Leave It to the Pros: Q&A with Financial Columnist Liz Weston

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Q&A with Financial Experts

Q&A with Financial Experts

Welcome back to our new series, “Leave it to the Pros.” Today, we’re talking with Liz Weston, personal finance columnist for MSN Money and AARP the Magazine, and author of the new book The 10 Commandments of Money.

Q: Hi, Liz. Thanks for being here today. Tell us, what exactly do you do as a personal finance columnist and book author?

A: My columns run twice a week on MSN Money and I write  “My Two Cents” for AARP the Magazine, the largest-circulation magazine in the world with 22 million subscribers. My question-and-answer column, “Money Talk,” appears in newspapers throughout the country, including the Los Angeles Times, the Palm Beach Post, the Portland Oregonian, Stars & Stripes and others.

I’m the author of four books, including Your Credit Score, the best-selling book on the topic that just came out in its fourth edition, and The 10 Commandments of Money, which is about to be released in paperback.

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I’m a regular commentator on American Public Media’s “Marketplace Money” and have contributed to NPR’s “Talk of the Nation” and “All Things Considered.” I’ve appeared on “Dr. Phil,” “Today Show” and NBC Nightly News, and was for several years a weekly commentator on CNBC’s “Power Lunch.”

Q: WOW! You’re certainly busy! You wrote a book called The 10 Commandments of Money this year. What inspired you to write this book?

A: The money rules that many people followed really blew up on them during the financial crisis. We really can’t go back to a lot of the money rules that guided previous generations, since the world has changed too much.

One example: For decades, people were told they should “stretch” to buy a house. It was okay to take on a big house payment, since your income would inevitably rise to make those payments more affordable. Well, that was back in the day when incomes actually rose over time (median incomes haven’t grown since 1999) and lenders had reasonable lending standards.

During most of the last decade, people could easily buy far more house than they could afford. Even today, you can buy a house with as little as 3.5 percent down, which means you’re underwater from day one, since selling the house and moving will cost you about 10 percent of the home’s price. The old rules don’t always make sense anymore, so today we need new rules that are both prudent and reflective of today’s financial realities.

Q: I couldn’t agree more. It sounds like a fascinating book! What did you learn from writing it?

A: What surprised me is what’s gotten the most attention. It’s the chapter on marriage, where I say you should treat marriage like a business.

Conflicts about money are as old as Ricky and Lucy, but the multiple blows of recent years – unemployment, plunging home prices, the rocky stock market – have put even more pressure on couples who are trying to make their way through a perilous financial world. In my book, I offer some guidelines about how to talk about money and plan your course together to make sure you reach your goals with minimal conflict.

Q: With the current divorce rate, I’m not at all surprised to hear that’s been the most popular chapter. What are some of the critical mistakes that Americans make when it comes to handling their finances?

A: They figure out too late how important saving for retirement is. You need to start saving with your first job and never cash out. If you wait until you’re in your 40s, which is when a lot of people actually realize they’re going to be 65 some day, it’s really, really tough to catch up – almost impossible in many cases. The saddest stories I hear are of people in their 50s who have nothing saved. They’re going to be living on not much more than Social Security, and that’s going to be hard.

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Another big mistake is believing the lie that the “average American has $10,000 in credit card debt,” or some variation of that bogus statistic. The reality is that the majority of American families have no credit card debt. One quarter have no credit cards, and another 30 percent or so regularly pay their balances in full every month. Of those who do carry credit card debt, half owe less than $3,000. These are all statistics from the Federal Reserve. Believing that credit card debt is “normal” is incredibly dangerous.

Credit card debt is a cancer on your finances.

Americans, like most humans, are also prone to believe that “it’s different this time.” That notion fuels all the bubbles and it fuels the busts, as well. People think that whatever has been happening recently will continue happening indefinitely into the future, so gold prices will always rise and the stock market will always go nowhere. History tells us otherwise, but it’s a hard sell for people who haven’t experienced a few booms and busts.

Q: Can you share some of your commandments with our readers?

A: Sure. The first one is “Create a budget that works in the real world.” I’m a big fan of Elizabeth Warren’s 50/30/20 plan. Whatever you think of her politics, her budget works with virtually every income by limiting what you spend on your overhead (to 50 percent of after-tax income for “must haves”), so you have money to enjoy your life now (30 percent for wants) while paying off debt and saving for the future (the final 20 percent).

Commandment Number Two is “Create a survival plan with cash and credit.” The idea that everybody should instantly stash away a six-month emergency fund has always annoyed me. It can take the typical family years to save up even three months’ worth of expenses. Having some access to credit can be a lifesaver in the meantime. The other reality is that sometimes a lot of things go wrong at once that can wipe out all your savings, even if you’ve got 12 months’ worth of expenses saved up.

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Q: Great rules to live by! What is the most important piece of financial advice you’ve ever received?

A: “Live within your means.” Everything else flows from that.

Q: If readers could do one thing to improve their financial lives, what would you tell them to do?

A: Start saving for retirement. The older you is going to thank you.

Learn more about Liz Weston at her site, AskLizWeston.com.

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