Tuesday, February 12, 2008

Suze Orman: Stimulus Crasher



Thanks to Money Crashers for pointing me toward Suze Orman's latest Yahoo article, which is sure to have hand-wringing bureaucrats and bankers up in arms:

Yahoo! Finance / Suze Orman: "Stash It, Cash It"

It's nice to see Suze take a firm stance on this. It's even nicer that I agree with her:

The rebate you're about to get should be saved, not spent. It should be used to pay down debt and build up an emergency savings account. What you need to focus on is not what your government wants you to do for the national economy, but what you can do for your personal financial security. Help yourself first.


Yes. Yes. Yes.

Will it actually happen?

Probably not, not, not.

(Actually, my Inner Devil would just love to take our Summer Stimulus Check and use it to buy puts on [Insert Bank/Financial Stock Here]. But I won't do it ... no matter how delicious the irony.)

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— Posted by Michael @ 3:34 PM



Wednesday, February 28, 2007

Buy Suze Orman's Book, Open Account, Get $100...



... in a year.

That's the promo-thing attached to Suze Orman's newest book, Women and Money. I haven't yet bought the book, so I can't say for sure how the deal works, but it looks to go something like this:


  1. Buy Suze's new book.

  2. Get offer code from book.

  3. Head to www.saveyourself.com and click to open a "Save Yourself" account at TDAmeritrade.

  4. Open account with at least $50.

  5. Sign up to make automatic monthly deposits of at least $50 to the account.

  6. Wait a year. Watch account balance creep upward (hopefully).

  7. Pocket the $100 TD Ameritrade gives you for doing all this, plus the interest on the account (4.59% APR as of right now).

  8. Spend your newfound $108 (you sold Ms. Orman's book on eBay shortly after purchase, right?) on beer and cheap thrills.



Well, maybe she didn't draw it up that way. But her way is probably boring. And who am I to follow Suze's admonitions now?

Note: Oh, and like Suze practically screams at us, I also don't make a penny from TD Ameritrade. Unless you count the Roth IRAs and other brokerage accounts I have with them. Because, like, you know, they pay me interest and stuff.

By the way, Suze Orman is gay.


Yeah, it's an old rumor, and I don't think anyone out there could be truly surprised by this. My thoughts?

Who.

Freaking.

Cares.


That is all.

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— Posted by Michael @ 6:56 PM



Sunday, January 14, 2007

Suze Orman: How to Split the Bills



"How should we split the bills?"

Suze says (on the Suze Orman Show which aired 2007/01/13) this is the most common question she gets from couples. (I'd have thought she'd hear "Should we have separate accounts, or joint?" more, but what do I know.)

For most folks, the default answer to the bill-splitting quandary is 50/50. But Suze suggests that it's almost never this easy (no kidding!). And that for couples where the two spouses earn significantly different amounts (which would be most couples, probably), splitting the bills 50/50 will almost always lead to resentment and frustration.

Here's the fictional household setup that Suze presented as an example:

Partner #1 makes $7k/month.
Partner #2 makes $3k/month.
Household expenses total $3k/month.

In the case above, Suze would suggest that the bills be split 70/30, rather than 50/50. This way, each partner/spouse is responsible for an equal percentage of the bills rather than an equal dollar amount. They don't earn equal dollar amounts, so they shouldn't pay equal dollar amounts.

After all, paying $1,500 worth of bills (a 50/50 split) drains the $3k earner a lot more, percentage-wise, than it does the $7k earner.



My first thought, of course, is that there are roughly four couples out there making $10k per month and spending only $3k/month, so the example is kind of flimsy in that regard. Numbers like that just ain't happening for Joe and Jane Sixpack. Still, I recognize that it's the math that matters.

I'm all for fairness in relationships and finances, and Suze's idea makes sense to me: Pay the bills in the same percentage that the household income is split. Still, I can already hear the uproar from the "But we're married, and we're ONE now!" crowd. "What's hers is mine, and what's mine is hers! The only percentage that matters is the one we're paying on our Discover card!"

And they have a valid case. Really, I think Suze's point was meant more for non-married couples, but she wasn't really clear on this. My advice, in any case, would be this:

Just do what works.

And if what you're doing isn't working, change it.

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— Posted by Michael @ 10:04 AM



Saturday, June 03, 2006

Pay Down Debt or Save Money?



"Should I use all my savings to pay down my debts?"

Financial advisor-types must get this question all the time. The following article isn't the first time I've seen it addressed at Bankrate.com, either:

Bankrate.com: "Credit Card Debt vs. Emergency Fund"

I am of the opinion that there isn't a clear-cut answer. What interest rates are you paying on your debts? What interest rates are your savings earning? How big a benefit would it be to you, psychologically, if your savings allowed some of your debts to disappear entirely? How big a detriment would it be to you, psychologically, if your "security blanket" of savings was absorbed into your debts?

All these issues come into play here.

Personally, as a "Good in Most Cases" approach, I like Dave Ramsey's "Baby Steps" advice: If you have savings, use all but $1,000 of it to pay down your debts. Later, if an emergency comes along, you have the $1k to help you out.

On the other hand, I've heard Suze Orman tell callers and readers to clean out their savings and throw all the proceeds at their debts. If an emergency happens after that (which it will), you'll at least have your credit cards (with their balances now decreased) to catch the slack.

If you're paying double-digit interest on your debt (unsecured debt, most likely, as in credit cards) then it makes zero financial sense to have much savings stashed elsewhere. That's the Financially Wise and Mathematically Correct answer, of course. But if your credit is exemplary and your debt's interest rates are low — say, 2.99% or less — thanks to promo offers or balance-transfer deals, then debt paydown becomes much more of a case-by-case issue. You might be able to earn more (after taxes, even) by keeping your savings.

But what Dave Ramsey addresses moderately, and Suze Orman merely touches upon, and David Bach brushes aside entirely, is the "fighting the symptom, not the disease" aspect of all this. If you have credit card debt, you're spending (or have spent at some time) more than you make. That overspending is the disease. Debt is just the symptom of overspending.

If you want to win at this game, you have to attack the disease as well as the symptom. I like the fact that Steve Bucci, in the Bankrate article above, focuses on this:

Using your savings now to pay off your debt is not something I would recommend. You are clearly spending more than you are earning, and I am concerned that if you bled your savings to pay your debts, you'd be so impressed with your new low balance that you would spend back up to the $18,000 limit or beyond.


Yes, yes, yes. If you didn't have the tools, or the desire, or the discipline, or whatever, to keep your debt from ballooning to X thousand dollars before, once it's paid down, what's to keep your debt from inflating right back up again? Your good intentions? Your local Congressman? Your Fairy Godmother?

If you're going to beat debt, there is one maxim which will apply to everyone: For just a moment, forget about whether or not to plunder your savings. Instead, worry first about yourself. Because your behaviors must change before your financial position truly can.

This is why I'm such a believer in (1) tracking your spending (Quicken, MS Money, et. al.), so that you know where your money is going, and (2) spending plans, so that you can tell your money what you want it to do. These things are about behavior modification. When you get right down to it, throwing money from "savings" at your debts is not.

So if you're one of those folks with $5,000 in savings and $12,000 in credit card debt, and you want to know what you should do with your savings ... well, in my opinion, you're skipping a much more important step.

Develop a plan to conquer your overspending first.

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— Posted by Michael @ 4:00 PM



Monday, May 22, 2006

Making Your Debt Known



I have become a big proponent of an idea I first heard from Suze Orman: If you're in debt, and want out, then you should tell others about your debt.

I bring this up because this week my wife purchased a newsstand copy of All You magazine. I'd never heard of it before. Because "what I read" is not nearly as important to me as the fact that I "just read SOMETHING," I have no problem tossing aside my manhood and flipping through a publication whose self-described audience is "value-conscious American women."

(Yeah, I'll read articles from stuff like Cosmopolitan and Woman's Day, too. Sometimes there's personal-finance stuff in there, which I'll read no matter where it comes from. Other times, it's more like reconnaisance. Like getting a good look behind enemy lines.)

Anyhow, in this issue of All You, there was a one-page article about a 25-year-old woman who'd piled up $20k in credit-card debt. Not much about the story (soapishly titled "I Was Hiding a Huge Secret") caught my attention, until I hit this little snippet:

...I joked to my friends about being in the poorhouse, but because I'd landed a great public relations job, no one guessed what was going on. I never told because I was afraid people would see me as irresponsible.

One day, though, I was with my best friend, Mandi, and I just blurted out the truth. For the first time, I actually said aloud the amount I owed. It was a huge relief. Mandi, who was a loan processor for a mortgage company, reassured me that I could get my debt under control, and she offered to show me how.


I don't know about you guys, but in my experience, folks with money problems almost always get to that point in secrecy. Read that again: Folks with money problems tend to get there in secrecy. I would contend that this is a powerful and dramatic "common feature" in today's financial world.

We could spend days talking about why this secrecy, damaging as it so often is, plays out. It's a cultural thing; money simply isn't an open topic in social (and, often to a larger degree, familial) circles.

It's human nature. Acquiring debt can hint at shortcomings, and who in their right mind wants to advertise his or her shortcomings if they don't have to do so?

It's a "commercial presentation" thing. Ever notice how credit-card bills arrive in discreet white envelopes, while credit advertisements can usually be spotted by your mayor's son's future parole officer from two blocks away? Think about the possible implications. If you're in debt, it's a "privacy thing," and you'll probably want to keep it quiet. If you're debt-worthy, though, you want the world to know.

I could probably come up with another 10 or 12 reasons, but I'll save the wear 'n' tear on your browser and eyes, and move on to the good side of all this. More from our spendthrift 25-year-old:

I'm so glad I opened up about my debt problem. Today I'm 29, and my credit rating's stellar, my debt's entirely gone and I'm considering starting my own public relations business.


Here's where we recite that old tenet about facing your problems head-on: You pretty much have to. No one else will do it for you, right? For me, a big part of facing my debt head-on was making it a public affair. (In the case of this website, about as public as you can get.)

I needed the opportunity for learning this site provided me. I darn sure needed the accountability. I needed the responses from readers, some who'd already been where I was, and had years ago found the EXIT sign, and some who were right there with me, practically in lock-step, from Day One.

Not everyone needs these things, of course. Waging a successful war on debt can be done entirely in private. But given the situations I've seen in my life, and the people whose lives I've seen ruptured by debt, I sure don't like the odds.

This is why it makes me so happy to see the new blogs popping up daily — the ones where the authors have made a decision to move forward in their money lives, to vanquish their debts and whatever other baggage they might have, and to generally get on with living a better life. It's a worthy mission. It's where No Credit Needed came from. It's where Debt Defier came from. It's where Blogging Away Debt came from.

There are a host of other goal-oriented bloggers who've seen fit to make their debt paydowns public, and I commend each one of them. I do my level best to keep up with as many as I can. Because I've been where they are. By making their debts, their goals, and their actions public, they've turned vague "ought-tos" into unmistakable, concrete targets. They're asking for an audience. They're asking for accountability. This goes against pretty much everything our society preaches regarding money and debt. And by gosh, it takes bigtime courage.

If you're thinking about doing something like this, about starting up a blog or LiveJournal or something like that to help you get your money straight, I say fire it up. There's a great deal to be gained when you open up the windows and let some light in.

Make your debt, and your task, known.

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— Posted by Michael @ 12:01 AM



Sunday, April 16, 2006

Suze Orman: What House Payment Can You Afford?



I happened to watch a bit of CNBC's Suze Orman Show last night. As is her custom lately, Suze focused her entire show on a specific topic. Last night's topic? First-time homeowners.

Because Google regularly brings me visitors who are searching for house-payment guidelines (i.e., "What house payment can I afford?"), I thought it a good idea to use this post to spell out Suze's guidelines as she related them on the show, and in her latest book. (See below, if you're one of the 4 people in the U.S. who are unfamiliar with her work.)

I've covered David Bach's house-payment guidelines elsewhere (they're staggeringly misguided, in my opinion). And I've mentioned my fondness for Dave Ramsey's "25 Percent" house payment rule a time or two. So it's only fair that I dole out a little IYM screen time to Queen Suze.

(You can quit calling my cell phone now, Suze. Like I told you, I'd get around to you when I had time. Sheesh.)

Here you go, Dear Reader. Grab a notebook and pencil and some hip waders, because this will get a bit muddy.

If you're wondering how big a house payment you can really afford (which will almost certainly not match what your lender tells you), then Suze Orman makes this suggestion:

Suppose you can afford whatever you're paying in rent now. Is that what you can target for a house payment? Suze answers with an unequivocal NO.

Say your current monthly rent is $1,000. Suze suggests that, in order to get your aspirations more aligned with reality, you take that rental amount and add 45 percent to it. This is a the figure for what a home with a $1,000 mortgage payment (principal and interest) is actually going to cost you on a monthly basis. In this case, obviously, the math would give you a calculation of $1,450.

What Suze is saying, in her special glittery roundabout way, is that if you can't afford housing expenses of $1,450 per month, then you can't afford a basic principal-and-interest house payment of $1,000. Time to ratchet down your housing budget ... and expectations.

Suze reasons that that extra 45 percent will encompass your property insurance, property taxes, private mortgage insurance (if applicable), and monthly maintenance costs. Judging from what she says in her
Money Book for the Young, Fabulous, & Broke
, this will also cover any extra expenditures you'll have for utilities and such in your new home.

Real estate agents, rich friends, and maybe even your parents are going to try to talk you into stretching to buy a bigger house than you can afford right now. Their well-intentioned philosophy is that your income will grow in the coming years, and so the mortgage payments will become easier to handle. Un-uh. That's just way too much pressure. ... Go for a house that leaves you room to breathe. If in five years your career has taken off and you can afford a bigger place, then that's the right time to buy it — not now, when you can't really afford it.


And I'm thankful that Suze makes this absolutely vital point, because not many people pay attention to it:

Knowing how much lenders will let you borrow is simply not the same as knowing how much you can afford. You need to make sure that you can truly afford the total costs of owning a home.


And this, regarding that famous mortgage-interest tax deduction we all know and love:

I don't want you to base how much house you can afford on the size of the mortgage interest deduction you will receive. If the only way you can afford the house is with the tax break, then I think you are cutting it really close. You should view that tax break as a nice bonus, but not a necessity.


Now Practice Making Those Payments

Once you think you know what you can afford — using the ((Principal + Interest) + 45 Percent) calculation — Suze instructs that you ought to practice squeezing that expense into your budget.

Consider the $1,000 rent payment we used above. For the next three to five months, you would make your normal rent payment and set aside another $450 in a savings account somewhere. How does this affect your budget? Can you pull it off easily, or does strangle your cash flow and leave you clutching for your credit cards within a few weeks?

If the latter, then you're back to the drawing board. Lower your housing budget and expectations, and try again.

If you can handle the extra expense easily, then you're ready to begin looking for homes in earnest. And you can use those extra few months of "practice" savings to pad your down payment. Or pay for some of your closing costs.

I Plugged In My Numbers And ...

Not being quite satisfied with Suze's formula, I applied it to my own situation. I wanted to see how accurate it would really be.

The answer? It's pretty close.

Our 15-year, fixed-rate mortgage payment (P&I) is a nudge over $500. Add 45 percent to that, and I end up with roughly $738. Would this $738 cover my total housing costs?

Add property taxes and home insurance to my mortgage payment (P&I), and we're pretty near $650. With Suze's formula, that leaves us just $88 to cover PMI (if it were applicable; we don't have it) and utilities (over and above what we'd already be paying if had been renting) and home maintenance each month.

Given, say, maintenance costs of 10 percent of our P&I per month ($50, in this case) and theoretical PMI of ~$40, we'd be tacking on another $90. Which is pretty close to the $88 that Suze's formula left us to work with.

Suze's "45 percent allowance," though, since it's based on principal and interest, would be lower if our mortgage were of the 30-year variety rather than the 15-year. The problem with this is that no matter the mortgage term, the property taxes remain the same, as do the necessary monthly maintenance dollars. The PMI would be marginally higher, I believe, due to the longer loan term. So I'm thinking that in the some cases, Suze's allowance could be a bit optimistic.

Anyhow, there you have it. Yet another Financial Guru's take on "what it takes" to afford home ownership.

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— Posted by Michael @ 6:50 PM



Friday, May 20, 2005

Beg to Differ



Cash should be your first line of defense when you are hit with unexpected expenses. But I know that in the YF&B years, you might not have had the time or money to build up a large enough cash reserve to cover life's inevitable surprises. That's where your credit card can come to the rescue; when you use your card for emergency repairs, that's a good use of debt.

— Suze Orman, The Money Book for the Young, Fabulous, & Broke



Bah.

No, Suze, it isn't a "good use of debt." It's just debt. It may be necessary, no-getting-around-it debt, but I'd suggest that even in that case, there's nothing good about it. "Good" would be having a rewards credit-card handy to get you a smidge of cash back just for making the "surprise" purchase, followed by the inevitable online transfer / payment of cash to said credit-card to pay all charges in full before any interest accrues.

I'm just bugged by Suze plugging the word "good" in there. Why not "valid" or "legitimate" or something like that? "Good" is way too benevolent. Too allowing. Too alluring. I'd contend that even if it wasn't what she intended, "good" puts the wrong idea out there ... even if at an almost-subconscious level.

Anybody with me on this?

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— Posted by Michael @ 12:24 AM



Wednesday, April 20, 2005

Two New Books



Added two new books to my shelves this week:

Pay It Down! by Jean Chatzky
The Money Book for the Young, Fabulous, and Broke, by Suze Orman

After my reading/reviewing of Chatzky's previous book, You Don't Have to Be Rich, I'm coming to this one with pretty low expectations. So far, though, I'm 80 pages in, and it has been better than I expected. More concise and process-oriented than most.

I've only glanced through YF&B. I'll say this: It has ... color.

Thanks to a mention by JLP at All Things Financial, I now really want to get my hands on Freakonomics also. Hadn't heard of it until I read that blog entry, and now I really really really want it.

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— Posted by Michael @ 11:30 PM



Saturday, March 19, 2005

Much Ado About Suze



No, I'm not her biggest fan. But if you'd care to read a recent about about Ms. Orman:

SeattlePI.com: "Suze Orman Believes . . ."

Some of the stuff in the article, and which I only barely caught wind of in Orman's PBS special, strikes me as silly. But I shall hold off judgement until I read the book.

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— Posted by Michael @ 3:17 PM



Sunday, March 06, 2005

The Perfect Guru



A Consumerism Commentary blog post regarding Suze Orman got me to thinking:

If I could design my own "perfect financial guru" to help guide the masses, what would he/she be like?

1. They wouldn't sell out to promo things like 0% new-car financing.
Okay ... so you're a popular financial persona, a media darling. You have a strong voice and camera presence, a large following, a decent "tell it like it is" attitude, and a handful of worthwhile books to your credit. A great way to steamroll all this is to do commercials which tell people that 0% financing makes a new automobile a "smart buy." Come on — you're not stupid. You know the real numbers. Go "smart buy" yourself some integrity.

2. They wouldn't try to make debt reduction sound easy.
Because it isn't. Telling people that erasing "a latte a day" from your expenses, and then using fuzzy math to prove your theorem that this is the way to financial freedom, won't cut it. And slapping trademarks on these silly aphorisms ("Latte Factor," "Debtabetes") is about a nickel away from pathetic, in my opinion. I'm looking for ways to either dig out of a financial pit, or strengthen my money foundations. Am I supposed to take that litle circled-letter-symbol seriously?

3. They wouldn't try to make wealth building sound simple.
Because it isn't. Often-quoted double-digit historical stock market returns mean nothing from this point forward. And using such return rates to tell folks how much they'll have saved and compounded in ten years by following your trademarked method is downright ridiculous. This is just telling people what they want to hear, and it serves no useful purpose . . . other than getting them to throw money at a market which is often portrayed as something akin to "Everyman's Savior."

4. They wouldn't jackhammer the audience with repeated references to "money management by scripture."
Yes, there are some decent biblical references to money and finance. And, as best I can tell, it does no harm to quote such common-sense stuff if it makes people sit up, relate, and take notice. But telling folks that, per the Bible, tithing ten percent of your gross income to the church is "what God wants" — regardless of your current financial position — is a quick way to get me to discredit your message at the starting gate.

5. They wouldn't write books which are geared simply to . . . sell more books. Or board games.
Most of us, I suspect, know the culprit here. I won't name any names, but his initials are Robert T. Kiyosaki. What a wonderful series of books he has decorated the "Entrepreneur" sectioned shelves of Barnes & Noble with — so chock full of hazy "real life" anecdotes, simplistic circle and quadrant drawings, and . . . not much else. If you have good stuff to deliver, then deliver it. Please leave the self-aggrandizing salemanship in your office.

6. They wouldn't rely on high academic credentials to earn my respect.
A large and time-expansive body of academic research in, say, the bankruptcy arena, doesn't necessary mean your numbers are always beyond reproach. Even if you are good friends with Dr. Phil.

7. They wouldn't continually refer to near-bankrupt debtors as "victims."
Sometimes they are, and sometimes they aren't. The fact that you absolutely had to have your child attend the best possible school in the best possible district is no excuse for the fact that you're walking a financial tightrope, with a negative net worth, no retirement to speak of, and little more than $37 in savings and a box of Duracell batteries set aside for life's inevitable emergencies.

I'm sure there's more I could add, but for now, I'll stop here. I would absolutely love to hear others' comments on this topic!

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— Posted by Michael @ 3:35 PM



Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


100%

Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]

100%

Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]