One of the things I’ve found myself doing more of this year is watching online video. In fact, if I said I watched 2,000% more video time this year than in 2009, I would not be exaggerating. Naturally, I’ve found some good things along the way.
The fact that I’m featuring Suze Orman the day following my rant on personal finance experts might come as a bit of a surprise, but I think it’s no coincidence that I stumbled on this video today. Maybe it’s God’s way of changing my mind.
I found myself much more curious about Suze’s story after this video. It’s a long one at just under an hour, but if you have some time, it’s worth a listen.
(Hint: If you don’t see a video below, you need to view this post on my website).
There are lots of things I liked in this video, but I want to pull out a few items in particular and take a closer look.
Suze’s condensed life story
This classic rags-to-riches tale is one that most rich and/or famous people could identify with. A lot of determination and a bit of luck combined into getting her to where she is today—a self-described “wealthy woman.”
Besides changing my frame of reference a bit from yesterday’s post, I took one important thing away from her story: the power of asking for something.
Suze decided she needed $20,000 to open her own restaurant while working as a waitress. She didn’t know where she would get it, but after confessing her dreams to her boss, he found a way to get his restaurant patrons to put together the entire amount and more!
It just goes to show you that simply rolling over and giving up should never be an option. If you want something bad enough, there are a million avenues to get there, and most will surprise you.
The action plan for Google (or anyone else)
Taking into account Google’s generous 401k match (free money, essentially), Suze produced the following “action plan” for the Googlers to follow, in this order:
- Contribute the maximum allowable to your 401k plan, up to the match amount.
- Anything above that, save for an 8-month emergency fund.
- Once that’s done, pay off credit card debt.
- Buy a house.
- Save for retirement.
Suze got a lot of grief for flip-flopping on the credit card issue last year. Her suggestion that people save instead of paying down debt seemed absurd at the time, but many people have discovered its power the hard way.
Specifically, you have a lot more options if unemployed with some cash and some debt, than with no cash and no debt, especially if your available credit suddenly tightens by the bank practices Orman describes.
Her suggestion to look into credit union cards is actually spot on. This is my wife’s preferred credit card and she loves it.
The housing market/how to buy real estate
Suze outlines a number of requirements she believes are a must in order to buy property right now:
- You have to be getting a deal (in case we’re wrong about the bottom).
- You need to have 20% down.
- You must be able to afford the mortgage, insurance, taxes, and maintenance.
- Your 8-month emergency fund has to be in place.
Most personal finance experts would agree to one form or another of these requirements. But Suze’s reasoning is what really sold me:
Tax assessments for short sales return in 2012-2013, which means that the financial penalties for selling short will be the “death blow” to almost anyone who goes though it (after all, you probably don’t have any money if you’re being kicked out of your home).
FICO Score: a surprising tidbit
I guess you really do learn something new every day. It turns out your FICO score doesn’t take into account any “inactive” credit cards (ones you haven’t used in a while).
That might explain why people who cancel their old, unused cards don’t see any adverse effects from this move—the cards were already factored out of their score.
On the other hand, if you carry any balances, cards going “inactive” will lower your total available credit and could push down your score. Suze suggests using all of your cards every 6 months for something small.
The Roth IRA: A powerhouse of investing
When I started my Roth IRA a little under 10 years ago, I had no idea I was choosing the perfect vehicle for tax-preferred investing available today. Many people look at traditional IRAs and Roths and think—”well, damn…the traditional one offers me tax write-offs NOW…I’ll take THAT ONE, please.” Big mistake, says Suze.
That’s because tax rates are probably at an all-time low right now, rising to unknown levels by the time we all retire. You never have to pay taxes on a Roth again, but that’s not the case with IRAs—they’re taxed at whatever rate exists when you withdraw. If you think about all the compound that’s accumulated by that time, do you really want to be paying 50, 60, maybe 80% taxes on it?
One very under-utilized account that Suze mentions is the Roth 401k. Most employers, mine included, use the traditional 401k, which is like a regular IRA, without realizing that a better choice might exist.
The 10 truths of personal finance
Suze closes out the show with her list of 10 “truths” about personal finance based on Google’s list of 10 things. You’ll have to make it (or fast-forward) to the end of the video for this treat, but I’ll share the ones I liked best here:
- With money, it is better to do nothing than something you do not understand. So many people focus on doing something with the terrifying thought they’re losing out if they don’t act. But this is wise advice.
- You can make money without doing evil. Power and expertise can easily be abused (think about car mechanics, doctors, etc…). It’s understanding that you can and choosing to do the right thing anyway that makes the difference!
- There’s always more money to be made out there. The “fundamental” equation of personal finance—income minus expenses. The only infinite variable is income (expenses only go as far as zero).
- Being wealthy is just not good enough. It’s what you do with that wealth that counts. Exactly.
If you’re interested, follow Suze on Twitter here. Can a million+ followers be wrong? Any thoughts on Suze Orman you’d like to share? What do you think of her personal finance approach?
Photo by Steph Anderson