Your money questions answeredLike a doctor at a dinner party who gets flashed every mole and ache, I get popped money questions wherever I go. Thankfully, I love it! With more than 15 years as a personal finance expert under my belt, I've heard every money question out there. Here are answers to the top ten that most frequently come my way.
1. 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.
2. 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.\
Related: 125 Money-Saving Tips
3. 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.
4. What's the best way to save for my kids' college?Saving for 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.
5. 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.
- by Carmen Wong Ulrich
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