“If you have an unpaid credit card balance [and] not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can.”

Furthermore (with my own emphasis added):

Orman says that all spare dough–after making the minimum payments–should go into an emergency savings fund. Ideally, she says, that fund should contain eight months worth of living expenses.

This is a pretty surprising shift, since Orman was, until very recently, a very strong advocate of focusing on eliminating all high-interest debt. Obviously, this shift has been brought on by the recent economic downturn – but is it really a sensible change in philosophy? I’m not so sure.

Let’s start with the basics. My philosophy on debt repayment is pretty typical: get a small emergency fund built up, then start snowballing all of the high interest debt (anything over about 6% or so) by focusing all of your energies on paying off the debts in order of descending interest (highest interest first). If you’re interested in how to get this philosophy rolling in your own life, I’ve discussed it in detail before.

Suze used to have a very similar philosophy, but now it’s changed in one significant way: instead of a small emergency fund at the start, she encourages people to get an eight month emergency fund before continuing on to repaying debts.

Although I agree with Suze that a change in strategy is appropriate, I disagree with this particular change.

First of all, it’s a long term solution to a short term problem. Many economists expect the economy to rebound in 2010. A typical estimate is that the recession will drag on for a total of eighteen to twenty-four months, with a bit more than half that time already elapsed.

What about jobs? The rate of job loss is slowing down across the country and in some areas is already beginning to rebound.

In short, it’s quite reasonable, based on the information before us, to conclude that we’ve already caught the brunt of the storm and that the future holds an economic rebound.

In this environment, making the decision to jump from debt repayment to emergency fund building is about two years overdue. Of course, two years ago, many fewer people would have listened to such advice.

At the same time, proposing an eight month emergency fund is really poor money advice to most people, particularly in the face of such a short-term concern. Eight month emergency funds are long term goals, taking years of careful planning and consistent saving to build. Proposing such an enormous goal to someone facing a big pile of monthly bills and a typical income isn’t great advice.

I know this from experience. If you had told me a few years ago that I should have eight months’ worth of living expenses in the bank, I would have laughed at you. It simply wasn’t realistic.

I propose a different solution.

First of all, ignore a huge, long-term goal like an eight month emergency fund. It took me years of difficult decisions and hard saving to reach that kind of buffer – and I had a strong income and a stubborn streak behind it. Sure, it’s a great long term goal, but if your focus is on getting through the downturn, your focus should be on the short term.

Instead, if you’re worried about the downturn, focus on three key things through the rest of this year (and thus, likely, through the bottom of the downturn):

One, apply some realistic frugality in your life. I’m not suggesting completely revamping your life and completely altering your behavior – that will simply fail most of the time, just like a crash diet.

Instead, look for truly effective ways to trim your spending, particularly things you can do one time and have them continually save money over the long haul. Work on improving energy efficiency, for example, by air sealing your home, installing a programmable thermostat (and actually programming it), and using more energy-efficient equipment (like light bulbs and appliances). Prepare home-cooked meals in advance and freeze them (so when you’re busy during the workweek, inexpensive homemade meals are very easy). Call and get your credit card interest rates reduced. Cut out services you’re not using – and try to negotiate any package deals you have, like a cable/phone/internet bundle. All of these tactics can be done once in a big energetic flurry, but they trim your monthly expenses thereafter.

Two, acquire no new debt. Instead of replacing things, stretch out their use a little bit longer or find alternate means. Take your credit cards and hide them, so you’re not tempted to use them for things you don’t truly need. Most importantly, take it one day at a time. Focus on just avoiding the credit cards in the here and now – don’t stress out about the long term.

Three, build up your emergency fund a little now, but be prepared to reduce it in 2010. If you’re really concerned about the short term, it’s okay to slow down the debt repayments in the short term. Just pay the minimums and put the extra payments (along with all of that other money you’re saving through the steps above) into your emergency fund. Then, when the economy rebounds and you’re clearly in a more secure state with your employment and other factors, don’t be afraid to put some of that savings towards your debts.

To put it simply, an eight month emergency fund, if you have high interest outstanding debt, is overkill. However, in the current economic environment, there is reason for people to feel much less secure about their employment. So, in the short term, I’d bulk up my emergency fund a little – but only in the short term.

If you take nothing else away from this article, take this away: everyone’s personal sense of risk is different. For many people, the current economic state goes far beyond their comfortable risk threshold – if you feel that way, bulk up your emergency fund in the short term. If you feel confident and comfortable where you’re at, pay down your debt – or, if you don’t have any debt, start saving for retirement. The key, as always, is to spend less than you earn. If you do that – and do it with all your might – the details of whether to pay down debt or to have a bigger emergency fund pale in comparison.

The post Is Suze Right? Do Emergency Funds Now Trump Debt Repayment? appeared first on The Simple Dollar.

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.

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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 post The Simple Dollar Morning Roundup: Suze Orman Reaction Edition appeared first on The Simple Dollar.

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.

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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.

The post The Money Book For The Young, Fabulous, And Broke: Buy or Don’t Buy? appeared first on The Simple Dollar.

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 post Dave Ramsey vs. Suze Orman: Which Plan For Dealing With Debts Is Best? appeared first on The Simple Dollar.

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 post The Money Book For The Young, Fabulous, And Broke: Chapters 7 – 10 appeared first on The Simple Dollar.

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 post The Money Book For The Young, Fabulous, And Broke: Chapters 4 – 6 appeared first on The Simple Dollar.

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.

The post The Money Book For The Young, Fabulous, And Broke: Chapters 1 – 3 appeared first on The Simple Dollar.

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 we’ll spend the next three days walking through the book finding out just that. Then, on Friday, I’ll give a buy or don’t buy recommendation.

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 post The Money Book For The Young, Fabulous, And Broke: Overview appeared first on The Simple Dollar.

If you flip through the channels on many evenings, you’ve probably seen Suze, perched behind her desk on her personal finance show on CNBC. You almost can’t help but notice her – a very attention-grabbing voice, an assertive personality, and rather bright clothing tend to attract some attention when you’re flipping around. At first, I was annoyed, but then I started to listen… did my annoyance change?

Background
Suze (pronounced Susie) came from a working class background (which she outlines in a few horrific tales in her books) and eventually wound up as a waitress. Eventually, her obvious salesmanship skill came through and she wound up as an account executive in Merrill Lynch in the mid-1980s. From there, she became a Certified Financial Planner and started her own financial group, which eventually led her to a media career.

In other words, Suze has significant experience managing others’ money. However, it should be noted that although no one disputes her background, there are some unclear areas as to how much time she spent on various different tasks.

Message
Orman’s basic advice is pretty typical as personal finance gurus go: pay off your debts, cut out unnecessary expenses, write a will and/or a trust, invest for yourself, and so on. She’s particularly into what is commonly termed the “latte factor”: cutting down on unnecessary expenses and investing them are real keys to moving forward with a strong personal finance plan.

However, two parts of Suze’s message really set her apart – and I believe that it is these two aspects that have brought Suze to the forefront.

First, Suze incorporates a major spiritual element into her advice. By this, I don’t mean a religion-specific message, but more of a general New Age-type spirituality. She genuinely believes in the dignity and power of the human spirit and that good personal finance habits are one major part of getting in tune with our inner selves. Thus, many of her discussions of personal finance issues tie into the human spirit and an overall sense of having different elements of your life in tune with each other.

Second, Suze has a very strong “successful female” persona. She manages to consistently maintain an aura of a woman who has the secrets of success figured out – and that alone is enough to get some people to pay attention. For example, my teenage niece will actually pay (some) attention to Suze, but every other personal finance guru is pretty much not worth her time (observation based on watching CNBC and listening to the radio while my niece is around).

Why are these important to the message? They relate to the viewer with different cues than many other pundits. Suze makes a lot of people take an interest in their finances that otherwise would not and she follows it with a message that works.

My Take
I have this weird love/hate relationship with Suze, which I’ve talked about before.

On the one hand, her persona on television grates on me, from her voice to her personal appearance to her weird mix of brusqueness and sensitivity towards callers. To tell the truth, most of the time I can’t even bring myself to watch her show at all – it’s just too much for me. I see how it could be appealing to some, but it just doesn’t work for me.

On the other hand, I quite like her book 9 Steps To Financial Freedom and I also find her one of the “good” columnists at Yahoo! Finance. I like the ideas that she spreads – they’re sensible and clearly stated and I’m looking forward to reading at least one more of her books to review on here.

Basically, I like the message quite a bit, but the messenger really frustrates me at times.

The bottom line: Suze’s personality can be abrasive to some people, but her message is quite good. Her “persona” might also help some people get the personal finance help they need, and if it gets some people on the right track, that’s great.

The post Deconstructing Suze Orman appeared first on The Simple Dollar.

Suze Orman takes this idea and subdivides it into nine steps that you can walk yourself through in order to find the source of those fears, root them out, and remove them from your life. In other words, this book isn’t strong on the actual mechanics of personal finance, but it is strong on setting the psychological stage for strong personal finance habits.

Another distinct feature of The 9 Steps to Financial Freedom is the heavily anecdotal nature of the book. Suze likes to use lots of anecdotes to illustrate her points – and she’s pretty good at choosing strong ones. If overly anecdotal works frustrate you, there will likely be portions of this book that you find difficult. For me, I find anecdotes appropriate in books like this that focus on the psychological underpinings of a thought process; they become less useful when you deal with the actual mechanics of personal finance.

What’s Inside The 9 Steps To Financial Freedom?

The book is divided into nine sections (after the compulsory introduction) that focus on each of the titular nine steps. These steps are:
1. Seeing how your past holds the key to your financial future
2. Facing your fears and creating new truths
3. Being honest with yourself
4. Being responsible to those you love
5. Being respectful of yourself and your money
6. Trusting yourself more than you trust others
7. Being open to receive all that you are meant to have
8. Understanding the ebb and flow of the money cycle
9. Recognizing true wealth

Step 1: Seeing how your past holds the key to your financial future

The focus of this section of the book is straightforward – for almost everyone, there is some key memory related to money in their past that is particularly vibrant. The chapter gives several very strong anecdotes and gives ideas for teasing out that key memory.

Why would you want to tease out that memory? Childhood memories, particularly strong ones, are layered in feelings of all kinds. Those memories are of the moments that defined who you are as a person, and true understanding of those memories can bring about significant insight into your adult life, which is what the second step deals with.

For me, I remembered the time when I worked on a project to raise money for a year, only to have the proceeds stolen from me. It is truly a painful memory to recall.

Step 2: Facing your fears and creating new truths

This second step is really just an extension of the first one. Once you’ve teased out that memory in detail, you can dig through it to see what exactly it says about your current views on personal finance.

The mechanism that the book uses for teasing out these meanings is to make a list of your current fears. What are you afraid of? Once you’re able to actually be honest with yourself and list them, comparing these insights to your memory can be very insightful. Quite often, the memory explains the root cause of your fear. Once you understand what exactly the fear is, you can begin to tackle it in various ways; Suze suggests the “traditional” idea of a mantra that you repeat for comfort and confidence.

To me, the first two steps felt very much like typical “self help” concepts, but they did work; I was able to find a key money memory and it did reflect clearly on my behavior with money today. I don’t particularly find a mantra to be useful for me, but I do agree with the need to conquer fear. The Simple Dollar itself is part of my method of conquering my fear of personal finance.

Step 3: Being honest with yourself

This is definitely the meatiest step of the first part of the book, and it provides the first non-psychological steps you can take to get your financial house in order, though this one is also a psychological trick at its core.

The basic idea is that most people don’t have a real grasp on what they’re spending or what they’re bringing in, and quite often people are spending more than they’re bringing in without really realizing it, thus creating severe financial problems over time. This is pretty typical given the consumerist lifestyle that so many of us live.

Suze’s solution is to take two years worth of records and make a list of everything you spent by category, then make a monthly average for each category. Then, do the same thing for your income and compare the two. Basically, this provides the background for a truly realistic budget; you can see from this data whether you’re overspending or not and you have actual feasible numbers to work with when determining where to cut fat to improve your finances.

Suze provides a lot of ideas on how to use this information in order to subtly trim fat away from your budget, but the real key here is psychological; this step can really make you see where that money is going.

Step 4: Being responsible to those you love

This section is a detailed overview of what I would describe as “disaster planning;” in other words, insurance, wills, and trusts. The general point is that you should focus first on the people that are truly important to you and make sure that insurance and wills and such are set up so that if something happens to you, everything is taken care of in the way you truly want. The argument is that this allows you to feel much more confident about your place in the world.

The chapter is a pretty solid overview of the world of insurance and estate planning. Suze repeatedly encourages people to contact an expert for handling these things and not to trust her book, which is something I really appreciate. You should never trust a book to give you all of the answers when it comes to areas of the law that you don’t fully understand.

She makes very strong cases for revocable living trusts, long term care and disability insurance, and a large dollop of life insurance, all of which would only be triggered in the event of a major crisis. Some people would likely shrug their shoulders at this, but I think the point for her is that it is psychologically healthy to be able to look at the people you care for and know that if something disastrous were to happen to you, they would not be destitute. This is a great attitude if you can afford it.

Step 5: Being respectful of yourself and your money

The focus of this chapter is getting your own basic financial house in order: putting plenty into retirement, getting out from under any high-interest debt, and so forth. In essence, this chapter tries to ensure that you are on a level playing field with your long term future covered. She argues that this will, again, make you feel better about yourself and your money.

This chapter is pretty basic in terms of such rearrangement of personal finances, hitting upon the usual bromides: pay off your credit cards as soon as you can, take advantage of every dime of employee matching in your optional retirement plans (401(k), 403(b), and so on), and max out what you can put in a Roth IRA. In the last year, I’ve done two of the three of these and she’s right: it has been invaluable in improving my personal psyche. The only one I’m not doing yet is the Roth IRA, as my highest priority for the moment is a house down payment so I don’t have PMI or high interest rates.

Step 6: Trusting yourself more than you trust others

After two chapters of pretty solid individual financial advice, the sixth step focuses on building wealth for yourself. Basically, this chapter focuses on trusting yourself in terms of where to go next once your financial house is in order.

Suze is a big proponent of complete trust in your gut feelings, and most of this chapter focuses on that, particularly in terms of how you can use that gut feeling to guide your investing. The whole point of this chapter, in fact, is that you should become as comfortable as you can with your money so that you can follow your pure gut instinct about what’s right for you, which makes a lot of sense. She even provides a seven page questionnaire that can guide you along this path of comfort.

One portion of this section that made me somewhat uncomfortable is her repeated hinting that one should really get a financial planner, which seems to contradict most of what she says. For example, she continually points out that most index-based mutual funds beat managed mutual funds, but in the next breath she encourages readers to seek out a financial planner for advice. If you’re investing the time to read this book, wouldn’t it make sense to also invest the time to do the planning yourself?

Step 7: Being open to receive all that you are meant to have.

This step focuses on the fact that money in and of itself doesn’t really bring happiness, but that happiness can bring money. Thus, money is merely a tool to bring about happiness.

Suze gives some solid advice here on the therapeutic effects of giving to charities, as well as the strong bromide that you should never let cash gifts interfere with family and friends. Yet much of this comes off as a contradiction, since most of the book up to this point focuses on how to balance your financial life and accumulate wealth.

Step 8: Understanding the ebb and flow of the money cycle.

This step is merely the realization of the fact that much good can come from the bad times in our lives, whether it be new opportunities or merely personal growth. Quite often, the mistakes one makes in life end up being the foundation for much greater things.

Step 9: Recognizing true wealth

The final step is the simple recognition that the truly valuable things in life are not monetary. It seems simple, but so many people overlook this fact. The most valuable thing in my life, for instance, is the smile of my son when I’m playing with him. It has no real financial value, but no amount of money can ever replicate that feeling.

The final three steps are quite short, but they are important in one fundamental way: the true path to wealth comes not from having enough money, but from having inner peace.

Buy or Don’t Buy?

Now we come around to the big question about The 9 Steps to Financial Freedom: should I buy it or should I skip it?

The most important factor to realize about this book is that it focuses much more on the psychology of personal finance than on the mechanics of personal finance. If you’re looking for nuts and bolts ideas, this book won’t hold very much meat for you. On the other hand, if you’re lost and wondering where all of the money went, this book is right up your alley, as those issues are typically psychological in nature.

This book also features the Suze Orman “personality.” If you find her persona on television to be highly grating, then there are many aspects of this book you will also find grating. Admittedly, the Suze Orman factor isn’t quite as thick in print as it is on screen, but if this is a major turn-off for you, then avoid the book. If you’re already a fan of hers, on the other hand, this book will fit right in.

In short, buy this book if you’re really unsure how to get started in setting your financial ship right. If you feel very lost with your money, her approach is a solid one, because your biggest problem is getting your mind in the right framework so that you can improve your financial situation.

On the other hand, don’t buy this book if you’re already on a solid financial path. There isn’t much to this book in terms of the actual mechanics of personal finance; you’ll be much better off reading books that provide information on specific topics rather than this one.

I originally reviewed The 9 Steps To Financial Freedom in five parts, which you may view here, here, here, here, and here if you’d like to read the original comments.

The 9 Steps To Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The post Review: The 9 Steps To Financial Freedom appeared first on The Simple Dollar.

Now we come around to the big question about The 9 Steps to Financial Freedom: should I buy it or should I skip it?

The most important factor to realize about this book is that it focuses much more on the psychology of personal finance than on the mechanics of personal finance. If you’re looking for nuts and bolts ideas, this book won’t hold very much meat for you. On the other hand, if you’re lost and wondering where all of the money went, this book is right up your alley, as those issues are typically psychological in nature.

This book also features the Suze Orman “personality.” If you find her persona on television to be highly grating, then there are many aspects of this book you will also find grating. Admittedly, the Suze Orman factor isn’t quite as thick in print as it is on screen, but if this is a major turn-off for you, then avoid the book. If you’re already a fan of hers, on the other hand, this book will fit right in.

In short, buy this book if you’re really unsure how to get started in setting your financial ship right. If you feel very lost with your money, her approach is a solid one, because your biggest problem is getting your mind in the right framework so that you can improve your financial situation.

On the other hand, don’t buy this book if you’re already on a solid financial path. There isn’t much to this book in terms of the actual mechanics of personal finance; you’ll be much better off reading books that provide information on specific topics rather than this one.

Next week, The Simple Dollar will take a look at a book that stretches the definition of a “personal finance” book, as it provides a bit of an unusual approach to the topic.

You can jump quickly to the other parts of this review of The 9 Steps to Financial Freedom using these links:
Overview
Steps 1-3
Steps 4-6
Steps 7-9
Buy or Don’t Buy?

The 9 Steps to Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The post The 9 Steps To Financial Freedom: Buy or Don’t Buy? appeared first on The Simple Dollar.

Yesterday, we looked at the fourth, fifth, and sixth steps in The 9 Steps to Financial Freedom and discovered that they laid out a path to creating peace of mind by putting your finances in order in a way that increased your ability to trust yourself. Today, we’ll look at the final three steps that Suze recommends.

Step 7: Being open to receive all that you are meant to have.

This step focuses on the fact that money in and of itself doesn’t really bring happiness, but that happiness can bring money. Thus, money is merely a tool to bring about happiness.

Suze gives some solid advice here on the therapeutic effects of giving to charities, as well as the strong bromide that you should never let cash gifts interfere with family and friends. Yet much of this comes off as a contradiction, since most of the book up to this point focuses on how to balance your financial life and accumulate wealth.

Step 8: Understanding the ebb and flow of the money cycle.

This step is merely the realization of the fact that much good can come from the bad times in our lives, whether it be new opportunities or merely personal growth. Quite often, the mistakes one makes in life end up being the foundation for much greater things.

Step 9: Recognizing true wealth

The final step is the simple recognition that the truly valuable things in life are not monetary. It seems simple, but so many people overlook this fact. The most valuable thing in my life, for instance, is the smile of my son when I’m playing with him. It has no real financial value, but no amount of money can ever replicate that feeling.

The final three steps are quite short, but they are important in one fundamental way: the true path to wealth comes not from having enough money, but from having inner peace.

Tomorrow, in the final part of this five part series reviewing The 9 Steps to Financial Freedom, I’ll give a final judgement on this book: buy or don’t buy.

You can jump quickly to the other parts of this review of The 9 Steps to Financial Freedom using these links:
Overview
Steps 1-3
Steps 4-6
Steps 7-9
Buy or Don’t Buy?

The 9 Steps to Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The post The 9 Steps to Financial Freedom: Steps 7-9 appeared first on The Simple Dollar.

Yesterday, we looked at the first three steps in The 9 Steps to Financial Freedom and discovered they mostly dealt with psychological self-analysis. Today, let’s look at the next three steps in a bit closer detail.

Step 4: Being responsible to those you love

This section is a detailed overview of what I would describe as “disaster planning;” in other words, insurance, wills, and trusts. The general point is that you should focus first on the people that are truly important to you and make sure that insurance and wills and such are set up so that if something happens to you, everything is taken care of in the way you truly want. The argument is that this allows you to feel much more confident about your place in the world.

The chapter is a pretty solid overview of the world of insurance and estate planning. Suze repeatedly encourages people to contact an expert for handling these things and not to trust her book, which is something I really appreciate. You should never trust a book to give you all of the answers when it comes to areas of the law that you don’t fully understand.

She makes very strong cases for revocable living trusts, long term care and disability insurance, and a large dollop of life insurance, all of which would only be triggered in the event of a major crisis. Some people would likely shrug their shoulders at this, but I think the point for her is that it is psychologically healthy to be able to look at the people you care for and know that if something disastrous were to happen to you, they would not be destitute. This is a great attitude if you can afford it.

Step 5: Being respectful of yourself and your money

The focus of this chapter is getting your own basic financial house in order: putting plenty into retirement, getting out from under any high-interest debt, and so forth. In essence, this chapter tries to ensure that you are on a level playing field with your long term future covered. She argues that this will, again, make you feel better about yourself and your money.

This chapter is pretty basic in terms of such rearrangement of personal finances, hitting upon the usual bromides: pay off your credit cards as soon as you can, take advantage of every dime of employee matching in your optional retirement plans (401(k), 403(b), and so on), and max out what you can put in a Roth IRA. In the last year, I’ve done two of the three of these and she’s right: it has been invaluable in improving my personal psyche. The only one I’m not doing yet is the Roth IRA, as my highest priority for the moment is a house down payment so I don’t have PMI or high interest rates.

Step 6: Trusting yourself more than you trust others

After two chapters of pretty solid individual financial advice, the sixth step focuses on building wealth for yourself. Basically, this chapter focuses on trusting yourself in terms of where to go next once your financial house is in order.

Suze is a big proponent of complete trust in your gut feelings, and most of this chapter focuses on that, particularly in terms of how you can use that gut feeling to guide your investing. The whole point of this chapter, in fact, is that you should become as comfortable as you can with your money so that you can follow your pure gut instinct about what’s right for you, which makes a lot of sense. She even provides a seven page questionnaire that can guide you along this path of comfort.

One portion of this section that made me somewhat uncomfortable is her repeated hinting that one should really get a financial planner, which seems to contradict most of what she says. For example, she continually points out that most index-based mutual funds beat managed mutual funds, but in the next breath she encourages readers to seek out a financial planner for advice. If you’re investing the time to read this book, wouldn’t it make sense to also invest the time to do the planning yourself?

Tomorrow, in the next part of this five part series reviewing The 9 Steps to Financial Freedom, we’ll tackle the final three steps that Suze offers.

You can jump quickly to the other parts of this review of The 9 Steps to Financial Freedom using these links:
Overview
Steps 1-3
Steps 4-6
Steps 7-9
Buy or Don’t Buy?

The 9 Steps to Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The post The 9 Steps To Financial Freedom: Steps 4-6 appeared first on The Simple Dollar.

Yesterday, we looked at The 9 Steps to Financial Freedom as a whole and observed that this book focuses on laying a psychological foundation for healthy personal finance. Each step in the book seeks to strengthen this foundation so that, by the time one works through the concepts in the book, a much healthier concept of finances can grow. Today, let’s look at the first three steps in a bit closer detail.

Step 1: Seeing how your past holds the key to your financial future

The focus of this section of the book is straightforward – for almost everyone, there is some key memory related to money in their past that is particularly vibrant. The chapter gives several very strong anecdotes and gives ideas for teasing out that key memory.

Why would you want to tease out that memory? Childhood memories, particularly strong ones, are layered in feelings of all kinds. Those memories are of the moments that defined who you are as a person, and true understanding of those memories can bring about significant insight into your adult life, which is what the second step deals with.

For me, I remembered the time when I worked on a project to raise money for a year, only to have the proceeds stolen from me. It is truly a painful memory to recall.

Step 2: Facing your fears and creating new truths

This second step is really just an extension of the first one. Once you’ve teased out that memory in detail, you can dig through it to see what exactly it says about your current views on personal finance.

The mechanism that the book uses for teasing out these meanings is to make a list of your current fears. What are you afraid of? Once you’re able to actually be honest with yourself and list them, comparing these insights to your memory can be very insightful. Quite often, the memory explains the root cause of your fear. Once you understand what exactly the fear is, you can begin to tackle it in various ways; Suze suggests the “traditional” idea of a mantra that you repeat for comfort and confidence.

To me, the first two steps felt very much like typical “self help” concepts, but they did work; I was able to find a key money memory and it did reflect clearly on my behavior with money today. I don’t particularly find a mantra to be useful for me, but I do agree with the need to conquer fear. The Simple Dollar itself is part of my method of conquering my fear of personal finance.

Step 3: Being honest with yourself

This is definitely the meatiest step of the first part of the book, and it provides the first non-psychological steps you can take to get your financial house in order, though this one is also a psychological trick at its core.

The basic idea is that most people don’t have a real grasp on what they’re spending or what they’re bringing in, and quite often people are spending more than they’re bringing in without really realizing it, thus creating severe financial problems over time. This is pretty typical given the consumerist lifestyle that so many of us live.

Suze’s solution is to take two years worth of records and make a list of everything you spent by category, then make a monthly average for each category. Then, do the same thing for your income and compare the two. Basically, this provides the background for a truly realistic budget; you can see from this data whether you’re overspending or not and you have actual feasible numbers to work with when determining where to cut fat to improve your finances.

Suze provides a lot of ideas on how to use this information in order to subtly trim fat away from your budget, but the real key here is psychological; this step can really make you see where that money is going.

Tomorrow, in the next part of this five part series reviewing The 9 Steps to Financial Freedom, we’ll tackle the next three steps that Suze offers. These three steps make up much of the meat of the book; you won’t want to miss The Simple Dollar’s take on it!

You can jump quickly to the other parts of this review of The 9 Steps to Financial Freedom using these links:
Overview
Steps 1-3
Steps 4-6
Steps 7-9
Buy or Don’t Buy?

The 9 Steps to Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The post The 9 Steps To Financial Freedom: Steps 1-3 appeared first on The Simple Dollar.

The overall point of The 9 Steps to Financial Freedom is laid out clearly on the very first page of the book. The premise of the entire book is that conquering fears is the key to financial freedom. In other words, most of the limiting factors to financial success exist in the walls we’ve built up in our own minds, and achieving success lies in knocking down those walls.

Suze Orman takes this idea and subdivides it into nine steps that you can walk yourself through in order to find the source of those fears, root them out, and remove them from your life. In other words, this book isn’t strong on the actual mechanics of personal finance, but it is strong on setting the psychological stage for strong personal finance habits.

Another distinct feature of The 9 Steps to Financial Freedom is the heavily anecdotal nature of the book. Suze likes to use lots of anecdotes to illustrate her points – and she’s pretty good at choosing strong ones. If overly anecdotal works frustrate you, there will likely be portions of this book that you find difficult. For me, I find anecdotes appropriate in books like this that focus on the psychological underpinings of a thought process; they become less useful when you deal with the actual mechanics of personal finance.

The book is divided into nine sections (after the compulsory introduction) that focus on each of the titular nine steps. These steps are:
1. Seeing how your past holds the key to your financial future
2. Facing your fears and creating new truths
3. Being honest with yourself
4. Being responsible to those you love
5. Being respectful of yourself and your money
6. Trusting yourself more than you trust others
7. Being open to receive all that you are meant to have
8. Understanding the ebb and flow of the money cycle
9. Recognizing true wealth

In the next part of this five part series reviewing The 9 Steps to Financial Freedom, we’ll tackle the first three steps that Suze offers in great detail. Do they provide a good foundation for rethinking your finances?

You can jump quickly to the other parts of this review of The 9 Steps to Financial Freedom using these links:
Overview
Steps 1-3
Steps 4-6
Steps 7-9
Buy or Don’t Buy?

The 9 Steps to Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

The post The 9 Steps To Financial Freedom: Overview appeared first on The Simple Dollar.

When I woke up this morning, this dream kept sticking in my head. Why would I dream about Suze Orman? I wasn’t reading a book written by her, nor had I even seen her show (or even thought about it) in a long while. It particularly bugged me because I can usually rationally explain everything that happens in my dreams – they’re almost always subconscious nudges that I should be doing something that I’m forgetting about. After some reflection, however, I think I pieced it together.

Suze Orman’s personality makes my skin crawl. The public persona of Suze Orman revolves around an appearance of “success”: designer clothes, styled hair, and the like. This runs contrary to what she preaches, which is to live thrifty and sock away money. Similar financial pundits don’t dress overly nicely; take Jim Cramer, for instance. He dresses like the chainsmoking accountant I know that lives down the street, but it makes sense because he’s preaching positive use of money and reasonable investment. Suze, on the other hand, comes off as some sort of televangelist, preaching her solutions to all of your problems with her screechy voice and “worship me now” attitude, dressed to the nines in a self-contradictory fashion like the wife of Joel Osteen or something.

But a lot of the advice she gives is good advice, especially to beginners. Even though her persona drives me to drink (literally, I sometimes watch her show in the late evening with a glass of scotch), she says things that often make sense to the beginning investor. Unquestionably, it’s a good idea to get your head on straight first, and it’s a good idea to build up an emergency fund before you dive into big purchases. I don’t think it’s just the scotch-induced haze – her material actually makes sense. Her books are also quite good, mostly because they’re separated from the designer clothes and that nails-on-the-blackboard voice.

I’m at a loss here… should I like Suze Orman or not? Is it okay to be completely disgusted by someone’s persona but still respect what that person has to say? My uncle used to say “big suit, little man” a lot, in reference to people that tried to put on a big show about things but really didn’t amount to much – and this is the exact same vibe I get from Suze Orman on a regular basis. Yet the actual core of the message she sends strikes a deep inner chord with me – maybe the specifics aren’t perfect, but the central concept is spot-on.

Either way, I don’t think I’ll tell my wife about this dream. She would probably be creeped out by the whole thing.

The post Is There Something Wrong With Me If Suze Orman Appears In My Dreams? appeared first on The Simple Dollar.