They Told Me I Need a Co-Signer

Financial Advice by Carmen Rita Wong

Q: I thought I had been making pretty great strides with my finances.  I have been paying my bills on time, paying down my debt and have even been able to save a little money in the bank each month, but I recently tried to rent a new apartment and they requested that I have someone co-sign the lease for me.  I have never encountered something like this before!  What does having a co-signer actually entail and how can I get out of the situation of needing one?

A co-signer on any loan or lease becomes just as responsible as you for any and all payments. Yeesh! And though the best way to get out of needing a co-signer in your situation may be to find another apartment, you may not have to do that.

First, know that though your credit may be in great shape, a landlord uses other factors to decide if you’re a good tenant. Two other criteria are: What’s your income and, how much cash do you have saved up? Your potential landlord may feel that you don’t have enough cash in the bank if you lose your job, for example. (They usually like to see anywhere from three to nine months of rent, plus basic living expenses.) Also, after taxes, how much is your monthly rent compared to your monthly pay? If you’re looking at 50% of your after-tax income going toward rent, your landlord may not see that as leaving wiggle room for your other expenses.

There’s no need to try to assume things– you know where that gets you! Instead, pick up the phone and ask specifically why you need a co-signer. Once you have your answer, there may be other ways to satisfy their needs, for example, by getting a letter from your employer stating that you’re on contract for the year and/or that you’re a long-time, full-time employee, which means you may get severance pay if you are let go.

There are services out there that act as insurance for renters. In effect, they co-sign for you, but they cost a lot– usually a month and a half in rent. But instead of using a pricy service or bringing someone in to co-sign, make sure that you either can’t wait to move and save up more money or, instead, find a less expensive apartment or restrictive landlord. Whatever their reason, it’s good to take a long, hard look at it and see if there isn’t some useful truth in it. Usually, fixing the need for a co-signer is just a matter of time.

 

Carmen Rita Wong is the President and Founder of Malecon Productions. She is the former co-creator and host of the only national, daily personal finance television show, On the Money, on CNBC. Carmen was also the co-founder and former President of an all-female financial planning firm, is currently Assistant Industry Professor of Finance and Risk Engineering at NYU Polytech, a former editor at ‘MONEY’ magazine as well as a previous national advice columnist at ‘Good Housekeeping’, ‘Glamour’, ‘Latina’, ‘Essence’, and ‘Men’s Health’. Carmen also writes for ‘The New York Times’ and is the author of two books, her most recent, The Real Cost of Living. She has also written a novel based on her life and the lives of her first- and second-generation Latina friends, famous and not, to be released in 2015.

How to Balance Your Children’s Expectations and Financial Obligations During the Holidays

Financial Advice By: Carmen Rita Wong

Q: I’m going to be honest, the holidays are a scary time for me, financially.  I am a single mom with three children and I want to be able to give my children the best holiday possible and I definitely don’t want to disappoint them, but I also need to make sure that all of our bills are paid on time, too. I’ve read your post on using credit card rewards, but I have never owned a credit card and they are a little intimidating. Are there other ways that I can get more bang for my buck when it comes to holiday spending?  I know that you’re a mother yourself, so do you have any tips on how to balance the expectations of my children and still meet my financial obligations?

The holidays are a tough time for anyone on a tight budget. But, credit cards are not the way to go if you’re going to use them to spend money you don’t have. Credit card rewards are only worthwhile if you pay your bill in full and on time, before interest kicks in. If you carry a balance, those rewards go ‘poof’ in value!

This year, if you’ve got a small amount to stretch across those all of those kids, give them the best gift of all, the financial security of not going into debt to buy ‘stuff.’ That may seem like a hard concept to relate to your kids, but do not be afraid to let them know that Santa is on a tight budget this year so gifts will be limited– not because they’ve been ‘naughty,’ but because even Santa has a ceiling.

Of course, when shopping, you should max out tools such as price comparison sites and coupons. Some of my traditional favorites are PriceGrabber.com, RetailMeNot.com and FatWallet.com. And an app like RedLaser lets you scan barcodes and comparison shop right in the store.

But–and this is vital–I can tell you from nearly two decades of experience in this field that tools and sales are great, but by far the biggest way to save money over the holidays is to make sure that your limits are just that: limits. Set these amounts first, before you shop. For example, how much do you have for the holidays as a whole and then how much will go toward holiday travel, holiday gifts for non-family members or holiday cards? Then how much will you spend on yourself (we all tend to do this) and how much on each of your children?

Write this all down or do as I do, build a spreadsheet and enter the limits first. Then, as you shop and plan, enter what you’ve bought and how much you’ve spent. Take the list with you when you shop or have it on your cell phone so it’s always in hand and treat it like a contract with yourself– no violating it!

And next year, start saving for the holidays early. I usually start holiday planning when it comes to my budget as soon as school starts in September. You can even start putting aside money into a separate savings account with the start of the New Year.

We all want to make our children happy and give them a wonderful holiday season, but remember to keep yourself in good financial shape. This is one gift more valuable than anything Santa leaves under the tree.

Carmen Rita Wong is the President and Founder of Malecon Productions. She is the former co-creator and host of the only national, daily personal finance television show, On the Money, on CNBC. Carmen was also the co-founder and former President of an all-female financial planning firm and is currently Assistant Industry Professor of Finance and Risk Engineering at NYU Polytech.

Should You Take Out a Second Mortgage on Your Home?

Financial Advice By: Carmen Rita Wong

Q: Sometimes I feel like I’m one of the lucky ones: I found my dream job about a year ago and am so happy with the work that I’m doing!  Unfortunately, I had to take a pay cut for this position and my money seems to be coming up short every month, no matter how I try to readjust my budget.  I’ve heard other people talking about “refinancing their home” or getting a “second mortgage.”  I’m not sure that I fully understand what either of those mean, but I do own my own home, so do you think either of those would be useful options for me to consider?

I’m thrilled that you’ve found your dream job– so few of us do that it’s nearly worth its weight in gold! But of course, dreams don’t pay the bills. It’s also good news that you are a homeowner, but let’s not go there yet.

Allow me to expand your mind first: Your income doesn’t necessarily have to based only on your full-time salary. Dream jobs plus a family (if you have one) tend to take up most of your life, but if there’s any way that you can carve out the time to find ways to bring in other income, I’d rather you head there than pulling money out of your house, which can be a slippery slope, draining your biggest asset. I don’t know what you do for a living, but there are some great, legitimate ways (stay away from those cheesy work-from-home-get-rich ads) to earn on the side, such as TaskRabbit.com or Elance.com.

And if working more is out of the question, then instead of borrowing from your home’s value–which can be costly not only in interest and fees, but in terms of lowering your own net worth–consider which relationship you want long-term: Do you want a long-term relationship with your career or with your home? When budgets can no longer be slashed, I always advise what feels like some tough love. We can’t have it all. That can mean sometimes considering selling your home instead, using some of your proceeds as a down payment on another, less expensive home, then setting aside some earnings into an emergency fund.

In that way, you maybe can’t have it all, but you can have two very important things: both a dream career and, peace of mind.

 

Carmen Rita Wong is the President and Founder of Malecon Productions. She is the former co-creator and host of the only national, daily personal finance television show, On the Money, on CNBC. Carmen was also the co-founder and former President of an all-female financial planning firm and is currently Assistant Industry Professor of Finance and Risk Engineering at NYU Polytech.

Getting the Most Out of Your Money When You Travel

Financial Advice By: Carmen Wong Ulrich

Q: I have finally saved up enough money to travel out of the country for the first time in my life (yay!), but now I’m wondering what the best thing to do with my money is once I get there.  I’ve read terrible stories about people withdrawing cash from the local ATM’s, only to be given a ridiculously low conversion rate, or using their credit cards and being charged an insane fee.  I don’t have a lot of money to spend while I’m there and will definitely be sticking to a budget, so I just need to make sure that I am getting the most out of my money.  Should I just pull a bunch of cash out before I go and plan on using that while I’m away?

Saving money on conversion rates is only one aspect of spending money during your travels out of the country.  Safety is a big issue as well as foreign transaction fees.  For example, though you should take some cash for taxis and smaller transactions, the extra bucks you may spend using a credit card for everything else acts as a kind of insurance.  It’s insurance that someone can’t pickpocket or purse-snatch their way into your whole budget!

Here are other tips to save when you travel outside the U.S.:

  • When converting cash:  Avoid airport exchanges and hotels.  You’re trapped ‘prey’ so they tend to have some of the highest conversion fees around.  Instead, convert cash at home, before you travel, at your local bank or credit union.
  • Watch out with your plastic:  If you need to take out more cash while you’re away, stick to a no-fee debit card.  But, do NOT use your debit card to make purchases while you’re away.  Debit cards can have higher international transaction fees than your credit cards and most importantly, they don’t offer fraud and purchase protection by law like a credit card.  And it goes without saying that a prepaid card can also hit you with monster fees, so leave those at home.
  • Let your travel companion be your lowest—or no-fee—credit card.  Look into your credit card terms and take along with you the card with no foreign transaction fees.  Some cards can add 2% or 3% to every swipe, which can really add up.  And make copies of the back and front of your cards and ID’s to leave in your hotel safe or another location, just in case you lose anything.

Happy trails!

 

Carmen Wong Ulrich is a personal finance expert and author of The Real Cost of Living.”

The Most Important Lessons to Teach Your Child About Money!

Financial Advice By: Carmen Wong Ulrich

Q: My daughter is still quite young, but I want to make sure that when she’s older and ready to go off on her own that I will be able to send her off with a positive start to her financial future, so that she can be as independent as possible and can avoid some of the mistakes that I made.  What do you think are the most important lessons that I could teach my child about managing her money as she’s growing up?

My seven-year old daughter says loudly every time we shop for her, “Mom, what’s my budget?”  Onlookers twitter, but as you can imagine, it’s a proud moment.  No matter how old your child is, it’s never too late to begin.  Here are some solid to-do’s to teach your kids about money that will last a lifetime:

  • Limits:  As early as five years old, you can start a child with a budget.  For example, let’s say your daughter wants a toy and you say, “Your budget is $5.00.”  She then knows that she has to either find something close to that amount or two or more things that add up to that amount.  Knowing that money has limits—that you can’t just put a card into a machine and unlimited cash spits out—means that your daughter will be much more likely to respect limits when she grows up, such as avoiding the trap of overdrafts on her accounts or using too much credit. But the key here is you have to hold firm.
  • Earning and handling money:  This one is simple.  As soon as your child is old enough to make his or her bed, get dressed on her own, and do other small household chores, start them with an allowance.  Adjust to what fits your budget and child’s age.  Allowance isn’t just a way to make money to buy candy.  It’s a big and tangible way to teach that when you put in effort, you get a result—this result is your responsibility.  Start three piggy banks or boxes where you can put some of the money in one box, then a charity or church box to teach that you should give to those in need and, then, save money for something bigger down the road.  Which brings us to…
  • Delayed gratification, a.k.a. planning:  This one is a doozy and one that even many grown-ups fail at.  Part of your child’s allowance should go toward a goal.  Maybe it’s the ability to go to the arcade with friends or rent a movie on-demand.  Designate some spending as their responsibility.  For example, my daughter knows that any movie, show or app she wants comes out of her “bank.”  Recently, she spent all of her allowance on a movie rental then realized she had no money to play games at the arcade later that week.  She was very upset, but I held my ground and explained to her the need to plan for your money and use good judgment.  It wasn’t easy, but lesson learned.
  • No fear:  One last important lesson is to make sure that your kids are not afraid or ignorant of what it’s like to go to a bank or other financial institution and make a transaction.  Take your kids to the bank with you when you can, even if it’s just to sit in the lobby while you go over a few questions.  It’s important to see the role of banking in your lives.  And if you’re mostly an online-banker like I am, then show your daughter your cell phone bills, explaining charges, so she understands what bills are and just how much it costs to have cell service or other comforts such as cable.  Our kids should not fear bills or banks.  No fear means they can approach their money positively and with the confidence to manage what life has in store.

Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”

What Does “Diversifying” Your Money Mean?

Financial Advice By: Carmen Wong Ulrich

Q: When someone talks about “diversifying” their money, what exactly do they mean? I have always been told that I should be putting money into a savings account each month, but it seems like some people save their money in lots of different ways. What are some of the best ways to save money so that I have a secure financial future even after I get on in my years and retire?

We all know that diversity is good.  But in money-land, when someone talks about “diversification,” they’re usually talking about investing.  And investing, whether it’s in your home or the stock market, involves saving money that you won’t need for ten, fifteen or twenty or more years.  This is your long-term savings, such as funds for your retirement.

“Saving money” is a bucket term that actually applies to several different moves for your money.  Ask yourself: “What am I saving for?”  Your answer will determine how you save, where you save and how much you save.

For example, are you saving cash money for an emergency fund–the funds that will be there to pay bills if you lose income?  Are you saving maybe for a vacation once a year?   Or a “pop-up” fund to pay for unpredictable (“pop-up”) expenses like family graduations, births, car repairs, or other sometimes pricey events in your life?  If so, all this money belongs in a savings account or even two.  It’s money that should be held in cash.  Why?  Because these funds function like insurance—it’s there to protect your ability to write checks and not go into debt.  You can’t afford to lose that ability, so keep this money “liquid,” with easy access.

Next, are you saving for retirement or a goal that’s more than a decade away?  Investing this money, wisely, means exposing these savings to some risk (you can lose money, you can gain money) over a long period of time so that you can grow what you’re saving.  The key here is to make sure this is money you don’t need for a long time and that you know what tools are there for you to invest your money.  This takes some important studying, such as learning to understand your 401k, what index funds are and what you are paying in fees, etc.

To really wrap your mind around what you need to know, particularly for long-term savings and investing, speak to your 401k or retirement plan administrator, review the materials given to you and delve into resources online such as www.kiplingers.com for tips and education.  This kind of education is one of the biggest investments you can make for your future.  It’s saving!

Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”

Choosing the Right Health Insurance

Financial Advice By: Carmen Wong Ulrich

Q: Whenever I have a job that offers health insurance, I definitely make sure to take it, but I have to admit that I don’t always understand what is actually being offered, I just know that health insurance is something that everyone needs to have.  Now that “Obamacare” recently launched, I’m just even more confused!  Is there a way that I can tell if I am getting the best coverage for the money that I’m paying with all of these different options now available?

No matter what age you are or even how healthy you are, life happens: accidents happen, illness happens.  Health insurance protects you from paying much—much—more out of pocket for health and medical needs than if you didn’t have insurance coverage.

Some employers offer health coverage as part of your benefits package, which can also include other benefits, such as 401k plans or disability insurance.  And coverage through your employer will most likely cost less than coverage you can buy on your own because employers are able to get lower rates as they pool together large groups of people.  The government now offers coverage (with uninsured Americans as their ‘pool’ of people) through Healthcare.gov though it still is most likely more expensive and restrictive than what you can get through an employer.

So, if your employer offers coverage, it’s a valuable benefit to sign up for and it’s usually through one overall provider who then offers various tiers of service.  Usually the tiers are split between:  1) the size of the deductible, 2) the ability to choose doctors/hospitals, 3) how much of the bill they’ll pay for you.

Essentially, the lower the deductible (say $2,000 vs. $5,000), plus the more choice you’d like to have with your network of doctors and providers and the more you’d like the insurer to pick up the bill (say 100% or 90% vs. 60%), the more you’ll pay monthly for coverage.  These choices make sense for someone who goes to the doctor often—for example, a pregnant mother with full family coverage—rather than a young, healthy, single adult who can afford to risk a much higher deductible and fewer choices for providers.

So when you’re shopping around with your employer’s coverage, think about what’s most important for you and do not be shy or lazy about scheduling time to talk to the plan administrators to answer your questions—they are there to help you.  And if you have to shop on your own at Healthcare.gov, anticipate spending some time with the sign-up process, but know that a couple of hours online or some minutes on the phone with someone to help you through the sign-up process can mean the difference between paying $250 a month, just in case, or tens of thousands of dollars should you not have coverage at all and you need medical care.

Consider health coverage as a protection of your finances now, as well as your plans for the future.  After all, health is wealth!

 

Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”

How to Lower Your Utility Bills in Extreme Weather

Financial Advice By: Carmen Wong Ulrich

Q: All of these winter storms have really made my utility bills skyrocket, as I’ve had to really turn-up the heat to try to keep my house warm from the elements outside.  While I know it’s been cold out, my bills have been almost double what I would usually pay each month during the winter and that is something that I definitely did not budget for.  Is there some trick of the trade I can use in the future to lower these bills?

CWU:  This winter has sent much of the country into its own ‘vortex’ of Yeti-sized heating bills.  The good news is that there are a couple of great ways to bring down your utility bills not only this time of year, but also in the summer when you’ll want to cool things down inside.  First, let’s start with the concrete, material things you can do, even on your own, to save money.  Do you have the right sealants on your windows and doors?  Check out this great guide on the very useful site LifeHacker about weather-stripping and insulation.

And what about that thermostat?  By using a programmable thermostat, your heating and cooling systems can do their jobs only when it’s most important—when you’re at home and when you’re sleeping.  The government’s website Energy.gov has a great guide to how they work and what you should look for when buying one.  They estimate if you go for 10 to 15 degree lower settings when you’re at work and sleeping, you can save up to 20% on your heating bills. This purchase definitely falls under the umbrella of spending-money-to-save-money (down the road, for years!).

And look for other ways to make room for larger monthly heating and cooling bills, such as lowering your electricity bill by unplugging power strips and cords not in use—just because the TV isn’t on doesn’t mean it’s not ‘eating’ juice!  Space heaters and electric blankets can make this bill jump too, but also keep in mind that they can be dangerous.  Be safe when you’re trying to stay warm.

Of course, there’s always my father’s motto:  “Put on a sweater!”  Thanks, Dad, I’m on my third!

 

Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”

How to Start Saving Today!

 

Financial Advice By: Carmen Wong Ulrich

Q: I just got hired at my new job about two months ago and I want to make sure I’m not only spending my money wisely but saving it wisely as well. I haven’t had a steady income for awhile though, so I’m not exactly sure how to create a budget that’s right for me. I want to make sure that I have enough money saved up in case I become unemployed again. Is there a standard percentage of my income that I should be tucking away? If so, how much? When should I start and where should I put my money?

Congratulations on the new job!  It’s great to have some steady income, but you’re right to start saving up money right away just in case you find yourself between jobs again.  Some folks talk about a ‘standard’ goal of saving 10% of your income, but that’s simply a goal.  The amount you should save depends on your living situation and if you have any other demands on your money such as high interest debt– which should get paid off ASAP!

What you can aim for first with an emergency fund is a total goal of saving up three to six months’ worth of living expenses.  If you’re a homeowner and support children, you can keep on truckin’ to even nine months or a year’s worth of savings.  Once you have that total number in hand, crunch your monthly expenses vs. your monthly income to see just how much you can put away to reach your savings goal as quickly as possible.  Let’s say you make $2,000 a month after taxes and your monthly expenses are $1,800 a month.  For three months worth of living expenses, your goal would be to have $5,400 in emergency savings.  If you can take $200 each month and put it toward that goal, you’ll be all set in a little over two years.

Don’t get discouraged by the long time it may take you to save what you need!  Dedication is key.  To help, set up an automated savings deposit so that $200 is taken out right away from your paycheck deposit each month so you’re not tempted to spend it.  And don’t worry about wanting to earn any money on these savings by investing it, for example.  You need to protect this money so it can protect you.   That means looking for an interest-bearing savings account or money market account where you can at least earn a little interest (say 1%) but not risk money at all.  Shop around for free for these accounts at www.Bankrate.com or if you can use a credit union at www.NCUA.org.  Happy savings!

Carmen Wong Ulrich is the co-Founder and former President of ALTA Wealth Management and a Professor in NYU PolyTech‘s school of Finance and Risk Engineering. She is an author and the former host and co-creator of CNBC‘s “On the Money,” and currently the money advice columnist for Good Housekeeping, a contributor to MSNBC and CNN as well as a frequent expert guest on ABC’s “The View.