Q: We have several financial accounts. How do we keep up with deposits, withdrawals and balances?
A: Like you, I’m a pot person. No, not that type of pot!
I like to have my money in a lot of different money pots because of a saying by my late grandmother Big Mama: “Every penny ought to have a purpose.”
But if there are too many pots, it can be hard to keep up.
So, look at every account and determine if you truly need it. I recommend the following, at a minimum:
- Household account. This is where most of your paycheck should go to pay your monthly bills. Then send that money electronically to where it needs to go, rent/mortgage, utilities, etc.
- Emergency fund. If your employer allows you to direct deposit in different accounts, set aside some of your pay for a rainy-day fund. Once you hit your target, you can pause the deposits.
- Life happens fund. Use this pot for the things in life that happen, such as a car repair or an unexpected expense. How much should you have in this account? It depends. But start with trying to build up at least $250 and then aim for a few thousand (Why does every car repair seem to cost $1,200?). The money in this pot will come and go. When you spend it down, build it back up. This pot also prevents you from tapping your emergency fund, which should be designated the “If-I-lost-my-job” account.
I know some folks like to have a separate pot for vacation funds or irregular expenses such as annual or semiannual auto insurance payments. That’s okay. But too many pots and things can get complicated.
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Once you’ve set up all your accounts, be sure to set up electronic access to them all. Then take time to regularly review all the outflows and inflows. If you like to micromanage your money, you can set a time every week to review the accounts. If you have a good grasp of things, do a monthly check-in. If you are married or have a partner, follow the same schedule. It is important that you make the meetings regular — same day, same time.
In addition to your regular financial meeting, set up alerts on all your accounts so that you are pinged when there is activity. This helps keep an eye out for fraud.
Q: What method do you recommend for saving money for your children’s future (education, trade school, college, etc.)? My children are 9 and 7, and we don’t have a lot of money to set aside.
A: I favor saving in a 529 plan. Earnings are not taxed if the money is used for qualified education expenses such as tuition or books. Additionally, many states offer tax deductions for residents who make contributions to a 529 plan.
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Q: My son is 11, and we have a modest amount saved in his 529. When should I move what we have saved from the more aggressive funds into a more conservative one? He might go to community college before a four-year university and we can cash flow that. When should I start thinking about changing the asset allocation?
A: What a wonderful gift you are giving your son by planning for college expenses now. My husband and I set up 529 plans for all three of our children and, as a result, were able to send all of them to college debt-free. Generally, experts recommend that your portfolio becomes more conservative if you need the money within a five-year window. I suggest rerouting the 529 plan money into an age-based portfolio. With this, it’s all automatic, so you don’t have to worry about rebalancing. That’s what we did. By the time each kid was ready for college, most of the money was moved to more conservative investments.
Q: My husband was told by the IRS that he may be a good candidate for an Offer in Compromise because he can’t afford to pay the back taxes. Is this something you recommend? Do you know of agencies that help with the application process at low or no cost?
A: An Offer in Compromise, or OIC, is a program intended to help people who are so financially strapped that it’s unlikely the agency could collect all that the government is owed. But an OIC is hard to get. The IRS will examine your income, expenses, ability to pay and, most importantly, whether you have any assets — including equity in your home.
You can apply for an OIC yourself. You do not need to pay anyone to help you with this process.
There’s a lot of information about OIC on irs.gov. On the site, read: Offer in Compromise — Frequently Asked Questions. You’ll also find an Offer in Compromise Pre-Qualifier tool in which you answer some initial questions to see if you qualify for an OIC.
Q: Previous bankruptcy at 60. I have $100 in cash saved. What are the steps to restart? Please include books, websites and budget information.
A: Financially rebuilding your life is a slow process. It will take time, and that’s okay. The first step is to build on the $100 you have saved. Commit to increasing that savings, even if it’s just putting in a few dollars when you can. Make it a priority and automatic if you can.
“I Will Teach You to Be Rich” by Ramit Sethi
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“The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns” by the late Vanguard founder John C. Bogle
“The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness” by Morgan Housel
And if I may, my own book, “What to Do With Your Money When Crisis Hits: A Survival Guide”
AARP Foundation Finances 50+
Bankrate.com
Investopedia.com
Q: My husband and I are financially separated but together everywhere else. I struggle a lot month to month. Should I get another job to cover my expenses or find a way to combine our lives financially?
A: Without more details, I would say there’s a disconnect in your relationship. Why isn’t he helping you? Do you have a system where you both contribute to all the household expenses? Are there some past trust issues around money? Are you living within your means?
I suggest marriage counseling to dig deeper into why your husband is standing by and allowing you to struggle. In the meantime, if your financial ends aren’t meeting, yes, another job could help.
If you’re lost on how to start this money talk with your spouse, read: Four rules to make talking about money with your honey easier.
