← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1773: Ask Farnoosh (New!): Getting an 800+ Credit Score, Investing Pro Tips and Best Budget Tools
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Ryan Reynolds
Hey there, Ryan Reynolds here. It's a new year and you know what that means. No, not the diet resolutions. A way for us all to try and do a little bit better than we did last year. And my resolution, unlike big wireless, is to not be a raging and raise the price of wireless on you every chance I get. Give it a try@mintmobile.com Switch $45 upfront.
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Farnoosh Tarabi
Payment required equivalent to $15 per month. New customers on first 3 month plan only. Taxes and fees, extra Speed slower above 40 GB on unlimited. See mintmobile.com for details.
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Visit use sparrow.com Farnoosh to see what you're eligible for. That's Use Sparrow as in the bird.com Farnborough Ask Farnoosh so Money Episode 1773 Ask Farnoosh. You're listening to so Money with award winning money guru Farnoosh Tarabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers, and from Farnoosh yourselves. Looking for ways to save on gas or double your double coupons. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to so Money. Welcome to Sew Money, everybody. I'm Farnish Torabi. Happy New Year and welcome. Welcome to an especially exciting milestone for all of us. We are entering the first decade, the 10th year of this podcast. I was looking back at some of the episodes dating all the way back to episode one and I feel like I just had these conversations with people like Queen Latifah and my old boss Jim Cramer and Barbara Corcoran, Tim Gunn, Margaret Cho. Do you remember those episodes? If you haven't, if you're new to the show, maybe this is the year where we go back in time a little bit. Because financial advice, while of course it evolves as our lives evolve, as the universe evolves, there are some timeless pieces of advice that we have been lucky enough to hear and experience on this show. I know this show has changed my life and I over the holiday got some emails from folks who heard me talking about, hey, if you've been listening to the show and the show's changed your life, let me know. I have some of these anecdotes and I can't wait to share with you. This year. I'm going to dedicate some space and time on this podcast to hearing from you. So if you have been listening to this show, whether it's been for three episodes or three years or since the beginning, let me know because I would love to understand how this show has impacted your way of thinking about money, perhaps even has allowed you to get out of debt, save more, invest better, negotiate your salary. I want to know, and I want to know because I want to share that with our audience. I find that while it's always cool to hear from the famous people or those who have quote, unquote, made it and how they're managing their money, it's more impactful when we can hear from people who are in the trenches like us, doing it every day, still in it, trying to figure it out. It's the new year and I've decided to approach, especially this year, very differently because I'm gonna get a little personal here. Looking back, if my 2024 had a chapter title, it would be Ouch. A lot of good things happened in 2024, but I hit the ground running last year, launching so many things, too many things. Looking back, in hindsight, I launched the so Many Members club. I hosted a live investing workshop to over 300 people. I mentored new mentees personally. I was trying to get all my proteins in. I was working out every day. I'm trying to keep up with my kids. I'm trying to do my date nights with my husband. And by March, three months into the year, I was not just burnt out, but I was on my back in the er. I had a pinched nerve that I experienced during a workout that I ignored and then it exacerbated and then it got me into urgent care and then er and then basically down for the count for a couple weeks on multiple medications. And so that was a wake up call. And this year I'm stepping into 2025. Slower, more intentional. I'm prioritizing quality over quantity. I'M being more selective with how I spend my time and my energy. So what's on your docket? What's on your agenda for the New year? Let me know. I want to know, because if you've been paying any attention to this show, what I try to do, I emphasize producing this show to meet your needs. Every Friday we're talking about your questions. So how can this show continue to support and elevate your goals? My inbox and my DMs always open. You can reach out to me on Instagram at Farnooshtarabi. It's better if you follow me there and then you direct message me because it won't get buried. You can Also email me Farnooshomoney podcasts.com and I'm always open to your advice, your feedback, and how I can show up better for you. And again, today's episode is all about you. We have questions about how to maintain good credit, how to maximize your emergency fund, and how to start investing for the first time. Before we jump into the mailbag, let's recap this week's incredible lineup of guests. On Monday, I had the privilege of speaking with James Rhee. He's the author of Red Helicopter. It's a national bestselling book. James blew my mind. He has a fascinating brain and a fascinating perspective on the intersection of compassion and capitalism. And so we talked about how kindness isn't just a virtue, but it's a revolutionary business strategy. It drives growth, it drives innovation. And we talked about math and how it's actually a creative field, which I thought was also an important message to share with everybody because so many of us, including me, and I grew up with a dad who was a mathematician. You don't think that math is really a feminine thing or a creative thing. And James dispelled all those myths. On Monday, I spoke with Anthony O'Neill. He's the author of the new book Take youe Seat at the Table. A well regarded financial expert, passionate guy about helping people, particularly those in underserved communities. He helps people build wealth, find financial independence. And we talked about specifically how to create generational change, why representation matters in the financial space. And Anthony is a very faithful guy. And we got into it a little bit because I'm not religious, I would probably described myself as secular. And he's very direct about the importance of connecting your faith with your financial philosophies. And I said, what if you don't have a faith? What happens then? Interesting conversation. If you missed any of those episodes, be sure to catch up. They're packed with lots of takeaways, lots of wisdom. Great way to start the year. Now let's spotlight our reviewer of the week. This person's gonna get a free 15 minute phone call with me and a one month free entry membership to the so Money members up. We've got our whole calendar of workshops lined up for our members this year. This month our members are going to be watching a workshop on how to set financial plans that actually work. I lead all the workshops. If you're interested in learning more about the so Many Members Club, you can go to somanymembersclub.com and this week we're going to say thanks to Jake Z NYC who left this review over the holidays. Jake wrote the show is Best in Class. I highly recommend so Money to listeners of all financial levels. Farnoosh offers practical personal financial advice and over the years I keep listening and always learn something new. Jake, thank you for your kind words. I really appreciate you. I love hearing that you've been with the show for a number of years. You can email me@ Farnouchomanypodcast.com let me know you left this review. I'll send you a link to pick a time on my calendar for us to chat if you're interested in that. And of course to give you the keys to the Kingdom to the so Many Members Club so you can check us out for a full month Some Housekeeping before we dive into the mailbag, I want to remind you about my Book to Brand workshop which is coming up Friday, March 7th in New York City. It's a workshop that I've been running for several years now. It's high demand. It's for all my aspiring authors out there. If you've ever dreamed of writing a prescriptive book, a nonfiction book, this is your chance to fine tune your proposal. Learn directly from me and other industry experts talking about top literary agents, publishers, editors, authors. This is the ultimate opportunity to take your book idea to the next level, accelerate the process. Tickets are still available at booktobrand co booktobrand co I'll put the link in our show notes and if you have any questions just email me Farnoosh@somoneypodcast.com and I can't wait to host this event. Space is limited. We've got incredible guests. We have about 12, actually more like 15 speakers. It's a jam packed day and it is well worth the investment. Before we dive into the mailbag, I want to take a moment though to acknowledge the devastating fires that are happening in LA and the surrounding areas right now. Like all of us, I've been just heartbroken, shattered, really scared for everyone impacted by these wildfires. We're seeing families lose their homes, businesses destroyed. So many lives have been upended. The images, the stories coming out of the region are just gut wrenching. And I know that times like these, for those of us especially who are I'm on the east coast, we feel totally powerless. I just want to say there are ways we can help. If you're in a position to give, I want to run through some resources and organizations that are making a direct impact on the ground. Firstly, the Red Cross redcross.org They're providing emergency shelters, food and medical support to those who've been displaced. The California Community Foundation's Wildfire Relief fund, that's cal fund.org cal fund.org the fund supports both immediate disaster relief and long term recovery efforts for victims of wildfires in California. United Way of Greater Los Angeles at United Way, Louisiana, also an important resource, they're providing financial support for low income residents. And then there's world Central Kitchen. WCK.org Chef Jose Andres and his team are providing meals to evacuees, first responders and the communities that have been impacted by the fires. I'll put all those resources in our show Notes to everyone listening in California or nearby, please know my thoughts are with you. Please stay safe, take care of each other and know that there's a whole world rooting for your recovery. All right, let's hit the mailbag. Our first question comes from Carla who writes, hey Farnooj, I'm a 30 something who is fortunate to have no debt other than an auto loan I took out a few months ago for a new car. This is my first time having a car that's all mine and not shared with family or siblings, which is really exciting. Believe it or not, the dealer's 4.75% APR was better than what my credit union offered at the time, so I went with them. This is a 60 month loan, but as a person who's generally debt averse, I told myself I would pay it off asap, ideally in a year or less. And I've been pretty aggressive about it. And finally I'm down to about $1,000 left on this $15,000 loan. And now that I'm almost at the finish line, my question is this would there be any negative consequence to paying this loan off early? I did ask about a prepayment penalty when signing for the and I got a document saying that there is no prepayment penalty. But would this affect my credit like closing a credit card would? And if so, would it be that bad? Especially considering I'm not planning any big purchases anytime soon. I know that many folks in the financial space might say that I would have been better off just paying the loan down more slowly and investing the money instead, but I just don't like debt. And unless there's a major consequence for getting this done, I'd like the peace of mind that comes with not owing any money. Okay, Carla, thanks so much for your question. I totally get the peace of mind piece of this. Look, our emotions matter. And in fact, I have an episode coming up soon with Asia Evans, who's a financial therapist. She's written a book called Feel Good Finance and How to bridge the gap that we often have between how we feel and. And how we are managing our money. It's important to build a healthy bridge. And if for you, Carla, that healthy bridge means I'm gonna focus on paying off my debt sooner than later, then so be it. And you should be proud of the fact that you're tackling this loan and you're almost at the finish line. So let's break this down step by step. Great work. Figuring out whether there's gonna be a prepayment penalty. Really important if you're gonna prepay any loan. Your student loans, your mortgage, a personal loan, a car loan. Read the fine print. Not all financial institutions want you to pay it off early because they were planning to hold onto your money a little bit longer because they've got investments on their end. So you paying it off early. It's not always guaranteed that you can do this without some sort of penalty. So important to check for that before you do it. The prepayment penalty, if there is one, would be in the loan agreement. But if you don't have that, it means you're free to pay it off early without any hidden costs. Your question is about the credit score impact of closing this account, effectively not having this loan any longer on your credit profile. Paying off the loan early, it may have a small temporary impact on your credit score, but I wouldn't lose sleep over this. Now, why would it even impact your credit score? When we're looking at what is the makeup of a credit score, the ingredients that go into a credit score, One of those ingredients is your credit mix. Companies like FICO and other credit score calculators, they like seeing a variety of credit. They like that mix because it suggests, in theory that you have the Ability to manage different types of credit. You have a credit card which is different from a student loan, which is different from a car loan. And if you've got all those credits in the mix, they give you extra points for that. They like to see the variety. But it's a small variable within your credit score calculation. It's only about 10% of your credit score, so the impact is minimal. The impact of removing this car loan from your credit profile, which might have other types of credit, is minimal. The other ingredient that's baked into your credit score is your payment history. This is the biggest factor, in fact, in your score. And paying off the loan won't erase all of your positive on time payments. They'll remain on your credit report for up to 10 years and they'll continue to work in your favor. There is a myth that if I close a credit account, all that good work of paying it off, all the history behind that account will be wiped. And the truth is it won't. It won't for 10 years. It'll stay on your credit report and it'll continue to work in your favor. Closing a term loan, like a car loan or a student loan, different from a credit card which is revolving. There's no like deadline, there's no term on credit cards. Credit cards tend to weigh more in the credit score algorithm. So when you close a credit card versus a term loan, it's not as impactful when it comes to your credit score. Car loans, like other term loans, they don't contribute to the credit utilization ratio. That's that other important ingredient in your credit score. That's the amount of debt you're carrying versus the credit available. That's really only applied to credit cards, not your student loans, your mortgage, your car loan. Again, these term loans. So paying it off early is not going to affect this particular ratio and so it won't affect your score in that way. The only real impact here is that you might lose a little bit of that variety in your credit mix. But again, that's just 10% of your credit score. So the impact is not huge and that's that. So I think you should pay this off, feel good about it, pat yourself on the back. And one parting tip. Now that this debt is out of the picture, imagine what else can I do with this payment, right? If I was already in the habit of paying X dollars a month towards the car loan, where else can I apply this now where it's going to make a meaningful shift in my financial life, could it mean putting more in Your retirement account and you're already in the habit of paying this, so now just shifting it to somewhere else in your financial life that could be meaningful to you, I think is my parting advice. Our next question from Leah, also about credit. Leah is considering canceling a department store credit card and wants to know what's going to be the impact on my credit score. Will it be significant? I've just reviewed a few of the elements that go into your credit score calculation in this case. In Leah's question, we're talking about a credit card which is a different category of credit from Carla's car loan, right? Credit cards do play a bigger role in shaping your credit score. So let's break this down. Canceling a credit card, it does have an impact on your credit score, but will it be significant? Depends on a few key factors. The first is going back to that credit utilization ratio. This is a measure again of how much you have in available credit that you're using. Canceling one card reduces the total available credit on that card, which could increase the ratio. So you're effectively decreasing the denominator in this ratio, which if simple math, it means that your percentage goes up, everything else being held the same. For example, if you have $20,000 in total available credit across multiple credit cards and canceling this store credit card, which they tend to have lower limits, let's just say $5,000, let's say you get rid of it now, your total drops to $15,000 worth of available credit. If your spending stays the same, then your utilization ratio will go up. And the key here is you want to keep this ratio under 30%, ideally under 10% to maintain a strong credit score. So if you are paying off your balances every month, Leah, this is basically a non problem for you, right? Because your credit utilization at least at the end of every month or billing cycle is 0%. The only time I would say to be careful about your credit utilization ratio, even if you are in the habit of paying off your balances in full every month, is that if you are in the market for a new loan and your credit score is going to get pulled, that credit score could get pulled in the middle of the month when you've just bought like a $6,000 round trip family flights to Greece or something, right? And you were planning to pay that off. But right now your credit utilization is high perhaps and your credit score will reflect that in that moment. So just keep that in mind. If you're somebody who is, you're going to be shopping for other kinds of debt and your credit score is going to get pulled. Your credit util ratio will be important and I would be paying off my balances a little bit faster in that case. So that at any point if the credit score gets pulled, it won't show sort of an artificial ratio. Right? Because like you were planning to pay off that debt, it should really be 0% knowing your habits. But unfortunately the technology is not that smart. So credit utilization is ratio. The question for Yulia is if you cancel this credit card, how will it affect that ratio? How much higher will your utilization rate jump to? Length of credit history is also important. The average age of your accounts is what we mean by the length of your credit history. If that department store credit card is one of your older accounts, canceling it could reduce your average age over time. Closed accounts, however, do, as I mentioned earlier, stay on your credit report for up to 10 years so the impact won't be immediate. I assume you have other credit cards if it's not someone that you've had for many years. Less to worry about. If you listen to everything I say and you're like, okay, I'm a little spooked. I don't want to cancel it, but I also don't want to have it in my life anymore. Couple options, you can just put it away. You can put it in a sock drawer. In the old days, like people would freeze their credit cards. You can put it in the freezer or you could ask to change the terms. So maybe you're canceling this card because they're going to start charging you an annual fee. Ask if the credit card issuer can give you a no fee version or if there's another card that better, better suits your needs. And a lot of times issuers will work with you to keep you as a customer. Coming up after the break, we're going to talk about investing and maximizing your emergency fund this year. Stay tuned. A couple of my friends recently decided.
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To go bi coastal, splitting their time between the west coast and the east coast. And the financial nerd that I am, I couldn't help but think how much extra cash they could make hosting their homes on Airbnb while they're away. And now it's easier than ever to make that happen with the launch of Airbnb's new co host network. With this game changing feature, you can connect with experienced local co hosts who take care of everything for you. From setting up your space and managing bookings to communicating with guests and even offering on site support. They handle it all. Some co hosts can even help design and style your home to make it extra inviting. Whether you're living bi coastally, heading out for extended work, travel or just have an unused space, the co host network lets you unlock the earning potential of your home without the hassle. Ready to get started? Find the right co host for you@airbnb.com host have you ever experienced a dry, itchy scalp? Or like me, wondered why your hair color isn't lasting as long as your hairdresser promised? Well, unfiltered mineral filled water could be the reason why. Water is in fact a leading cause of damaged hair and dry, irritated skin. And about 85% of the United States uses hard water filled with dissolved minerals and added chlorine. That's why we installed Canopy's filtered shower head in our home. Canopy, known for their beauty hacks and reimagined humidifier, has revolutionized the filtered shower head space with not one filtered shower head but a handheld version as well. Dermatologists recommended this unique three stage filtration system greatly reduces contaminants and odors in your shower water, leaving you with healthier hair and glowing skin. The Canopy's filtered shower heads are hassle free, installation is a breeze, and its unique filter replacement feature allows for seamless filter changes. Go to GetCanopy Co to save 25 on your Canopy filtered showerhead purchase today with Canopy's hassle free filter subscription. And while you're there, use the code sewmoney at checkout to save an additional 10% off your canopy purchase. Hurry. Your hair and skin will thank you.
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Ryan Reynolds
Hey there Ryan Reynolds here. It's a new year and you know what that means. No, not the diet resolutions. A way for us all to try and do a little bit better than we did last last year. And my resolution, unlike big wireless, is to not be a raging and raise the price of wireless on you every chance I get. Give it a try@mintmobile.com Switch $45 upfront.
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Farnoosh Tarabi
Payment required equivalent to $15 per month New customers on first three month plan only taxes and fees extra speed slower above 40 gigabytes on unlimited. See mintmobile.com for details.
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Thumbtack presents the ins and outs of caring for your home out procrastination Putting it off kicking the can down the road in plans and guides that make it easy to get home projects done out carpet in the bathroom like why in knowing what to do, when to do it and who to hire. Start caring for your home with confidence. Download thumbtack today. Welcome Back. Our next question comes from Sierra, who is ready to start investing after she has hit her emergency fund goal. She says Farnoosh, I finally hit my goal of six months in savings plus a little bit for future home repairs. I want to invest part of this savings and keep part in a high yield savings account. Currently I'm using Wealthfront and they're offering a portfolio of index funds auto managed for 0.25% annual fee. The average return on this portfolio is 14% over the past three years. Is paying 0.25% annually a reasonable management fee? And do you have any other advice for me? All right, Sierra, congrats on reaching your emergency fund goal. That is no small feat. Huge milestone. So this 0.25 annual management fee from Wealthfront is reasonable for what they're providing you, which is robo advisement. It's not like a handheld human who's meeting with you like a financial advisor. In that case, Your fee is 1%, 1.25%. So this is reduced because it's an automated platform. That 14% return though that you mentioned over the past three years is great, but I just want to point out that it's just a three year snapshot and that's all it is. And that period included a very strong post Covid market recovery. And historically a diversified portfolio of index funds tends to return anywhere from 7 to 10% annually over the long run. Like I'm talking decades. So Wealthfront's portfolio, like other portfolios that tracked a similar index, they probably performed really well over the last three years. The S&P 500, if you were just investing in that in 2023 and 2024, your portfolio is up 23 24% every year. That's not going to be every year, by the way, right, for the rest of your investing course. So just bear that in mind. It's a nice percentage that they're putting on in their marketing material because it's true, but it doesn't necessarily mean that it's going to extend throughout your investing life. I would plan for more conservative growth going forward and I would even expect some down years. As far as how to divide the saving versus investing, how much to put in the high yield, how much to invest. I would say put in your high yield savings account. Whatever you need for the short term. Your home repairs, your upgrades, anything you want to tackle within the next year to three years. High yield savings accounts, they're earning around 4% right now. So your savings will grow steadily while staying liquid. Liquidity is Key because once you put the money in the stock market, it's not to say that you can't take it out, but it won't be as simple as just transferring money from a checking account to a savings account. This is really where you're putting money in here that you don't really need for at least five years because you have savings and you have liquidity in other ways and you want to build wealth and you want to want to put this money to more work. I like the idea of investing in low fee index funds. If you are in your 20s or 30s, being aggressive and having most of that portfolio, most of those index funds. Tracking stocks would ensure that you'll have higher returns over time. There will be market volatility, there will be some risk, but you can afford it more than somebody who say like in their 50s and 60s. For those folks, I would say say be more conservative. Maybe it's a split of 50 stocks and 50% bonds. But Sierra, you're on the right track. Wealth runs fee, I think is fair. I've actually seen higher costs in their space, so I think this is really reasonable. And then splitting your funds between savings and investments, thinking about what do I need for the short term that goes in high yield, long term I can invest and go from there. I'm excited for you. Keep us in the loop with all your progress and continue to feel free to ask questions as you move through the year. And finally, we have a question from Chelsea about a financial app that can help with budgeting. So she says, farnooche, please remind me of the app that you mentioned on the show where you can see a summary of all your financial accounts in one place. I'm trying to start my 2025 budget. The app you're thinking of is probably personal capital, which is now called Empower. It's an excellent tool. It's free for tracking all your financial accounts. Checking, savings, credit cards. They even have a hookup to Zillow if you want to include your home worth. And then at the top of the dashboard, it shows your overall net worth and then it breaks it down by category of, of finances. So it's like your savings, your investments, Art. You could put all sorts of things onto that dashboard. And it's great to keep a running number in your mind of what you owe or what you're worth. You can track your spending and by category and compare it to your monthly goals. It'll tell you like you spent this much more this month or this week than last week. Empower also offers free tools to analyze your retirement savings. They really want to get you to the paid side though. Once in a while you'll get a pop up that's hey, let's chat. They are a full service retirement planning and investment firm. This is their gateway to get clients in. I haven't moved further from their dashboard, but I'm a fan. And if Empower isn't the right fit for you, there are others. There's you need a budget that's more for hands on budgeting. You'll be able to track every single dollar. Some people don't like that and I get it. There's also we talked about Wealthfront. They have some tools and wherever you're investing or banking again, they probably have some free tools for customers. Chelsea, Good luck with your 2025 budget. And it's January so you're already ahead of the game. Getting organized early. I love it. And that's our show. Thank you for tuning in. Thank you for your questions. We've talked about paying off car loans, canceling credit cards, balancing your savings with your investments, and then some tools to help you stay on top of your money. Not a bad way to kick off Ask Farnoosh 2025 please. If you like this show, don't forget to subscribe. Leave a review, share it with your friends. If you have any questions for an upcoming AskFarnouche, you can send it to Farnoosh@SomoneyPodcast.com you can direct message me on Instagram as well. Cheers to all of us wishing you a prosperous, intentional, maybe even a slow at times 2025 wishing you health, wealth and the time to enjoy both. I hope your weekend is so money.
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