Ask Liz Weston

Get smart with your money

The Basics

Was letter writer blaming her parents?

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Dear Liz: In your answer about filial responsibility, your statement that the letter writer’s financial situation is the result of her own choices and that she needs to stop blaming her parents is completely misjudged and inappropriate. Clearly, the writer is not blaming the parents and seems amazingly strong and clear thinking for one with her early background.

Answer: Here’s what the writer wrote about her situation:

“I am an only child in my late 30s and received no financial help from [my mother] from the age of 18. In addition, my father died when I was very young, leaving us fairly destitute with no life insurance. I feel that both of these legacies have contributed to my less-than-optimal financial situation.”

The writer goes on to say that she’s trying to catch up financially but she feels it would be futile because she may have to support her mother in the future.

The writer started her adult life at a financial disadvantage compared with people whose parents helped them pay for college. She may now regret the choices she made — perhaps she took on too much student loan debt or spent more than she earned to make up for early deprivation. Those were her choices, however, and at some point she needs to take responsibility for them. Twenty years later, it’s time to let go of the idea that her financial situation is her parents’ fault.

How to make charitable giving part of your financial plan

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Dear Liz: What are your thoughts on charitable giving? I hear about tithing (giving 10% of income) but would have real problems trying to maintain that commitment. That said, I’d like to become a regular donor to a reputable charity.

Answer: Most U.S. households give to charity, according to the Center on Philanthropy at Indiana University, but the average contribution rate for those who give is closer to 3% than 10%.

If you want to step up your charitable giving, take the time to plan and prioritize as you would any other part of your financial life.

Making larger donations to a few charities is typically better than scattershot donations to a bunch of causes, said Ken Berger, the president and chief executive of nonprofit watchdog Charity Navigator. Charities spend money to process donations, and those costs tend to eat up more of small donations, he said. A $100 donation to a single charity might incur $2 in processing costs, leaving $98 for good works, Berger noted. The same $100, spread among 10 charities, would require each to spend $2 for processing — leaving just $80.

Because smaller donations don’t benefit charities as much, some are tempted to increase their “yield” by selling your information to other charities or repeatedly hitting you up for additional contributions, Berger said. Giving more allows you more leverage to ask that your information not be sold and that the charity limit its appeals.

You can research charities at websites such as Charity Navigator and GuideStar to make sure you understand their finances and how effective they are in reaching their goals.

Finally, consider setting up automatic donations rather than rushing to make contributions at year’s end. Some companies have payroll deductions for charities, or you can set up a recurring charge on a credit or debit card. Making your contributions automatic helps ensure you can achieve your charitable giving goals. It’s like saving or “paying yourself first” — when you don’t have to constantly remind yourself to do it, it’s more likely to get done.

Monday’s need-to-know money news

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Flying Piggy BankHow to get the most out of your summer vacation, protecting yourself from medical identity theft, correcting financial myths and how to start saving for retirement.

3 Ways to Maximize Your Frequent Flier Miles This Summer

While holiday blackouts can make redeeming frequent flier miles difficult during the summer, there are still good deals to be had if you know where to look.

How to Protect Yourself from Fraud at the Hospital

Identity thieves are targeting victims at their most vulnerable. Find out what you can do to protect yourself.

Want More Time Off? Some Employers Let You Buy It

A novel approach to managing vacation time could allow you to purchase a day off or sell time you’re not going to use.

Financial Advisers Correct Common Personal Finance Myths

Meet the five common personal finance myths and how to avoid them.

How To Start Saving For Retirement

The good news is that it’s not too late. The bad news is that it will be if you wait any longer.

Friday’s need-to-know money news

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House With Tree DamageThe inconvenient costs of convenience checks, the effects of the sequester on the unemployed, how to save money by purchasing an energy efficient home, how to save your financial sanity when your kids move back home and why hurricane season means it’s time to check your auto insurance coverage.

The True Costs of Credit Card Convenience Checks

The checks sent by your credit card company under the guise of convenience could lead to some very inconvenient fees.

Why the Unemployed Are Seeing Smaller Checks

The effects of sequestration mean 11% to 22% cuts for unemployment checks.

Bill Would Sweeten Loans for Energy-Efficient Homes

Purchasing an energy-efficient home could land you a larger mortgage and a lower interest rate under a Senate bill introduced with broad real estate industry support.

How to Set Money Ground Rules For A Boomerang Kid

With over 13% of parents having a grown child living at home, it’s important to set financial ground rules in order to keep the peace.

Hurricane season: Make sure your car is covered

Hurricanes damage hundreds of thousands of cars, but insurer rules prevent last-minute buying of coverage. Now is the time to review your policy.

 

How much cash should you keep on hand?

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Dear Liz: A few years ago I finished paying off my debt and now am in the very low-risk credit category. I have savings equal to about three months’ worth of bills and am working to get that to six months’ worth. I’m wondering, though, about an emergency that may require me to pay in cash (such as a major power outage that disables debit or credit card systems, or the more likely event that I forget the ATM or credit card at home). How much cash should a person have on hand? Is there a magic number?

Answer: There’s no magic number. You’ll have to weigh the likelihood you’ll need the green, and the consequences of not having it when you need it, against the risk of loss or theft.

Many people find it’s a good idea to tuck a spare $20 into their wallet for emergencies, and perhaps another $20 in their cars if they’re in the habit of forgetting their wallets or their plastic.

Cash for a disaster is another matter. Power could go out for a week or more, or you may need to evacuate and pay for transportation and shelter at a time when card processing systems are disabled. A few hundred bucks in cash probably would be the minimum prudent reserve you’d want to keep in a secure place in your home. You may decide that you need more.

High, safe returns don’t exist

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Dear Liz: I’m getting about $500,000 from the sale of my business this year and next year will be getting an additional $1 million. What’s the best way to invest the money so I can make $150,000 to $200,000 a year? I am 55 years old and will have no other income than what I can earn with this money.

Answer: You probably know that “guaranteed” or “safe” returns are very low right now. If you’re getting much more than 1% annually, you’re having to take some risk of loss. The higher the potential returns, the greater the risk.

So even if you could find an investment that promised to return 10% to 13% a year, there are no guarantees such returns would last, plus you would be at risk of losing some or all of your investment. A down draft in the market or an extended vacancy in your real estate holdings could cause you to dig into your principal.

That’s why financial planners typically advise their clients not to expect to take more than 4% a year or so out of their portfolios if they expect those portfolios to last. If you try to take much more out or invest aggressively to earn more, you run a substantial risk of running out of money before you run out of breath.