← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1893: Ask Farnoosh: Smart Budgeting Hacks, Earning More Outside Work and Tackling Credit Card Fees
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Just you and me and this week's questions that I've gotten from the various, the various places, Instagram, my email, et cetera. It's all about, I think, how we can level up our financial game in this moment of incredible uncertainty. Whether we're interested in building smarter budgets. A question about that to earning extra money outside of our full time jobs because that helps too. And then some of us are wondering how to tackle those hefty annual credit card fees. I know one of my business credit cards jacked up their annual fee and I'm not so sure I'm going to renew it. I'm like, what the heck? You know, wasn't really feeling like I was getting much value out of it at the lower price. And oh gosh. And a pro tip for anyone struggling with medical debt, we have some advice on that front. But before we get to the mailbag, let's get to some money. Headlines that caught my attention this week that I want to share with you. First up is this rise of what's been called soft saving, a movement. Actually a new survey finds that more than 70% of Gen Z say they'd rather have a better quality of life than extra money in the bank. In other words, they're saying, I'm living for today and I'll worry about tomorrow. Tomorrow. And that's 70% of this demographic. This is not the millennials, not Gen X for sure. That's me kind of. I'm like on the border of millennial Gen X. This is like I' say someone in their 20s. Nearly half of Gen Z says that global challenges, things like climate change, economic uncertainty and world events make them want to live for today. And so this soft saving, I'm putting that in air quotes mindset is really reflective of a shift from what I think older generations do. Certainly my parents did, which was aggressively stockpile all the money to prioritizing wellness and balance and joy. Maybe when they get older, change their minds. But I think I understand where it's coming from. It's not just a lack of experience or youth. I think it's really responding to the times and recognizing that even if you make six figures, even if you get rid of all of your student loan debt, there's a pretty good chance you're not going to be able to buy a home. There's a pretty good chance that you will still have to live paycheck to paycheck. And it's not because you're going on shopping sprees every weekend. The cost of living is high. It's very high. It's especially high in cities like New York and Boston and San Francisco where a lot of young people want to start their careers. So I get it. They're feeling as though they don't have any other choice, like what's the point, right? But of course I wouldn't prescribe soft saving as it's being called. Instead I would say, you know what, let's just hope for the best. You know, let's be optimistic. Let's save and invest even just a little bit. Because here's what I will guarantee you. I will guarantee you that even though right now it may feel as though you can't afford the big things, you don't know if you'll ever retire. How owning a home is out of reach. You know, there might be other things that you want to achieve down the road. Having a little bit of money invested today can go such a long way. It's going to beat inflation in 10 years, in 15 years and you'll arrive at a point in your life where you're going to realize I do want for things that I wish I had saved for, that I wish I had invested for. And, and you'll be happy to know that today, if you're listening, you started doing it. And in 15 years you can thank yourself and you can thank me too. But I don't think anyone regrets saving money, right? And I'm not saying save all your money. I'm saying save 5%. Can you, can you trade off 5% or 10% and then go and have your living your life for today? Experience, experiences, but also a little bit carved out for your future. Story number two talks about financial grit. I found this study that came from Goldman Sachs recently. New research finding that people with strong financial grit. What does that mean? Persistence, optimism, going back to those gen zers and having an ability to resist short term temptations leads to having almost 50% more in your retirement savings than those with low grit, even when you control for income. But the good news is Financial grit is not something you're born with. It's something you can build. It's like a muscle that you can build over time. The researchers found that people who approach setbacks with a growth mindset like what can I learn? How can I apply my learnings to the next thing, tend to save more. They tend to feel more confident about their future. So even something as simple as building a small emergency fund, like a 500 emergency fund, $1,000 emergency fund, can strengthen that resilience. And finally, a quick PSA about debt relief. If you've recently been furloughed or you've had your hours cut with the government shutdown, that's many people in that camp. You don't have to tackle your credit card debt by yourself. There's an article that I read this week, and I believe it was USA Today where it says you can call your issuer and ask about a hardship program. Many card companies offer short or long term plans that can lower your payments or interest rates until you're back on your feet. You know, we actually covered a lot of this in depth in last Friday's AskFarnoosh episode on debt payoff strategies. So if you missed it, go back and listen. It's packed with a lot of advice on everything from how to negotiate your APR to rebuilding after a financial setback to should I, you know, work with a debt relief program? And speaking of episodes, also this week on SO money, we had a powerful conversation about faith and privilege and power in your relationship and the financial conversations that all couples must have with my guests, Heather and Douglas Bonaparte, the husband and wife team behind the new book Money Together. And on Wednesday, I released how to quit your job, a guide to making a thoughtful, financially sound exit from your workplace. And this is for anyone who's thinking of pivoting or going back to school or you know what, you just need a break and you want to do so in a way that you can afford, right? Because if you don't work, you don't make money. So what do you do in that interim period? I'm going to mention this website again because I want you to take advantage of it. Somoneylinks. Com. It has a number of resources there, how to find a high yield savings account. It's got my newsletter. It's got my investing blueprint. It has all sorts of links for finding different kinds of financial programs, financial products in partnership with the editors at Money magazine. So moneylinks. Com. All right. With that, let's get to your questions. We're talking smarter budgeting frameworks, how to earn more outside your day job, high credit card fees and what to do with them, and how to ease that medical debt burden. Let's jump in. We're going to start with our friend in the audience who wants to learn more about how to simplify her budgeting process. So Lauren writes in, and she wants to know how I recommend moving away from budgeting every dollar because it gets really cumbersome and tiring. Lauren and her husband have continued to earn more over the years, and so at this point, it seems she says, more and more tedious to track every dollar. However, we can't figure out how to move away from it without sacrificing our 20 to 30% savings rate and risking way overspending. She's heard people say, just pay your fixed costs and then your savings investments at the beginning of the month, then spend what's left over. But it seems like we need a huge amount of cushion sitting in our checking account for that to work. All right, Lauren, so I would love some context behind this 30% savings rate. Is this including investing? If it is, then maybe that makes a little bit more sense. But this is pretty aggressive, I have to say. Like, are you guys planning to retire early? Maybe follow up with me there, Maybe we can talk about it. But that was just the first thing that jumped out, I think, thought, whoa, 30% savings rate? Yeah, that would make budgeting a little bit difficult. That would make spending on some wands a little bit challenging because so much of your money is going to saving and investing. I'm not saying that's a bad thing. I'm just saying, you know, I guess I want to just understand what the mindset is behind that savings rate. I like what people are saying. I like people saying, you know, pay your fixed costs and your savings investments first of the month. I call that eating your vegetables and then have some dessert. Spend what's left over on things that you want. I'm sure you've heard of the 50, 30, 20 budgeting approach. It's a rule where you put 50% towards your needs, 30% towards wants, and then 20% towards savings. In your case, maybe it's 45% on your needs, 25% on your wants, and 30% on savings and investing. If you want a pie chart to follow, I also think there's a little bit of this question that's saying to me, we have a fear of spending because you have been so regimented, because you've been so committed to saving so much over the years and kudos to you as your incomes have increased, you haven't had lifestyle creep, which is typically what happens the more we make. We don't save more, we spend more. So my advice to you is that if and when you decide to spend that you really identify what those important areas are for you. So maybe there's a little bit of the money that just goes to discretionary things. You don't need to have a lot of rationale or reasoning behind these little expenses, you know, movie tickets, an Uber ride, whatever. But if there are big things that you want to spend on, things like travel, a hobby that you may have, these require a little bit more money or a lot more money. So planning for these spends and having maybe even a sinking fund for spends where every month you're automatically just putting 50 or $100 towards this one spending area. And maybe you're not spending on this every month, but the money is there and you pull from it on the go. Budgeting essentially for these things and resting better at night, sleeping better at night, knowing that you're not sacrificing savings to spend. 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Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts and no overdraft fees. Just ask the Capital One bank guy. It's pretty much all he talks about in a good way. He'd also tell you that this podcast is his favorite podcast too. Ah, really? Thanks Capital One Bank Guy what's in your wallet? Term supply See CapitalOne.com Bank Capital One NA Member FDIC in summary, the 503020 rule could be a good benchmark for the two of you, although maybe you adjust that based on the fact that you're doing more than 20% for saving. You're doing 30%. So adjust the other two needs and want categories accordingly. I like the idea of automating your savings and your investments and your fixed costs and paying that stuff in the beginning of the month and then with whatever's left over. Being very conscious and deliberate about how you spend it. Maybe a little bit of it is just whatever. Like we're just going to spend and it's going to be discretionary but 80% of that. We are identifying the spends because we want to be very intentional and we also want to know what things are going to cost. So we don't to your fear, speak to your fear fear go over or runneth over. Lauren I'm actually going to be doing a big presentation on budgeting and for anybody else who's interested, it'll be happening in my so Money Members community. If you're not a member, you can go to somoneymembers.com and fun fact, I should have said this earlier. As part of your membership, which currently includes monthly financial workshops led by me, monthly office hours where you can come and ask me anything you want, and we have ongoing dialogue within the community in the chat rooms about whatever's on your money mind. You get to get my answers on the go. You don't have to wait until Friday. We just introduced commercial free episodes of so Money exclusive to those in the so Money members club. And later this year I'll be doing a full on presentation on budgeting that's happening later this fall. If you're interested in our full year calendar of financial workshops, go to somoneymembers.com this month in June we're going to be talking about investing in alternative assets, real estate, art, crypto and how to should you invest in these categories? How to invest wisely and manage risk. All right, next up is our friend Kelly, a regular listener of this podcast who feels behind in her financial journey. She's in her mid-30s and recently secured a job. It offers great benefits, two months off annually. Wow. What? Where is this job? She lives in a high. Oh, it's in Canada, of course. In a high cost Canadian city earning around $70,000 a year. That nets every month to about $3,900 because taxes and pension contributions. She's got a lot of expenses including rent, utilities, she's got a pet. She pays for transportation, groceries, therapy. Additionally, there are costs of course for clothing and haircuts and skincare. So Kelly's wondering, should I use these two months that I have off from work to find additional income? And if so, where do I begin? I've been thinking about creating online courses, but I'm worried about potential conflicts with my current job and the uncertain success of an online course. All right, Kelly, I love where your head's at. Having two months off every year is invaluable and I hope you'll use some of that time to relax and rest. It's a great opportunity to also focus on bringing in extra income. Your concerns about doing things that may compete with your full time job and things that your employer might not like is a valid concern. So of course, if you think that there is even a chance where this could potentially backfire, I find that early on transparency is the best approach. I have many clients who are working with me in my mentorship program who are still in corporate and want to start something entrepreneurial on the side that sort of dovetails their profession. And not only that, the concern too is that the employer might think that this is like a distraction. Oh, who? What is she doing now starting this business on the side? Is she ever going to be accountable for the work that we are tasking her with? A lot of this is presumptuous. So ahead of that, you want to just talk to your employer and say, I'm thinking about creating my own thing on the side. And once you have a little bit of an idea of what that may be and what that could look like and where you're going to show up, share that with your employer, don't be afraid. The worst they'll say is no, we'd fire you. Which I don't think is going to happen. But at least you know, right want to be on the other side of that. Being surprised by the fact that your employer is not too happy. And I think that employers really appreciate when you come to them ahead of time with this, it shows that you are not trying to hide, you are hoping for a collaborative relationship. And what I've heard the feedback from companies when they find out that their employees want to start something on the side, they're really supportive. They're like, that's great. Because you know what you having your own thing outside of your 9 to 5, what does that do? It creates financial security and one of the most important factors for retention and happiness and a decrease in burnout on the job, the 9 to 5 that you have is having financial security at home. So employers, the smart ones, understand that when you are able to make more money and it doesn't cost them anything for you to make more money, that it does actually benefit their bottom line as well, because you're more likely to stay on board and you're happier. So all this to say, don't worry about talking to your employer about what your ambitions are, where that ambition would lead you, that's for you to figure out. You know, it's hard for me to give you any specific direction on what to create, but if you are interested in thought leadership and teaching, you could start by finding a few clients using your network, posting wherever it makes sense to find these folks, whether it's on your LinkedIn, through email, Word of mouth and start small. You might be able to even find clients online through sites like Upwork.com freelancer.com even on LinkedIn. Again, there might be some ways to find people who are looking to hire someone like you to either train them on a topic, teach them about something, come in and give a workshop. Start your search before this two month break Start Start planting the seeds before your two month break so that once that break arrives you can hit the ground running. This may be a bit of a slow financial buildup. You may not make a ton of money the first try and you may not have a ton of clients the first attempt. So if your goal is to just bring in more money, you might want to look at jobs that are more transactional where you can go online and find side gigs, virtual jobs that are project oriented, short term oriented, part time virtual that you can do to supplement your income and bring some more breathing room into your monthly budget. And our last question is about credit cards. You know those credit cards that carry really high annual fees because they promise you can earn back cash or points and maybe you've had this card for a while and you're just not reaping the benefits. It is more of a cost than a reward to you. So a friend in the audience says that she's tired of paying the annual fee for one of her platinum cards and which is almost $700 a year. She was told when she called the credit card company that she could downgrade to a different version of the card which had a has a smaller annual fee, but she doesn't want cards with annual fees, period. What's also true is that she's worried about closing this account which could impact her credit score. So what should she do? First thing I just want to say is if you are experiencing the same thing and you've been told that hey, you can just downgrade to a different version of this card. May maybe it's the gold version, the green version, there is an annual fee, but it's much less. You might want to consider that. Know that when you downgrade within the same credit card company to a different kind of card, it's not going to hurt your credit score. It's called a product conversion. It's not affect your credit score. It's basically the same account that you have. It's just routing to a different card number and card type. And I'from experian.com A downgrade is a product change to a card that has fewer benefits and might have fewer fees. And it can be a good option because there's no impact on your credit score. You're switching cards without closing your account and there generally won't be any changes that could affect your credit score. So that hopefully resolves that concern. Now, another idea is that if you are okay with paying the 695 a year, you could ask for a retention offer instead of a product conversion. This idea I got from one of our so Money listeners, Dan Rodriguez. He's a points expert. This is just his passion. And he talked about how he recently got 25,000 points for keeping his account open and spending an additional $3,000 in three months on his card. And so if you're planning a trip and that 25 and those extra points could really help you pay for that trip, it may be worth it for now to do that, see what you can get out of this relationship to make that 695 that you're paying every more worth it. But you're right, if you close this card entirely and you've had this card for a while, it's a trade off. Is it going to damage your credit score? You're not going to see a 100 point drop. You probably will see a little bit of a dip. But know that that's also temporary. It's not going to stain your credit report forever. It's not going to drag your credit score down forever. If you're not in the market for a loan, a mortgage, a car loan, whatever, it's okay. Sometimes our credit scores, we take the hit because. Because on the other side, it means saving a lot of money or sleeping better at night. We don't have an immediate need to leverage that credit score. Then save your money and open up a card that makes more sense for you. And before we wrap, I just want to end on a financial tip that I've been practicing lately and I want to share that with you if it may be helpful. I shared this on Instagram. A lot of people weighed in. I think this is an issue kind of right now, and it's about healthcare bills, not to open up a can of worms before the weekend. But you may recall I had some hospital visits earlier this spring. I pinched a nerve in the back of my neck and long story short, it led to a couple hospital visits, CT scan, et cetera, et cetera. I got the bill. It was $15,000 all right. But it said in little Print that this is still in review by your insurance company. But the hospital wanted me to pay it. I was like, that's not happening. So I went on to live my life and they kept calling me and leaving texts and emailing me this bill. And finally today, insurance reviewed it and insurance paid almost all of it with the exception of $2,000, which is, which is not great. I don't want to pay $2,000. It should have been not. So all this to say, if you get a health bill from medical examiner, from a hospital, from a doctor's office, and it has not yet been reviewed by your insurance, don't pay it. Why give this company a loan? Then you have to chase them down to get your money back. And we have had conversations on this podcast about the financial challenges within the healthcare industry. Not our financial challenges, but hospitals and medical practitioners and medical offices. They have financial problems. I get it. It's not fun to chase down an insurance company to get paid. Paid. Join the club. As a contractor, I have to wait 90 days sometimes to get paid. Everyone's hurting. But I'm speaking now as the consumer advocate. I'm just saying that when you get a health bill, you can give it a pause. You can give it a minute and fun. Fact. Unpaid medical debt is handled a little differently than other types of consumer debt. Even if your bill goes to collections, the account is not going to show up on your credit report right away or possibly ever. The three major credit reporting agencies, Equifax, Experian Transunion, removed medical collection debt that was under $500 from credit reports and Experian Transunion Equifax. They give you a 365 day waiting period to resolve any medical debt before the collection account appears in your credit, if it appears in your credit history. So all this to say, don't let your health bills stress you out immediately. There could be errors on your health bills, by the way. That happens a lot and your insurance company obviously needs to review it. Keep tabs on the bills, but don't feel like you have to pay it immediately. It's not an immediate priority. Enjoy the weekend everybody. Thanks so much for tuning in. I'll see you back here on Monday when our guest is Lily Womble. Lily, she's the founder of Date Brazen and she has a book out called thank you. More please. It's her guide to feminist dating. She's so wonderful. I can't wait for you to hear more from Lily on Monday. I hope your weekend is so money dude. Did you order the new iPhone 17 Pro? Got it from Verizon, the best 5G network in America. I never looked so good. Good. You look the same. But with this camera, everything looks better. Especially me. You haven't changed your hair in 15 years. Selfies check, please. With Verizon, new and existing customers can get the new iPhone 17 Pro, designed to be the most powerful iPhone ever. Plus a new iPad and Apple One with eligible phone trade in and unlimited ultimate best 5G sweet metrics data United States 1H 2025 All Rights Reserve, trade in and additional terms apply for all offers. See verizon.com for details. If you love to travel, Capital One has a rewards credit card that's perfect for you. With the Capital One Venture X card, you earn unlimited double miles on everything you buy. 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