Need for Liquid Cash

Posted: Dec 19, 2011 12:01 AM

It's nearing the end of the year and I'm cleaning out my inbox to share a few readers' questions that I haven't had a chance to respond to personally. And this way, the answers will help a wide swath of people -- since I know these issues affect more than those who took the time to write me a note. Hope this is helpful:

A: Richard, home insurance rates aren't related to market value. You're insuring your home not on the amount it would sell for, but on the amount that it would cost to rebuild from the ground up, and because of that, rates don't move with the real estate market.

What homeowners insurance premiums do move with, though, is recent claims paid by insurers, which means that if it's a bad year for claims -- e.g., there were significant natural disasters -- your rates may increase, says Amy Danise, editorial director for They may also rise and fall with building costs. Unfortunately, many experts are predicting that homeowners insurance premiums will increase next year, so now is a good time to call your insurer and make sure you're getting the best deal.

Q: It is time for us to buy a new car. Would it be better for our credit rating for us to take advantage of the zero-percent financing and keep the savings we have in an interest bearing account, or should we use our savings to buy the car? We are about five years from retirement. -- Janice in Portland, Ore.

A: Having a car loan, provided you make the payments on time, shouldn't hurt your credit score. The better question is: Are your savings the only cash you have on hand in case of an emergency? If that's the case, I'd definitely keep that liquid and get a loan for the car.

Most dealers are offering very low interest rates right now, but look at other sources as well, particularly credit unions, which tend to offer low rates. And then, if you're concerned about having the debt, choose the shortest repayment term you can afford. I'd like to see you pay off this loan before you retire.

Q: My mother-in-law keeps asking us for money. It's a small amount, and she always pays us back. But it's been going on for about a year now and it happens each month. What should we do? -- Claire in Madison, Va.

A: I would use the next time she asks as an opportunity to dig into the larger issue here. If she's asking you for money, you and your husband aren't crossing the line by asking her about her financial situation, but approach the conversation from a place of concern. Where does she stand? Can you help her cut some expenses?

Because she's paying you back, it seems that she's always just a little bit behind. What can she do to get ahead so this doesn't happen next month? If she's not able to make ends meet on her own now, it's time to talk about what sort of support she may need from you in the future -- including additional expenses down the road, such as medical bills -- so that you can work it into your own financial planning or figure out another way to get her assistance if you can't afford it. Her state's department of the aging will have some good resources.

Q: I'd like to calculate our tax deductions from our paychecks to equal little or no tax refund. Is there a way to do that? -- Jake in Phoenix, Ariz.

A: Jake, you've got the right idea. The IRS has a handy, easily navigable withholding calculator on its website that you can use for this. All you need is your most recent pay stubs and last year's tax returns. If you don't tend to have extra savings lying around, you should err on the side of getting a small refund, so that you're not surprised by a bill. If you find that your current withholding is wrong, you can complete a new W-4 to submit to your employer.

With Arielle O'Shea

(Jean Chatzky is financial editor of NBC's "Today" show, a contributing editor at More magazine and the author of "Money 911." She recently launched the JeanChatzky Score Builder in partnership with Check out her blog at and follow her on Twitter @jeanchatzky.)