The Denver Post hosts the $mart Panel – a group of financial experts who answer the most common financial questions of the Post’s readers.
Here’s a summary from a recent panel where the panel’s money pros took on 13 basic money questions from people like you and me…
- Should I buy or rent?Not as black and white as it used to be but the experts generally favor home ownership over renting.
- How much should I spend on housing?Consider all of your housing related expenses – utilities, insurance, etc. –not just your mortgage payment and try to maintain a figure around 30%.
- Emergency fund – how long should it last?Consensus was 6-12 months of living expenses although, if you’re a retiree, some suggested as much as 2 years.
- How many credit cards?2-3 is the consensus with one being held just in case you lose a card or have one stolen. Strongly advise that you don’t carry a balance but pay your card off every month.
- Which debt should be paid first?Pay off the most expensive debt first – say a credit card at 21% vs. a car loan a 5%. On the other hand, if you’re in hot water, prioritize based on what the cost will be for not paying. A lower credit score may be worth it if it saves your house from foreclosure.
- Retirement Savings or Credit Card debt?Definitely try to put something away for retirement even as you’re servicing your credit card and other debt.
- What to do with extra dough?Depends on how much. Serious money? Seek professional advice. A couple hundred or thousand on a tax refund you might want to divide it up so that 1/3 goes to savings or home upgrades, 1/3 goes to debt and a 1/3 goes to fun.
- How do I diversify?Professional advice is advised but, in general, don’t keep all your eggs in one basket. Many of the available funds provide diversification for you so look at life-style funds or target-date funds for example.
- How anal should I get with my budgeting?It’s impossible to budget every dollar. Maybe in the short term when you’re just getting started with a budget but it’s most important to pay attention to the big stuff and don’t sweat the occasional Starbucks (…unless you find that you’re spending $7/day on lattes which can add up to a couple grand a year without you’re realizing it.).
- Do I need a will even if I don’t have much?The advisers agreed that not only do you need a will but you need an estate plan as well. You should be concerned not only about death – inevitable – but what happens if you’re incapacitated?
- What about life insurance?In general, yeah, you need life insurance. How much depends on whether you have a family or not, what your financial role is in the family – breadwinner, stay-at-home dad, etc… In general, for a person with a young family you’ll need about 10 times earnings in life insurance.
- Should I do my own taxes?Well H&R Block is running a pretty effective ad campaign right now claiming that Americans leave a billion dollars on the table each year in unclaimed refund revenue so you might want to consider a professional. The consensus is that if you have any complexity at all in your financial situation, consult a qualified tax professional.
- What about financial advice? Should I pay an advisor?Again, it depends to an extent on the size of your portfolio, your income level and other factors. If you’re the average American with $14,000 in retirement savings you may only need to have a financial check up every now and then but others might need a team.