← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1935: Ask Farnoosh: How to Navigate Student Loans, Home Buying, and Investing Decisions
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- [00:00]
T-Mobile/Verizon Advertiser
Everyone deserves to be connected. That's why T Mobile and US Cellular are joining forces. Switch to T Mobile and save up to 20% versus Verizon by getting built in benefits they leave out. Check the math@t mobile.com switch and now T Mobile is in US cellular stores.
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Savings versus Comparable Verizon plans plus the cost of optional benefits, plan features and Texas and fees vary. Savings with three plus lines include third line free via monthly bill credits. Credit stop if you cancel any lines. Qualifying credit required.
- [00:30]
Progressive Insurance Advertiser
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Farnoosh Torabi
So money episode 1935 ask Farnoosh.
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Farnoosh Torabi (Intro)
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 Farnouche herself. 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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Farnoosh Torabi
Welcome to Sew Money everybody. Welcome to AskFarnouche Friday. I'm recording this episode. Bracing. You know, we're allegedly preparing for Nor' Easter here in New Jersey and the surrounding area. And I say allegedly because at this point, who knows?
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GELT/Shopify Advertiser
Who knows?
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Farnoosh Torabi
What do we believe anymore? Is it snow? Is it rain? Is it wind? Is it just aggressively cold for no reason at all this next week? It's supposed to be unfair. Under 25 degrees every single day. What I'm struggling with is just getting my son to put on his jacket every day. Does anyone else feel me? You know, I have an 11 year old boy and for whatever reason it's not cool to wear a jacket even though you're going to freeze your butt off. In any case, the weather's been unrelenting and it's the kind of cold where everything in my house feels tense. Like the Pipes are on edge, the floors are on edge. The house is like, don't test me. Which actually brings me to how we kicked off the year in our house. Last week we had a very unrelenting welcome reminder that homeownership is never just the mortgage. Yeah. So we discovered water damage in our house recently and it wasn't from this storm surge. Our house is actually pretty fortified against flooding and we have had some really bad flood episodes in our town, on our street. And knock on wood, our house has gone unscathed. So this water disaster in our basement was from a hose that either burst or cracked or quietly betrayed us, or one of us woke up in the middle of the night and turned it on and forgotten to turn it off. I don't know. We are honestly still not entirely sure how it happened. But what I do know is we went downstairs and we saw that the carpet and the wood outside, the carpet was wet and water was slowly seeping through. It had apparently been doing this for a while. And the second we realized what was happening, I go into worst case scenario mode. I'm like mentally calculating what it's going to cost to rip out the carpet, replace the flooring, do mold damage, deal with all that, bring in specialists and then there goes my tax refund. This was not part of my vision board in 2026 basement emergency. For a brief window of time, it genuinely felt like that. And we had someone come in and inspect it. And actually the inspector was like, if I were you, I would just put the fans on blast, get this dry on your own. And then we assess. So we positioned all these fans strategically. We got a few more fans from Home Depot. It's like we have a wind tunnel experiment going on in our basement. And so we ran those for about five, six days straigh full blast. Don't ask me what my electric bill is gonna be because of this, but the net of it is that I think we can save our carpets. We do have a little bit of water staining on the carpet, but I can live with that. There's no mold from what we can tell. We'll bring somebody in to definitely be sure of that. Slowly things just dried out. We don't have flood insurance and this technically wasn't a flood, so not like I could have even used it for that. But it was a wake up call because I have been thinking about replacing the carpet down there with something more durable like laminate or engine engineered wood to handle that moisture in case of an accident like this or an actual flood. We did open a claim with our insurance company. Very important to do this. We did this right away. We didn't know if there was going to be a huge expense ahead of us. But it's just important to get your insurance company involved as soon as possible. We took photos, we took video, we sent it over. Thankfully, right now it doesn't seem urgent or that it's going to be a big cost. I wouldn't want to. I don't want to use my insurance, frankly, for something that wasn't too expensive because our premium has been going up just because all these years. Imagine having a history of claims and then what the premium is going to balloon to. Which brings me to really why I'm telling you this story. If you haven't checked your home insurance policy in a while, please do. I know that for a lot of us, it has gone up in recent months, definitely over the past year, and we can shop around for this. We're not locked into home insurance forever with this particular company that you're with. It's not a forever deal. What's frustrating is that our mortgage balance obviously has gone down over time. And that's the part people love to talk about when they romanticize homeownership. You get to lock in your rate, your payment stabilizes, you're protected from rent hikes, but nobody talks about the other stuff that go into your housing costs that are variable. Property taxes have been going up in our town every year. Insurance, as I mentioned, there are fees and so that home ownership cost, the total homeownership costs, which really matters that a lot of us don't tally up in its entirety. It's often higher than when you first buy the home. It does creep up year after year, and that's our reality right now. Mortgage is lower, but taxes and insurance have gone up. Which brings me to another important reminder. My interview this week with Alex Gailey from Bankrate. If you haven't listened to that, please listen. Her team found that the average American right Now cannot afford 75% of the homes on the market currently. Just let that sink in. Three out of four homes on the market right now are out of reach for the average buyer. And Alex told me one of the biggest misconceptions that they uncovered in their study at Bankrate is about the true cost of homeownership. People consistently underestimate what it actually takes. Like I said, it's not just the mortgage, but everything layered on top of it. So this whole experience, I'm telling you, it's made me Want to shop around for new home insurance? You should, too, just to see if there's a better rate out there. And I'll say this, even if you love your provider, if you've been with them for years, it's always a good idea to shop around every couple of years. Just like car insurance. Now, another big conversation we had this week, in case you missed it just this past Wednesday. We talked about raising financially conscious kids in this super expensive world and also how not to lose your sanity or your financial stability when your adult children boomerang and come back from college and now they're living under your roof again. Our guest, Randy Crawford, is a life coach who often works with mothers and their adult daughters together. Interesting. Imagine you and your mom going to a therapy session together. She came on the show with some really. I appreciated it, it was tough love. But I think it's important. I think it's important to hear things like, hey, parents. And she said this on the if your sophomore college year daughter has a pipe burst in her dorm room and now she can't take a shower in her dorm room, maybe your first instinct isn't to drive two hours to her college campus, pick her up, bring her home just so she can use your shower. Maybe there are other ways she can get a shower on campus. And in fact, if this was the school's fault, they're responsible. They need to give her accommodations. There's probably a gym on the campus, maybe there's a shower on another floor or another dorm room. But taking four to five hours out of your day to go do this and not inconvenience your kids. She said some parents would say to her, why wouldn't I? It's such a small thing. Why wouldn't I try to make my kids life easier if I could? I'm like, geez, okay, let's see how that one's going to play out. Her message, Randy's message was essentially, parents, stop doing these little things for your kids. Let them struggle a little bit. Encourage them to figure things out on their own, encourage them to fail if that's what has to happen so that they can learn. And making their lives too comfortable at your expense. It's not sustainable. Friction is good. Having some friction in your daily life, what is it? The. What do they call it? Resilience. Yeah, it's a good thing. Now, before we get to the mailbag, I do wanna talk about something that came up this week that kind of made me stop and think. And at first I got a little offended, but Now I'm just like, you know what, I'm gonna talk about it on the. I think it's important and it's a big issue. So we've received a comment from a listener who said that they immediately unsubscribe from so money after hearing me say I asked ChatGPT a question. They said, that's it. I don't wanna listen to people who ask robots to do their thinking. Boring. Okay, they left this early in the month. So I guess I maybe said that at some point in January this month. And look, I go back and forth about revealing to people how much I use AI. And I'll be honest with you, it's medium to a lot. I guess maybe not as much. I don't know, it's all relic. Like, I don't actually know how much people are using AI. I can tell you I'm probably not up there with. I'm not like a 1 percenter. I'm not using it extremely. I probably use it many times a day. It's definitely a tab that's open now on my screen consistently, along with Gmail and the World Wide Web and my new sites that I read. Look, everyone's entitled to their opinion, truly. But I do want to be clear about something. Asking AI a question is not a sign of weakness. It's not lazy. It's not outsourcing your thinking. AI is a tool. People are right now are at Davos, overseas, a lot of international leaders, business leaders, world leaders. And what I'm hearing out of Davos is that in years past, as early as last year, AI was being talked about as like a feature. Now it's infrastructure. People aren't even excusing themselves. They're like, here's what we're doing. It includes AI, in case you didn't realize it. Like, the train is left, we're on it. And that's where the world's headed. If you don't know how to use AI to your advantage right now, in your work, in your personal life, even, I would encourage you to experiment with it. If you don't believe in it, that's your choice. But dismissing it outright, it's like refusing to use a calculator because you're so proud of doing the math in your head or not wanting to use a search engine because encyclopedia, look, AI, it's not going to replace critical thinking. We established this, I think, in the first week of January, my first few shows of the year. We talked about the importance of writing, creative writing, writing critically, bringing stuff Putting stuff out in the world that is from within you and using AI as a tool to polish that or be like a thought partner, but not to replace your brain. It's an augmentation tool. And for the record, I don't ask AI questions because I don't know what I'm doing. I ask questions because I'm curious, because I want to explore angles, because I'm lacking time half the time. Do you know how much time AI has helped me? Or I would go to Google and do new searches or research different kinds of studies, look for data. AI saves me infinite time and it synthesizes things. It's not always correct. We know this, right? AI is not a genius. It doesn't know everything. And often it is incorrect. So part of using AI responsibly, correctly and successfully is fact checking it, not taking everything that it spews out as bona fide fact. It's an advantage in the years ahead. It's an advantage now. It will continue to be an advantage in your financial life, your professional life, ignoring it, unfollowing someone on a podcast, it's not gonna send any kind of message. It's not gonna go away. You can do what you want. But I think this person was also trying to send me a message. And this is my message that I'm giving you now. I'm Farnoosh Tarabi, host of so Money.
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GELT/Shopify Advertiser
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Farnoosh Torabi
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GELT/Shopify Advertiser
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- [14:56]
Farnoosh Torabi
About it and start doing it.
- [14:58]
GELT/Shopify Advertiser
We all have ideas, skills, that thing people keep telling us we should turn into a business.
- [15:03]
Farnoosh Torabi
But January goes fast and if we're.
- [15:05]
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Farnoosh Torabi
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Farnoosh Torabi
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Farnoosh Torabi
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Farnoosh Torabi
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- [16:18]
T-Mobile/Verizon Advertiser
Everyone deserves to be connected. That's why T Mobile and US Cellular are joining forces. Switch to T Mobile and save up to 20% versus Verizon by getting built in benefits they leave out. Check the math@t mobile.com switch and now T Mobile is in US cellular stores.
- [16:38]
T-Mobile/Verizon Advertiser Legal Disclaimer
Savings versus Comparable Verizon plans plus the cost of optional benefits plan features in Texas and fees vary. Savings with three plus lines include third line free via monthly bill credits credit stop if you cancel any lines. Qualifying credit required.
- [16:48]
Progressive Insurance Advertiser
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Farnoosh Torabi
Okay, shifting gears now to talk about some financial headlines you may have missed this week because there's a lot happening. I talked last week about Iran that obviously that story is not over. We have the DAVOS situation. We have the Supreme Court deciding on a bunch of things right now, but these are some financial headlines that I want to bring up because I think they're really relevant and important, timely. So first, good news. Millions of student loan borrowers who are in default just got some temporary reprieve. The federal government announced that it would delay aggressive collection efforts. It had threatened, as we know, wage garnishment, the seizure of tax refunds. The department says they're not doing that right now, but they haven't specified how long this delay will last. The intention with this delay is to give the system time to be overhauled. In the meantime, it's giving borrowers the opportunity to explore options. And defaulted borrowers appear to be in the clear for this tax season. If you're expecting a refund, you can most likely still expect that. Another headline that caught my eye, this one from the New York Times about consumer behavior, and this has bubbled up. People have been watching some trends on these corporate earnings calls, and executives have begun calling today's shoppers, quote, unquote, choiceful, choiceful, which is corporate speak for people are buying less. And retail analysts in this article were very clear that choiceful is coded language. It means sales are down, units are down, and consumers are being more selective. I'll tell you why they're using this pretty word, this nice kind of exciting word, choiceful is so that their stocks don't tank as much. Right. If you're like a Lululemon or a Gap or, I don't know, Macy's, and I don't know if this is true, if they've seen their sales in previous quarters. But rather than saying our sales are tanking and saying choiceful, consumers are being choiceful. It doesn't seem as cautionary. Right. So this word has exploded, apparently, in earnings calls over the past few years. But in recent calls, it's been mentioned 70 times across 43 earning calls last year alone. So it's definitely picking up steam. I think it's also a signal that, yeah, consumer spending is down and times are tough. People are having a difficult time finding work. And as a result, consumers are being cautious. Finally, what does 2026 hold for the housing market? In USA Today, they did a roundup asking a bunch of experts in the field. And what are they expecting? Modest improvement. So we heard everything from mortgage rates may dip slightly. Affordability could inch forward. Home prices are still expected to go up, but more slowly. And if you're seeing a listing on the market that isn't selling, those listings that are sitting longer on the market are seeing the real price cuts. So for you, if you're looking for a home this year, keep an eye out for the houses that are like, I would say three, four weeks on the market and they're not moving. And even if they do go into contract, still follow them because we've also heard that more people are bailing on home contracts. Things come up, obviously getting a home loan and getting from your offer to your closing day, months can go by. And in those months, things can shift. You might lose your job, you might see your wages cut, you might get a divorce. And sometimes the seller too changes their plans. And so the deals are getting scrapped more now than they were last year. All to say, if you're in the market, keeping your eye out may lead to opportunities. And staying on these homes that don't move or even are looking to move. But you never know. Keep an eye out. Homes on the market for more than four months saw average price reductions of 14%. But like I said, don't wait four months if you haven't seen a house move in a few weeks. I would make not a low ball offer, but I would look into it. Ask your real estate agent to look into it. Okay, next up is our mailbag. Today's questions are deeply connected. We've got student loans, family money arrangements, retirement, investing anxiety. Let's get into it. All right, first up, Cherish wants to know. My parents took out parent plus loans for my degree with the agreement that I would pay them myself when the time came. I also have student loans in my own name. Now my husband and I are looking to buy a house. But I'm not sure how to explain these monthly transfers to my parents to a lending agent when we apply for a mortgage. In total, the transfers to my parents are about 5% of our take home income. So maybe it's not a huge deal either way. All right, let me just start with some reassuring news, Cherish. You're not an outlier here. You're not a red flag. You're not doing anything weird or irresponsible. Lenders see this a lot, especially with millennials where parents took on parent plus loans when tuition costs exploded with a very clear understanding that their college going child would ultimately pay them back. Now this is important to understand. Here's where people get tripped up. What lenders care most about is who legally, legally being the operative word, owns the debt. Parent plus loans belong to the parents. They are legally your parents responsibility. Even if the child you is the one Making the payments every single month. From a lender's perspective, that distinction is important. If a loan is not in your name, it is not technically your debt. So when an underwriter is looking at your financial picture, they are looking at the debts that are legally tied to you. They're also of course, looking at your monthly obligations. And if this is a monthly obligation, that's going to be factored in. But it's not as severe as, oh my God, she's got this debt, it's tied to this bank and it's got her name on it. And then they also look at the big picture, like how does this all stack up against your income? Monthly transfers to parents usually don't fall into the category of I have credit card debt or I have a loan with a bank. They're often viewed more like family support or a recurring personal expense. It's not formal debt, again, like a car loan or credit card balance in your name. Now, that being said, it doesn't mean that lenders ignore it entirely. Which brings us to the next key point. Your qualification for a mortgage really boils down to your debt to income ratio. That is the big metric that lenders care about. How much of your gross monthly income is, is already spoken for by your required debt payments. And in this case you say that these payments to her parents are about 5% of your take home pay. That's really modest. If everything looks solid, like you have good credit, your income is stable, you have savings, and all your other debts are reasonable, you and your partner. This alone is very unlikely to derail a mortgage application and it won't even probably hurt your chances of getting a really good interest rate or closing quickly. I think situations like this, people often imagine the worst case scenario. I remember when I was applying for a mortgage in 2020, I was in the midst of a lawsuit with a company that was involving another business that I had started. And we were going back and forth with this lawsuit and I was really worried about this being basically a dead end for me for applying for a mortgage. And because the lawsuit wasn't over a lot of money, my mortgage broker told me not to worry and that's what I want to end on. If you want to talk to a mortgage broker before you apply, that might be very helpful. Mortgage brokers will help you find a good lender, but also they're very experienced in knowing how the underwriting process goes and they can be your advocate and your communicator, your go between as the underwriter has questions about your paperwork and your financial history. They can inform them in a way that they would understand and calm the waters. That was very helpful to us as we were applying for a mortgage in 2020. Not just because of this lawsuit that I was involved in, by the way. We just ended up abandoning it. It was Covid. We had a mediator, and the mediator was like, I think y' all should just go your separate ways. Which we did. And so it ended up not being a big deal at all. But in that moment, I was having, like, panic attacks. But my mortgage lender was able to create the narrative essentially around that, the honest narrative that would not freak out the underwriter in a way where if I was explaining it, I might say the wrong things or say things not the best way and ruin my chances, like shoot myself in the foot. I don't think that what you're going through is as cautionary or nerve wracking as, like me, a potential lawsuit to communicate to a mortgage underwriter. But since we were on the topic, I thought I'd bring it up. All this to say, I don't think you have anything to worry about. Okay, thank you so much for listening, Cherish, and keep the questions coming. All right, another question about student loans. When the student loans are finally gone. Now what is the question? Our friend in the audience, Marissa, wants to know. I'm about to pay off the last of my student loans. So first of all, congratulations. Let's give Marissa a huge round of applause. That is a big deal. Now, what this will mean in her financial life. It's going to free up about $700 a month. And Marissa wants to be really intentional about where that money goes. Here's some background. She's 34. She's married with one kid. She works in education. Her state offers a pension plan, which she does pay into. And she expects to be able to retire around the age of 60. A little bit before 60. And she's expecting to take home about 75% of the salary from her highest earnings earning year, which is great. She also maxes out a Roth IRA every year. So now she's wondering, where should that $700 go? I should also mention her state pension plan does offer a 401k, no employer match. They also offer a 457 plan. She's also asking me whether it's smart to invest in a taxable brokerage or whether there's something else that she should consider. All right, Christie, let me just start off again by congratulating you. This is quite the finish line. For these student loans. And I love that you're trying to be proactive and be strategic and intentional with this $700 because we could easily eat that up every month and not even know where it went. And I also want to acknowledge that at your age you are far from behind. You have a solid pension, you have a max out Roth ira, you've got a clear retirement timeline. This is about optimizing. How can I put this $700 in a place where I can refine my financial plan optimized. What I would say is if you do decide that you want to play some catch up with your retirement and you want to supplement that, I would say first let's look at the tax advantaged accounts that you have at your disposal. You mentioned your employer offers a governmental 457 plan. I think that's often the sleeper hit. A 457 plan functions similar to a 401k. It's available to teachers, public sector workers. I like it because the contributions are pre tax which lowers your taxable income. Now kind of like a 401k. But the big advantage is flexibility. With a governmental 457, once you separate from service, meaning you leave that job, you can access that money without the early withdrawal penalty even if you're under the age of 59 and a half. So you still pay income tax, but there's no penalty. And that matters a lot if you're planning to retire. Like you said around 58. If you want optionality, the other route you might want to consider is that 401k, there's no match. So I don't love it. But it is a great tax advantaged account. Again with some low cost investments inside solid option. If I had to rank them though, I would say 457 first. Then look at the 401k you asked about the brokerage account. That can make sense, especially if you want flexibility for your goals before retirement. But if you really want this $700 to go towards retirement, I would not put that in a taxable account. At least not as my first stop. Use your tax advantage space first. Once that's maximized, then you can layer in taxable investing. And then finally I'll just say treat that extra 700 bucks the same way you were managing your student loan payment, which is that you you invest automatically, consistently. And the good news now is just that this money is going towards your future freedom. Consistently. And again, congratulations. Next week actually we're talking about the 529 plan. For those listening who have young ones that they want to get college ready and financially ready for college. 529 all the things you want to know. Some of the new news around the 529the myths. We have a great guest on that for you on Monday. And finally our last question. I actually did a workshop this week for entrepreneurs to teach them about investing. It was for the Entrepreneurs Organization, a global network of entrepreneurs. And someone in the Q and A asked me a question that I wanted to bring to the show because I thought it was really relevant. I hear this constantly. They asked, given all the uncertainty in the markets, should I divest from the US investments in my portfolio and focus more on international stocks and bonds? And my answer was no, do not divest, but do diversify. And those are two very different things. Divesting from the US because you're nervous about headlines is essentially a form of market timing which last I checked, nobody's really good at doing that. It's a bet that you know what's going to underperform and when. I mean, who knows that historically it's not a winning strategy. Diversifying, on the other hand, is about risk management. It's not about having a crystal ball. It's about admitting, look, I don't know how the market's going to perform next, so I'm not going to put all of my eggs in one basket. And the US Is diversified. If you're invested in the s and P500, yes, that's a very diversified index fund. Nothing against it, but you even heard one of our guests recently talk about the importance of diversifying beyond that too. Because a lot of what you're seeing make up up The S&P 500 now are tech stocks, Nvidia Meta Alphabet. The weight of those stocks in that index is considerably high. So you think you're like investing in the S&P 500 and you have all this broad exposure. Yes. And you're very heavily invested in tech. So a good rule of thumb for all investors all the time, make sure you're diversified across sectors, geography. And so if you're just in an s and P500 index fund and you are concerned about the volatility in the market, I wouldn't take money out of the s and P500, but I might add to the portfolio, maybe add an international index fund. Often you can find a low cost international stock market index fund that includes a mix of developed and emerging markets. Keep your US investments, just add exposure to different again, economies, political systems, geographies, currencies, interest rate environments and then you can rebalance over time. I would say this is especially important for folks who are closer to retirement when your time horizon shortens how much volatility you can stomach. So by diversifying in this way, you can make your portfolio more resilient without having to divest. And that's our show everyone. Thanks for tuning in. Like I said, on Monday we're going to be talking about five to nine plans. If you've been thinking about saving money for your child, it's college education. Or if you have a niece, a nephew, a grandchild that you want to invest for their education. And by the way, five to nines are not just for college any longer. You can also use it for K through 12 education. You can use this as a way to pay for college related expenses. Non traditional four year colleges. If you want to go to cosmetology school or go to a plumbing school or get a certification, it also counts. It can also be used for that too. So we'll learn a lot more about that on Monday. Stay warm everybody. If you're on the Northeast, stay safe. I'm sure we'll have many states of emergencies over the next couple of days, so protect yourself, look into your home insurance and I hope your weekend is so money.
- [34:19]
T-Mobile/Verizon Advertiser
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