Ramit Sethi answers viewer questions on automating finances with staggered paychecks, trading in cars, Social Security at 54, asset allocation as you age, and negotiating with credit card companies. Build a 2-3 month buffer before automating. Skip frequent car trades. Focus on what you control.
Questions this video answers
Four different times every month.
One to three months (he suggests "a month or two" and also says "give it two or three months").
A little over a year.
54 years old.
A $4,500 balance on a $9,000 credit line.
Chapters
For those just joining us, I'm here with Ramit Sethi, personal finance contributor as well as author of I will teach you to be rich. Sounds good. In our last block, we got some great tips on how to get rich by automating our accounts. Now Ramit is going to answer questions submitted by our viewers. Are you ready?
I'm ready.
Alright, here we go. Our first question comes from Erin of Lansing, Michigan. She writes, how can we automate our money as you suggest, pay all bills once a month, et cetera, in a two income household where each spouse gets paid twice a month, therefore money is coming in at four different times every month. What's an easy way to get started with automating finances under this circumstance? And I'm sure this applies to a lot of couples out there.
Yes, this is a great question. Okay, so you know, I outlined some general strategies for paying when you have different types of income coming in. But this is particularly challenging because you've got four different ones. Here's how you want to think about it. What you can do is actually start saving for a month or two. Pool your money. Okay? Imagine you're putting water or money into a pool and then those streams are different places you're paying, like your gym, your cable, your credit card. You want to fill that pool up a little bit before you start automating. So give it two or three months, fill it up and then you'll be able to use that as your automation base.
Okay, good tips. All right, let's move on to Matthew of Overland Park, Kansas. He writes, I have a car that I've been making payments on for a little over a year and I want to get something else. Is it a good idea to trade it in when making another purchase? I'm curious what your take is on this.
Okay, look, I'm generally pretty calm, but I'm about to go crazy listening to this question because, alright, generally I think you should spend on what you love. But this guy is making a critical, critical mistake. You buy a car, you're incurring huge transaction costs. You drive it off the lot, you're dropping 30% right there. And now this guy wants to flip it one year later, that's going to cost him thousands and thousands of dollars. This is one of the easiest ways to stay poor. So I would suggest buy the car, drive it for as long as you can while it's still safe and just wait. You cannot make this bad of a decision right now. This would be a big one in my mind.
Okay, but Ramit, let's say he holds onto the car and he goes in, he wants something new. Do you suggest always trading your car?
You can trade it in or you can do a private sale. Either way, I'd recommend you go to the dealer and you say, how much will I get for this? And then you list it on Craigslist and see what you would get there. And then you decide which one makes sense for you.
Okay. Now, Robert of Farmingdale, New Jersey sent in this question asking I am 54 years old, have no savings account, no retirement fund, I do not own a home and my company just had its third layoff in less than a year. They've also cut our work hours by 20%. My question is, will Social Security be there when it's time for me to retire? I'm sure that's on a lot of people's minds.
This is a very tough one and I know how tough it can be out there. A couple things I would think about first of all, in general, Social Security will very, very likely be there for you. Politicians are talking about raising the retirement age and some other minor things, but Social Security will certainly be there for you, especially at your age. The second thing though is to focus on what you can control. Every day in the news we hear a lot of macroeconomic things that are pretty scary, but what can we focus on? We can focus on cutting our costs and earning more and that may be working, you know, looking at your job and seeing how you can get a promotion or maybe starting to look outside and how can I have a plan B in case I am part of the next layoff. So focus on what you can control.
Okay, let's get to our next question from Marilyn of Collegeville, Pennsylvania. She writes, My husband and I are both working 16601 year olds whose 401k plans and subsequent retirement funds have obviously taken a serious hit over the last several years. My husband told me yesterday he has moved all his 401k to bonds and has restructured mine to 75 bonds, 25 stock. Do you agree with this conservative approach?
Okay, this is a good Glad to hear that you're paying attention to your investments. In general, yes, you should be more conservative as you get older and at your age. It's great to start thinking about how to dial down and be more conservative. However, you don't just randomly Want to pick 75 25, your asset allocation or in other words, your pie chart of where your investments go. There are some well understood numbers for where you should invest and how you should invest at your age. So this is what you want to do. Go onto Google and search for asset allocation by age, and it will recommend to you at your age, how should you have split your investments?
Oh, that's interesting. So it'll break it down for you.
That's right, it will.
Okay. And finally, Kim of San Diego, California, writes, I have a credit balance with American Express of $4,500. I had a $9,000 credit line with them. They decided to freeze my credit due to the short sale of my home. I'll be getting a $10,000 refund on my tax refund this month. Can I negotiate with them and give them less money if I paid them in full? What do you think?
Kim, I love your style. You always want to try to bargain with credit card companies and basically anyone you can like. I always say you want to negotiate like an Indian. Now, it's good that money. Call them up. The worst they can do is say, no, pay us. And the best they can do is they could cut that down by 15, 20, 30%. So it's definitely worth one phone call.
And how about applying negotiating skills to other areas of your life? When it comes to finances, there are so many.
Your cable, your credit card, your gym, your bank, and overdraft fees. You can negotiate like an Indian anywhere you're paying a subscription or late fee.
Yeah. And I bet it really pays to do that in this economy especially.
It absolutely does.
All right, Ramit, thanks so much for answering our viewer questions today.
Thank you.
If you have a question for for Ramit or any of our personal finance experts, go to our website@abcnews.com and click on the Money page to ask your question. We'll do our very best to answer them right here on Good Money.
