The Courage To Be Rich was one of the very first personal finance books I read after my financial meltdown. At the time, this book felt too … touchy-feely for what I needed. I wanted solutions immediately, solutions that I could apply to my life - I knew there was a problem and I felt like this book was largely psychology, so I put it down and went on with life.

But then a funny thing happened on the way to the forum: when I’d reflect on my progress, a lot of ideas from this book kept popping up. The psychology of it, even though it seemed a little flaky at first, was actually spot on. Personal finance success relies a lot on having the right frame of mind - if you don’t have that, you become your own worst enemy.

Given that realization, I sat down to give this book another chance.

A Look At The Courage To Be Rich

Part I - Acts of Courage

The Courage to Look Within The Courage To Be Rich starts off with pure introspection - how does your personal finance position make you actually feel? Think about it for a minute - what’s your actual emotional response when you think about your finances? Does that feeling make you avoid thinking about it because it’s uncomfortable? If it makes you uncomfortable, that probably means that you know on some level that you need to be doing something different.

The Courage to Have More And To Be More Another block that people have is that of complacency. They often get into a routine with their lives and convince themselves that there’s nothing more really available to them. They have a house in the suburbs with two kids that they take to soccer practice, or they have an apartment in the city and fill their schedule with cultural events. The only problem is that complacency rarely leads to achieving your dreams. It takes guts to say that your current life can use some change.

The Courage to Make Room For More Money The title here is a bit misleading, as most people think “I have plenty of room for more money!” What the chapter actually discusses, though, is the huge pile of “stuff” that people collect and keep adding to. Often, people wind up with a house full of stuff that they don’t really want or need and this continual sense of needing to have more stuff pervades their life. The “making room for more money” means reevaluating all of that stuff, getting rid of a lot of it, and focusing on truly enjoying and valuing what you have instead of constantly buying more, more, more. That’s actually rather different than the standard lifestyle of many in the first world; it takes courage to be different.

Part II - The Value of Money

The Courage to Value Money The Courage To Be Rich argues here that people often just spend what they have, not really valuing the money itself. Even more interesting, Orman argues that making frugal choices often reveals the real value of money to you, and so the chapter is filled with about ten pages of specific, bulleted tips to reduce spending.

Defining Value and Worth What parts of your life really fulfill you? Think about that question for a second. For me, the things I most enjoy are spending time with my children, cooking, reading, writing, and a bit of gaming every once in a while. So why do I have a DVD collection at all? It’s not in line with the things that I value in my life, so why have it? What about my CD collection? Lately, I’ve found that I feel a lot better about my life if I just don’t spend money on things not connected to those central values. When I spend money now, I generally feel much better about it - I felt very little guilt buying a KitchenAid stand mixer recently, but I would have felt very guilty about spending money on the first season of Heroes on DVD.

The Courage to Face The Unknown At this point, I find it almost painful to think that people don’t have any idea how bad their personal finance situation might be, but then I think back to how bad my debt situation was and how I kept ignoring it for so long, not really wanting to think at all about how bad it was. Orman challenges people to actually sit down with the real numbers and figure out how bad it really is. It’s a very hard thing to do - I remember well how hard it was to face the music - but doing it is a major step in the right direction.

Rich Thoughts This chapter takes a look at conventional wisdom on many issues and how they lead down a financially poor path. For example, children: you love them and you want to give them everything, but that’s often the worst thing you can do. Instead, teach them how to stand on their own two feet. It might be hard to see your child wanting something and not having it when you have the power to make it happen, but they learn something valuable from that experience. Another topic is cars: many people like to drive a sparkling new car, but it’s financially devastating to do that. Instead, you should buy a car, pay it off in as few years as possible, then drive it for as many as possible.

Part III - For Love and Money

The Courage to Open Your Heart, The Courage to Open Your Hands Unsurprisingly (based on the title), this part of the book focuses on relationships, and the first chapter in the section starts at the beginning, providing some basic advice on relationships. Orman starts off by encouraging a deep level of honesty between any two people in a committed relationship and gives a long list of questions that people in a relationship should ask each other - things about personal philosophies and things about the past. Another key thing to look at during courtship is the behavior of your partner in relation to money: does the person talk big about money and have lavish tastes? Or does he or she keep a studiously balanced checkbook and not lust for expensive things? They’re big clues to the financial future you’re going to have.

The Business of Love When the relationship continues and the partners unite, you may want to consider a legal agreement protecting both people involved. Is a prenupital agreement something that you need? In some ways, it’s a philosophical issue, but the book suggests that if you’re in doubt, it doesn’t hurt to have one.

Yours, Mine, and Ours Marriage takes a lot of care and feeding (indeed, it does - trust me on this one), and money is often one of the big sticking points. Orman encourages conversation (a lot of it) and complete openness, something I agree with. I find that the advice in this chapter overlaps heavily with the book Smart Couples Finish Rich, which is a very worthwhile book for couples to read when trying to get their financial life in order.

The Courage to Transcend the Pain of Divorce The ending of the ties that bind can be an extremely painful step in a person’s life. This pain, unless faced, can bear down on you over time, a constant weight of stress. The real key to getting through it is realizing that you have value and that this value exists because of you and you alone.

The Courage to Live After a Death Getting past a death is extremely difficult. Suze basically recommends focusing on taking care of the mechanical things that need to be done, but allow yourself to grieve. As for your own mortality, remember that what lives on after you is your legacy - how did you impact the lives of other people? Was it a positive impact, one that will leave your actions touching the lives of others for many years after your passing? It’s a good question to ask yourself every so often.

Starting Over If for some reason (a death, a divorce, or something similar) life has forced you to hit the reset button, don’t make any rash decisions. Instead, lock up what you have for six months and spend that time grieving in whatever way you need to. Many people simply go through the motions of life for a little while after the loss of a spouse or a child - don’t make major decisions during that period.

Part IV - Buying A Home

Seeking Shelter Many people are attracted by the siren’s call of home ownership, but for many people it’s not necessarily the best option. The key to buying a home is to separate yourself from your emotional desires. Define what you actually need for living conditions, then find a residence that matches that need at the lowest price. I found this was a great exercise for us when deciding on what house to get - and we ended up getting exactly what we needed for our family to grow.

The Mortgage Menu The big thing to remember here is that you are the buyer and the bank is the seller. If you don’t like the products that they’re selling, go somewhere else and see if you can find a better deal. Also, you should again let go of any psychological blocks and see whether a 15 year or a 30 year mortgage is better for you - if interest rates are low, a 15 year is probably a better deal.

Your Home and Your Future For many people, fully owning their home mortgage-free provides a very powerful sense of security. Don’t undervalue this sense of security - make being debt free and owning your home a real goal. There might be ways for you to have more money in the long run if you pay it down slowly, but the freedom of not having the mortgage bill eating up a big chunk of your monthly budget allows you to make spiritually fulfilling choices that wouldn’t be possible otherwise.

Part V - Thinking Ahead

The Courage to Create Your Financial Destiny One of the biggest mental blocks is to move from a “today”-based perspective to a “tomorrow”-based perspective. Many Americans focus on a “today” perspective - and when tomorrow comes and brings an emergency, they’re gobsmacked. The only way to be prepared for the inevitable tomorrow is to do it today. Start by creating an emergency fund and planning for retirement, and then, if you can, begin investing.

Making Sense of Investments The chapter’s title is a bit of a misnomer, as it talks almost exclusively about annuities. Annuities are investments that you buy that pay out a certain amount every year for a certain number of years (usually bookended by the remainder of your life). This is an extremely conservative type of investment as the only purpose of it is to ensure you an income forever - it doesn’t build in value. However, for people who don’t like to worry about such things and just need to ensure enough to live on for a long time, an annuity can be a good choice.

Seeking Safety in Bonds The book moves on to discuss another conservative investment choice, bonds. The investment issues discussed here are very conservative, which makes sense because this book is about the courage to make financial moves, and often that first step is the scariest - a conservative investment is a very nice place to start.

How Does Your IRA Grow? Finally, some talk about stocks. The information here mostly relates to retirement accounts and focuses on a question and answer format. The real key is actually putting the money away. Given that for many people it means “giving up” that money to a future that’s so far off that it’s basically cloudy, it’s a pretty significant challenge.

Part VI - The Courage to Be Rich

The Courage to Connect to the World Charity is a word that’s very hard to talk about in a personal finance context - how does giving money away help you to get ahead? The real truth about money is that it’s a way to connect with the world - with your money, you can totally transform the lives of others. I find charity to be a compelling personal challenge.

The Courage to Be Rich The closing of the book ties it all together: richness has nothing whatsoever to do with the amount of money you have, but the uses you put it toward. Do you use money to enable yourself to live a fuller life and to spread that fullness to others? If so, it doesn’t matter whether you’re a billionaire or you make minimum wage - you’re rich.

Buy or Don’t Buy?

If you’re looking for a book to tell you exactly what to do and provide you a step-by-step detailed plan for financial freedom, The Courage To Be Rich is probably not the right book for you - try looking at The Total Money Makeover instead.

Where The Courage To Be Rich succeeds is pushing you over psychological hurdles and getting you in the right mindset so that you can tackle a detailed financial plan.

For some people, this book is entirely unnecessary. Howwever, if you’re finding yourself knowing what you need to do financially but somehow just not quite able to do it, The Courage To Be Rich is an absolute must-read. I found it to be the best book I’ve read by Suze Orman, and I’ve liked her other ones - but it’s not going to be useful for some people who already have the psychological fortitude for financial success.

The Courage To Be Rich is the forty-fifth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

Over the weekend, personal finance guru Suze Orman came out of the closet. While I applaud her courage, I personally don’t care too much - personal finance advice is personal finance advice, regardless of your personal preferences, at least in my eyes. However, as with any social issue, you can learn a lot about society in general by reading various responses to this news, and given that Suze has such a high profile in the personal finance world, her announcement actually crosses over into the particular interests of The Simple Dollar. So, today I’m highlighting some of my favorite posts on this news from around the blogosphere. Some of these also incorporate some very interesting personal finance insights.

Suze Orman Doesn’t Care About Money This was probably my favorite of the bunch. Here’s why: “Ignore the first three paragraph, they’re just gossip drivel where they mention that she has a female life partner and has never been with a man (as if that has any bearing on her credibility when it comes to personal finance advice, I have a female life partner, I’ve never been with a man, and you all still read my blog).” Instead, this article finds something else to criticize in the article. (@ blueprint for financial prosperity)

Suze Orman For The Young, Fabulous, and Gay An interesting take that basically states that Suze stayed in the closet so long because it was beneficial to her earning power. In other words, money trumps such things - and I have to agree. If you’re marketing yourself to strong social conservatives, you’re much better off not mentioning your sexual preferences. (@ queercents)

Suze Orman Is Extremely Risk Averse Suze, by her actions, shows that she is extremely risk averse, which actually lines up very well with all of the personal finance advice she gives. In other words, she lives what she teaches - and that’s why it took her so long to come out. (@ moomin valley)

Suze Orman Is Gay: What It Means To Personal Finance This article finds yet another personal finance take on the issue: the estate tax situation basically says that Suze and her partner can’t simply leave their money to each other without paying some serious estate tax. Even though they have a long-term commitment to each other, they can’t leave each other their separate money. This bothers me; I think the government shouldn’t make value judgements on people in terms of how they use their money. If someone works hard, finds success, and achieves the American dream, they should at least have earned the right to leave their whole estate to one person of their own choosing. Yes, I’m opposed to the estate tax. (@ money for the rest of us)

The Money Book For The Young, Fabulous, and Broke is an attempt by Suze Orman to take personal finance ideas that traditionally appeal to older generations and make them palatable to Generation Y. The back states clearly that this isn’t your parents’ personal finance book, but is there anything really interesting or different about the book that makes it stand out from the crowd? This week, let’s find out!

The first thing you’ll notice when you open the cover of Suze Orman’s Money Book For The Young, Fabulous, and Broke is that it’s colored heavily in bright blues and greens all over the place. The second thing you’ll notice is that the entire book has an almost blog-like feel. The end result is a very unusual book reading experience, at least as compared to other personal finance books.

What do I mean by “blog-like”? The book is divided into ten chapters on general topics, which is straightforward enough, but each chapter itself is divided up into tons of short, bite-sized pieces that feel much like a blog post. Many of these are in a question and answer format, meaning that the concepts presented are often adapted into example situations enabling readers to related to the experiences of others.

While some of the questions are pretty clearly connected to the life experiences of a twentysomething, one mark in the book’s favor is that many of the questions really apply well to anyone who is having difficulty getting started with their personal finances, and the design and layout of the book makes it accessible to very busy people who only have time to read a short piece or two at a given time.

However, the real question is if there’s any meat inside this unusual format, so let’s get started.

A Walk Through The Money Book For The Young, Fabulous, and Broke

Chapter 1: Know The Score
The first chapter is all about the credit score: what it means, how to get it, and how to improve it. Most of the main part of the chapter lays out how a credit score is defined, which is almost exactly the same as Wikipedia’s definition of a credit score. Suze’s advice is spot-on here: knowing exactly how a credit score is defined is the biggest key to knowing how to improve it, as most common mistakes with improving a credit score are simply the result of not understanding what’s going on. She’s even wise to the freecreditreport.com ripoff - you should only get your score from the government or directly from Experian, Equifax, or TransUnion.

Most interesting problem: I am slowly paying down my credit card debt and plan to cancel each card as I get the balances to zero. For the love of God, don’t do this. Your oldest credit cards are part of the foundation of your credit report. If you cancel your earliest cards, your credit rating will go down as you are choosing to shorten the length of your credit history, which is a significant factor in calculating your score. Cut them up instead, or put them away in a lock box somewhere.

Chapter 2: Career Moves
The general point of this chapter is that if you’re not happy at your job, find a different one or else subject yourself to a lifetime of misery, something no one wants. Since this book is targeting twentysomethings, this is good advice; you’re at the very point in your life where a career change is most appropriate, before the burdens of a marriage, a home, and children begin to force you to remain employed. Some of her advice here is kind of odd, though; she encourages using credit cards for necessities if you’re working a job that pays very poorly but has strong potential to pay a lot more in the future. I’m not sure I agree with that; I think it’s a better life skill to learn how to suck it up and make it work, so to speak.

Most interesting problem: I hate my job and want to go back to school. In almost every case, this is a bad idea, as it prolongs the inevitable challenge of finding strong employment, increases your debt burden, and also gets you started in the workplace at an older age. For most people, going back to school is a crutch to lean on because they can’t get it done.

Chapter 3: Give Yourself Credit
As I mentioned before, Suze is often just fine with credit cards, and this chapter is basically about how to use credit cards in a sane and sensible manner. I agree with her that they can be used as tools, but the problem is that the modern consumerist society is basically set up to encourage people to spend beyond their means, in which people bringing in $130,000 a year are buying Ferraris and million dollar homes. Marketing has become so effective that for many people it makes the debt risk seem trivial in comparison - and then suddenly they find themselves in desperation. Thankfully, this chapter bookends the “use a credit card” advice with some sense, like making sure that the things you buy are actually necessities, and that eating out (for example) is not a necessity.

Most interesting problem: The only debt I have is my hefty balances on five credit cards. I want to begin to pay them off, but I don’t know where to start. The advice here is a home run: pay the minimum balance on all of them, but pay as much extra as you can on the one with the highest interest rate. Once that’s paid off, move on to the others. This is the route to paying the least amount possible in finance charges.

Chapter 4: Making The Grade On Student Debt
Student loans may be the best investment you make in your life, because a college degree increases your earnings potential by a large amount. However, walking out of school into an uncertain marketplace with a load of debt is certainly frightening. However, there are also a lot of things working in your favor: a low interest rate, tax-deductible interest, and the fact that you’re now holding a college degree are all big positives. If you don’t have a degree, but you think you’re capable of earning one, student loans are well worth it. As for consolidation, you should do this when the interest rates are low and you can lock in a rate; otherwise, it’s not worth it.

Most interesting problem: I have a little money left after paying my monthly bills, but I don’t know if I should use that cash to pay off my student loans or to invest in my 401(k) or a Roth IRA. If your company’s 401(k) gives you a match, you should invest in that above everything else. If you’re not doing that, you’re basically saying “no” to thousands of dollars in free money. Sure, you don’t get to spend that money now, but your older self will thank you profusely for it, as every dollar you invest that’s matched at age 25, growing with 10% annual return, becomes $90.52 when you’re 65. That’s an unbelievable rate of return and one you should be taking advantage of every step of the way.

Chapter 5: Save Up
This chapter’s focus is on the concept of living a bit frugally so you can afford important things like a cash emergency fund and also have the ability to save for major purchases, such as automobiles (so that you aren’t eaten alive by yet another loan with a strong interest rate). Most of the ideas in this chapter are pretty low key and sensible, but it takes commitment not to just take that new extra money and spend it on other stuff (I know that’s what I used to do - if I saved $25 by eating at home for a week, I could suddenly “afford” a new book). The chapter seems to be missing one important part: taking that newfound money and automatically depositing it into an emergency fund account.

Most interesting problem: I want to start a savings account, but everyone tells me I should pay off my credit cards first. This is generally true, but the real answer comes from comparing the interest rates. If your savings account returns 5% and you have a 4% credit card, then you should have your money in a savings account. However, most people have credit cards with interest rates in the 18% range and a savings account that’s far, far lower - if this is you, get those credit cards paid off as soon as possible.

Chapter 6: Retirement Rules
If you haven’t figured it out yet, I quite like this book; I think it really hits the target audience on the head, and nowhere else is this more true than in this chapter. Right at the front, in a huge font, it says “Unlike your grandparents and maybe even your parents, you are going to be pretty much on your own for funding your retirement.” This book is out there getting this vital message across to Generation Y, and for that I’m quite impressed. If the point wasn’t clear enough, another huge font header a few pages later says “You have been dealt a tough hand, and that requires getting an early jump on your retirement savings, because your best friend right now is time.” The chapter is filled with pretty typical retirement information: start an employee-matched 401(k) or 403(b) plan immediately and also get a Roth IRA if at all possible. But the message is very loud and clear: you’d better get started because the baby boomers are going to suck the pot dry before you get old enough, so it’s up to you to save for yourself.

Most interesting problem: I have credit card debt that I am paying 18% interest on. I wonder if I should borrow money from my 401(k) to pay off that debt. In short, no, because doing this will eat you alive with taxes. The money you paid into the 401(k) was pre-tax money, but you’ll pay back the loan with post-tax money, which basically amounts to a 25% interest rate (or so) on the loan on top of what they quote you. In other words, it’s actually much worse than most credit cards. Focus instead on trying to raise your credit score, then transfer that amount off to another credit card.

Chapter 7: Investing Made Easy
The first six chapters of the book felt as if they laid a good foundation for financial stability; the last four chapters focus on more detailed topics. This chapter basically compresses the basics of investing in stocks down to about fifteen pages. I’ll compress it even more for you: buy some stock-based mutual funds and focus at first on ones that cover the whole market, like index funds. Given that this book is intended for twentysomethings, this advice is spot-on.

Most interesting problem: I get sick when my 401(k) goes down; I don’t want to invest any more. This is a question of perspective, and the person here is taking a very short term perspective on something that should have a very long term perspective. In fact, if you’re investing regularly, you’re better off for the long haul if the market goes down early on, because you’ll be buying at the market’s bottom and can ride the elevator all the way to the top floor.

Chapter 8: Big-Ticket Purchase: Car
This chapter is full of great advice about buying a car that will disappoint people who want a Lexus straight out of college: leases are a rip-off, the best deal is a late model used car that isn’t ultra-showy, and the more cash you can pay the better off you’ll be. All of these points are true - and yet I just saw a person who graduated just a few months ago and is employed as a secretary driving a leased Lexus. Sheesh.

Most interesting problem: I use my car 50 percent of the time for business. Even with the drawbacks of leasing, I figure the tax break makes it a good deal for me. Whenever you use a tax break to justify a purchase, you’re getting ripped off. Plain and simple, leases are a giant rip-off that leave you with nothing in the end except an empty wallet.

Chapter 9: Big-Ticket Purchase: Home
This chapter starts off with a great twenty page walkthrough of the home-buying process, along with a lot of encouragement about how good of an investment a home purchase is. I tend to think of one’s primary home not as an investment, but it is something with value that does appreciate over time. This chapter is great if you know nothing at all about the home-buying process, but even as someone who is still months away from my first home purchase, it was a gloss-over for me.

Most interesting problem: A starter home where I live costs at least $330K. The only way I can afford it is if I take out an interest-only loan. Then you can’t afford it. This is very similar to leasing a car, except at least you have some chance of the property value increasing over the long haul (and that’s a big if, depending on how big the housing bubble is in your area and how hard it’s popping). Live as cheap as you can until you can afford to buy something with a loan that can actually be paid off in some reasonable amount of time.

Chapter 10: Love & Money
Yes, a “love and marriage” chapter finishes out the book. Again, this is good, solid, simple advice: make sure you and your significant other are on the same page financially, because there will be big problems if you’re not. This chapter is great if you’re in a relationship that’s not incredibly serious yet, but you want some guidance on how the finances will work if you do take the plunge.

Most interesting problem: I am dating someone I really like personally but hate financially. The way a person handles their finances is a character trait that will eventually show up in other dimensions of life. If you have problems with the way they handle their finances already, it will only get worse - and other problems might crop up, too. Think about it carefully before you take any sort of plunge.

Buy or Don’t Buy?

Suze Orman has found her target niche. In other words, this book is the book to buy if you’re a young person (within two or three years of college graduation on either side) struggling with lots of financial questions. I’ve read tons of personal finance books in the last year and I’ll freely admit that some were better than this one, but none address the issues and questions of a specific age group as good as this one.

In fact, I’m going to go so far as to say that I’m already planning on giving this as a graduation gift to two relatives who are approaching their college graduation.

If you’re older than about twenty eight or thirty, there are other books that are much better written that address financial issues from a whole-life perspective rather than focusing in like a laser beam on the college graduate group; try Your Money Or Your Life or The Millionaire Next Door for starters. However, if you’re looking for a graduation gift for a college graduate (or are near college graduation yourself), this book is really worthwhile.

If you’re between the ages of twenty and twenty nine, I give this one a strong buy (or at least a strong “check this out from your local library”).

I originally reviewed The Money Book For The Young, Fabulous, and Broke in five parts, which you can find here, here, here, here, and here if you would like to read the original comments.

The Money Book For The Young, Fabulous, And Broke is the sixteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The Money Book For The Young, Fabulous, and Broke is an attempt by Suze Orman to take personal finance ideas that traditionally appeal to older generations and make them palatable to Generation Y. The back states clearly that this isn’t your parents’ personal finance book, but is there anything really interesting or different about the book that makes it stand out from the crowd? This week, let’s find out!

Suze Orman has found her target niche. In other words, this book is the book to buy if you’re a young person (within two or three years of college graduation on either side) struggling with lots of financial questions. I’ve read tons of personal finance books in the last year and I’ll freely admit that some were better than this one, but none address the issues and questions of a specific age group as good as this one.

In fact, I’m going to go so far as to say that I’m already planning on giving this as a graduation gift to two relatives who are approaching their college graduation.

If you’re older than about twenty eight or thirty, there are other books that are much better written that address financial issues from a whole-life perspective rather than focusing in like a laser beam on the college graduate group; try Your Money Or Your Life or The Millionaire Next Door for starters. However, if you’re looking for a graduation gift for a college graduate (or are near college graduation yourself), this book is really worthwhile.

If you’re between the ages of twenty and twenty nine, I give this one a strong buy (or at least a strong “check this out from your local library”).

The Money Book For The Young, Fabulous, And Broke is the sixteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

Recently, AllFinancialMatters posed the following question: which method of getting out of debt works better, Suze Orman’s or Dave Ramsey’s? Here are the compared plans:

Here’s Dave Ramsey’s Snowball Method for paying off credit cards:

Step 1 - Make a list of all your credit cards, ranked in order from the highest balance to the smallest balance.

Step 2 - Beginning with the card with the smallest balance, pay as much as you can on that card while paying the minimums on the other cards.

Step 3 - Once the card with the smallest balance is paid off, take the amount you were paying towards that card and apply to the card with the next lowest balance.

Step 4 - Keep on keepin’ on until ALL the cards are paid off.

Now, contrast Dave’s Snowball Method with Suze Orman’s Method found in The Road to Wealth:

Step 1 - Figure out the largest possible amount you can afford to pay each month toward all your credit card balances together.

Step 2 - Add $10 to each minimum payment that your credit card company is asking you to pay.

Step 3 - Add up all your minimum payments plus $10 added for each card.

Step 4 - Hopefully the difference between the figure found in Step 1 is GREATER than the figure in found in Step 3. If so, apply the difference to the card with the HIGHEST interest rate.

Step 5 - Once that card is paid off, you continue the process (Steps 1 - 4) until ALL the cards are paid off.

Unsurprisingly, being a numbers junkie, I had to start doing some calculations. I created a pair of credit cards with different balances and interest rates and ran the numbers time and time again. What did I find? Most of the time, Suze’s method was better, but not always.

Let’s say you have two credit cards. Your first card has a balance of $5,000 on it, has an 18.9% interest rate on it, and has a minimum payment of $79 (which will take more than 25 years to pay off at that rate). Your second card is a bit better: $2,000 balance, a 10.9% interest rate, and a minimum payment of $19 (again, more than 25 years to pay it off). You’ve decided to commit $500 a month to eliminating this sick pile of debt.

If you use Dave’s method, you’ll make the minimum payment on the first card ($79) and then take the rest of the $500 and use that as payments on the second card ($421). In the fifth month, you’ll have a nice moral victory: that first card is paid off! You can then write a check for $500 a month to the first card, which will be paid off in the sixteenth month with a final payment of $361.69.

However, if you use Suze’s method, you’ll make the minimum payment plus $10 on the second card ($29), then pay the rest on the first card ($471). At the twelve month mark, the big card will be paid off, so you can then put the full payment of $500 towards the smaller card, which will also disappear at month sixteen. The only difference is that with Suze’s method, that last payment in the sixteenth month will be only $262.51. Her method saves you about $100 in this case.

However, if you reverse the interest rates (so that the low-balance card has the high rate), Dave’s plan wins, but only by about $75.

If you’re going to subscribe to a plan and don’t want to run a bunch of numbers in a complex Excel spreadsheet, Suze’s plan is better than Dave’s plan. However, there is a better plan than either Suze’s or Dave’s plan: pay off the highest interest credit card first.

In the first case, where the high interest credit card also has the highest balance, this plan is much like Suze’s, except that you only pay $19 towards the low interest card and $481 towards the high interest card at first. Just like with Suze’s plan, you pay off the high interest card in month 12, but in the sixteenth and final month, you only have to pay $257.56. This is just barely more optimal than Suze’s plan (by $5). In the second case, however, this plan was identical to Dave’s plan.

In short, the pay off the highest interest credit card first always beat or tied both Dave and Suze’s plans strictly by the numbers. Suze’s plan was never optimal, but it was close to optimal the majority of the time. Dave’s plan was either exactly optimal or else quite poor compared to both the “highest interest” plan and Suze’s plan.

However, I’m leaving out one important factor: the psychology factor. Dave’s plan is the best from a psychological standpont because it enables you to feel a level of success much quicker than Suze’s plan or the “highest interest” plan. Even Suze’s plan is better than the “highest interest” plan because you have the effect of doing “more than the minimum” on all fronts, which creates a sense of real progress.

Which plan is right for you? The truth is that it depends on how you’re wired.

The Money Book For The Young, Fabulous, and Broke is an attempt by Suze Orman to take personal finance ideas that traditionally appeal to older generations and make them palatable to Generation Y. The back states clearly that this isn’t your parents’ personal finance book, but is there anything really interesting or different about the book that makes it stand out from the crowd? This week, let’s find out!

Chapter 7: Investing Made Easy
The first six chapters of the book felt as if they laid a good foundation for financial stability; the last four chapters focus on more detailed topics. This chapter basically compresses the basics of investing in stocks down to about fifteen pages. I’ll compress it even more for you: buy some stock-based mutual funds and focus at first on ones that cover the whole market, like index funds. Given that this book is intended for twentysomethings, this advice is spot-on.

Most interesting problem: I get sick when my 401(k) goes down; I don’t want to invest any more. This is a question of perspective, and the person here is taking a very short term perspective on something that should have a very long term perspective. In fact, if you’re investing regularly, you’re better off for the long haul if the market goes down early on, because you’ll be buying at the market’s bottom and can ride the elevator all the way to the top floor.

Chapter 8: Big-Ticket Purchase: Car
This chapter is full of great advice about buying a car that will disappoint people who want a Lexus straight out of college: leases are a rip-off, the best deal is a late model used car that isn’t ultra-showy, and the more cash you can pay the better off you’ll be. All of these points are true - and yet I just saw a person who graduated just a few months ago and is employed as a secretary driving a leased Lexus. Sheesh.

Most interesting problem: I use my car 50 percent of the time for business. Even with the drawbacks of leasing, I figure the tax break makes it a good deal for me. Whenever you use a tax break to justify a purchase, you’re getting ripped off. Plain and simple, leases are a giant rip-off that leave you with nothing in the end except an empty wallet.

Chapter 9: Big-Ticket Purchase: Home
This chapter starts off with a great twenty page walkthrough of the home-buying process, along with a lot of encouragement about how good of an investment a home purchase is. I tend to think of one’s primary home not as an investment, but it is something with value that does appreciate over time. This chapter is great if you know nothing at all about the home-buying process, but even as someone who is still months away from my first home purchase, it was a gloss-over for me.

Most interesting problem: A starter home where I live costs at least $330K. The only way I can afford it is if I take out an interest-only loan. Then you can’t afford it. This is very similar to leasing a car, except at least you have some chance of the property value increasing over the long haul (and that’s a big if, depending on how big the housing bubble is in your area and how hard it’s popping). Live as cheap as you can until you can afford to buy something with a loan that can actually be paid off in some reasonable amount of time.

Chapter 10: Love & Money
Yes, a “love and marriage” chapter finishes out the book. Again, this is good, solid, simple advice: make sure you and your significant other are on the same page financially, because there will be big problems if you’re not. This chapter is great if you’re in a relationship that’s not incredibly serious yet, but you want some guidance on how the finances will work if you do take the plunge.

Most interesting problem: I am dating someone I really like personally but hate financially. The way a person handles their finances is a character trait that will eventually show up in other dimensions of life. If you have problems with the way they handle their finances already, it will only get worse - and other problems might crop up, too. Think about it carefully before you take any sort of plunge.

The Money Book For The Young, Fabulous, And Broke is the sixteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The Money Book For The Young, Fabulous, and Broke is an attempt by Suze Orman to take personal finance ideas that traditionally appeal to older generations and make them palatable to Generation Y. The back states clearly that this isn’t your parents’ personal finance book, but is there anything really interesting or different about the book that makes it stand out from the crowd? This week, let’s find out!

Chapter 4: Making The Grade On Student Debt
Student loans may be the best investment you make in your life, because a college degree increases your earnings potential by a large amount. However, walking out of school into an uncertain marketplace with a load of debt is certainly frightening. However, there are also a lot of things working in your favor: a low interest rate, tax-deductible interest, and the fact that you’re now holding a college degree are all big positives. If you don’t have a degree, but you think you’re capable of earning one, student loans are well worth it. As for consolidation, you should do this when the interest rates are low and you can lock in a rate; otherwise, it’s not worth it.

Most interesting problem: I have a little money left after paying my monthly bills, but I don’t know if I should use that cash to pay off my student loans or to invest in my 401(k) or a Roth IRA. If your company’s 401(k) gives you a match, you should invest in that above everything else. If you’re not doing that, you’re basically saying “no” to thousands of dollars in free money. Sure, you don’t get to spend that money now, but your older self will thank you profusely for it, as every dollar you invest that’s matched at age 25, growing with 10% annual return, becomes $90.52 when you’re 65. That’s an unbelievable rate of return and one you should be taking advantage of every step of the way.

Chapter 5: Save Up
This chapter’s focus is on the concept of living a bit frugally so you can afford important things like a cash emergency fund and also have the ability to save for major purchases, such as automobiles (so that you aren’t eaten alive by yet another loan with a strong interest rate). Most of the ideas in this chapter are pretty low key and sensible, but it takes commitment not to just take that new extra money and spend it on other stuff (I know that’s what I used to do - if I saved $25 by eating at home for a week, I could suddenly “afford” a new book). The chapter seems to be missing one important part: taking that newfound money and automatically depositing it into an emergency fund account.

Most interesting problem: I want to start a savings account, but everyone tells me I should pay off my credit cards first. This is generally true, but the real answer comes from comparing the interest rates. If your savings account returns 5% and you have a 4% credit card, then you should have your money in a savings account. However, most people have credit cards with interest rates in the 18% range and a savings account that’s far, far lower - if this is you, get those credit cards paid off as soon as possible.

Chapter 6: Retirement Rules
If you haven’t figured it out yet, I quite like this book; I think it really hits the target audience on the head, and nowhere else is this more true than in this chapter. Right at the front, in a huge font, it says “Unlike your grandparents and maybe even your parents, you are going to be pretty much on your own for funding your retirement.” This book is out there getting this vital message across to Generation Y, and for that I’m quite impressed. If the point wasn’t clear enough, another huge font header a few pages later says “You have been dealt a tough hand, and that requires getting an early jump on your retirement savings, because your best friend right now is time.” The chapter is filled with pretty typical retirement information: start an employee-matched 401(k) or 403(b) plan immediately and also get a Roth IRA if at all possible. But the message is very loud and clear: you’d better get started because the baby boomers are going to suck the pot dry before you get old enough, so it’s up to you to save for yourself.

Most interesting problem: I have credit card debt that I am paying 18% interest on. I wonder if I should borrow money from my 401(k) to pay off that debt. In short, no, because doing this will eat you alive with taxes. The money you paid into the 401(k) was pre-tax money, but you’ll pay back the loan with post-tax money, which basically amounts to a 25% interest rate (or so) on the loan on top of what they quote you. In other words, it’s actually much worse than most credit cards. Focus instead on trying to raise your credit score, then transfer that amount off to another credit card.

The Money Book For The Young, Fabulous, And Broke is the sixteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The Money Book For The Young, Fabulous, and Broke is an attempt by Suze Orman to take personal finance ideas that traditionally appeal to older generations and make them palatable to Generation Y. The back states clearly that this isn’t your parents’ personal finance book, but is there anything really interesting or different about the book that makes it stand out from the crowd? This week, let’s find out!

Chapter 1: Know The Score
The first chapter is all about the credit score: what it means, how to get it, and how to improve it. Most of the main part of the chapter lays out how a credit score is defined, which is almost exactly the same as Wikipedia’s definition of a credit score. Suze’s advice is spot-on here: knowing exactly how a credit score is defined is the biggest key to knowing how to improve it, as most common mistakes with improving a credit score are simply the result of not understanding what’s going on. She’s even wise to the freecreditreport.com ripoff - you should only get your score from the government or directly from Experian, Equifax, or TransUnion.

Most interesting problem: I am slowly paying down my credit card debt and plan to cancel each card as I get the balances to zero. For the love of God, don’t do this. Your oldest credit cards are part of the foundation of your credit report. If you cancel your earliest cards, your credit rating will go down as you are choosing to shorten the length of your credit history, which is a significant factor in calculating your score. Cut them up instead, or put them away in a lock box somewhere.

Chapter 2: Career Moves
The general point of this chapter is that if you’re not happy at your job, find a different one or else subject yourself to a lifetime of misery, something no one wants. Since this book is targeting twentysomethings, this is good advice; you’re at the very point in your life where a career change is most appropriate, before the burdens of a marriage, a home, and children begin to force you to remain employed. Some of her advice here is kind of odd, though; she encourages using credit cards for necessities if you’re working a job that pays very poorly but has strong potential to pay a lot more in the future. I’m not sure I agree with that; I think it’s a better life skill to learn how to suck it up and make it work, so to speak.

Most interesting problem: I hate my job and want to go back to school. In almost every case, this is a bad idea, as it prolongs the inevitable challenge of finding strong employment, increases your debt burden, and also gets you started in the workplace at an older age. For most people, going back to school is a crutch to lean on because they can’t get it done.

Chapter 3: Give Yourself Credit
As I mentioned before, Suze is often just fine with credit cards, and this chapter is basically about how to use credit cards in a sane and sensible manner. I agree with her that they can be used as tools, but the problem is that the modern consumerist society is basically set up to encourage people to spend beyond their means, in which people bringing in $130,000 a year are buying Ferraris and million dollar homes. Marketing has become so effective that for many people it makes the debt risk seem trivial in comparison - and then suddenly they find themselves in desperation. Thankfully, this chapter bookends the “use a credit card” advice with some sense, like making sure that the things you buy are actually necessities, and that eating out (for example) is not a necessity.

Most interesting problem: The only debt I have is my hefty balances on five credit cards. I want to begin to pay them off, but I don’t know where to start. The advice here is a home run: pay the minimum balance on all of them, but pay as much extra as you can on the one with the highest interest rate. Once that’s paid off, move on to the others. This is the route to paying the least amount possible in finance charges.

The Money Book For The Young, Fabulous, And Broke is the sixteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.