BA Q&A: How To Use A HELOC ft. Farnoosh Torabi

Has become one of the country's favorite go to money experts. The New York Times actually calls her advice perfectly practical right so Farnush's award winning and critically acclaimed podcast, So Money has surpassed twenty five million downloads. That's a lot, just in case you didn't now and thanks to one

of her kind interviews and deep conversations about money. On the show, she spopped lights leading experts and authors and influencers from Arianna Huffington to markrit Choe to the Queen herself, Latifa and Tim Gunn and me about their personal financial perspectives, money failures and habits. She also answers listeners personal financial questions each week where she's gonna help me do today. And she is the new author, well she's been an author four times over, but a new book called A

Healthy State of Panic. And what's so awesome is like, if you're listening to this, that means the episode that we did a few days ago, a couple of days ago, it's all about Farnus, her new book, And honestly, I think you need to hear it, go back and listen to it because Farnuse really helps to turn fee you're on its head and how you can use it as a tool for you know, the things that you're seeking. And we're going to talk about it, you know, in

this episode too, but with b a Qa. But I think I think you're gonna love that episode, so go listen to it. Welcome to the Too for News.

the first half of Adochi. So like my nieces and nephew call me Auntie Utto, my sisters call me Utto, and so it's weird when my family calls me Tiffany, like you know, because it's like, who oh, that's right me. But yeah, so we have some I'm glad you're in a stocause we have some questions to answer today, and you know we could use your advice. So let's ce c cccc. I think okay, this one is anonymous. This is very exciting. So hello, I'm assuming they're singing is

because they're Broadway actress. I'd like to remain anonymous if this question airs. It is girl, I'm a Broadway actress and I'm wondering how to say for retirement. One, A work is sporadic and b sometimes the work is w you to union work, and sometimes it is ten ninety nine gig work. How do you set up retirement when your work is generally temporary and sometimes not connected to

a retirement package? What does setup look like? I would love oh yeah, and she would love to benefit from an artist series of people who don't hold your typical nine to five job, thank you for all that you do and creating this safe space, and so oh you mean like she would just love if me and Mandy did a series of like financial advice for people who don't have nine to five. Oh, that's actually a good idea. Let's see what should we call her? We'll just call

you Broadway. Hey, Broadway. So well, let's say you our news, Like, you know, Broadway is like, girl, I'm thinking about retirement. Yeah, but I get this random money here and there. So what do you think she should do? Yeah?

giving their lives and their livelihoods to their work. And so the idea of like, oh but they make about if you're a star on Broadway, you could make healthy six figures for that run. So I'm not going to assume that's what she's making. But even if you're whatever you're making, I think that for those who have inconsistent pay, when you have the pay, you have to commit to

taking I would say more than average. I would say twenty to twenty five percent of that and putting it away towards investing, because there may be months where you're not earning, so your savings rate you're investing rate rather should be higher, but it's going to not be every month, right, and so you just have to kind of commit to that.

And as far as where you're putting that investment, I mean, some of that money she said is coming through a job where there might be a retirement package, So start there, okay. And then if there's a job that's coming from work that she doesn't have, it like it's it's you have to open up a roth ira. That's like you can do that. You can have you know, a retirement account.

But yeah, I think for those of us, whether you work on Broadway or you just do some sort of other work where your pay is not consistent and your income is coming from different sources, it's leverage what's available to you, which is the workplace retirement account and or a traditional or RATH diary outside of that job, and just you have to be I think a little more vigilant than average workers that can just kind of like set it and forget it, you know, like I'm going

to do ten percent, fifteen percent, I'm going to be at this job for you know, at least a year. I don't have to think about it, but it comes up more often, more frequently. For I think those of us who have more fragmented income, we have to be more has to be more top of mind unless of course, one more thing I'll say, unless, of course, you're at the point where you have some sort of baseline savings

from which you're using to pay for your lifestyle. And you know, that's the ideal that when you have this sort of work that is disparate, the income is disparate, that you kind of save enough to the point where, even though there are gaps in how much when you get paid, your lifestyle does not like your cash flow does not change because you have that sort of foundational savings to support those months where you're not making the money. But you have to be you have to be extra

committed to what you do with that paycheck. When you get the paycheck, I.

do this. That your w two that you get from your union, ask hey, is there a retirement account available? My assumption is yes, I don't know, but you know, if you're getting W two, you can ask your union what's the retirement account that is available to me? Here? You know, put money there, and you're wanting to max because to Fernuc's point, since you're not you don't make

regular money, you actually have to over index. Typically we tell people to to fifteen percent, but because you get money sporadically, you have to set aside more to cover the times that you don't. But then also have your your external retirement account which is typically like a WROTH and ideally if you can max that out too every year. So doing both will help you to have like a really healthy like retirement account where you get to get your tax benefits now and then some of your tax

benefits later. ROTH lets you get your tax benefits later, and traditional IRA lets you get your tax benefits now and then also too, you know, learning to pay the pot like when you do get paid, like knowing that like I mean ideally because you might not make enough to support but ideally when you get paid, knowing that all this money is not my January money, is also potentially for October too, because I might not be working there and so pay the pot and let the pot

pay you ideally consistently. Did I wrap it up good? Like what you share.

who work maybe sporadically. Maybe we're not we don't consider our self service industry, but we do have what is

sometimes in consistent pay or seasonal work. And Barbara really walks you through how to streamline that so that you're not feeling like there are months where you're going without that you to your point, you've done enough where you've paid the pot, and whether you work in January or November or September, that it's all going to fuel this sort of cycle that you've created and is going hummingly.

of grayness of salts. What does that mean? That means neither myself are ot News or your financial advisor. We're not your attorney, we're not your doctor. We are just your fun and fabulous financial internet cousins. We're just shooting the breeze. So you're gonna hear the advice, then you're going to run by the people that you pay, which is not us, and then you gotta use your advice based upon you know, like that advice that you give

from those folks. Okay, so remember this is really made for you know, just a little bit entertainment that certainly you know, this is not advice that you're supposed to just take and do exactly what we say. So hopefully that it's helpful. See what I did there, because I was like, oh, there was a little fear because I'm like child, Yeah.

that is to my benefit. And so I feel like, isn't that what your book is about? A healthy data panic?

a false story. But even just recognizing that has opened doors has been breakthroughs for me. So I've never been the kind of person who can just be like, oh shoe fear or I'm fearless, Like, I don't know, I can't do that. Also, what privilege is that to be able to like think that you could just walk through life without paying attention to fear. Yeah, because somehow you

can afford all the consequences. I can't. I don't know anybody say for maybe a few people who cannot, who can just be take all the risks and afford all of the whatever comes on the other side of that risk, and so I.

the steps. He jumped from the top to the bottom, and you can hear the thud boom and the way he got up like any old man, hold in his back, breathing heavy like. His dad was like, wait, I didn't I didn't know he's gonna jump down the steps like that. He was like. His dad was so calm, which is such a dad thing. He was like, don't don't let that cake gash your head up. That's what I say. He was like, he said, don't ever ever do that again.

You are right, you are right, the little boys just leaning against the wall like because but what's so crazy is that because that baby was fear He was like he really did believe I have this cakear so clearly superman and so but to your point, like the fear of like you know, we put up those gates for them, but you know, because fearlessness actually is dangerous because that psychopathic. Yes, he didn't realize, like bro, you could have literally broke

her neck because he didn't. So fearlessness, I mean as much as we like I always say, I was in our last episode that that Farnus is a near new pr agent for fear.

I was so excited to see that my company partner with tiffany Oh during financial black Oh child, this must have been a while ago. Anyway, anyways, moving forward and forward. Okay, I remember gaining advice from tiffany way back from dream Catches the Facebook group, and I'm just in all the

levels we reached. Oh thanks girl. To my question, my husband and I have a lot of miscellaneous debt and most of it is below a thousand to three thousand dollars except for one, and that is twenty thousand dollars. We are thinking that we should take out a home equity loan about eighty thousand dollars that will allow us to consolidate all of our credit card debt. Thinking like basically it totals around thirty five to forty thousand dollars

and to the purchase of a secondary property. Okay, so she wants to take our money to cover the home equity line of a home equity line to cover the forty thousand dollars she owes plus to buy a second property. We pay out probably a little over onecam month for a minimum payments on the credit cards with different interest rates. We're thinking that with the home equity loan we could have a lower monthly payment and a lower rate, which child, I mean if you sent us to this in February anyway,

But anyway, we're still going to answer this question. So here's a question overall, what are your thoughts about taking at home equity loans? Like what maybe first, because everyone doesn't know what that is? What is a home equity loan? You know, what are your thought about taking out and like how best to use it?

let's take a step back. What is a helock, a home equity line of credit or a home equity loan? Which are They have similarities and they have some important differences. The similarities are that this is credit that is or debt or a loan that is based on the equity

that you have in your home. So if let's say you have a home that's worth three hundred thousand dollars, your mortgage is two hundred, you have a hundred thousand dollars in home equity, right, that's like what is if you were sell that house, that's what you would take out. So you can go to a bank and say as collateral, I'd like to put my house up in exchange for some credit from use a loan or a line of credit, and that's what they call a home equity line of credit.

So the bank basically takes your equity and holds a hostage and then gives you either a line of credit which is sort of like a credit card with a line of credit against that home equity, or a loan, which would come with a fixed rate and a term. Depending on what you need this money for, it may make sense to have a line of credit versus a loan.

I'll get to that in a minute. But when it comes to whether or not to take out a helock or home equity loan, I think a lot of people like to do this when they do have let's say, high interest debt and they want to use a helock or he loan, which right now the rates are about they're about mortgage rates. They're about seven percent to maybe

eight percent. That's what good credit, excellent credit, which is not the best we've seen, but it still might be lower than a fifteen percent or twenty five percent credit card. Right so that in that sense, the math makes sense to take out this debt over here with a lower interest rate, use it to pay off the credit cards, and then start paying off the eight percent debt. The risk, of course, is that it's your home equity that's tied to this, as opposed to a credit card, which has

no collateral. But if you're in a financial bind or your house drops in value, there's some risk. But again, I think one thing to keep in mind when you're taking out a home equity, whether it's a line of credit or a loan, and banks will insist upon this, is you don't take out the entire equity. You take out a portion of it, usually no more than eighty percent. In this case, it sounds like maybe even less than that.

So the risk is the risk gets lesser and lesser the lower the amount of equity you take out, because you know you'll have to pay that back and depending on your job security and your you know the value of your home and all that. It's important to take it into consideration.

want that. You want a home equity line of credit, which means you can draw on this like a credit card, as much as you want, as little as you want, as frequently as you want. But then you got to start paying.

Mortgages in general are not that much profit. And you've heard big banks talk about how like they're not investing in like their mortgage departments because it's just the spread was I mean, especially in the pandemic, three percent, I mean that's a very low spread for a bank. So helocks. I think there are just a few banks, big banks that offer them. So do a search online. You can go and apply online and get your rates and it

can be pretty quick. You can get this probably in a month if you have all your ducks in a row and you stay on top of it. But we took one out because for us, it felt like, you know, we built a lot of equity in our home, and we felt like, let's just take a little bit of it out as like a plan D in case, you know, for whatever reason, we lose our jobs. There's a disability. I don't know, I'm again healthy state of panic. I was like, why not if this is accessible to us?

And also I don't have to pay it back until I start using it. There's absolutely no risk in having this. But it is the lowest form, the cheapest form of debt that I can have access to right now. Why wouldn't I.

And I was like, but I don't need it. She was like yes, but she said because to your point, she said the same thing. She said, lots of banks are closing shop on that that while you'll have access just in case tiffany things go wrong because I have two properties, in both of which I own one hundred percent. And she said, this will allow you to have access to a lot of money just in case something happens, and you know, you just have it as a backup. And I was like, well, I never thought about that.

So it's funny that this came up because I was just about to ask Angelie, like when I meet with her on Wednesday, you know, what do you think like that, because in my mind, I was like, but I don't need it. It's like that's the point.

they would use their home equity to pay for college. Yeah, kids, now don't. I don't know if that's what I would do these days because college is so expensive.

it out, bought that with cash. It's the rich dad, poor dad method. And then I took out a helock and paid my parents back. Wow, for the most part, like immediately, loop loop loop d loop. And then I refinanced that he lock into a fixed rate mortgage because the thing to watch out with watch out for with the helock. Which I failed to mention is that some are variable rates and some are fixed, and you really

want to know what you're getting yourself into. Because rates are already high, you don't want it to get high, so you might sacrifice a lower rate just so that you can get it fixed and locked in.

to for wealth or whatever. So I challenged him a little bit, which in general, I'm like, I understand because Meat, I mean, he lives in San Francisco now, I believe, but he was living in New York and so sometimes the maths just no math. This is like child for

what you know. But what I was telling him is I've been doing all this research lately and just become obsessed with the racial wealth gap and that is the gap between black and brown people and their net worth and basically white America, and the gap between I know, for for between black and white is I think the average white household the network, there's like one hundred and

thirty thousand, and for black households is fourteen thousand. And I mean that is huge, and it's gonna get worse because I'm not going to say it's going to but it is getting worse because it actually wasn't as bad like years prior, but it's getting worse. And one of the financial indicators or one of the levers to this racial wealth gap is not just home ownership, but also like the value of homes, Like my home was like under a praise for about forty thousand dollars, which is

the average that black homes are under praise. So I just share that because you just shared, Like how I mean, I hear for me or what he's saying about Most people don't look at their amortization table, which tells you how much you're really paying for the house, typically double, so the math doesn't always math, you know, not always. But I push back on him to say I hear you. But one of the reasons where there is this gap and wealth between brown and non brown is that it's

home ownership. It doesn't always work out, but when it does, Like your parents were able to set you up for your own home, it's because what else do they have access to if they did not have that home. My parents too, They bought their house for two hundred and

fifty thousand dollars when I was nine years old. Their house is worth over a million dollars now, and so if something were to happen, my parents could and it's paid off, they could tap into that equity and do something for their kids if something were happening.

very sophisticated. And by the way, when you sell your home and you pull the cash out, yes you have to deduct for In your mind you're like, Okay, well, I feel like I'm rich because I have all this cash, but actually I've put in so much money that maybe it doesn't doesn't matter though, because I got the cash now and I'm moving on, and I don't even have to pay tax on that because there's you know, up to a certain amount. So you have mobility when you sell,

you can use that money like free right away. And I'm not anti stocks. I'm not saying real estate it's a better investment. But I do think that when we get into like amortization tables, the average person doesn't care about that because the truth of the matter is when you sell your home and that cash goes into your bank account, you can move quickly and well with that money, and it doesn't matter what you did. You you made it work, you got here. Every time I've sold, I've

moved up in life. Yes, And it goes back to my parents getting creative with that HeLa Yes.

I understand what he's saying, but I also too, I want, especially people of color, which is largely who listens to Brown ambition, hence why it's called brown ambition, that to understand that home ownership equity, the value of your home is a huge component to our lack of net worth, and like that is the thing I'm going to be leaning like a lot of my energy into is like how do we get more black and brown people to homeowne in a way that does bring well. But so yeah, I mean, I.

ownership is a scam. Not that that's what we're saying here or anyone saying, but that can get misconstrued and then they never even looked under it to say, is there a strategy, is there something a way to get creative? Are there things I'm not considering? I suppose it just branding. It is like a false bill of goods.

always a win. But she was like, why would I you know, by the father was like told the daughter, why would you ever buy a home? You know, you don't have mobility, blah blah blah, which is true, but then she inherited that as as a finite rule of law, and anyone who would bring a home ownership to her it was like it made her afraid because she felt like she was going against her father. It felt like she was doing something wrong, and so she's like, oh man,

that was bad. You know, I should have sat with that fear and go who taught me that? We learn about money from so many people, so many influences, and sometimes we're grateful for it, and sometimes we need to just kick those fears to the curb. But you have to recognize the source so that you can begin to rewrite that narrative for yourself. And so whether your fear is to own or to rent, question where that fear

is coming from, and is it legit? Is this actually what you want as opposed to what the fear is suggesting, because that fear has attached itself onto you from your mother,

from your father, from your culture, from your friends. I would also say for anyone who's afraid of big decisions around money and their financial life, whether it is the fear of you know, talking about money with a partner because then that's going to lead it into a fight, or fear of starting a business because then that's going to fail, you know, thinking about what if you don't do the thing, What if you don't start the business,

What if you don't have the conversation about money. What if you don't get your ducks in a row and pay off that debt. I think that there's something scarier awaiting you potentially, which could be an unactualized life. It could be a relationship that dead ends, because we all know when you don't communicate about anything, that's never good, and so thinking about worst case scenarios sometimes or the

like the actual what could happen? It's not too I say that in the book is not a way to like make you get deeper and darker into your fears and like feel trapped. But actually because when we go to the edge sometimes and we see how bad things can actually get, that is when we are motivated to get up and do something, to get up and voice, to get up and make a change. It's very easy to sometimes sit with your fears and idle. But what I challenge people, what I offer is think about what

if that is your existence for the next year. You think that life is just going to hang out, life is going to move on. Fast forward yourself a year from now. You haven't done anything, or you've done you've let fear stop you from doing something. What does that look like? Are you okay?

like three of y'all. But where can where Jerome listen Jerome.

dot com. Somebody go tell me Andy, I remember it did all because you j I'm like, girl, I don't remember, but I did it. So yeah. We love your questions and we try best to answer them with kindest clarity and hopefully information. Until next week. Bye y'all. Hey, BA Fam, We could not do this show without your support or the support of our team behind the scenes.