10 Best Money Lessons Shared by Suze Orman
Handling your personal finances can present challenges, especially when you’re just starting out. Regardless of where you are on the road to meeting your financial goals, advice from a renowned expert is always likely to help.
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Keep reading for guidance from personal finance guru and New York Times bestseller Suze Orman, including a look at how to handle your savings, minimize unneeded expenditures and plan for retirement.
Also see Orman’s three moves to make if you can save only $100 a month.
Plan Your Expenditures Wisely — Spend as Little as Possible
Everyone will have expenses in their day-to-day lives, from groceries to housing and transportation. Orman says one of the best ways to start building a path to financial security is by spending as little as possible on these things. That’s best accomplished by planning for your necessary and unavoidable purchases ahead of time.
Orman stresses that the objective is to spend as little as possible on these necessities: “The goal should be to spend the least amount necessary to fill their need.”
One good example is buying a reliable used car over a new, much more expensive one, but Orman says that should extend to bigger purchases, like a house: “Don’t stretch into the too-expensive home; that often turns into a financial regret. Buy the home you can comfortably afford.”
Discover More: How Much Does the Average Middle-Class Person Have in Savings?
Set Up an Automatic Savings Account
This tip may be especially useful for anyone who uses direct deposit. Your financial institution can usually set this up for you, either through an online banking app or your bank’s website.
Orman says one of the best ways to prepare for any eventuality is to “set up an automatic system where they have money automatically transferred from their checking account into a separate savings account.”
Look for savings accounts offering higher interest rates, and don’t touch the funds unless you need them or find a higher-interest account somewhere else.
Another useful method Orman recommends is breaking your savings goals into manageable chunks. Instead of monthly goals, for example, stick with weekly goals that will seem more achievable yet yield the same results.
Plan for Retirement With a Roth Account
Orman points out that most employer-provided 401(k) plans now offer Roth options, but you also have the choice of opening a Roth individual retirement account at a discount brokerage.
“A Roth account is hands-down the best choice for young adults,” Orman said, though anyone is likely to benefit regardless of where they might be on their career path.
The single biggest benefit of a Roth account is that it allows you to contribute funds that have already been taxed. After retirement, you’ll be free to “withdraw the money without paying a penny in tax.”
Manage Your Credit Card Debt Wisely
Orman points out that individuals have little control over larger financial systems like the stock or housing market. One thing you can control, though, is how much credit card debt you carry and how you manage your finances.
Orman says you should reframe paying off your credit card balance as an investment: “Every time you pay off a card with a 15% interest rate, you get a 15% return on your money.”
Move High-Interest Debt to a Low-Interest Alternative
While this tip applies to debt of any kind, the most common example is credit card debt. If you meet a lender’s requirements for a balance transfer card that offers a low or 0% interest rate for an initial introductory period, for example, you should move your highest-interest debt to that card.
However, Orman stresses that you shouldn’t use that card for any new purchases; instead, you should try to pay off the balance as soon as possible to avoid the higher interest rate that will apply after the introductory period ends.
You also need to stay on top of your monthly payments, regardless of how fast you pay the debt down. “Always pay the minimum due on each card, on time, every month,” Orman said. “Whenever possible, send in some extra money on the card that charges the highest interest rate. Your goal is to get the costliest balance paid off first.”
Keep Your Investments and Your Savings Separate
When you’re at the point where you’re ready to start investing, don’t sacrifice the guaranteed returns on your savings for inherently risky investments.
“Money you keep handy for an emergency belongs in savings,” Orman said. “Money you hope to use soon for a down payment on a house belongs in savings. And all savings belong in a low-risk bank savings account or money market account. The goal is to keep your money safe so that when you go to use it, it will be there.”
Check Your Credit Score
Orman stresses the importance of having a FICO credit score that’s over 700, a reliable and verifiable income and a level of debt that’s both manageable and within lenders’ expectations: “If your score is below 700, two of the best ways to improve it are to pay your bills on time and push yourself to reduce your credit card balances.”
Keep Your Assets Diversified
Even if you’re just investing in a 401(k) account, Orman stresses the importance of diversification. “Try to reduce any company stock you own in your 401(k) to less than 10% of your total retirement assets,” she said.
By doing this, you minimize your exposure to the risk that any stock you own in the company you work for will drastically decline in value, affecting your future retirement funds.
Keep Your Cars Longer and Opt for Short Auto Loans
Almost everyone needs a personal vehicle, but Orman says this can be a great opportunity to maximize your investment while minimizing your costs.
“Plan on driving yours for at least seven to 10 years,” she said, also pointing out that “regular tune-ups will help keep it running longer.”
You should also choose used or certified pre-owned vehicles rather than new cars, as they’re often just as reliable and can be had at a fraction of the cost. If you opt for auto financing, consider car loans with shorter repayment terms.
“If you get a three-year loan, you have plenty of life left in your car, and money that once went to car payments is freed up for other financial needs,” Orman said.
Minimize Your Costs Whenever Possible
Carefully evaluate your spending habits and patterns to identify areas where you could cut your costs, and then divert that money into a savings account.
“You need to dig deep and be willing to change those habits, to set goals and use those goals as the motivation for lifestyle changes that will allow you to save and invest,” Orman said.
Eliminating landline phones unless you have a particular need for one, weatherproofing your doors and windows, switching to more energy-efficient light bulbs and putting low-flow aerators on your showerheads and faucets are a few examples of the small changes you can make.
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