← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1830: Ask Farnoosh: Separate or Joint Accounts? Invest or Save?
00:25:09
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- [00:00]
Farnoosh Torabi
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Jessica Morehouse
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Farnoosh Torabi
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Jessica Morehouse
Are you ready to take control of your finances and build the life you've always dreamed of? I'm Jessica Morehouse, a Canadian money expert, accredited financial counselor, best selling author and host of More Money. Each week I bring you inspiring interviews and practical advice to help you make smarter financial decisions. Tune in to More Money on your favorite podcast platform and let's start your journey to financial empowerment today.
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Farnoosh Torabi
So money episode 1830 ask Farnoosh.
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You're listening to so Money with award winning money guru Farnoosh Torabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers and from Farnoosh yourself. 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.
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Hey friends, Farnoosh here. Welcome to Ask Farnoosh Friday. It's the day of the week where I take your money questions and try to make some sense of this wild world of work, wealth, family, ambition. And I know a lot of us are on the road perhaps or prepared for Memorial Day weekend. I hope whatever you have in store will be fun. And speaking of fun, I Just got back from a beautiful four day escape to Paris. It was glorious, as you would imagine. It was with one of my best friends. This was a child free trip, no family, just me and my best friend Kate. And let me tell you, this was exactly what I needed to do. I was a bit afraid of saying yes to this trip. As parents, you know, there are a lot of responsibilities that you're leaving behind. And going across an ocean, it's always a little scary to fly, I think, especially these days. But I said yes. And my only priority on this trip was to let it be easy, as my friend Susie Moore says, and she wrote a whole book about it. But we did not over schedule, we did not go to too many sightseeing places.
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I've been to Paris many times, I.
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Live there in college. So this was all about just wandering, eating our way through the city, people watching and giving myself much needed space. And I will just say too that Paris really showed up for us during these five days, four or five days. The weather was fantastic. The crowds were not really there. People were, I dare say, kind of nice. Like as nice as you can get in Paris. I mean people weren't like giving me high fives and opening doors for us and saying thank you unnecessarily. But look, it was, it was a nice escape from just the day to day of being here. And not that I don't like being here, but you know what I mean, when you gotta break free, you gotta break free. We stayed, I stayed at the Hoxton Hotel, which is a fantastic hotel. If you have never visited the Hoxton in the States, there's one here in Brooklyn as well. I had my book party there. For those of you listening who were at that book party, you know, it's a nice, it's a nice place. It's also a lovely location situated in the 2nd arrondissement, which is walkable to a lot of stuff. I booked it with credit card points, so I was a very so money adventure. But listen, we just like picnic in front of the Eiffel Tower. We grabbed some snacks from a market and hit the, hit the grass. We went to, of course we went to Parisian pharmacies. We had to, we're in our 40s. And now I'm the proud owner of not one, but two tubes of A313, which if you know, you know, four tubes of French toothpaste, a lot of La Roche posay, and I did treat myself to an Hermes bracelet. But thanks to European pricing and the VAT refund, I actually saved over a hundred dollars on this bracelet compared to what I would have paid in the us. That's at least what I'm telling myself. If you want all the details, like what I packed, what I ate, what I bought, where I got lost, I have created a very special personalized Paris guide that you can download right now. And great timing because I think a lot of you are saying you're planning a trip to Europe in the next few weeks. Even I've gotten emails about this, so just check the show notes for that link. It's absolutely free. It's exactly what I did. Took me a while to figure it out though, because I didn't take notes while I was on the trip. I didn't journal. I didn't even take that many photos. That's how good of a trip it was. I was just there to be there and to come back with my memories. But I did. I actually did do quite a bit. And that's all in the guide. Now back to the real world and our money. Let's take a look at some of the big financial headlines that all of us should have had on our radar this week, including me. But I was a little bit jet lagged. But you know, I've been doing this on the Friday episodes. I really enjoy it. I hope you do too. Just kind of going over some of the big stories that are pertinent to us. 1. Credit card delinquencies are on the rise. We typically see this ahead of a recession and it's especially impacting Gen Z and the young male millennials. If you're carrying a balance right now, this is your sign to get very serious about the payoff plan rates. Average rates are still above 20% for many cards. So if you are trying to get out of debt, call your issuer, try to negotiate a lower APR. Consider transferring that high interest rate balance to a 0% balance transfer card. And I think we're all kind of in this mindset right now of reviewing our spending, pairing our spending, pausing some of our memberships. But especially if you have lingering credit card debt, a really smart thing to do is just to go over your budget and your monthly spend, see what your burn rate is. How can you cut back and reallocate that cash you were spending on various things to the credit card debt. The more you can pay down that principle and not just be on that minimum balance treadmill, the faster you will get out of debt. Retailers are also warning about consumer fatigue. And that doesn't mean we're not spending. It just means we're being more selective, so we're going for more of the deals. We're buying resale, we're waiting to buy those big purchases, shopping around some more, being more strategic. So this is a good sign for us to resist some FOMO shopping. Unsubscribe from some emails, consumer emails, and again, revisit the money monthly budget. Give every dollar a job that aligns with what you actually value. Leaving your phone away from your bedside at night. That can probably solve 25% of this over consumption problem, right? Because we tend to spend money online when we're tired, when our guard is down, we're cozied up in bed and we're feeling overconfident really about probably our potential to pay for something. And that brings us to some of the episodes you may have missed this week where we talked on Monday with the marketing professor who knows a lot about the psychology of how and why we spend money. His name is John Dinsmore and he's a professor at Wright State University and author of a new book called the Marketing of How they get yout. And we talk about these subtle and not so subtle ways that marketers capitalize on our optimism and our impulsivity and our desire for status is so if you want to learn about why your brain underestimates the pain of spending now and paying for it later, how credit card companies are playing to our egos and the costs of the quote unquote quiet luxury phenomenon, keeping up with appearances, this episode's for you. John also has his own research that found that just touching $20 bills increases testosterone and reduces charitable giving. In other words, the more money you have to, the less charitable you may become, maybe even the less likable you become, the more detached you become to society. Fascinating episode. Then on Wednesday, kind of also talking about the psychology of money, we talked about how to rethink retirement and get on this micro retirement bandwagon. Did you note that this is a thing amongst mainly millennials and Gen Z where rather than saving up our nest eggs to just retire once, were retiring in increments, taking these sabbaticals. Maybe we called them sabbaticals once upon a time. Now we're cool and we're calling them micro retirements. But our guest, Dr. Annie Cole, who's a money coach and a financial educator specializing in helping women master their finances, breaks it all down for us and also talks about her four step plan for retiring early, which is what she's on track to do by age 41. And I'll tell you what. She was a burnt out social worker earning $26,000 a year in her 20s. And she has managed to work through her own money traumas and her lack of financial literacy to not only help herself, but now many others do the same through her coaching practice. All right, let's get to the mailbag. We have questions this week about managing money in your relationship, prioritizing the various saving and investment accounts that you might be contributing to and should a couple take advantage of a 0% interest loan in this market?
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Jessica Morehouse
First question, our friend in the audience wants to know. Farnoosh, how do I transition to have separate accounts in my relationship? I've been married with fully merged finances for many years. 25, 25 years in my case. So just to preface, I don't think this person is getting divorced. This isn't because they're separating that she wants to have separate accounts. I'm not sure what the motivation is, but it doesn't sound like they are on the precipice of a breakup where in that case it would also make sense to start transitioning. Transitioning to having separate accounts. But I think in this case they're happily married. They just want to find ways to create some more, maybe financial autonomy for each person in the relationship, which I completely advocate for. I think it's so, so important. At the end of the day, does it really matter how you're managing your money insofar as the number of accounts or whether you have joined or separate accounts? Honestly, at this point in my career, I've seen everything and what I have found is that if your foundation isn't solid, meaning there isn't good communication, you don't have trust, there isn't transparency, then it doesn't matter what your financial buckets system is. Your savings buckets system is it's not going to work. It's not going to work. So before I get into my preferences for how to manage your savings and whether to have a joint account and or separate accounts, I first need to be very clear that you must first work on your communication and the trust and the transparency. There are ways to implement this in our relationship. We use an app called Empower. It's free. This level of Empower that we use is free. You get to pool all of your accounts onto one dashboard so both of us can see where our finances are jointly. Separately, we have multiple accounts, but it's just a way to stay in touch with the current finances in the relationship. What, when bills get paid, what are our debt levels for the mortgage, our car payment, etc. There's also an openness to talk about money. I never feel intimidated. And vice versa, to talk about money, to talk about what's bothering me or what my goals are. So that has to be there. That layer has to be the first layer. And then from there, I think whatever works for you is going to work best for you. Do what is sustainable. If you feel comfortable having everything in one pot, that's fine. But if you ask me, I think that if you're going to do that, also have separate accounts that maybe is connected to the joint account, where every month you're taking a percentage from the joint account to your individual accounts, and that way the two of you can go on your separate ways to spend as you wish. So many of the arguments that bubble up in relationships, a lot of the tension that arises in relationships around money has to do with spending. How one couple, how one person in the relationship is spending versus the other. The values don't always align. The spending values. Look, I like to go get my hair done every six weeks. It's a couple hundred dollars for the roots to get colored. And that's. My husband doesn't have that on his budget. Okay. If he's going to come after me for that, we're going to have problems. We don't. One. Why? Because, well, we have mutual respect for our spending styles. But also, I have my own money and he has his own money. And, you know, we don't go around as. As one mom told me, my husband chases me around the house with the credit card statement. That's so. That's so dehumanizing to me. I don't know about you, but I feel like I want to avoid. I would love for every couple to never have to be in that situation. So going back to our friend who wants to transition from having a joint account exclusively to having separate accounts, what I would say to you is that, you know, first figure out what is the purpose of this personal account that you're going to design for the two of you, these personal accounts, and how much do you anticipate wanting or needing in your account on a monthly basis, and from there, whatever that number is, you want to create an automatic system that drafts that amount from your joint account to your personal accounts. Logistically, you could choose to bank with the same bank where your joint account is. That could be simpler. One website, one dashboard. You've already got the app, and you can look at both your joint account and your individual account, perhaps at the same time. So it's not that hard to transition out of having a joint account into separate accounts. But you first need to to do the homework of realizing what is going to be the purpose of these individual accounts. What how much do we want to fund in each of these accounts on an ongoing basis and then creating the automations to have that work for you.
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Farnoosh Torabi
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Jessica Morehouse
Next up is our friend Sierra, who is not sure about how to prioritize her savings accounts, she says. Farnoosh I'm trying to reach all of my dollar amount goals in all of my accounts and I'm not sure if I'm doing it right. Basically, she's got a health savings account, a Roth 401K, a traditional IRA, and a High Yield Savings account. The Roth 401k she gets through work. So she says, here's what I'm thinking and she wants me to weigh in. She says, I think that I'm going to prioritize the High Yield Savings Account, which is where she's putting in her rainy day savings and my Roth 401K, that's tier one. So she wants to max out that Roth 401K and also be on top of that High Yield Savings account as a priority every month just to make sure that she has enough in emergency savings. Okay, so far, so good I think that makes a lot of sense. Why? Because your rainy day account is sort of your oxygen mask in your financial life. When there is an unexpected expense, when life takes a turn, that is where you're going to want to turn to first. You're not going to want to go to the credit cards or your investment accounts because there's going to be costs associated with pulling out that money. Your high Yield Savings account is your most liquid, most accessible, quickest way to access cash in an emergency. And that's where you want to prioritize because that at the end of the day is sort of the backbone to your daily living, your ability to have a quality of life on a day to day basis. The Roth 401k is also important, I think more important than she mentioned the health savings account, the traditional IRA. Why? Well, the Roth 401K is sort of the, the Mac Daddy of financial investments. One, it's an employer sponsored benefit where you may get a match. So if your employer is offering a match, a contributory match to your contribution, that's excellent and we really ought to take advantage of that. It's basically free money and it's an incredible way to speed up and accelerate your retirement savings plan. The Roth 401K is a unique arrangement. It's a hybrid between a Roth IRA and a 401K. It works like similar to a Roth IRA. The Roth 401K allows you to make post tax contributions and any earnings will grow potentially tax free. The contributions are made through the regular payroll deductions through work. So that's where the 401k attributes come in. And they have the same limit as a tax deferred 401k which are much higher than a Roth IRA. We know that with Roth IRAs you know, just the simple Roth IRA, you cannot contribute after you make a certain amount of money. But with the Roth 401k, high earners are not restricted from contributing to Roth 401ks. So for all these reasons, if you've got a Roth IRA and a Roth 401k, I would much prefer the Roth 401k again for all of those benefits that you get that you don't necessarily get with the Roth ira. So I agree so far Sierra, that the high Yield Savings account and maxing out that Roth 401K is at the top of your to do list. I agree with that. Then she says second to that I'm going to contribute to my health savings account and make some IRA contributions. Fine, fair. I think that's great, you know. And then she said once after I do that, I'll open up a brokerage account. And I do agree with this sort of hierarchy because the HSA and the IRA contributions there, there are some tax benefits in general, when you're looking at where to invest first. If you've got different accounts, the smart money goes into the accounts that will offer you some tax benefits. Whether it's a deduction today or tax free withdrawals in the future. That's what you target. And then once you've maxed those accounts out, you've taken most advantage of those accounts. You can move over to a brokerage account, which is a great supplement, I think, to an overall investment strategy. Some of us may not have access to workplace retirement accounts. So then you move into maybe a traditional or a Roth ira, which you can open up in any sort of bank or brokerage. And then from there you want to look at brokerage accounts to supplement those IRAs. The brokerage accounts. The pros are that there are no income limits to contributing. You can withdraw the money at any time penalty free, whereas the IRAs limit you to age 59 and a half for the most part. And if you remove your money before 59 and a half, you're potentially facing consequences, financial consequences there. But the brokerage account is much more flexible. But again, there are no tax benefits. So I don't go to the brokerage account first, I go to the brokerage account second or third after I've done all the other tax advantaged accounts. So I like this plan. Sierra, it sounds like you've been listening to the show. Maybe you took my investing workshop or maybe you just know because you've done the good homework of figuring all this stuff out on your own. If you have more questions like this, please send them in. This is what we do in the Friday episodes of AskFarnouche. But if you want more hands on from me, that's where joining the Sew Money members club could make sense for you. And that website is somoneymembers.com and last question.
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Farnoosh Torabi
Here is an audio question from Abby. It came in right before I shipped out this episode for editing. So great timing, Abby. And by the way, Abby was able to leave this message. Everyone can do this via voicemail on my website. If you go to somoneypodcast.com there's a little button at the top right, the top right of the site that says Ask Farnoosh. You click on it and you can leave your audio message for me there. It's fun. It's fun to be able to listen to you and and have a a greater sense of who you are. And her question is about whether or not to take advantage of a new government loan. 0% interest offered to homeowners who want to make eco friendly upgrades to their homes. Let's listen to the rest.
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Abby
Hi Farnooche, I'm writing from Canada where a new federal Greener Homes loan has just been released. It's a 10 year interest free loan up to $40,000 for energy saving home improvements. Some eligible expenses relevant to us would be an air source heat pump to replace our oil furnace and new energy efficient windows. We don't have money saved for these updates so we'd be taking advantage of the loan to do them. We're 38 and 42, we have 70k left on our mortgage and home is worth 600k. We're currently in the process of choosing and setting up our retirement investment accounts, something we're very behind on. So my question is, do you think this loan opportunity is something we should jump on? Even though it's not a grant, it feels a bit like free money and that we have the chance to pay it back over 10 years. For the record, we never shop online using installment plans and carry no credit card debt. The updates are things that will need to be addressed at some point though not an emergency. Right now, on top of the equity in the home, we also own a separate property outright that is valued around 400k. I already feel like our net worth is overly tied up in real estate, so it seems like going against course to put even more money into our home. But at the same time I know these updates would increase our resale value and we may sell in the next five to ten years. Basically. Just how valuable is an interest free loan like this? Do you think we should take advantage or ignore it and focus on catching up with investing into our TFSA and RRSP accounts here in Canada?
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Farnoosh Torabi
All right Abby, thanks so much for writing in the Canada Greener Homes loan. I was today years old when I learned about this. It's a interest free loan of up to $40,000 as she says, with a repayment term of 10 years. So just doing that math really quick. If you and your partner were to take out the entire 40,000 DOL, you're talking about a repayment of $333 per month. I'm sure you've done the math, but I just want to put that out there and pose this question, can you do that? And invest for your retirement. Can you double track this? I see the value in this interest free loan in that it's going to make your home more energy efficient. You're going to be probably saving money as well while you're living in this home on energy costs. And then of course the resale value. I'm sure in theory it should add value to your home. And so you're going to be increasing your home equity in your investments in real estate. You know, if it's really about either or and you can't swing both, then I would say I would choose to invest more for retirement and less right now in the real estate properties. The Canada Greener Homes loan, is it set to expire? Is it like just a window offering where you have to opt in by the end of the year or in the next year? If it, if not, and you have time to consider this and maybe not do it this year, but in the.
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Jessica Morehouse
Next two or three years, I wouldn't.
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Farnoosh Torabi
Rush to do it. I think that there is more of an urgency with getting you both squared away and working towards a plan to have an investment portfolio that's not tied to real estate for retirement. It just goes back to diversification. I would first test out contributing for retirement, seeing how that feels. What's the financial implication of that? How does that affect your life, your lifestyle, what you can spend on when you make this choice to contribute once and for all towards retirement, will that, will that be comfortable? Will it not be comfortable working with a financial advisor or a plan advisor or just an expert who can crunch some numbers with you? You might find that you don't have to invest as much as you think. Think that's to be determined. But I would explore that first before you address this piece of working to improve your home. Although I would love for you to be able to do both, I say the priority should be on retirement investing, especially given your ages. All right, thanks for listening and thanks for using the audio tool again, Everybody. That's@somanypodcast.com Top right corner, ask for anoosh button. And that's our show everybody. Remember my French guide available in our show notes. Just click on the link and I'll see you back here next week.
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I hope.
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Hope your weekend is so money.
- [30:51]
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- [31:21]
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