As I mentioned in my recap of the Massachusetts Conference for Women, I was going to go into further detail about what Suze Orman said in her keynote speech. I figured that, what with it being pretty good advice, as well as this being a personal finance blog, it would only be right to include it here for others to check out.
Suze Orman has written plenty of books. In fact, she’s the author of one of the books I read early on in my quest to learn about personal finance. I remember reading Young, Fabulous & Broke, which was a good start into the personal financed world. I also read The Wealthy Barber, which conveys the importance of paying yourself first and starting early (and other advice) through a story. And most recently, I’ve finished reading Ramit Sethi’s book, I Will Teach You To Be Rich. All pretty good books for getting yourself started on your way towards financial freedom!
I’ve heard most of what she said before, but it was good to be reminded to continue doing what needs to be done. I’ve sorted out her advice into the separate topics she covered.
- To be powerful, you need a solid platform, which includes an 8 month emergency fund and no credit card debt (Debt=bondage)
- If you have credit card debt, get a balance transfer to a credit union credit card. She encouraged us to get away from “Big Banks”. She recommends checking out credit unions here. I’ve heard discussion recently on the topic. The last thing I saw about it was at the Move Your Money project.
- If there is a matched 401(k) or 403(b) available to you, you can’t afford not taking advantage of it, as getting matched contributions means you’re immediately getting returns of 50-100% (depending on the match you are receiving). If your employee-sponsored retirement fund is matched, contribute up to the match.
- 401(k)s are protected during bankruptcy, so if you are going to declare bankruptcy, don’t take money out of there to pay debts, it will be money you can use later.
- If your 401(k)/403(b) is unmatched, or if you contribute to the maximum match, your next step is to open up a Roth or Non-deductible/traditional IRA.
- Her view is that we’ll likely be in a higher tax bracket in the future; we’re currently at a low rate right now at ~35%. She mentioned this because she wagers that the government is likely to raise tax rates to pay for a lot of what’s going on right now (I guess she threw a little politics into the mix). Also, if the rates are this low, there’s a good chance they’ll go higher. But I think the other reasoning is that you’ll be making more money later in life, and presumably have such a large retirement portfolio by the time you retire that you’d also be in a higher tax bracket. Regardless, she mentioned this because she encourages everyone that is eligible to open a Roth IRA.
- If your income level is too high for a Roth IRA, she encourages you to open a traditional IRA and then convert it to a Roth.
- Regarding Roth IRAs: Give up the tax write-off, so you can grow your money tax-free. The benefits of Roths include: You can take out your principle if you need to, you don’t have to start taking distributions when you reach retirement age, and you can leave your Roth to your children, and it remains tax-free for them.
- NEVER TAKE A LOAN FROM YOUR 401(k)!!! You essentially get taxed twice, you will pay a penalty, you’ll owe income tax, and, you still have to pay it back. And as mentioned above, your 401(k) is protected during bankruptcy.
Wills and Living Revocable Trusts
- A will describes where your assets will go upon your death.
- A living revocable trust will include an incapacity clause.
- Both are important to have.
- You can use her Will & Trust Kit to prepare your will/trust.
- The only type you should look to get is Term (she was very adamant about this).
The Stock Market
- “Anything can happen at any time”, so only invest in the stock market if you don’t need that money for at least 10 years.
- If you’re young, now is the perfect time to invest. Take advantage of Dollar Cost Averaging (buy more when the stocks are “on sale”, buy fewer when the stocks are pricier)
- Other things to invest in: High yield dividend funds (3-5% returns) and Exchange Traded Funds (ETFs)
- Your investment portfolio should be 80% United States, 20% international
- If you’re older, stay away from bond funds. Instead, invest in bonds with a specified (and desired) maturity date.
Buying a House:
- If you have your emergency fund, and are able to afford a 20% down payment, you can buy a house. Those are the minimum requirements she gives.
- If the administration gives incentives, and then extend them, they are afraid that ending the incentives will send the markets back down
- If you are looking to own, but are waiting it out, be careful; it’s very difficult to time the market
Children (specifically, sending them to college):
- Don’t put yourself on the back burner: if you love your children, teach them it’s okay to put mom first. Don’t feel guilty putting yourself first.
- Your children can always get scholarships/loans/grants for their education; you can’t get those for your retirement.
Gift giving/the holidays:
- Give the gift of time or money for the less fortunate.
Long Term Care insurance:
- Speaking from experience with her mother, long term care can be very expensive, so it’s a good idea to look for long term care insurance, either for yourself, or for your aging parents (depending on the age)
- She recommends getting long term care insurance through Prudential.
So, that’s what she said, in a relatively large nutshell. I know there are other opinions on these matters (life insurance, investment choices, etc.), but I think this information, along with the info you can get in the books I mentioned and the blogs I link to will get you on the path toward financial independence!
Anything I missed from her speech? Do you agree or disagree with her advice?