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Monday, August 15, 2022

Ask Farnoosh: Recession-Proof Finances by Paying Down Debt or Boosting Savings? – Video

Speaker 1: Welcome to so money, everybody I’m Farish Torabi, it’s August 5th, 2023. Welcome to the show. We have some exciting announcements to share with everybody announcing this week. The recession help desk. Yes. This is a little bit of a pet project of mine at CNET money. Start to think, um, a couple months ago that things were only gonna get a little bit more difficult, uh, with the fed raising interest rates, inflation going nowhere, uh, layoffs, abounding. [00:00:30] I thought, you know, this doesn’t exactly feel like 2008, but you know, they’ve surveyed Americans now 58% say, yeah, the recessions landed. Uh, so, you know, we can wait for the N B E R the national bureau of economic research to make the official claim of whether or not we are in a recession. And I know there’s a lot of debate about whether the two back to back quarters of negative GDP amount to anything I think they do.

Speaker 1: But look at, I don’t [00:01:00] have a PhD in economics, so I I’m just, I’m just Farish hosting the so money podcast editor at large of CNET money. And I hear from you every day I hear from you, this show is gonna be about hearing about your questions. And I know that time is, uh, is the time is now to be talking about recessionary steps that we can all be taking to alleviate some of the financial pain that we are going through or, or will maybe be going through. So we’re [00:01:30] not gonna engage in the debate over whether or not we’re in a technical recession as CNET money. We are. Instead we’re interested in bringing you important information and advice and insights to help you make the best money moves possible. And I’m so proud of our coverage that has already existed on this topic from tackling inflation to layoff, uh, challenges, rising interest rates, the bear market.

Speaker 1: And there’s lots more to come at a destination on CNET money called the recession [00:02:00] help desk. It’s a curation of ongoing, uh, pieces that are tied to our current economic challenges. I’ll put the link in the show notes and really cool. You can email me and our whole team with your questions tied to the recession, or, you know, the pending [email protected] And later on in this show, and for many Fridays from now on, we’re gonna be addressing a recession help desk question. [00:02:30] So send those questions in recession, [email protected] I’m not sure when we’re gonna end this, but we’re just beginning. And I look forward to fielding all of your queries. Also have to tell y’all to go back and listen to this. Week’s shows. If you haven’t this week was pretty spectacular, I’m gonna go backwards. I’m gonna start on Wednesday. We had on the show, Leah Rudick, who was an actor and a comedian, one of the funniest people on [00:03:00] social media as well.

Speaker 1: I discovered her on Instagram. This can happen, you know, you can serendipitously meet cool people on Instagram. You can reach out to them. And even though they have 150,000 followers, they might write back to you, uh, and respond to your girl crush, you know, begging them to come onto your podcast, cuz you think they’re so darn funny. Leah Rudick is, as I said, an actor and a comedian based in LA, she was on the show. Wednesday graciously agreed to come on the show. She has these viral videos [00:03:30] on TikTok and Instagram. She’s garnered over 10 million views on the social media platforms and what I particularly love and what I was initially drawn to Leah four were these sketches of the wealthy woman that she has invented and the wealthy woman in all of her very basic adventures, like going to the DMV and going on a bus ride, uh, going on spring break, just hilarious.

Speaker 1: Uh, that’s all I’ll say, just go find her she’s everywhere. Leah Rubik. I’ll [00:04:00] uh, put that show. Uh, well you can just, if you’re listening to this podcast through a podcast player, just go to Wednesday’s show and listen to, uh, her and I talk about TikTok and her fandom there, the behind the scenes of how she’s grown that following, owning your, uh, your, your progress, your success in the world of comedy, particularly as a woman and how to get that Netflix special. Cuz I think we’re all interested in that. You know, at some point it’s on, it’s a, it’s a bucket list item for many of us <laugh> [00:04:30] I feel like thinking about those Netflix specials like candy now, but clearly not, cuz I don’t have one of first. I gotta get a good set together. I think that’s my problem. And maybe also millions of TikTok followers, I’m working on it on Monday kicking off our week, we had on the show, Chelsea Fagan, she is founder and CEO of the financial diet.

Speaker 1: Y’all know what that is. Right. I want to tell you what the financial diet is. It’s a multimedia financial advice platform for women spectacular [00:05:00] and Chelsea’s very opinionated, which I love. And she came on the show to talk about all the things she’s saying no to, um, things that she has been saying no to for a long time. Like she has intentionally decided to design her life as a child free person. She and her husband mark do not have kids by choice and how to kind of be good with that because that’s a, you know, I’m using our quotes unconventional choice. It’s a choice that let’s just put it this way. Her [00:05:30] friends and family are like, why, what, you know, they, they target a lot of annoying questions at poor Chelsea. And so she talks about how she can has learned to stand firm and not, um, cower or like feel like she has to defend her position on things that she chooses to do in her life that may not be what other people or like the majority of the culture or her family, uh, follow and how you can too.

Speaker 1: And also what are those financial, uh, [00:06:00] I guess fads or trends that we should totally stay away from. So we know things like MLMs, multi-level marketing crypto, uh, very problematic, right. Yet very popular in some circles. But she also brought up with, I thought was interesting. This, she calls it the tick to ation of shopping. And what does that mean? How is that a slippery slope? And um, we also talked about B NPL plans by now pay later, haven’t [00:06:30] talked a lot about my opinion of B NPL on this podcast, but we get into it on the Monday show and you might learn a thing or two about how I feel about these, uh, you know, these installment plans like four, four tiny installments to buy a bathing suit, come on people. Let’s just let’s

Speaker 1: It’s so frustrating. B NPLS are taking over apples, getting into it. It’s not something that, you know, I think it’s just here to stay, but uh, the consumer financial protection bureau [00:07:00] is looking into them because you know, they’re, they have questionable practices, marketing practices, data collection practices, even their fees. They’re late fees tend to be on average higher than a credit card, late fee. They don’t. Now I’m just telling you how I feel. You don’t have to listen to the episode, but basically, uh, they, I, I find it very one sided. Like you can use these programs, these plans, and they tout themselves as, you know, these interest free payments. You don’t need a credit score or you don’t need, [00:07:30] you know, very, very light credit check if at all. And yet if you miss a payment, you better believe they’re gonna report that to the credit bureau, the credit bureaus.

Speaker 1: But if you make all the timely payments and you follow the rules, your credit report will never know that you were a responsible, uh, you know, borrower. And so it’s like, could we, you know, maybe balance that out to start with anyway, issues, issues with B NPL and that’s my Ted talk [00:08:00] on B NPL. So check out Leah Rudick on Wednesday and Chelsea Fagan on Monday, let’s go to our reviewer of the week. This person will get a free 15 minute money session with me. And this week we’re gonna say thank you to been there. That’s the name? That’s the alias been there? Finance talk, not boring Farish. Uh, I have to confess that if Farish had a podcast about basket weaving, I would subscribe. Listening to Farish is [00:08:30] like spending time with a kind wiser older sister or friend. She makes me feel like no question is too dumb or complicated.

Speaker 1: Whether the topic is what, sorry, whatever the topic is. She has no nonsense, easy to follow analysis. Personal finances can be confusing and overwhelming, but furnish makes it less scary. I can finally talk about finances. Like I actually understand it. I mean, what better endorsement is that? I mean, to say that you’d watch me weave a basket or teach you [00:09:00] how to weave a basket. <laugh> um, that was always my joke back in the day when people were trying to determine their majors in college, um, you know, it was like, oh, I don’t know. I’m either gonna major in finance or basket weaving. It’s, you know, it’s pretty complicated. Uh, so anyway, thank you so much. Been there for this cool review and you can email me far. You should so many podcasts.com or you can direct message me on Instagram or do both cuz better.

Speaker 1: Your chances of me, uh, [00:09:30] seeing that you got in touch, it’s been a busy it’s busy summer. Uh, and let me know you left this review and I will be in touch with a link for us to connect and chat about whatever you want. Sounds like you got a pretty good handle on your finances, but um, I’m here to serve. So whatever is on your money mind. Um, alright, so let’s go to our inaugural recession, helped ask question of the week. We’re gonna do this every Friday until TB date. Cuz I, I mean, I know we [00:10:00] don’t know if we’re really in a recession or whatever, but it’s gonna happen. Right. And then we’ll just say we were ahead of the curve this week. Our question recession helped us question comes from Rita. As we go into a recession for news, should we pay off our debt or keep money in savings and pay off debt slowly?

Speaker 1: Such a good question to start with. I think this is like a perfect question to start our recession help desk, uh, program campaign, because [00:10:30] it is, I think first of all, something, a lot of people are probably wondering and it deals with some pretty giant issues in personal finance, like debt and savings. So to answer this, I think I’d first wanna know and I don’t of course, but I would love to know what kind of debt you may have interest rates specifically and how much you’ve already gotten savings. Okay. Because then I’ll be able to kind of give you a better sense of what to do. So without that, I’m gonna just guess a couple of scenarios [00:11:00] and then give my recommendations and then maybe you’ll hear yourself in some of these scenarios or one of these scenarios. So firstly, if you have, let’s say enough in savings where you can cover basic expenses for, you know, six months would be great.

Speaker 1: I don’t know. Again, one thing I would like to know is like, where are you in your career? Are you a younger employee? Are you an older worker? Because depending on your honestly your demographic [00:11:30] and the industry that you’re in, you may have be able to find a job quicker than others. So this is all a lot of like give or take here, but basically six months, four to six months would be great. And if you have that and um, that’s great. Cause then if you lost your job, you know, and you need to like pay for medical expense or pay for your rent and all that, you’d be good if that’s the case. I wouldn’t worry about contributing extra to the savings. [00:12:00] I would focus on the debt and I would start with the debt that has the highest interest rate. So what’s high, I think more than six, 7%.

Speaker 1: So that may be a personal loan. It could be a private student loan. It could be an old car loan. It might even of course, if it’s a credit card, I would, I would put a double digit there. I’d probably, it’s probably more like 16, 17% if you got a credit card, outstanding balance. And yes, that would, that would top probably the list. [00:12:30] And the reason is, is because savings is good. I’m not worried that you’re gonna, like if you lose your job, you’re gonna have a problem there. The next most important thing is your loan interest payments. And you know, with rising interest rates, if any of those debts are variable too, you wanna prioritize by the highest interest and the ones that are variable and put an extra principle payment or an extra few minimum payments towards those debts to, [00:13:00] uh, just get outta that as soon as possible.

Speaker 1: Those are your most expensive pieces of debt. This is a little bit counter to maybe what you we’ve talked about in the past and in the past maybe pre pandemic. I think in the pandemic, we really changed in the personal finance community. Me, me, certainly the recommendation for what, which one to prioritize savings or your debt. And honestly, in the pandemic, I was like, if you’ve got debt, but no savings focus on the savings for sure worry about the debt later. [00:13:30] And, and in some cases it was solved for us. Like our student loan payments are federal student loan payments were paused, still paused. Uh, so I’ve changed my tune over the last few years over, you know, whether or not debt should Trump savings. And I used to say, Hey, try to do both, but as we may be entering a recession or our inner recession, I think savings is really important to an extent.

Speaker 1: And then of course, debt is important to address, especially that higher interest, uh, the [00:14:00] higher interest loans in credit card balances, which may adjust higher as the fed continues to raise rates now a different scenario. So that’s scenario number one, you have ample savings and some high interest credit card debt. I would say high interest credit card debt takes precedence a different scenario. If you don’t have a lot in savings, you just have maybe a few weeks worth of cash to tide you over in case you lost your job. Um, I would prioritize putting more into that [00:14:30] bank account for a little while longer before making any extra payments on the debt. This also depends of course, on how much extra you have at the end of the month. So how limited is your cash flow here? Are you living right up to that paycheck to paycheck level?

Speaker 1: Or do you have hundreds of, of dollars maybe a thousand extra dollars a month? Because if you, depending on how much you’ve got to go and stretch, and then maybe you could do a hybrid approach, right? Where you put some in savings [00:15:00] a little bit towards the high interest debt. Um, so that’s another way, I guess. So I gave you like three scenarios here, but again, as you can tell, it’s very much gonna be aligned, adjusted to your predicament, how much you got in savings. What’s your debt scenario like in terms of the interest rates that you’re carrying on these debts and where are you in your career? So we can kind of guesstimate. If you got laid off, how long may [00:15:30] it take for you to get that next job could be less, could be longer, could be, you know, depending again on your, um, industry as well as your age.

Speaker 1: Not that employers can discriminate you based on age, but we know that younger workers are a, a bigger part of the workforce at present. And there are perhaps more entry level jobs and there are senior level jobs. So that’s just all important to know, right? So that’s our first recession [00:16:00] to ask help question. Thank you so much, Rita. And we wanna hear from you go to recession, [email protected] Send us your question and you could be featured in a Friday episode. Okay. Going to the regular mailbag. Now we have a question from Debbie downer on Instagram, Debbie downer, come on. Now I get, it’s a joke for two years for our new, she says, I’ve contemplated leaving my job at a nonprofit, but I’ve hesitated leaving. [00:16:30] I haven’t had the capacity to apply to other jobs or take a vacation in over a year. I’m checking off all the boxes of burnout and it’s affecting my mental and physical health.

Speaker 1: I finally hit the breaking point and know that I cannot keep operating at this level. When I leave. I’m worried about tapping into my emergency fund. It’s hard enough to get me through three months, but I feel like my emergency fund should be for real emergencies, like a health crisis or car trouble. But now [00:17:00] I’m considering withdrawing from my Roth IRA to have a cushion. When I leave, is there any fine print that I need to know? I’m 29 years old. I have no dependent other than a dog and taking one month to three months of rest to travel and properly job properly. Job search would love to hear any advice you have, especially knowing the uncertainty of the market. Your show has helped me a lot, um, and taught me what money can mean when you save it. Thanks for all you do. Debbie downer.

Speaker 1: Thank [00:17:30] you so much for getting in touch. All right. I have some ideas for you, but I wanna go back to what you said about feeling guilty using your savings and only using savings for real emergencies, like a health crisis. But didn’t you just say that you’re burnt out. Burnout is a health crisis. If, if you don’t believe me, go back and listen to my conversation with Kate Donovan last week, she’s the creator and host of fried the burnout podcast, just a Marvel that [00:18:00] show and Kate, and we talked about burnout and the signs of burnout. What is the true definition of a burnout? Why we have to really respect and address burnout like a medical health crisis. So yeah, valid, you gotta use that savings and anybody who uses their savings to help themselves out. Why would I ever discourage that? I don’t care what you use it for.

Speaker 1: I mean, don’t go buy a car with it, but it, or maybe you do because it’s [00:18:30] gonna help you get to your job and your job’s gonna give you money. Don’t be so hard on yourself about what you’re using your savings for. Maybe be congratulating yourself, but that savings is there that you put the hard work there. So now it’s there for you to serve you in this period of uncertainty, right? Like you don’t have to have a dire circumstance. It can just simply be. I need to invest in a tool, in a car to get myself from point a to point B. I need to get some rest. [00:19:00] I need to check out for a while. That’s all valid. You got my permission anyway. So I just wanna say that don’t feel any guilt around using this savings to invest in your health. Health is wealth.

Speaker 1: Secondly, you seem to have your mind already made up about tapping your Roth IRA. And I just wanna maybe take a few steps back. Don’t want you to jump the gun there. You know, let’s look at what you have. You have three months worth of savings. Ideally like we talked earlier, you’d have closer to 4, 5, 6 [00:19:30] months, but Hey, maybe you do have more than three months saved. So I would encourage you to really examine that cash that you have and the budget that you are sticking to at the moment and how you may be able to pair that down, to stretch that three months worth of savings to possibly four, possibly five months of savings. Um, and because here’s the thing you’re saying, you wanna take some rest, which is important, but one to three months, you know, and then you’re gonna start job searching.

Speaker 1: [00:20:00] So jobs don’t happen overnight, right? You have to, even if you were to like write today, start to like apply for jobs. It could take three months before you get an accepted offer. Because depending on the bureaucracy at the company, how big it is, the hoops, you might have to go through the interviews. All of that. It may take several weeks if not months. So just bake that in to your calculus for how much you’re gonna need. And, you know, realistically, uh, what this, what you have ahead [00:20:30] for you, what you have, what you have, uh, to look forward to, or, or not look forward to. So first step just retool that monthly budget so that you can really just optimize the cash that you have on hand so that you’re not gonna have to attack the Roth IRA. You know, another way you can stretch that savings.

Speaker 1: And we talked about this with Kate on the podcast is you, you know, imagine you’ve now quit your job. How can you bring in some extra money in other ways that [00:21:00] is not stressful, where you’re not having to go to work and be drained emotionally. This is something that, you know, I think is great in any economy, but particularly now we don’t know where the job market is going. And, and the idea of like being out of the job market for three months. I mean, right now I think the power balance is tilted into the favor of employee employees. There are more, um, job openings and there are qual, you know, people looking for jobs. We know this. [00:21:30] So a lot of companies are, are struggling to fill positions. So that gives employees perspective employees leverage, but I don’t know how things might change in the fall.

Speaker 1: As rising rates put more pressure on companies and they may start to cut back and lay off or do hiring freezes. So you don’t wanna, you wanna be very mindful of the time. It’s just what I’m trying to tell you. And so to work somewhere, [00:22:00] to stay productive, to stay connected really, really it’s for you for the network for the connections, stay in the game. So just pointing all of that out, because I don’t want you to lose momentum. I don’t want you to feel like you are gonna start applying for jobs after many months of not having a job. And then, uh, you know, having to explain that gap, um, when at a time when employers may not be so desperate to hire people, let’s just say, um, but also because [00:22:30] this is gonna help you out financially, can you bring in 500, a thousand dollars a month through some side hustles, some freelance work, things like that.

Speaker 1: Uh, you know, again, we talked about this with Kate, where, when you’re transitioning from burnout, especially, it’s not like you leave your job in the burnout stops. You know, you have to really work on yourself, figure out why you were burnt out. And along the way, I think you don’t wanna add financial stress to that, you know, to always be [00:23:00] worried about, am I gonna deplete my savings to just have something like you just literally clock in and clock out? Like it could just be a job that a retailer, why am I saying this? Because I don’t want you to have to tap your Roth IRA, right? I’m really protective of, of retirement accounts. There’s no catch of course, to make those withdrawals from your Roth IRA, you can make, um, withdrawals of whatever contributions you’ve made to your Roth, IRA penalty, free tax free.

Speaker 1: But after the fifth year, you can take [00:23:30] out the earnings tax free penalty free. So yeah, you can do it, but I ideally, I would just love that we never have to resort to this. And maybe you could do do the first couple things that I suggested, which is stretch the budget, get a second, get like a part-time job. And then if you do need more time off and you’re, you’re like, oh, okay, I’m gonna probably run out. Um, look at the Roth IRA as a supplement, but don’t immediately [00:24:00] assume you’re gonna need it. Um, because that’s gonna just miss out on the compounding growth and you wanna be able to protect yourself today, but also yourself in the future. And you know, your Roth IRA is, is flexible. It’s got this provision. You can take the money out, but you know, I, I just want you to try to consider other pathways before you do that, protecting your future self.

Speaker 1: Okay. Next up is our friend Joseph who writes emails, in fact, [email protected] [00:24:30] If you wanna do, uh, an email, but he says Farish, thanks for being such a fabulous, refreshing money voice for me over the past four years, devote here, you have helped establish such a solid financial foundation for my husband and me and made my work travel much more fun as I caught up on all your episodes over the years. So here’s my situation. My husband is in his first year of medical residency in the Burg area. He’s 32, I’m 34. I do well financially. I make [00:25:00] $90,000 a year with a strong career path ahead, but we’re not gonna be able to afford anywhere near a 20% down payment with the Denver market. The way it is, we would need to wait many more years as opposed to buying in one to three years.

Speaker 1: Uh, I’m wondering if we can rely on the physician mortgage option and continue putting 18 to 20% toward retirement, which seems like the smarter move and not cut back there. We know we’re lucky to even have this physician mortgage [00:25:30] option, and especially if we can get a fixed rate, it seems like the way to go, or is it better to wait until we put closer to 20% down? What do you think? Am I missing something? Am we do have a six month emergency fund and no debt? All right. Joseph rocking enroll in and Denver. So beautiful. I miss Denver, I looked up Denver. It’s quite a hot market. As, as Joseph describes in June, Denver homes were up 12 and a half percent that’s prices compared to the previous year [00:26:00] average median selling price $620,000. So this is the question. Should they take out the physician mortgage also known as a doctor loan and, and just for everybody listening, what is this?

Speaker 1: Essentially? These are loans meant for new medical professionals that are just entering the field. Doctors, as we know are often at a disadvantage when they are trying to get a regular mortgage early in their careers, because they have like a very lopsided debt to income [00:26:30] ratio. They’ve got a lot of student loan debt, not a lot of income yet, but we know that equation usually changes because doctors, um, they can’t, they can make a lot of money. And so they created this mortgage for physicians specifically that allows them to skip both a down payment and private mortgage insurance. And this is a question that, that comes up a lot, not specifically this physician loan question, but this idea of like, you know, skipping the down payment when, [00:27:00] when possible, cuz there there’s federal housing, uh, association loans, FHA loans that do provide that veteran loans, things like that, that people can tap into to, um, avoid the down payment.

Speaker 1: And we talked, we actually covered a bit, I think in a previous asked for near, I think last Friday, somebody asked about, uh, FHA loans and no down payment loans. And I was like, you know what? Just because you can doesn’t mean you should, you really have to know your risk tolerance and also risk assess the town that you’re buying in. [00:27:30] So a few thoughts for you, Joseph, you know, you’re in Denver now because that’s where your husband is doing his schooling, but, or his residency, but will you be there in the long run? And so if you’re gonna do this, do it when you’re positive, you’re gonna be in an area for a minimum five, 10 years because the big risk, the top risk, I think in a no down payment scenario is that the home price drops you need to sell because you’re now moving [00:28:00] and you’re underwater.

Speaker 1: So you’re gonna sell it a loss potentially. And you know, that’s just like obviously the first thing you have to think about it may not matter if the home price drops and you’re still in the home and you can make the payments and you’re earning money and who cares, cuz you’re gonna be in this home for a while and home prices go up and down and you know, you feel covered, but just be aware of that risk. It’s why, you know, if Denver is gonna be your ride or die, like, okay, let’s, let’s think about this. Let’s think about this. Some more. [00:28:30] The other potential issue with these types of loans is that they don’t offer a fixed interest rate in many cases with, uh, an adjustable rate mortgage as Mo what you’re most likely gonna get. You know, you’re gonna get that lower interest payment at first, but then it’s gonna adjust higher and it’s going to usually align with wherever like the rates are going.

Speaker 1: And if rates are going up, then your arm is gonna go up as well. So you may have to prepare for [00:29:00] increased monthly payments as you live in this home. Now that said, you may be able to refinance eventually to a conventional 30 year fixed rate mortgage. But at that point you’re gonna have to really have a much better debt to income ratio. The two of you, you’re going to have to show obviously years of, of work and good credit scores, all those things you’re gonna have to basically now apply for a mortgage again. Um, and you’re gonna have to have equity, but the upside to that is that maybe you’ll get a fixed rate in [00:29:30] an environment where our rates are uncertain and they seem to be trending higher. Um, and then the last thing I wanna say about this is just again, we talked about Denver and it’s competitive.

Speaker 1: It seems still, and if you’re like loving a house, but you’re going down with 0% and there’s a buyer, that’s got all cash or 50% down, which is not unheard of right in this very, very tight housing market. You know, this isn’t the most competitive place to be [00:30:00] as a 0% down payment borrower. You’re not a very competitive buyer in many markets right now that are experiencing a lot of demand relative to their supply. So just another thing to manage expectations. Um, but again, I think the big issue here is how long are you planning to live in Denver or somewhere else where you’re gonna be taking on this loan? Make sure it’s a pretty long time that you wanna be there so that you can ride out fluctuations in the home value [00:30:30] while you have 0% equity, you could refinance eventually down the road, um, from an arm to a fixed rate.

Speaker 1: But at that point you wanna have, um, a stronger financial, uh, sort of profile and then be prepared that this may not, um, you know, win over sellers who are looking to get top bid on their homes. But I appreciate the question and thank you so much for being such a loyal listener all these [00:31:00] years to the show. And I think I, yeah, I mentioned you, you caught up on all the episodes that damn Joseph my God, thank you so much. All right. And last but not least, we have our friend Allie, who’s wondering how to transfer brokerage accounts. Here’s the question far news. I am ready to break up with my financial advisor thanks to programs like yours. Okay. I don’t know how I feel about that, but I, yeah, if you’re not happy with your financial advisor, it’s time to break up. It’s not cheap, right?

Speaker 1: It’s like, but it’s like breaking up with your hairdresser or your dentist. [00:31:30] It can be awkward. Anyway, she says I have a $300,000 taxable brokerage account and a $33,000 Roth IRA, by the way. Amazing. I’m a teacher in California. So I’ll be getting a pension. Is there any special considerations for moving money out of Schwab? My broker’s house to my fidelity account, I know 401ks need a custodian to custodian transfer to avoid the taxes. Is there anything like that for IRAs, for taxable accounts, I’d like to make this an easy breakup. [00:32:00] All right. So our question is how to transfer the money to avoid potential taxes or penalties. Uh, my recommendation Allie first is to hook up with someone an in-house financial advisor expert at fidelity, which is the receiving firm, cuz they’re gonna be taking that money in, who can explain to you the process and you tell them also what you wanna do.

Speaker 1: And they will explain to you, you know, how they’re gonna do this transfer. They a lot of these time, a lot of times these happen automatically, but it’s always good to [00:32:30] talk to a human to understand the process. They’ll probably have you fill out an online form it’s called the transfer initiation form and they’ll handle it. You’re dealing with two well known established brokerages. That’s the good news. These aren’t like obscure companies. Um, I’m sure Schwab in fidelity talk to each other every single day for these reasons. So it’s totally protocol. And um, you know, ultimately the goal here is from Fidelity’s [00:33:00] perspective and I think this is what you want too, is to set up identical accounts for you at fidelity so that the fund transfers can go basically from apples to apples. Now there may be some cases where you have some funds ETFs that are very specific to Schwab it’s it’s happened.

Speaker 1: And Fidelity’s like, well, we don’t carry that exact flavor of mutual fund, but we have something very similar. So what they’d have to do probably is cash out that particular fund and then [00:33:30] take that cash and reinvest it in that very other similar fund. But they won’t probably ever do that without letting you know, they have to disclose in those cases when they’re cashing out your investments. Uh, so you will be informed, I’ve gone through this, I’ve gone through all of this. I’ve broken up with my financial advisor. I’ve had the transfers happen, takes a couple of days. Um, and I just, again, I applaud you for breaking up with your advisor, if you felt like it wasn’t the right fit. And I, um, actually wanna take the last few minutes [00:34:00] here to read you the email that I sent my financial advisor back in the day when I was trying to make a clean split and full disclosure.

Speaker 1: It, it, you know, I liked my financial advisor. Well, it was not, it wasn’t her, it was me <laugh> okay. I still talk to her. I still recommend people to her. I think she’s great. I just think that we sort of outgrew her and me and my husband. I, um, you know, we were working with her when we first got married. She set us up with all the great things, you know, 5 29 plans. She got [00:34:30] us hooked up with an insurance agent to fill up our sort of insurance, uh, holes in our, in our financial life. We needed more life insurance. We needed, I needed disability insurance. Um, yeah, so we got all that, you know, and we paid for the financial plan and we were just like cruising and I just felt like to pay the fee. And this was before robo advisors, I should mention.

Speaker 1: So once robo advisors entered the picture, I was like, Hm, bye. So here’s what I wrote. Okay. And [00:35:00] you can just copy paste this. I won’t, I won’t come after you for, uh, copywriting, dear. So, and so we are writing to let you know that we really appreciate the hard work and thoughtful guidance you’ve provided us over the last few years. We feel confident in knowing that we are gonna hit our retirement goals. Our estate plan is in great shape and Evan’s 5, 2 9 plan is growing as we review our needs going forward. We don’t think we need as much undivided attention. We’ve made the decision to work directly with financial advisor [00:35:30] brokerage house. I should say. Uh, we think this move will be best for us over the long run we trust you understand. And you’re probably not surprised based on our conversations earlier this year.

Speaker 1: Again, thank you for all that. You’ve helped us with. We couldn’t be here where we are without you. And we’ll continue to refer many friends and colleagues your way. Please let us know what next steps you recommend. And you know what she wrote back a very nice reply. Totally understand you guys are great. I will be [00:36:00] in touch with next steps and that is how it’s done. Okay. It’s just cordial clean by and I probably have saved thousands and thousands. That email saved me. Thousands of thousands of dollars. I, and I didn’t drag my feet. You know, I just was like, it’s time. It’s time Farish. And that is our time. That’s a wrap everybody. Thank you so much for joining me on this Friday. I hope you have some fun plans. We’re gonna throw a big, uh, bouncy castle party [00:36:30] for our daughter’s, uh, graduating pre-K class at our place, uh, weather permitting. And so, yeah, that’s what we’re doing. Good luck to me. Thanks so much for tuning in. I’ll see you back here on Monday and I hope your weekend is so money.

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