Questions & Answers

Improve your credit, get rid of your debt, manage your family’s money and pay off those college loans will Michelle’s financial advice.

Click on the links below to learn about each individual topic. If you don’t find the answers you’re looking for here, feel free to contact Michelle with your questions.

Unless otherwise noted the questions were answered by Michelle in her regular live online discussions at www.washingtonpost.com.

Credit

If you’ve ever wondered how to get credit, what good credit is or how to improve yours, Michelle answers your questions and helps you learn why it’s so important.

Question
I have two credit cards with balances on both. Once card I owe $900 with a $10,000 limit and a 5.9 percent rate. The other card has $350 with a $14,000 limit at 9.4 percent rate. I want to use my tax refund to reduce the balance on both and/or pay off the smaller balance and pay down the larger. I also want to put some of my refund into my savings, which needs it. Any suggestions?

Answer
Why not pay off both cards in total. You have $1,250 in debt on both cards. I don't know what you are getting back, but if you have some savings, enough for even one month of living expenses I would use the entire tax refund to pay off both cards. Debt isn't a pet. Don't keep it around.

Question
We were recently told our credit score of 780 was not "good enough" to get the lowest interest rate on a car loan. May I ask what can we do to increase it, and exactly what is good enough? I always thought 830 was the highest you could go.

Answer
Oh please, what you can do is find another lender. Were you trying to get the loan from a dealer because whoever told you that 780 wasn't a good enough rate is a bum.

Now, were you trying to get a zero-interest loan? Because sometimes they pull that, "You don't have a high enough credit score." With a 780 score you are just fine. Go shopping some more. Actually if you are a member of a credit union, get your loan there. And with FICO, the highest is 850 but for a car anything over 700 is usually very good.

Question
I'm self-cleaning my bad credit. How much and how fast will the score increase and improve my line of credit? Also, do businesses take into account that although my score is low, I've finally paid off the bad debt?

Answer
Not sure but are you asking me if you can get MORE credit if you score improves?

Unless you are talking about buying a home, stay debt free. Give yourself some time and pay all your bills going forward on time and you credit scores will increase. How long? It can take about a year. So don't take on anymore consumer debt. Just wait this thing out and over time your score will improve.

Question
To get my debt under control, I took a personal loan at 12 percent versus the variable credit card rates. The personal loan gives me a set term to repay the loan, and saves me over $150 compared to making just minimum payments. My issue is one credit card has a low balance transfer rate of 4 percent, which if I adjust my payment over the same term I would save an additional $100 or more in monthly payments. However, the teaser balance transfer rate (and one late payment) has me in my current dilemma where the rate has increased to over 25 percent at times. Should I stick with my personal loan or go for lower payments with the credit card balance transfer?

Answer
I think what you are asking is should you transfer the money from one card with a 25 percent rate to one with a teaser rate of 4 percent. If there isn't a fee, go for it.

And I would urge as much as you can to speed up the payment on the credit card and the personal loan. A 12 percent rate is still high. Just be a madman or woman about getting rid of this debt.

Question
My credit card company continues to increase my credit limit (just recently, they increased the limit to 30K). Why? I don't charge much, and when I do, I pay it off when the bill comes in. Would it hurt my credit rating to ask them to lower the limit? No one else uses this card, but somehow, I just don't feel comfortable having a limit this high.

Answer
As long as you don't have an outstanding balance on this card and you don't keep balances on any other cards, you can certainly ask them to lower your limit without any damage to your credit scores.

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Debt

Are you in serious debt? Having trouble paying off your credit cards? How about those school loans? See what Michelle has to say about getting out of debt fast and staying out of debt in the future.

Question
Can you explain when one is responsible for others debt in death and when he/she is not? Does it depend on your relationship, i.e. spouse or parent, or type of debt? I'm so foggy on this issue and think it is important because I have heard that creditors will get you to pay if they know they can.

Answer
Good question. And I don't mind answering it 100 times.

Folks you are not responsible for the debt of relatives -- mama, daddy, sis, brother, Peaches and them -- if you DID NOT CO-SIGN for the debt.

So unless when the relative checked into the hospital or nursing home or whatever, you signed some paperwork saying you would pay the bill, you are not responsible.

The same goes for a mortgage, credit card, and car loan. Unless you are on the note you don't have to pay it.

Now creditors will try to get you to pay it. They did when my brother died. But I simply sent them his death certificate. They could call all they wanted but I wasn't paying. The calls stop after I informed them he had passed away. Of course if the person has an estate (money, value in the home, car, etc.) the estate has to pay the debts with whatever money is left. Or the assets have to be sold to take care of the debts. But don't let a creditor guilt you into paying the debts of a deceased loved one.

Question
My parents have been in IRS tax hell for over 15 years. They owe over $100,000. Sadly, Mom (the one who was actually taking care of this situation) passed away and Dad is in total denial about the debt. Dad isn't in a good financial place and has a hard time discussing his finances with me (never gives me the "full" state of affairs). I feel like the IRS can come at any time and wipe him out. What should I do?

Answer
First, try as hard as you can to get your dad to come clean. Go through everything. You can't help if you don't know the full picture.

Then get some advice from a tax professional on how best to approach the IRS. If your dad's income is very low, he may qualify for a payment plan or an offer in compromise. There is a 10-year statute of limitations on tax debt collection so it MAY (and that is a huge MAY) be possible for him to get some of it discharged.

Honestly, you need to seek professional advice on this. That debt is indeed huge and I'm surprised the IRS hasn't already taken action. If you have a tax person, start there. But you will probably need to contact someone who deals with this type of problem specifically.

Question
I have $14,400 in student loans at variable 6.82%. I have $40,000 in a 401(k) (I put in 5% to get the match) and $3,500 in emergency fund. Where should I put the extra money I have every month? I have roughly $2,000 extra every month.

Answer
Seriously. You have $2,000 extra every month and you are unsure about paying off $14,400 in student loan debt? If that $3,500 covers a few months of living expenses, go for the student loan debt.

Question
I have had a few family emergencies that required me to come up with money I didn’t have. I borrowed money from four payday loan institutions and now I'm having problems paying them. All of my money is used for everyday living expenses. What can I do?

Answer
Oh you poor dear. I'm so sorry. I would suggest you contact all the lenders and explain your situation. See if they can put you on a longer pay back plan.

If no, you may have to get another job to work your way out of this situation. This is yet another example of why I HATE payday loans. I mean if you don't have the money, how is pledging future pay, which is for most people already spoken for, going to help.

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Kids & Money

Save for your children’s future and teach them how to be responsible with their money. This information is vital if you’re planning on having children or have kids already. They’ll thank you for it later.

Question
My husband and I are expecting our first baby this March. We don't have much extra income each month, but both of us feel strongly about saving for this child's college education. I'm guessing you'd recommend a 529, but what's a reasonable amount to put in each month? (By the way, we just paid off our last debt and will have a 25% down payment for a house we hope to buy this year! Needless to say, I agree with you on nearly everything!)

Answer
I would recommend a 529 plan. And go online and you can find any number of calculators to help you figure out how much to put aside each month.

I see you are from Md. Look at the Maryland 529 plan managed by T. Rowe Price. I'm sure they have a calculator. And here's a bonus. In Maryland for each 529 account you get up to a $2,500 state tax deduction (if you invest that much). I do. Got three rugrats to put through college.

Question
I am a new mom, and I am wondering about good, inexpensive toys for an eight-month-old? I want things for her to play with, but don't want to break the bank.

Answer
Pots and pans. Seriously.

With my first kid we bought all these nice toys (not a lot but some). My daughter -- now 12 -- wanted to play with the boxes the toys came in and she would crawl into the kitchen and pull out the pots and pans and bang on them. In fact, we lost our house keys because she found them and put them in a pot in the back of the cabinet.

At that age, you don't need to spend a lot for toys. You might also look at Goodwill or ask friends for unused toys.

Question
I understand that one of your mantras is "Priorities lead to Prosperity.” How far do you go in relating that [mantra] so that they understand spending decisions?

Answer
You go as far as it takes to get your kids to understand that in life you have to make choices. Most of us can’t have it all. So you budget for what you can afford. I talk to my kids ALL the time. They are 12, 9 and 7. Even the 7 year old knows about her college fund and at times says she's not going to spend so it can go into her college fund.

When they whine about wanting something at the store, I use that opportunity to say, “If I give in to your every want, we won't have the money to take the nice vacations you like.” Then I say, "Don't you like traveling every summer to nice places?" Then I remind them of all the fun things we did.

They still whine and I say, "Well too bad. This is how it's going to be."

Explain with love. Laugh at their crazy demands. Then in the end do what you know is best. Trust me they do get it. Maybe not right then but they do. But you have to be consistent!

Question
My daughter will be graduating from elementary school and moving on to middle school next year. The middle school has pretty low test scores and has a reputation of having some rough kids. At the same time, the principal has recently won awards and the school has a nice diversity and a few of my daughter's friends will be going there. Many people I know are forking out at least $100,000 to move to comparable houses in other parts of the county where the schools are perceived to be better. I would be financially strapped if I did this, but it is manageable, possibly.

I know you're big both on getting a good education for your kids and being financially responsible. Where do you fall on this question?

Answer
I ALWAYS fall on doing what you can afford and not possibly.

I'll be honest I have all three of my kids in private school. BUT my husband and I evaluate that decision every single year and weigh it against our financial situation. If the money gets tight or we couldn’t also save for the college education we would put them in public schools. And if we did you better believe we would be in that principal’s face, or getting them tutoring, etc. to make sure they aren't losing out.

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Love & Money

Find out how to live and love on a budget.

Useful for newlyweds and seasoned couples alike, Michelle shows you everything from planning your wedding on a budget to making sure money doesn’t cause a rift in your relationship.

Question
I've read in past columns that you and your husband tithe. I wasn't raised in that tradition, but my husband was, so it's hard to wrap my mind around the amount you tithe: the gross or the net of your paycheck? My husband received a $5,000 bonus and gave $500 to our church, even though (once taxes came out), we only wound up getting about 1/2 of the $5,000. So to me, he gave more than 10% because the $5,000 was theoretical money while the amount we actually received was the real amount. How do you see this?

Answer
Oh my dear, are you really prepared for my response?

The way I was taught in my church you give on your gross. So your husband was right about the $500. As one pastor said, "Do you want a net blessing or a gross blessing?"

Now I say that in jest because you don't give with the expectation that you will get back. But I understand your hesitation. It really does take a great act of faith to tithe and especially on the gross. But scripture says you tithe on your increase. Not after you save, pay taxes, pay the bills, etc.

I will say this; since I became a tither I have learned that it makes you handle your money better. Talk this over with your husband, get his insight and I do hope and pray you both come to be comfortable with this. Perhaps one day you too can wrap your mind around this type of charitable giving. And keep in mind if you belong to a church or religious organization that is using tithes well, you are helping a great many people.

Question
I'm female, in my early 30s, work for a non-profit organization, and make a low salary for this area. I keep my expenses low and get by. When I date, I feel uncomfortable if my date pays for everything. I feel like I can't hold my own if we want to do anything at all that involves spending money. Help! Do I need to increase my income or increase feeling comfortable if other people (the guys I date) subsidize most of my entertainment costs?

Answer
Maybe both. Look for ways to increase your income because you may have to save more for emergencies, retirement, home, etc. But also you need to feel comfortable being able to afford what you can afford. That means finding things to do with your date that doesn't cost a lot. Does it mean you can't do some things? Yup! That's life.

And trust me, the day you find the right person who appreciates the fact that you’re living within your means, keep him.

Question
I am married to a wonderful husband who has significant financial obligations to his family in his home country--paying for a sibling's college education, which I totally support, and for basic household expenses for his parents, who are retired with no income and have some health issues. I am currently paying 100% of our household finances (mortgage, utilities, food), while my husband sends a significant portion of his income to his family. The problem is that my husband continually asks for "loans" of additional money for his or his family's expenses because he hasn't budgeted or planned exactly what he can afford on his salary. He occasionally bounces checks from his checking account or our joint account, regularly incurs over limit fees on his credit cards and is adding to our debt, to my continual frustration (which I have voiced repeatedly)… He never wants to talk about money matters because for cultural reasons, he feels humiliated that he cannot provide for me. I know I need to force him to make a budget, so he can see what his expenses add up to. Any suggestions, so we don't end up in divorce court?

Answer
Honestly, you guys might need to see a counselor. There's a lot going on, namely you need ground rules for your marriage and your money.

For now, I would try to get him to sit down and you both agree on a set amount -- given all the obligations -- he can send home every month. And that's it. The family will have to find other ways to finance their life.

The problem is you didn't negotiate this before you married. So it's anything goes now. But I do think you can resolve this without a divorce but it will take a lot of work.

Also, I would suggest stop the ‘his and mine’ thing. Pool all the money. Then allocate the funds for your household expenses first -- mortgage, car, food, insurance, savings, retirement investing (for both of you), etc. Then BUDGET for the family money. Make all of this a joint venture. Perhaps then he will see there isn't enough for him to play hero to everyone while making his wife (his No. 1 priority) crazy with worry.

Question
In January, I will receive a nice raise. We could use my raise to either beef up our emergency fund, or start paying down our piggyback mortgage. We already save 10% for retirement and have no non-mortgage debt. We also save a modest amount for our children's college fund.

We bought a house at the height of the housing boom using 100% financing. Our interest only 5 year ARM will reset in 2011. Should we really start tackling mortgage principal or make sure we have 6 months of living expenses? (We have 2 months left). Thanks!

Answer
Here's the order in which I would use the raise:

• First beef up the emergency fund. Once that's done
• Tackle the second mortgage
• Then use the raise to beef up the college fund

Question
My hubby wants to buy a Sunday-go-to-church car. We have 2 perfectly running paid-for cars now. We have enough to put about $25k down on a luxury car and carry a $500/mo car payment for however long. Please tell him why we should go used and not new!

Answer
Tell you hubby for me he's a knucklehead!

This is especially so since you would put down $25,000 and still carry a note. Are you kidding me? You are kidding me, right?

He wants to pay for a car just to drive to church when you have TWO paid for cars. Now if you had said we are flushed with cash, got all the money we need for retirement, give to charity, no mortgage, no credit card debt, and can pay ALL cash for the car, I would have said go for it; you got it like that. But, you don't have it like that. You don't NEED to go new or used. Why don't you use that money to bless a family that doesn't have a car?

Question
My husband and I really want to save for a house and possibly buy next year but how do we start? I'm trying hard to save money but we just keep putting what we make toward bills/debt. We owe about $10,000 in credit card debt, car loan and student loan. How would you go about saving money for a down payment? CD/Money market? Right now we have about $2,000 just sitting in the bank (savings).

We're in our late 20s and haven't even started a 401 or anything for retirement. I actually feel helpless over the situation and it's overwhelming that I just don't know where to start.

Answer
Here's what I recommend first to people in your situation.

Breathe.

Seriously, after you read the answer to your question. Take a deep breath because it's going to be okay.

Next, you will be able to calm down when you get a plan. Here is my budget worksheet to get you started.

For example, you may be rushing into getting a home too soon. I mean you're just in your 20s. No rush. It's better to be free of that debt bondage first. And really you don't have a lot if that $10,000 is spread across credit cards, car and student loan. Aim to pay off the debt -- all of it.

I wouldn't even be mad at you for delaying contributing to your retirement fund at work if you had a plan. Get this monkey debt off your back first.

You also need to build up your emergency fund (at the very least 3 months of living expenses). The 2k is a nice cash cushion for what I call a life happens fund because well life happens. You need that money for car repairs, etc.

Then start contributing to your retirement fund. Then start saving for the home. Go talk to some real estate agents and figure out where you want to live and how much house you can afford. That will give you a starting point on how much you need to save.

Finally, after all this you are ready to save for a house. If you plan on buying in less than five years, park the money in a high yielding savings account or money market.

Hope this helps and keep coming back. I'm here for you.

Question
We are currently living well beneath our means, though we certainly have everything we need and much of what we want. When our household income went up we chose to stay renting our 1BR rather than "move up." We are saving $1,500 to $3,000 per month, on top of each doing the maximum contribution to our Roth IRAs and maximizing my employer's match for my pension fund.

We have no debt whatsoever (no student loans, car payment or mortgage, and we always pay off our credit card every month), and on top of that have fairly significant assets thanks to gifts and inheritance from my side of the family. To give you an idea, if we were to hypothetically sell all the stocks, we could afford to pay cash for a 2BR condo in the city.

I believe that we are in an INCREDIBLY fortunate position for a young couple. However, my husband is forever thinking about our financial situation -- strategizing how we can save more, budget better and complaining about how we waste too much money on things (Christmas gifts, inevitable car repairs, my own shopping which, is by no standard extravagant, etc). He invests a great deal of his spare time in analyzing these numbers and talking to me about it.

I appreciate his desire to save up money to ensure a secure future for us, but sometimes I worry that he is sacrificing his enjoyment for life (i.e., shorter vacations than necessary) at the expense of constantly thinking about money.

I almost feel stupid submitting this question when there are so many people out there with real financial challenges we are so fortunate not to have, but am I out of line for thinking he expends too much energy on money matters?

Answer
Girl, don't feel stupid. I'm your husband. I know what he feels -- fear.

And you are right to be a little concerned. My husband is forever getting on me to stop worrying about money. For me it's not about the ability to buy stuff. When you come from a low-income or poor background often you worry about financial security.

What helped me was to do our net worth statement. You can download a template from the Post biz section.

When I saw how much we were worth and how little debt we had compared to what we were saving and owned, I did feel better. Try that.

And just keep talking to him. Ask him what he fears? Tell him that you both work hard you if you are saving and investing wisely, it won't kill him to take a one or two-week vacation. Tell him I do. Every year. Two weeks at a 5 star resort (with kids in tow). It's a journey so be patient with him.

Question
Do you think [your husband] would be willing to come over to my place and look at our finances? We've got lots of student loan debt, a timeshare we can't afford, nearly $20,000 in credit card debt, a freeloading relative, a car I want to sell, and more. I'm drowning here. The ends used to meet. Now, they are a long distance phone call away.

Answer
That's funny in a sad way.

So first let's breathe. Seriously, right now take a deep breath. Now let's get a plan.

• First go to the Washington Post business section (personal finance) and look for the budget worksheet I've created. Do the budget and I mean it. Sit down with your spouse, gather up all the bills, checkbooks, etc. and budget so that you aren't overspending every month. This might mean doing some heaving cutting, which brings me to the next step
• Kick the relative to the curb or ask for rent. You used the word freeloading so I'm assuming this person can pay something, anything. Do it. Now. Today. No one takes advantage of you unless you LET HIM OR HER
• Today, both you and your spouse go to the benefits office and begin to have some money taken out automatically to save for your emergency fund. I don't care if it's just $20. Do it.
• Start doing the research to sell the car. Go online to edmunds.com or kbb.com to see what it's worth. If you don't want the hassle of selling it privately try Carmax.
• If you bought the timeshare from a large hotel chain (which I hope you did) call them up and see if they have a resale program. Take whatever you can get to unload it. It may mean you still have a loan balance but that's okay.
• Pull all the credit cards out of your wallets and seal them up. Stop using them and then devise a plan to pay them off. Start with the card with the lowest balance. Pay just the minimum on the rest. When you pay off the card with the lowest balance, take that money and apply it to the next card with the lowest balance, and so on
• The student loan debt may have to wait until you get control of the other debts

You see when you have a plan things don't feel as out of control.

From washingtonpost.com: Here is Michelle's Net Worth Statement (pdf) and the Budget Worksheet (pdf) just in case.

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Paying for College

Whether you need money for college or need to start paying off those school loans, Michelle shows you how continued education can be affordable.

Question
I recently graduated from grad school with $18,000 in debt. Now that I'm in the working world, I'm starting to think about returning to grad school to complete a Ph.D. How long would you recommend I work before I go back to grad school? Or does it even matter since my income may (or as I've discovered, may not) increase with graduate education? Can you delay payments on earlier student loans if you go back to school?

Answer
Honestly, I would return when I've paid off that $18,000. And then I would save for that next degree or look around for an employer willing to pay for the advanced degree (in exchange for service) or at least pay some of it. Almost weekly I get e-mail from folks who have spent thousands and thousands of dollars for grad school only to finish and not earn enough to pay that debt of before they turn 60.

Question
I just got into grad school - planning on going part-time. I'm expecting to receive a good portion (about half of tuition) in fellowships. Yet I don't know what to do about the other half.

I thought about working for the school, but my annual salary is far more than what I'd be making there. I'm saving quite a bit - almost enough to pay off that other half.

But, I'm wary of putting all my savings into school. I've got my three months cushion, car is paid off, and 10% of my salary is contributed to my 401k, and no other debt except for 10,000 from undergrad Stafford loans, which I feel is manageable. I just feel like I should be saving for an eventual home, etc.

I'm 23 if it matters. Thoughts?

Answer
Child take that money and pay off those loans. You've got all the other bases covered so make this a home run. Your savings grace is not having debt.

Question
My 27-year old son will be graduating with his Masters in Counseling on May 11th and has asked me to help him choose between

https://loanconsolidation.ed.gov/appentry/appindex.html or
www.cfsstudentloan.com

to consolidate his student loans. Also, he plans to continue on for his doctorate.

I'm a single mother and we plan to evaluate these two options this weekend and would really appreciate your assistance and guidance in any possible way that you can offer.

Answer
A great site to visit is www.finaid.org The thing with consolidation is you want to look at the perks -- do they give your son an interest rate break for on-time payments, etc. The bottom-line rates are competitive so you should look at what they offer borrowers.

And perhaps you might advise your son to work a bit to pay down his debt before taking on more debt for his doctorate. Just a thought.

Question
I'm an undergrad student at the George Washington University. I currently hold an unpaid internship at Smith Barney Citigroup, and have not been working to subsidize my college expenses. I've been considering taking out a Fannie Mae student loan for about $10,000 in order to get by the rest of the academic year and possibly be able to get situated in NYC for a summer internship before starting to make money with that. I don't have the exact name of the loan or how much the interest rate is, but I'm wondering if this is a good idea or not? It seems like my only option at this point in time. Thoughts? Is there a better alternative?

Answer

Get a paying job on the side. Don't go the debt route.  

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Retirement

Have a happier retirement and enjoy life after work. Michelle shows you when to start planning your retirement, what investment options you have, how much you need to save and more plenty more.

Question
Do you think an 85-year-old man in good health should be dealing with a large portfolio of volatile stocks? His retirement plans are in real estate.

Answer
If you mean his entire retirement plan is in real estate stocks, then nope that's not smart. He should be diversified. Doesn't mean at his age he shouldn't be in stocks but his portfolio needs to be balanced! Get thee to a good fee-only financial planner.

Question
My parents will reach retirement age in about 20 years and I don't believe that their saving and retirement funds will be enough for them to maintain their current lifestyle, which is not extravagant. What is the best way for me to plan to help them out in their retirement years? A savings account? CDs or savings bonds? Or just wait and pay directly for their needs at that time? I am on track with my own retirement savings and do not yet have children.

Answer
Don't wait. Go to www.aarp.org. The site has some great tips on talking to your parents about their retirement needs.

And look, start talking to them now and as respectful as you can say, "Mom, dad, I'm concerned about what you may have for retirement. I want you to be able to do this yourself and not count on me. So can we talk about how you may start saving for your retirement."

Then start sharing with them information about investing in mutual funds, diversified funds or target funds, which invest money according to when you may retire. Check Vanguard, T. Rowe Price and other sites for information about such funds.

It's good you are starting now. But don't be an enabler. They have plenty of time to get their act together.

Question
I recently changed my 401(k) allocations and chose to put everything in a Life-Cycle (Target Date) fund. I thought the Life-Cycle fund was supposed to do the diversifying for me without worry. I now receive a message when I log onto my retirement account stating, "You have 1 equity fund(s). A diversified equity portfolio includes three different asset classes within your stock fund choices."

Now I'm worried I've made a mistake. Or have I? Should I go back to choosing my own funds and how they are allocated? If so, would it be wise to still include this Life-Cycle fund as part of my plan? I thought the goal of these new funds was to take the guess work out of retirement investing. But I have more questions now than before.

From washingtonpost.com

Financial Futures: Life-Cycle Funds: Targets, Not Guarantees (Aug. 19) by Martha Hamilton.

Answer
First here's a definition of lifecycle funds from "www.investorwords.com" an online financial glossary: "A highly diversified mutual fund designed to remain appropriate for investors in terms of risk throughout a variety of life circumstances. They can contain any mix of stocks, bonds, and cash."

Now as you see from the definition you are a little too hyper about what you did. You didn't make a "grave" mistake. Recently my colleague Martha Hamilton wrote about these funds (I've included the link). There are many pros and cons to this way of investing. Personally, I don't mind them if you are the type of person who just WILL NOT rebalance your retirement plan as you should. But critics worry investors will put money in the funds and just forget about it. The problem is the funds set a target date for retirement and hopefully if managed right you will have a good sum for retirement. But what if the mix is off or the fund has an idiot choosing the options. If you set it and forget it, you won't meet your target goal of having enough money in retirement.

So, calm down. Read up about life cycle funds. Look at the one you have and it's holdings. Is there a good mix of stocks, bonds and cash? The longer you have to retirement the more equities you might want to have. But you also want exposure to asset classes within equities (large cap, small cap, mid-cap, foreign, etc.)

If you think the fund you choose might perform well stay put. But don't just set it and forget it.

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Disaster Preparation

It’s often unexpected when disaster strikes. Arm yourself with the information you need to safeguard important documents, protect your investments and be better prepared if something does happen.

Question
How are my financial records (bank account, checking account, saving account) protected in a tragedy like New Orleans? Where are the backup records stored? How do the people of New Orleans get access to the bank account and money? How does one pay bills and creditors in New Orleans?

Answer
Hopefully, your bank, investment company, credit card company, etc. will have backups. However, the best situation is if you have backups somewhere safe. Specifically, copies of wills, power of attorney, health care power of attorney, living will, burial instructions and trust documents should be kept not only at home, but also in a safe deposit box and with an attorney and/or anyone named as able to act on your behalf. Someone should also have the instructions about the location of the safe deposit box. Other financial documents that need to be copied so that copies can be sent to attorney relative or friend or placed in safe deposit box include deeds to home, titles to cars, receipts and photos of property, other legal documents. Finally, everyone should make lists of insurance policies, investments, property, trusts, personal property, prescription drugs, names of doctors, employee benefits, bank etc.

Question
My husband, young son, and I live in an apartment (on the first floor). I mention this because though it's a decent complex, I feel it's not as secure as a house. I have renters insurance and I have a safety deposit box at the bank. In your column you mentioned keeping important documents in a fireproof box at home. I have all my documents at the bank, and copies of documents like my passport and insurance policies at home. My dad says that's unnecessary. I guess I'm thinking a break-in is more likely than a natural disaster. Please advise.

Answer
A safe deposit box is probably safer than at home. However, it is easier to keep some documents at home for easy access. Other documents, like tax documents are too voluminous to keep in a safe deposit box. That is when home storage is the only choice.

Question
I have a question about savings in case of a disaster. Are local banks with limited branches more vulnerable than big national banks? I ask because I have a local bank and if there is a flood does it make a difference on how I can access money? Oh and how much in savings should one have in case of disaster?

Answer
This is such a great question. And I'm not sure I know the answer. So you should contact your bank and find out. But you make a good point that if you bank at an institution with limited branches and that bank is shut down because of a disaster needs to have a system in place to help customers get to their money. But with online banking and telephone banking I'm sure even smaller institutions can handle such things in a crisis. And the question is how much CASH should you have on hand. I remember in Maryland and DC many ATM networks were knocked out because we lost power for a couple of days and folks couldn't get cash to even to the grocery store. So I would recommend having enough cash to buy gas and food for a couple of days. Although with the gas prices going up so much that might mean having a mint in your house :)

Question
I know this is sort of a morbid question, but I believe it is relevant to this discussion. When storing all of your important documents (in a safe deposit or fire box) do you think it is important to supply (and clearly label) samples of each family members DNA in case it is needed after a disaster?

Answer
That's an interesting question. I just heard a news report that suggest parents should swab the inside of the mouths of their kids and store that Q-tip in the freezer in case they get separated from their small children.

Question
What personal documentation should you include in your must have 'get away' bag. I am assuming a 'get away' bag would be pre-assembled (pre-emergency) and separate from your normal record filing system. Would duplicates or copies of the documents be accepted in most cases?

Answer
Unfortunately, you need to take a lot with you if you have not already sent copies to someone else. Relevant documents include:

• birth, death, marriage certificates;
• divorce decrees with all relevant settlement information wills, trusts and any power of attorney information;
• advanced healthcare directives;
• adoption papers;
• any identification numbers, including drivers' license, passport and employee identification data;
• current bank and brokerage statements;
• recent medical records that may be good to have on hand if incapacitated;
• copies of residential deeds and mortgage data;
• car title, lease, loan information and license plate data;
• all insurance policies (health, long-term care, auto, homeowners, disability and life) and agent contact information;
• knowledge of where safe-deposit, lockbox and filing cabinet keys are;
• recent pay stubs;
• income tax returns for the last three years;
• all relevant contact numbers for executors, financial advisers, trustees, guardians, attorneys and any other pertinent individuals;

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