Part of how we did that was we paid off former car loans early and then make car payments to ourselves. By the time our cars had become unreliable we could buy new and get exactly what we wanted for CASH. Like you we kept the cars for 10 plus years.

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Buyers Remorse: Hello Michelle, Thank you for the chats and articles, I always look forward to them! I have a question and a comment. Question is, how do you deal with buyer's remorse even when you save for the thing you purchased and you can afford it? It comes in the form of "I should have waited" or "could I have purchased it for cheaper or got a better deal?" Background information: I just purchased a condo and I keep thinking that maybe if I waited I could have gotten a better price or better rate. Second, I love the WAM syndrome you always talk about. Seems like it is spreading at an alarming rate!!

Michelle Singletary: make the necessary changes to assue you don't make that bad decision again. But if this was the best decision at the time, then let the regrets go. You could not have predicted the market would have turned like this so you used the information you had at the time.Enjoy your home.

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Finding a financial planner?: My husband and I need to get a better idea about a budget--I really think we need to sit down with someone who can look at all our bills/debt and income and help us figure out the best way to deal with everything. How do I find someone? I don't know what to do but we need help.

Michelle Singletary: And they need to be paid for this service or they make money by commission on what they sell you. So what you need is a budget counselor. Try a non-profit consumer counseling group. People assume they just do debt plans but the folks that work for these organizations can also help you with budgeting. Go to www.debtadvice.org to find an agency near you.

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401(k) vs. paying off mortgage: Hi Michelle - My husband and I just went thru a scare where his department wanted to get rid of 1 person. It turned out that someone left, so no one lost their job, but it hit home as we didn't really have a "life happens" fund - ok, we kept saving up then spending it. He had been doing 16% into his 401(k), and I was doing 11%. We've both dropped down to 5% (for matching $$) and will have $10,000 in emergency by the end of October. In November, we can't decide if we should shift the money to pay off the mortgage, which would take us apprx. 3 years, then return to higher percentage in 401(k), or return to higher percentage right away. Your thoughts?

Michelle Singletary: Unless you have other goals, like saving for college for kids I might go with being mortgage free in three years.Really mortgage free in three years!I'm so there.I know the investment folks out there hate when I give that advice. But think about it. Your biggest expense -- heck the biggest expense for most of us -- is a mortgage. Conservatively about 30 percent of your budget. Eliminate that and you can take the money you used for the mortgage and invest that going forward. Plus if anything happens you don't have a mortgage either now or in retirement. That's a HUGE, HUGE expense to be lifted off your backs.

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Trying to reduce bills: Hi, Michelle -- I already know I'm getting laid off at the end of September (my job is being eliminated). I am still paying off my FFELP student loans from my second bachelor's degree -- monthly payment is more than the maximum unemployment benefit from the DC government (before taxes). I have taken forbearances before from Sallie Mae, but is there any way I can get them to reduce the amount due each month, if only temporarily?Believe me, I really want to get this student loan thing off my back, but I'm just not going to get the payments in while I am living off unemployment. And I am in the fastest growing group of the long-term unemployed (women between the ages of 45-64). Thank you in advance.

Michelle Singletary: So sorry about the job.If you haven't already and you are eligible (because this is just for federal loans) try the Income Based Repayment program, which based your loan payments on what you make. Go to www.ibrinfo.org for more information on this. If you are dealign with mostly private loans there isn't as much help. The most you may be able to do is let the lender know your pending situation and see if they will let you forgo making payments for awhile until you can find another job.

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New car vs. used: I have the same feelings as the potential buyer, and found the best of both worlds. I just bought a used 2010 vehicle, with only 6k miles on it. You can hardly tell it's used, but the price was substantially (thousands) lower than it I had bought it new. The larger used car only dealerships frequenly have lease, fleet or rental cars with very low mileage - ours ran the Carfax for me! And I still have the original warranty until it hits 36K, so no worries about the lemon issue. Just a suggestion...

Michelle Singletary: Good suggestion. In fact with one of our vehicles we did the same thing. The van had been knocked around in transport so the dealer couldn't see it as new. It had like 900 miles on it. We bought it used for a few thousand less than new.So, yes look around but if you don't find such a deal, it's still okay for the person to buy new.

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Newlyweds and a budget: Hope I'm not too late! I recently got married (yay!) but now my husband and I are trying to figure out the best way to buy a home in the pricey DC market. We plan to sit down and make a budget, follow it for 2 weeks to make sure it works, and then readjust as necessary. Aside from this to save money, are there any other programs we should look into? We don't have any debt, and between the two of us have about $20K in savings. Any advice? Thanks!

Michelle Singletary: Congrats on your new marriage.So, I would follow the budget for more than 2 weeks. I would also wait a bit before buying a home until you both are months, maybe a year or two comfortable with the mingled/merged money stuff. And if you have any debt, pay that off before the home purchase.Once you are ready for a home, looking into any first-time home buyer programs.You have time, take advantage of it especially with a new marriage.

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Stock Market: Are you still staying with "long term strategy" regarding stock market investments? Or have you shied away from equities (especially domestic stocks)?

Michelle Singletary: I'm staying the old course. I'm still investing in mutual funds for retirement and for college for the kids. I invest long term with the realization that I could lose all or a part of the money. So that means I save. I keep the debts to nil except the house.

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Marriage Money Counselor? : Michelle,I am fortunate enough to be married to a wonderful man. We both make a good living. We married later in life so each of us has had years on our own, financially speaking, to make our own habits. So we have come in to the marriage with a few differernt views on money, spending, and saving. I am wondering if a money counselor (if there is such a thing) would be helpful for us to resolve our financial disputes.

Michelle Singletary: I think a counselor could help. Having someone not invested in your marriage or your particular way of handling money can help resolve your differences.

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re: new home in Texas: My sister moved cross country with her kids, and she rented for a year before buying a house. It was a smart move because she ended up somewhere she wouldn't have considered before living in the new town for a while. You'll want to figure out shopping, commuting, schools, church, parks, etc. before buying a house you may not be able to sell easily if it's not a good fit. Save yourself that headache--a short rental first is a lot less inconvenient, even for your kids.

Michelle Singletary: That's what I'm saying and said.But thanks for the advice based on a real situation.

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How to set up an IRA: Hi, Michelle. Is there a way to set up a personal IRA? There is not a retirement plan set up where I work. Thanks for your help.

Michelle Singletary: Keep in mind the IRA is the bucket but then you have to decide what to put in the bucket.Go to www.choosetosave.org and begin to research about investing for retirement. That way you will have more information before setting up the IRA.

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Pay off mortgage: The question about the mortgage payoff resonates with me. We have about $80,000 left on the mortgage, my husband is currently unemployed and in his early sixties, and we could pay the mortgage off easily with cash we have from selling stocks. Our investment person does not want us to pay off the mortgage because it's cheap money, and it is true the tax deductions were great when we were in a higher income bracket. It's tough to know the future but should we set a cutoff for him to get a new job and then pay it off, just to get that big monthly expense off our backs? We have no other debts, and we do have other savings only not enough to completely retire just yet.

Michelle Singletary: This is a hard one because you are close to retirement and you would still have some cash. Silly thing to say.You need to really look at what you want in the next few years. If you paid off the mortgage that is a huge expense lifted from your budget. Then your husband might not need to worry so much about getting another job or one that would pay for the mortgage. On the other hand, if you don't have enough to retire and cover your expenses and your husband needs a job you might not want to sell those stocks because you may need the cash for living expenses.Really sit down and look at all the numbers. If paying off the mortgage would relieve you of a big budget expense and you have a good amount of savings to cover your expenses for a few years the answer will be much clearer I think.

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Michelle Singletary: I'm so sorry. Our time together is over. I do have to run today. Thank you so much for joining me today.


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