Next up in our personal finance guru Q&A series is Farnoosh Torabi, who doles out financial advice regularly on all the major morning talk shows, writes MoneyWatch’s Your So Money blog, and has a new book out called Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life.
What are some of the newest fees confronting consumers nowadays, and what are the easiest ways to avoid them?
Farnoosh Torabi: Checking account service and transaction fees are spreading like wildfire. They include new minimum balance fees, money transfer fees and increased ATM fees. We’re also seeing rewards cards tack on new or greater annual membership fees.
The best practice is to pick a bank that’s not going to nickel and dime you – and they do exist. Credit unions, while also under pressure to raise fees, remain one of the best places to start. But if you don’ t want to switch banks, find out what your existing bank’ s minimum balance policy is and whether you need to move some money around to avoid a possible monthly fee.
As for ATMs, there are several ways to avoid getting hit with those pesky fees, which can easily add up to hundreds of dollars each year. First, consider banks that allow free ATM withdrawals. Ally Bank’s online checking account customers pay no ATM fees whatsoever. HSBC Direct, meantime, reimburses customers for up to three times out-of-network ATM fees per month.
For someone who has the money: Do you think it’s foolish or wise to buy a house with cash nowadays?
FT: If you have the money in the bank and then some, paying for a home in cash is not only wise, it eliminates all the stress, time, and paperwork banks require of us at the moment. You get to move in a lot quicker. It’s no wonder that 30% of homebuyers last month were all-cash buyers. It eliminates the hassle of dealing with very overwhelmed banks. It took me four months just to refinance my mortgage this summer.
If you can afford to part with the money, meaning you have a sufficient rainy day savings account (like, eight months to a year’s worth of cash) in addition to cash for the home, this can be a fantastic move. And let’s not forget – when you pay in cash, sellers salivate. They know an all-cash deal will move their home off the market much, much faster, and to them that should be worth lowering the price to seal the deal.
Other than buying a house, under what circumstances do you think it’s OK to borrow money?
FT: Borrowing for a car, a small business, and a smidgen of your education costs are OK in my book (hopefully not all at the same time) … assuming you have income and savings to back it up.
And in what situations do you think it’s absolutely a bad idea to borrow — via a loan, or a credit card you can’t pay off immediately, or some other means?
FT: Carrying a balance on a credit card is one of my biggest pet peeves. I haven’t done it since I was 24 and hope to never again. Taking out a high-interest loan, which is basically what a credit card is, to finance a sweater from J.Crew or a cab ride to Times Square, which I have done, is ridiculous.
I also disagree with borrowing money from family. Unless you have the stomach for it and a sound contract in place, that’s just asking for trouble and an awkward Thanksgiving.
And lately I’ve been getting more and more disgusted by student loans. Lending in that department has gotten completely out of hand, to say the least, and it’s evident by the rising rate of defaults that this will be our country’s next major credit crisis. I actually have a formula for how much is OK to borrow for school, and it assumes your estimated first year salary and the fact that your debt repayment shouldn’t exceed 10% of your budget. Unsurprisingly, I got a few pieces of hate mail over this post.
What are some of the ways you see people spending their money that will never make sense to you personally? You know, the expenses or splurges that always leave you scratching your head?
FT: If someone has savings, no debt and wants to spend discretionary income, I can’t be one to judge. But OK, some expenses I just don’t get:
Tanning bed sessions. Even a tax won’t stop people.
A Chanel bag because it’s an “investment.” (Just call it what it is – a really expensive purse that will do wonders for your status. It’s OK.)
Bottle service. $300 for a bottle of GreyGoose brought to your table? Really?
A while back, the blog featured various frugality aficionados to name the products they’re willing to pay good money. Would you care to weigh in and tell us five or so things you see as worth paying extra to ensure quality? Be as specific as possible — we want brand names, if you have preferences.
FT: Fruit. Organic strawberries, because the regular kind have much more pesticide residue, according to the Environmental Working Group.
Knives. This J.A. Henckels knives set, for example. They’ll last for decades.
Cashmere earmuffs. Burberry cashmere earmuffs have been keeping my ears warmest during the current East coast tundra. They were on sale at Neiman Marcus a short while ago.
Amazon Prime. It’s $79 a year but ensures unlimited free two-day shipping, which if you’re an Amazon junkie will pay itself back in no time.
Wool socks. Specifically SmartWool socks. Best for keeping your toes toasty and dry while skiing or just braving a very cold day.
MORE Personal Finance Q&As:
Personal Finance Guru Q&A: ‘The Real Cost of Living’ Author Carmen Wong Ulrich
Q&A: Why Should You Take Money Advice from People Who Are Bad with Money?
Q&A: ‘Generation Earn’ Author Kimberly Palmer
Q&A: ‘The Simple Dollar’ Author Trent Hamm