Transcript of a segment from ABC Good Money featuring personal finance expert Ramit Sethi answering caller and email questions (Sept 19, 2010 upload metadata in header). Main topics covered: how to allocate saved cash using a "personal finance ladder" (401k match → debt paydown → Roth IRA → max 401k → taxable account), dealing with salary cuts and focusing on controllable actions (earn more, cut costs), negotiating fees/charges (scripts for waivers/promotions), and handling credit problems and hardship waivers when facing foreclosure and job loss.
Chapters
Here with Ramit Sethi, personal finance expert as well as author of I will teach you to be rich. But now Ramit is going to answer questions you've submitted. And our first question comes from Tom. He's on the phone, he's going to ask his question. Tom, if you're there, fire away.
Hi Ramee. I've been really good about keeping my expenses down. Like I don't have a car, I'm renting places with roommates, I'm finding deals whenever I can get them. And through all this I've been been able to save quite a bit of money which I currently have in a high yield savings account. And right now I feel like I should be doing more with the money, but I'm just not quite sure what the best thing would be. Do you have any thoughts or advice?
I mean, I have to say we don't usually get calls like this of people that have saved a lot of money and want to know what to do with it.
I know it's a tough life having to advise someone so responsible.
That's right.
This is a great question, Tom. The, the first thing I would advise you to do is think about do you need this money in the next five years or, or do you not need it anytime soon? If you need it in the next five years, keep it in a high yield savings account like you're doing. But my guess is if you're talking about a lot of money, you can probably take some of that money and siphon it away for long term investing, which will give you higher returns. Now here's the way to think about it. This is what I call the ladder of personal finance. Okay, You've got a chunk of cash sitting around. What do you do with it? Where does it go? The first thing you want to do if you have a 401k match at work, go ahead and max that out just to get the match. Okay? Then you want to pay off any debt you have. It doesn't sound like you have any, but just in case you do pay off any debt. The third thing is if you have access to a Roth IRA with your income, go ahead and max that out up to $5,000. So all of a sudden you've put thousands of dollars away into investment accounts. There's still more you can do though. The fourth thing is go back to your 401k if you still have money and put money in that 401k all the way up to the max. You can. Alright. And then fifth, if you still have money left Over. Congratulations. That's an amazing position to be in. And what you can do with that is just open up a regular taxable account.
All right?
That's how you want to approach it.
Sounds like great advice. Now the next question we have is from an anonymous emailer. And this anonymous person writes in I just had my salary reduced by 5%. I really have to wonder if all the corporations cutting their employees pay and reducing 401k company matches will ever raise salary matches to the original amounts. The climate seems right for a lot of businesses to advantage of their workers. What do you think, Ramit? Are we ever going to see salaries actually go up?
I mean, it's a tough question, but let me. I hate to be so blunt, but who really cares? I mean, we can debate this on and on, but for me, that's not an actionable question. Are companies trying to screw us? Maybe, maybe not. Are we, Is our salary going to go up? I don't know. What can I do about that? I'll tell you. My question is how do I find a stable job and how do I make side money so that I can mitigate risk? I use the CEO strategy in my book, cut costs, earn more, and optimize your spending. But I just want to focus on things that we can control, not things outside our control.
Right. We have to deal with our reality, what's going on in our lives. We'd like things to be better. Hey, we'd all like to be making more money, but we've got to deal with what we're getting, right?
Exactly.
All right, Ramit, so this next question is from Steven. He writes in that he signed up@myfico.com to get his credit information. A month later, I got a note from them telling me they billed me $89 for the year. I'd rather not use their service for the next year. Any suggestions on how to handle this?
This is my favorite. This is where you negotiate like an Indian. You call them up and you say, hi, I noticed this charge on my bill. I'd like to get this removed. It's so simple and they will do it. And by the way, you can use these techniques. You can use these scripts to get your late fees waived, to even get your credit card APR reduced. And here's something you should try today. Call up any cable or any cable company you use and say, hey, Mr. Comcast. Maybe I shouldn't say Comcast.
This is the script, by the way, right?
This is the script.
Get out your pens. Write this down.
Hi, I noticed I'm paying $80 a month for cable. This is the phrase, times are tough. Times are tough. I just can't do this anymore. Is there some way you can help me out? Because I'd hate to have to cancel. And what will they say? Not all the time, but often they'll say, well, sir, it's amazing you called because we just happen to have this promotional offer and we'll cut $30 a month off. You just say $400 right there. So.
So Stephen should start out that way. But you can also keep asking down the chain of command.
Right.
You can say, can I please speak to your manager, your supervisor? Right. If you don't get the answer you want, always.
And if they still don't do it, say thank you very much and call back a few weeks later.
In Steven's case, though, did he just automatically get signed up for something he wasn't planning on doing?
As I talked about in the earlier segment, companies optimize to take money from us right now. You often sign up for something and they may have a teeny print thing that says, we're going to fill it. We're going to automatically enroll you. So you want to be careful of that. And always check your bill every month.
All right? All right. Our next question is from Eric, and he writes in that I've just renegotiated to get out of foreclosure by continuing my mortgage payments. Today my company announced it will be closing next year. My credit is terrible with late and collection accounts. Since I may have to move, it seems it would be in my best interest to try and clear up my credit report in order to buy a house within the next year. What things are the most important to resolve? Sounds like he's got a lot of work to do.
This question really drives me crazy for a number of reasons. First of all, I'm sorry to hear Eric's story. It's very unfortunate that he lost his job and has really bad credit. What I would suggest, though, is to really reconsider if he wants to buy a house. He's got terrible credit right now. He lost his job. Buying a house is probably the last thing he wants to do as an investment class. It's not as good as people often think. And right now, they're sooner things he needs to focus on. So what I would do is this. Number one, get your credit report and get your credit score. Do that today. The next thing is call your lender. There are a lot of hardship waivers you can get right now. Tell them you lost your job and they can work with you. And the final thing is really reconsider if you want to be buying a house. The logical thing right now would be to conserve your credit, pay your bills regularly, and build that credit over time while you're renting so you can build up a little bit of a nest egg.
So perhaps Eric should be start reading the rental properties in the area.
That's exactly right.
All right, Ramit, thank you so much. Great advice. Always fun having you on the show. And if you have a question for Ramit or any of our other personal finance experts, log onto our website@abc news.com business ask us your question. We will do our best to answer it right here on Good Money, ABC News now.
