Column Archive | Sign Up for Weekly E-Mail Newsletter

spacer

Color of Money Live

Network News

X Profile
View More Activity
Michelle Singletary
Thursday, September 16, 2010; 12:00 PM

_______________________

Michelle Singletary: Just finished my video chat and ready to take your text questions. If you couldn't view the video try later.So let's get started.

_______________________

Washington, DC: Michelle, My wife and I are thinking of moving in the next year or two, and I figured I should check out my credit history. I have not been diligent about keeping track of it - bad, I know. First, the good news - I got the credit report from one agency, and it's clean. I also purchased the score, and it's great - 834. My question is whether I should bother purchasing the score from the other agencies - I've heard scores can differ, but are they likely to be very different? Also, should I get reports from the other two agencies now, or wait and get myself on a one-every-4-months rotation? Thanks!

Michelle Singletary: I think you are good with the one store for now. Generally the scores are wildly different. Besides as you look for housing the lender or landlord will pull your score and that's the one they will go with anyway (Don't forget to ask for the score and that will save you the money of buying it).I tend to pull all my reports at the same time. I do that because sometimes information on one report is not on the other. But some like the pull one every four months to take advantage of the free credit report for each bureau.

_______________________

Continue 401k deduction?: Hi Michelle. My job has become uncertain, the markets are volatile and I am part of the "lost decade" of investors. I am thinking of stopping my 401k deduction of $900 a month and putting the proceeds into my mortgage and equity line (employer match is safe, it is a "safe harbor" plan). I am at about a 50% debt/equity ratio including the equity line and live in an area that has weathered the housing storm well. I am 50 and have about $200k invested in various mutual funds with the 401k. Any suggestions for someone who is tired of following the rules but not making any money in the market?

Michelle Singletary: If you really think you will be laid off and I think that is what you are saying and you don't have much in the way of emergency funds and life happens funds I might pull back on putting money in the 401 (k). But you do that only if you think you may lose your job AND you don't have enough money to help pay expenses during the time you are looking for work.However, if you are just pulling back because the market is crazy right now that's call "timing the market" and that's not the way to invest. If you are confident you are investing well and you are accurately diversified then this is the time to buy because stocks are low. I guess what I'm saying is don't let today's market news dictate your long-term investment plans. I know it's hard and I've lost money too. But had I pulled out my money or stop investing a year ago like a lot of people I would not have gotten back the losses I had. Right now I'm back to my 2007 levels. I'm not seeing a lot of gains but I didn't lock in my losses either.

_______________________

new American Dream: When the cost of renting vs. owning a home is so much cheaper (particularly in the DC area) do we need to redefine the American dream myth? How about "The dream of living safely and securely in a home within one's financial means"?

Sarah Halzack: Michelle's Video Chat

Michelle Singletary: I totally agree with you. And sounds like you just saw the video chat where I answered the question from a young single woman who feels bad that she doesn't want to buy a home even though she is doing quite well financially. I told her and I'm telling you, you are not a financial failure or knucklehead if you don't buy a home. It's right for the right person/family when it's right. And yes, I agree with you that we need to redefine the American dream. Homeownership is a great way to build wealth over time but not if you get too much house and use it as an ATM.I like what you say: the dream of living safely and financially secure is the new American Dream.

_______________________

Dreaming big (of financial independence): Hi Michelle,Asking early because I have a meeting at noon. I love your practical advice, read it as often as I can, and am now getting courage to ask a question.I think that having a big mortgage is the thing that will prevent me from retiring. If I have 9 months' emergency living expenses, and also a "life happens" fund, should I fund a Roth next, or pay down the mortgage? (I get my full employer's match).Thank you very much. Carol

Michelle Singletary: My goal is to pay OFF my mortgage before I retire. It's a goal I think every retiree should have. If you don't have a mortgage in retirement you cut your expenses by a third if not more.But you also need cash in retirement or savings. So I am saving/investing for retirement, putting money away for kids college fund/staying out of debt except for my mortgage AND I'm paying down on my mortgage.So the answer is you can still invest in a Roth if you think your retirement savings needs a boost and also pay down your mortgage early. Listen, make just ONE extra mortgage payment a year and you can knock off a number of years from your mortgage.

_______________________

Spending My 3-6 Month Savings Reserve: With the economy still in a slump and prices on home appliances, carpeting, flooring, paint, contracting, etc. at an all time low; what is your opinion on using your 3-6 month savings reserve to do home improvement projects?

Michelle Singletary: This is such a great question mostly because you are really thinking this thu and rightly want to take advantage of some good deals. Obama would love that -- you wanting to spend more to boost the economy.BUT (and you probably know what I'm going to say) that emergency money is meant just for that an emergency. Home improvements is not an emergency unless your roof is about to cave in etc.Don't be tempted by good deals to stray away from good financial practices. No sale is worth that.

_______________________

'Til Debt Do Us Part: I owe $160K for law school and grad school. I have a six-figure job now (out of school for seven years, only been making this kind of money for 1.5 years). I'm single and this is probably one of the biggest things that hangs over my head with relationships. It's like revealing that I have a curable yet expensive disease. I have been forthright with all serious relationships and none of my boyfriends have even mentioned it again. In fact, one boyfriend used my debt as his "excuse" for paying for everything. He said, "spend your money on paying stuff off, I'll spend my money on you." Unfortunately, that generous soul had other issues and is no longer a steady. It's still a worry for me, but I try to be as open about my debt as possible. I also demonstrate my financial philosophy by the way I live- I don't spend excessive amounts on material items, vacations or events. I don't have cable and I budget my social life. I am trying to pay off my debt as fast as I can!Thank you for the regular support/push to get me to the debt-free zone.

Sarah Halzack: Today's e-letter: Til debt do us part

Michelle Singletary: That is a lot of debt but I love your attitude -- to live below your means so you can get rid of that bondage as fast as you can.As for your relationships, I honestly think you are sharing too much, too soon. Unless you are seriously heading toward marriage with any of these guys no need to tell your business. As you said what they should look for is how you handle your money as you date.For those not sure how this topic came up,I address it in my eletter today.

_______________________

Savings accounts: Can you explain the difference between a "life happens", "emergency savings" and a "savings" and how much each should have before starting to pay off debt?Or are they the same and I am confused?

Michelle Singletary: I recommend two savings accountsEmergency Fund = three to six months of living expenses. That means save up 3 to 6 months of what it cost to run your household (cable, ulitity, rent/mortgage, insurance, etc.) Now, if you are a highly paid person and it might take a while for you to replace that good salary you might want to aim in this economy for a year's worth of living expenses. And don't panic that you don't have it NOW. Take your time building this up.Life happens Fund = Something I created and I use with the people and ministry I run to help people become better money managers. In this savings account you save enough to cover big expenses, such as a major car repair, vacation ,etc. This is a pot of money set aside so that you stop dipping into your emergency money for expenses you can plan for. Typically $1,000. But you may aim for more if you have a hoopty or a big vacation coming up.Keep this money liquid meaning you aren't going to invest it. Try to find the highest yielding savings account you can to park the money.

_______________________

Entertainment Costs: When you were in your 20's and 30's how did you keep your enterntainment costs down? I have friends that go on road trips and fancy trip to the islands and then complain about being broke when they come back.

Michelle Singletary: I had friends who were cheap like me. Besides I don't drink so no issue with happy hour -- and if I did go out for happy hour I ordered water with lemon (seriously). I watched what I ordered from the menu and didn't get caught in that "le's split the bill" crap. does not end with the teenage years.But most important I had a plan for my financial life. I knew that there would be a season where I could take those types of trips (Do now)s. I had to take care of my disabled brother and I just couldnt' afford to do what my peers did.So basically what I'm saying is just know that your friends living beyond their means will pay the price. If you know that, you can watch them do things without envy!

_______________________

Debts and Savings: We have consumer debt, college loan debts and very little savings. No "life happens" funds, no emergency funds, nothing. We do have three little kids. We are working on paying off the debts. Should we scale back on what we are paying back to just the absolute minimum and build our savings at the same time?

Michelle Singletary: I would scale back the debt repayment just for a little while so you have a cash cushion. Aim for just one month of emergency money and maybe just $500 in savings. If you don't save something when something comes up -- and it always does -- you will just go deeper in debt.

_______________________

Tipped scale: What advice do you have for a couple where one person's credit is in the low 900s and the other in the low 700s?

Michelle Singletary: I say you are doing well and stop worrying.Both those scores are good.Keep in mind the bureaus have different ranges. But in all the scales both those scores are good.

_______________________

Collection calls for somebody else: Hi Michelle,Love your column and advice! Question: I have gotten two calls from banks regarding loans that my brother owes. It's so creepy because he has no contact with our family and has not for 11 years. There is NO way that he would have put my number as an alternate contact. How are these people getting my number? How do I stop the phone calls? I don't even know where he lives or his phone number. THANKS!

Michelle Singletary: Your brother may have put your contact information on a loan document years ago. There is usally a line on such documents asking for a contact for a close relative. But if not collectors are very good at hunting down people.Anyway, you can stop the calls. Just ask them to stop. Send a letter asking them not to contact you. Go to FTC.gov web site and look for this FAQ "Debt Collection FAQs: A Guide for Consumers"

_______________________

Mortage, loan or CC?: Hi Michelle,I love the chats and would like your opinion. My husband and I bought a house which we LOVE. Our only debt is about 10k in cc and about 8k in student loans. Both our vehicles are paid off. After we closed, we have about 15k left in the bank, which is 6 months worth of living/mortgage expenses. We're both maxing out our 401k right now. I REALLY want to pay down the cc/loan. I could easily pay off the cc's but that would leave 5k in savings. I keep thinking if we didn't have those cc bills it would be easier to save. Right now the min payment on the cc's is $115 a month, but I'm paying close to $700 to get them down and gone. Should I continue on this path or pull the money from savings to get rid of them completely and build up the reserve again? Our jobs are stable and we're not adding to the cc bills - we're using our debit card for everything.

Michelle Singletary: In your situation with stable jobs, I might just get rid of the debt. As you said you can quickly build your savings back up especially since you won't be paying all the interest.And once you pay off the credit card debt, then attack teh $8,000 in student loans. I bet in a year you could be debt-free except for your mortgage. Then send me a note and I'll give you a big kudos on my video chat. I have a feature call "Debt Defeaters" I cheer on people who have gotten rid of debt.

_______________________

College Debt: As a professor of economics at my state flagship university, I have a comment on college debt. A student can gain a LOT from college: knowledge, skills, life experience, connections, and the degree. If you come out with these benefits, I firmly believe the debt you incur thoughtfully is worth it.However, what I see a lot of on campus is students who do not show up for class, do not pay attention in class, do not study, do not turn in assignments, do not participate in extra credit opportunities (and then plead "Is there anything I can do to pass the class?"). I tell my students that a class is not like a baseball game in which you can come from behind in the bottom of the ninth inning and win. It's like golf. You record your score for each hole as you go and you're stuck with it.Would you pay for a vacation in Hawaii and then spend every single day napping and watching TV in your hotel room with curtains drawn? That's what it's like if you spend money on college and you don't take advantage of the opportunity to learn and put your life on a better path.If you are not going to be engaged in college, do not spend a dime on it. DO NOT GO. Don't go because it's the next step, don't go because everyone's doing it. That's when your debt makes no sense. Go because you want to be there and get all you can from the experience. Then it'll be worth it.

Michelle Singletary: You make some realy great points. I do differ with you about the debt a bit. I don't think it's worth it if you spend decades in debt. I think you can get all that you point out without the bondage people are putting themselves into just to go to a particular school.But your overall point is spot on!

_______________________

Roth IRA: Hi, this is Jesse and I am 24 years old and in graduate school right now. My wife and I are rather frugal and we have no debt (thanks, in large part, to your advice). We earn about $30,000 a year and save about $4,500 of that. We have taken financial advice from a few sources, especially my father-in-law, and have invested in money markets, mutual funds, and some higher risk investments. We have planned these as "short term" investments, meaning saving up for buying a house and to pay for our kids' college (even though we don't have kids yet). My mom has advised me to look at a Roth IRA to save for retirement since we are in a low tax bracket. I was wondering if you thought this was a good idea and, more generally, if we should change some of our saving strategies to save for retirement. Does saving for retirement mean thinking differently and looking to invest in more ways than we have already done?

Michelle Singletary: You are getting some good advice. I think it is good to have different sources of retirement income to pull from, including a source in which you don't have to pay taxes on your withdrawals. So in our case putting some money in a Roth is a good idea. That way when you retire, you can decide which pot to pull retirement money based on a lot of factors, including your tax situation.

_______________________

Quarterly estimated tax blues: Michelle, I'm an independent consultant who pays (and pays and pays and pays) insanely high taxes. I have a small window of opportunity to re-structure my current agreement for next year in a way that benefits me. Short of incorporating myself or becoming an employee, is there another way to stop paying both the employer AND employee side of federal and state taxes?

Michelle Singletary: I wish I knew the answer to this. But I do know you does. A very good tax professional who deals with small or independent consultants like yoursel. Really, for tax issues I consult my tax person (and then I double check with the IRS). Call around and get a recommendation for a good small-biz tax person.

_______________________

Financial Advisor?: Michelle, I am 40 years old, $60,000 in debt and just started a six-figure job. I have no 401k(but will enroll as soon as I am eligible with my new employer). Family members have suggested I enlist the help of a financial advisor to get me on the right track. Your thoughts?

Michelle Singletary: Honestly, financial advisers are really in the business to make money off you investing or buying insurance products, etc. They really aren't money managers or budget advisers, which is what you need. I'm not saying you won't need the services of an adviser but right now before heavily investing you need to concentrate on getting rid of that $60,000 in debt. So don't start living like you have a six-figure job. Live like before. Live WAY below your means until you get rid of that debt. I might even not put a lot into the 401 (k) until you get rid of the debt.For some money management or budget counseling go to www.debtadvice.org. Don't let the web address stop you. In addition to helping people with debt repayment plans these non-profits also help people with budgeting.

_______________________

3 or 6 months?: I know that the guideline for emergency funds is to have 3-6 months of living expenses. I am pretty financially conservative, so I would generally pick the longer time frame, but we are a two-income couple that could cover our expenses with either job, so we would really only dip into the emergency fund if we were both unemployed. That seems less likely than just one job loss, so three months seems like it should be enough. What do you think?

Michelle Singletary: Me, in this economy, I would still go with the longer time. a long term unemployment can really sink any household. If your expenses are covered with just one job then why not go for the six months and then just stop if you like. Better to be financially safe. You just never know.

_______________________

Washington, DC: Michelle - You seem to be anti-credit but what about the fraud protection that credit cards provide? My husband and I use credit cards to pay for everything and pay them off every month. They provide much better fraud protection than cash or debit cards can.

Michelle Singletary: I AM anti-credit. But you say that like it's a bad thing.Look, I use credit cards. But I use them knowing that when I do, I spend more than I would if I had cash. It's a fact for many people backed up with many, many studies.What you hear and see in what I do is discouraging folks from using credit because way too many can't use it wisely. And even those of us who do -- you included I bet -- spend more than with the real dough.So I caution people. I urge people. I fuss at people for using credit like it's an extension of their paycheck.It's debt and even if you only carry it for one month, it's still debt and for that one month you are a slave.

_______________________

Pay off mortgage?: Michelle,Thanks to an unexpected inheritance, my wife and I will have enough money to pay off the balance of our mortgage, and have some money left to put away. My question is whether it is a good idea to put the money into our house when prices are so bad and some say they will go lower. What do you think?

Michelle Singletary: I think if you are planning to stay in your house for a while, I would jump at the chance to get mortgage-free. The value of your home matters if:-- you need to refinance-- if you need to move-- if you are pulling money out of it like it's an ATMOtherwise, it's your home. What is is worth matters if you need more debt or you are selling soon.

_______________________

Emergency + life happens: I keep these (one year of emergency + $5k life happens) in the same account. Is there any reason to split them up into separate accounts?

Michelle Singletary: I split them up because I like having various pots.But if you are discplined, no reason to separate. However, some people see the larger amount due to the emergency fund and then spend it. Keeping it separate keeps it out of mind.

_______________________

College Debt: Michelle, I disagree with you about the college debt. If your choice in schools (for example, going to a DC school from a place like Detroit) will allow you better job opportunities, better internship opportunities for getting that first job out of school...well I say take out the loans.Let's say your student loan payments are $10k per year. If you can get out of school earning at least $10k more than your in-state non-debt counterparts...well you just made a smart decision.Not everything is a cut and dry as you present it.

Michelle Singletary: Debt bad.CutDryLook, I know I get a lot of push back on this. And that's because people want to do what they want. So go ahead and get into debt if you want. But I know having years and years of job experience and landing at a one of the top newspapers in the world (with a state degree) that it's the person, not necessarily the school that makes the difference. I think, I've heard companies in DC hire people who live and went to school outside the area. I heard that people hire interns from all over the country.We have to stop lying to ourselves to get what we want instead of what we can afford.

_______________________

thanks for answering my question in the video chat!: Hi Michelle,I'm the one who wrote in with the question about whether it's "irresponsible" to not buy a house. Thanks for answering my question in the video chat - your answer was what I was thinking, but now I have back-up when people ask me why I'm still renting.And - I know not everyone likes the video chats, but I think they are a great addition to the text chats. it's fun to be able to see you and your expressions and hear the intonation in your voice as you encourage us to make sound financial decisions!!

Michelle Singletary: Wow. Thanks for coming back and letting me know you saw the video chat. So very cool.Yup, just point people to the chat when they berate you for not buying.Oh and the people who don't like the video chats think it has replaced the text chat. The same advice and same tough me is available here and live.

_______________________

Splitting the bill: My husband and I have had dinner a few times with a group of people we don't know all that well. Husband doesn't drink, I will occasionally have a beer or glass of wine, but these people all order huge amounts of alcohol. We also don't eat meat, so we are usually ordering from the less expensive end of the menu. When the bill comes, there is one guy who always wants to split it evenly (he is probably the most well-off person there, but also drinks the most). Last time, we put our feet down and said no to paying $30 more than what we owed, but I felt like I was being cheap. (To this one person, $30 is nothing. We can afford it, but it seemed unfair.) I also feel uncomfortable now going to future gatherings with this group. I guess the answer is to always ask for a separate check, right?

Michelle Singletary: You could quietly ask for a separate check. But often they won't do that with a large party.If not, you did the right thing and feel bad about it one tiny bit. It's your money and you get to decide how to spend it.This happens to me a lot (I'm sure none of you are surprised). If in fact the group had about the same amount of food, etc. I don't mind spliting the check.But if there is a wild difference, I'm not paying for someone else's liquor. Period. They can call me cheap all the way to my bank!

_______________________

RE: JESSE/ROTH IRA: Short term investments should not be high-risk, or arguably even in the market. Someone who had downpayment savings in the market in 2008 will be waiting a long time to buy at this point. Also, I don't know that college savings for kids that don't exist yet count as short term but when those kids are born, you should open 529 accounts.

Michelle Singletary: Agree on all points. I should have pointed that out, so thanks.

_______________________

phone calls for relative: I was getting calls for my dad - I'm the only one of my sisters who still had his last name at the time. And I live 8 or 9 states away. I'd just say to them: there's no one here by that name. and the calls stopped.

Michelle Singletary: Good answer.

_______________________

Michelle Singletary: Hey folks, man 1 came around fast. Thanks so much for joining me today. I hope you get a chance to view the video chat. And if you can't view it for whatever reason, please know I'm still here for you via this text chat, my eletter (please subscribe. It's fun with short items on the latest financial news and much of my attitude) and of course my print column (twice a week in the Post).Take care stay financially safe.


© 2010 The Washington Post Company

Discussion Archive

Viewpoint is a paid discussion. The Washington Post editorial staff was not involved in the moderation.

Network News

X My Profile