The 10 Money Questions I'm Always Asked
Why, oh why, isn't there anywhere to put my cash?
With teeny-weeny interest to earn on your dollars these days, it costs money to save money. Since inflation runs around 3% a year, your money is shrinking ($100 last year is worth $97 this year). But, it's a worthwhile price to pay. If your income disappears, instead of going into debt at an average credit card rate of 14%, you have a cash-stash that "costs" a lot less. However, keep costs down by earning interest and avoiding fees. Shop around at Bankrate.com or look into credit unions near you at NCUA.org.
Should I pay off my mortgage early?
This is the money-equivalent of "do you roll your TP over or under" — an all-or-nothing answer that splits folks into camps. But, here's the real answer: It depends. Are you on track saving for retirement and have no other debts or financial goals or needs? Go ahead and pre-pay. But, if you have a low interest rate (anything below 7% is historic gravy), need to work hard on saving more for retirement, and have other debts (such as a higher-interest car payment), hold off on putting more into your home. After all, in retirement, you can't take your home to the grocery store to pay the bill.
Should I close a credit card?
This is usually asked by someone who has paid off a balance and never wants to see that bad boy again. Or, maybe you've peeked into your credit reports and have seen all these open cards. I have them, too. Nope, no real need to close a card once you've paid off a balance. Open credit is credit you have in hand that may be useful one day. Credit can be very expensive (if not impossible) to get when you need it most, for example, if you were to lose your job or income. As long as you don't keep on opening more and more cards, holding some open and rotating them in your wallet can be good for your financial life and your credit reports.
What's the best way to save for my kids' college?
The best way is to get started early and automate the whole shebang. But don't fall behind in saving for your retirement to pay for college. As they say in airplanes, "Oxygen mask on you first, then on children." Keep the retirement savings on track but then sock away what you can every month (no matter how late you start saving) into a 529 account — a quasi IRA for college. You can grow your money, tax-free, as long as the funds are used for education expenses. And you don't have to save the whole six-figure price tag: Work on saving up 1/3, borrow 1/3, and for the last third, dig up grants and scholarships. Head to FinAid.org for funding and SavingforCollege.com to shop around for 529s.
Should I buy or lease a new car?
With its month-to-month cheaper price tag, leasing has grown like the market for Spanx — wide. But it's a stretch to say it's for everyone. If you chauffer the brood to and fro, have pets, a long-ish commute and want to keep your car or truck for more than a couple of years, it's better to buy a vehicle. This is because additional leasing costs include wear and tear (seat-kicking kids, slobbering pooches) and mileage (all that to and fro). Check out some price comparisons edmunds.com. Those with a short commute, just grown-ups and like to drive new? A lease may be a good idea. But remember, after a couple of years, car buyers actually have something to show for all that money.
Will I have enough to retire? (A.K.A., How much should I plan on saving up?)
A tremendously loaded question, but know that the answer does not lie in a magic number. You've probably heard you need 10 times your annual salary, or maybe just, "one million, at least." Trouble is, everyone's retirement looks different. Ask this: Will you still have housing payments? Will you have to take care of aging parents? Do you plan on still working? Where will you live? Your answers will shape your personal "number" for retirement. Not all retirement calculators take these things into account but the one here at AARP.org will give you a rough idea of whether you're on track and what you can do if you're not. Key: Save more every chance you get!
What's better, a debit or credit card?
Credit cards get a bad rap. Most Americans use credit responsibly and don't carry a balance. Pay the bill in full every month and get a card with few fees plus rewards. A credit card not only builds your credit, but has purchase protection by federal law, and sometimes built-in insurance coverage. However, if you cannot live within your means, head right to debit. Debit cards don't build credit or necessarily have good purchase protection or insurance, but, for you spenders out there, it has the reins you need in the form of your checking account balance. Just stay away from overdraft protection. You could soon be in the hole deeper than if you'd used a credit card!
So, I was going to borrow from my 401K to...
Not a question I should be asked, but I hear this one often, and every time I do, I interrupt the speaker with my own question, "You're going to do what?!" There's a lot more than a low interest rate at stake with a 401k loan. First, should you lose your job, you'll have 30 to 60 days to pay off the loan or it's considered an early withdrawal (you'll lose up to 50% in taxes, fees and penalties). Second, what you borrow is not "in" the market and missing one month of great returns could set your retirement savings behind for years.
I just can't talk about (insert money topic here) with my spouse/partner--what can I do?
Having a master's degree in psychology is part of my financial advice bonus-pack. Much of our money-lives are played out on an emotional stage. There's conflict, baggage, control-issues and much more. The key here is to keep the conversation coming, and to talk with honesty and an open mind. Is this a battle worth fighting? Do you know why this upsets him? Can you find middle ground, or is this a symptom of something much bigger between you two? Look hard at your dynamics and consider meeting with a planner and/or a counselor should the "upset" not go away. Money is a common cause of splits — it shouldn't have to be.
I just can't seem to stretch my budget any more--what else can I do?
Tech to the rescue! Utilities: Head to LowerMyBills.com to shop around for new, cheaper services. Groceries: Planning meals reduces waste and lists help you stick to a budget. Shopping: Price compare with a browser add-on like PriceBlink.com and head online for coupons both at the manufacturer's site, and sites like CouponCabin.com. Never pay retail for clothing: Check out daily sale sites like Zulily.com, and use social media to score local deals and pop-up deals on national brands. And don't forget apps: Your smartphone is a gold mine of savings. Track spending with MoneyWise (free/$7 with upgraded features), find cheaper gas with GasBuddy (free), and get your kids to use free texting with GoogleVoice.