A Baker’s Dozen Answers to Your Financial Questions

The Denver Post hosts the $mart Panel – a group of financial experts who answer the most common financial questions of the Post’s readers.

Here’s a summary from a recent panel where the panel’s money pros took on 13 basic money questions from people like you and me…

[Go here for the whole article.]

1. Should I buy or rent?Not as black and white as it used to be but the experts generally favor home ownership over renting.
2. How much should I spend on housing?Consider all of your housing related expenses – utilities, insurance, etc. –not just your mortgage payment and try to maintain a figure around 30%.
3. Emergency fund – how long should it last?Consensus was 6-12 months of living expenses although, if you’re a retiree, some suggested as much as 2 years.
4. How many credit cards?2-3 is the consensus with one being held just in case you lose a card or have one stolen. Strongly advise that you don’t carry a balance but pay your card off every month.
5. Which debt should be paid first?Pay off the most expensive debt first – say a credit card at 21% vs. a car loan a 5%. On the other hand, if you’re in hot water, prioritize based on what the cost will be for not paying. A lower credit score may be worth it if it saves your house from foreclosure.
6. Retirement Savings or Credit Card debt?Definitely try to put something away for retirement even as you’re servicing your credit card and other debt.
7. What to do with extra dough?Depends on how much. Serious money? Seek professional advice. A couple hundred or thousand on a tax refund you might want to divide it up so that 1/3 goes to savings or home upgrades, 1/3 goes to debt and a 1/3 goes to fun.
8. How do I diversify?Professional advice is advised but, in general, don’t keep all your eggs in one basket. Many of the available funds provide diversification for you so look at life-style funds or target-date funds for example.
9. How anal should I get with my budgeting?It’s impossible to budget every dollar. Maybe in the short term when you’re just getting started with a budget but it’s most important to pay attention to the big stuff and don’t sweat the occasional Starbucks (…unless you find that you’re spending $7/day on lattes which can add up to a couple grand a year without you’re realizing it.).
10. Do I need a will even if I don’t have much?The advisers agreed that not only do you need a will but you need an estate plan as well. You should be concerned not only about death – inevitable – but what happens if you’re incapacitated?
11. What about life insurance?In general, yeah, you need life insurance. How much depends on whether you have a family or not, what your financial role is in the family – breadwinner, stay-at-home dad, etc… In general, for a person with a young family you’ll need about 10 times earnings in life insurance.
12. Should I do my own taxes?Well H&R Block is running a pretty effective ad campaign right now claiming that Americans leave a billion dollars on the table each year in unclaimed refund revenue so you might want to consider a professional. The consensus is that if you have any complexity at all in your financial situation, consult a qualified tax professional.
13. What about financial advice? Should I pay an advisor?Again, it depends to an extent on the size of your portfolio, your income level and other factors. If you’re the average American with $14,000 in retirement savings you may only need to have a financial check up every now and then but others might need a team.