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Some Financial Advice For Uncertain Times

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The Tampa Tribune

Published: May 4, 2008

It seems like I've been getting more e-mails from readers than ever before, which makes sense in a shaky economy. But before they start piling up too high, I would like to take the opportunity to answer a couple in this space. Here are two of the most frequently asked questions in my inbox:

My husband and I definitely live beyond our means, paycheck to paycheck, and when I try to put money away, it only lasts a few days until my husband will ask to do or buy something, and I'll feel bad saying no. I want to save and want to make him and my two daughters happy. Can I do both?

I want you to listen to me: Saving money is the very best thing that you can do for your husband and family. It buys you crucial things: not just college for the girls and eventual retirement for you and your husband, but also the ability to make choices in medical care if you have a health emergency or get a replacement car to get to work if yours dies. Without savings, you have no options.

Your husband needs to understand that as much as you do. Right now, your relationship with him is on shaky ground because you are parenting him financially as much as you are parenting your kids. No more.

Here's what I want you to do: Set up three bank accounts. One for the house, one for you and one for him.

Paychecks go into the house account. On the same day, I want you to transfer money into a savings account. Start small - with $100 or whatever you think you can manage. If that feels easy, increase it the next month. Tell yourself those savings are hands-off.

Also, transfer a small sum into an account to be used at your discretion and another to be used at his. If he wants to buy something, he can use his money rather than asking you. As for the girls, this is what allowances are for: They can save for the things they want, and you can put an end to the whining.

My husband and I had our first son a year ago, and we are stumped on what to do to start saving for his college. My husband is in the Navy, and I am a stay-at-home mom. In 2007, our adjusted gross income was about $90,000. We both make the maximum contribution to our Roth IRAs and save $1,000 a month in a money market account.

Although we know we can't foot the entire bill for his college education, we would like to be able to help some. Which products would be best for us?

What many people don't understand about the Roth IRA is that in addition to being a great way to save for retirement, it's also an important college savings tool.

One of the things I like so much about the Roth - besides that your contributions grow tax-free forever and you don't have to pay taxes on them when you pull the money out - is that you can make withdrawals, without penalty for things such as education and purchase of your first home. So when your child gets to college 18 years from now, you can look at the balance in that Roth and decide whether you want to use some of the money for education rather than retirement.

As far as other options, I would look at the Coverdell Education Savings Account and the 529 College Savings Plan.

The Coverdell works like an IRA. At your income level, you can contribute up to $2,000 annually if your modified adjusted gross is less than $95,000 as a single tax filer (or married filing separately) or $190,000 to $220,000 as a married couple filing jointly. You can open a Coverdell at most brokerage firms, but I'd use the one that houses your Roth, for sanity's sake. Then you invest the money as you choose.

You can contribute substantially more with a 529, but plans vary by state. If you want to read more about your state's options, go to www.savingforcollege.com, a terrific Web site that rates plans.

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