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Suze Orman Money Matters

Suze Orman, Money Matters

Time for a Midyear Financial Checkup

by Suze Orman

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Posted on Friday, June 29, 2007, 12:00AM

So, exactly how many of your 2007 financial resolutions have you followed through on? I thought so.

You promised yourself this year would be different, but somehow you've made it to the midyear mark and haven't crossed off many of your financial to-dos. It was probably just a wish-list you kept in your head anyway, and you've now conveniently banished it from your memory.

I'm not here to beat you up about what you haven't managed to do over the past six months, though. Instead, I have a proposal: Try these five financial moves that'll make you richer and remorse-free when the end of the year rolls around. You can easily knock them off between now and next New Year's:

• Get paid for saving

The average bank checking account pays less than 1 percent interest these days, if it pays any interest at all. At the same time, you can earn about 5 percent in a savings account, CD, or money market account.

There's no reason to leave more in your checking account than is necessary to pay your bills. That's different from a few years ago, when there wasn't much of a gap between what you could earn on different types of accounts.

These days, you should move any "extra" in checking into a true interest-bearing account; I wouldn't settle for less than 4 percent. If you manage to snag a 5 percent rate, on a $5,000 balance you're looking at making an extra $250 a year.

• Boost your 401(k) contribution

You know my position on this: If you're limited on funds, always invest just enough in your 401(k) to get the company match, but not a penny more. Then focus on a Roth IRA if you're eligible -- that is, if in 2007 you have a modified adjusted gross income of up to $114,000 for individuals and $166,000 for married couples filing a joint return.

If you aren't eligible for a Roth, or already have it funded, by all means add more to your 401(k). The standard max is $15,500 this year, or $20,500 for those over 50. The truth is that most people don't come near to maxing out on their contributions; the average contribution is typically less than half the annual limit.

This is especially true of folks who haven't previously participated in their company plan, but have been automatically enrolled by their employer. Automatic enrollment is a good thing, but it has a hidden trap: Typically, employers set the automatic contribution level at just 2 percent or so of salary. In many plans, that's not enough to qualify for the maximum company match.

Push yourself to contribute as much as possible to your 401(k). And for those of you under 50, check to see if your employer offers a new flavor of 401(k) -- the Roth 401(k). You lose the upfront tax break on your contribution with a Roth 401(k), but just like a Roth IRA, your entire account will be tax-free when you make withdrawals in retirement. That can be a huge advantage over a standard 401(k), where withdrawals are taxed as income.

• Rebalance your accounts

There's no excuse not to rebalance money invested in a tax-deferred account -- you can buy, sell, and exchange shares without a tax bill. Rebalancing is especially smart right now, with the markets looking shaky after some strong performance.

Trimming your winners and adding to the assets that have lagged is a smart way to keep your investing head. For example, international stocks have been on a roll since 2002, outperforming the S&P by a huge margin.

I'm not suggesting you get rid of international stocks after their strong run. But take a look at your portfolio and think about trimming it back if the percentage allocated to international stocks has grown way beyond your target.

• Trust yourself

A revocable living trust with an incapacity clause is the single smartest estate planning move for the vast majority of Americans; it's not just for the super-rich. I've covered this turf before, so I won't dive into the details. But here's your midyear challenge: Focus on a trust now.

Whether you use software or work with an estate planning lawyer, if you start now you should be able to have everything in place, including your advance directive and durable power of attorney for health care, before the end of the year. You could also have the trust funded.

For those of you with far-flung family members who get together at the holidays, making it a goal to have your papers all set before they show up will give you the opportunity to talk face to face with them and explain your estate plan. Letting your family know you have everything in place -- and explaining your health care choices if you become too ill to speak for yourself -- is one of the most loving gifts you can give them.

It shows concern for their well-being, as well as respect. Rather than leaving it all a mystery, or doing no planning at all, you'll have taken all the necessary steps to ensure a smooth handling of your estate if you become ill or die unexpectedly.

• Price a new life insurance policy

If you bought a term life policy at least 5 to 10 years ago, and remain in good health, you should take a few minutes to price the cost of replacing that old policy with a new one. Over the past decade, term premiums have plummeted about 50 percent, so you could be able to save a nice chunk of money by switching to a new policy to cover the remaining years of your current policy. One crucial step here: Don't cancel your old policy until you have a new policy up and running.

For those of you who made buying life insurance one of your 2007 resolutions, what's holding you back? Buying term life insurance -- which is the only type of insurance I recommend for the vast majority of individuals -- has never been cheaper and easier to do.

You can shop online at sites such as AccuQuote or SelectQuote, and you'll be amazed at how cheap protecting your family can be. For instance, a $500,000 policy for a healthy 40-year-old man can run just $500 or so a year.

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62 Comments

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  • Karen Moreno-Sayles - Wednesday, July 11, 2007, 8:57AM ET  Report Abuse

    • Overall: 5/5

    As usual, Suze is dead on. While these are things we've heard before, I have friends and relatives who are STILL not listening. Suze's periodic wake-up calls to action are always appreciated in my book!

  • Richie - Wednesday, July 11, 2007, 8:55AM ET  Report Abuse

    • Overall: 5/5

    Suze makes financial opptions essey enoff that even I understand, Thatnks

  • Catherine C - Wednesday, July 11, 2007, 8:43AM ET  Report Abuse

    • Overall: 5/5

    Suze always has great things to say.

  • corgi mom - Wednesday, July 11, 2007, 8:19AM ET  Report Abuse

    • Overall: 1/5

    same ole. same ole.....

  • Yahoo! Finance User - Wednesday, July 11, 2007, 6:40AM ET  Report Abuse

    • Overall: 5/5

    these are things I really need to know

  • BenH - Wednesday, July 11, 2007, 6:34AM ET  Report Abuse

    • Overall: 4/5

    conservative and wise, more americans should be wary of their money and savings. we are the richest poor country in the world!

  • john - Wednesday, July 11, 2007, 6:29AM ET  Report Abuse

    • Overall: 5/5

    This is good for re-appraisal

  • hajijani - Wednesday, July 11, 2007, 6:26AM ET  Report Abuse

    • Overall: 5/5

    Makes very interesting reading indeed; plus useful pointers & advice to follow. Thank you.

  • FrankG - Wednesday, July 11, 2007, 6:13AM ET  Report Abuse

    • Overall: 4/5

    I really enjoy articals that cover financial checkup. I am always ready to try and improve my stats.I would like to know what you think about accidental insurance.

  • julz - Wednesday, July 11, 2007, 5:53AM ET  Report Abuse

    • Overall: 4/5

    I'm a single mom taking care of my elderly father. I don't have very much time to research. Great story, informative & easy to follow. Thank you.

  • Mollie - Wednesday, July 11, 2007, 5:26AM ET  Report Abuse

    • Overall: 5/5

    I needed this reminder mid-year to kick-start some action. I really do need to take care of business for my family. Thanks Suze!

  • Jesse - Sunday, July 8, 2007, 7:37AM ET  Report Abuse

    • Overall: 1/5

    is this an expert ?????

  • David - Sunday, July 8, 2007, 7:26AM ET  Report Abuse

    • Overall: 3/5

    Decent, concise article. Revocable trusts are a liitle beyond what average people need in their lives in my opinion. Most people should concentrate on making sure they have a will and proper beneficiary designations first. If your net worth is getting close to 750k, a trust might be in order. While I'm all for tax deferral and tax free growth, there is something to be said for investing in taxable accounts as well. Don't put all your eggs in your retirement basket. As for insurance, I have no problem with term insurance, it serves some very beneficial purposes, but I find that most people need a few different types of insurance to meet all their insurable needs so blanket advice to avoid permanent products is wrong. First focus on your insurable need (if there is one), then focus on types and qualities of coverage. Term will inevitably play a roll in your insurance portfolio, but it shouldn't be everything.

  • Jill - Saturday, July 7, 2007, 5:47PM ET  Report Abuse

    • Overall: 4/5

    Suze's advice may not be news to many of us, but it surely is new to some people. I wasn't born knowing about 401(k)s, Roth IRAs, etc., and I bet Suze's bashers weren't, either. Why don't you guys lay off her for a while and go read a column you enjoy. Do I think her comments are valuable? Yes. But I do my own research and don't follow her directions blindly. No one should. And Nick needs a spellchecker.

  • LennyE - Saturday, July 7, 2007, 8:46AM ET  Report Abuse

    • Overall: 2/5

    This is nothing that hasn't been heard before.

  • Glenn - Friday, July 6, 2007, 6:41PM ET  Report Abuse

    • Overall: 5/5

    Excellent advice for most people. Basic financial advice is something most people never get (at least people who don't have high net worths). Keep up the great work you do Suze. It's much appreciated.

  • TG - Friday, July 6, 2007, 2:24PM ET  Report Abuse

    • Overall: 5/5

    Thanks. Im going to be getting my life insurance reevaluated and hopefully will get a better rate.

  • Doreen - Wednesday, July 4, 2007, 6:49AM ET  Report Abuse

    • Overall: 5/5

    Yikes, don't listen to the bashers -- some of whom are obviously "for profit" financial planners. Love the guy saying "oh if you have an 18 million dollar estate and die with term life insurance, your kids will have to come up with in 9 million in cash if you follow Suze's advice!!!" Dude, people with 18 million dollar estates don't read Yahoo Finance. Just chill out and let the folks who can benefit from Suze's advice use it. She knows her audience and seh speaks truth to them. Go fleece someone with an 18 millon dollar estate.

  • Yahoo! Finance User - Tuesday, July 3, 2007, 8:08PM ET  Report Abuse

    • Overall: 5/5

    In Australia the working poor are called "battlers". The advise that Suze Orman gives is tuned into a "battlers" aspirations. Its the type of advise that turned me from a "battler" into a "silvertail". I reckon most of the Suze bashers are upper middle class who can not stand the "battlers" succeeding. to an Australian battler the biggest compliment is to say you "done good". Suze you "done good".

  • MonicaB - Tuesday, July 3, 2007, 5:19PM ET  Report Abuse

    • Overall: 3/5

    While I commend Suze for recommending estate planning to everyone, as an EP attorney, I cannot agree that revocable trusts are right for everyone. Some estate planning is right for everyone, but please do yourself a favor and spend a few hundred dollars to explore your options. You could save your heirs thousands of dollars and a huge headache, and buy yourself a little peace of mind.

  • brandonandivy - Tuesday, July 3, 2007, 2:04PM ET  Report Abuse

    • Overall: 3/5

    Suze is great for the majority of people! I am amazed at the number of Suze bashers out there! You should be ashamed of yourselves. How about we see who has the greatest net worth? Suze Orman or you? I bet with 100% certainty that Suze has more than all of you 'know-it-all' jeolous types out there. Get over yourselves. You are jeoulous! People listen to her and not you. Is this the most inspiring article that I have ever read? No. Is this basic stuff? Yes. Having wealth does not mean that you have to have a Finance degree? There are lots of basics that Suze and other good advisors like Dave Ramsey teach. Spend less than you make, stay out of debt, etc. etc. It is all common sense stuff that the majority of Americans don't do. Period, end of story. If you are so great at finance, then why are you reading her articles to begin with? If most Americans had a clue about finance, then we would not have a -2% savings rate and most people would not have to rely on Social Insecurity for their retirement. Get a clue, folks. Suze is good for the common man and woman. Nick11020 has some horrible information about insurance because 1.) most people are not going to leave a $20 million dollar estate, and 2.) he probably sells insurance and financial services. He has a bias away from affordable term life insurance.I am sorry that we aren't all as sophisticated as you think you are. I recommend Dave Ramsey, David Bach and of course, Suze for 99% of you out there. A Mid- Year Check up is a great idea! Now you just have to do it!

  • Jerry L - Tuesday, July 3, 2007, 1:55PM ET  Report Abuse

    • Overall: 5/5

    Suze Orman makes the extremely complicated financial world simpler and more manageable for almost everyone. The average person cannot go wrong IF they follow her advice. The only advice of hers that I do not follow is to invest in the stock market. I don't like it and I don't trust it and I can't afford to lose the money so I am not a good prospect for the stock market. Other than that, these are timely reminders: I had goals to check my 401(k) and buy more term life insurance and had forgotten about them. I am making some phone calls TODAY to get these items in order. Thank you very much, Suze!

  • Bookworm - Tuesday, July 3, 2007, 11:47AM ET  Report Abuse

    • Overall: 3/5

    I don't think this information is terribly useful, but I also don't think it deserves the ire of so many readers. Also, regarding the manhating part....I see more womenhating in the comments than I do the reverse in her analysis.

  • Anon - Tuesday, July 3, 2007, 10:29AM ET  Report Abuse

    • Overall: 1/5

    Another arrogant, condescending from the great Ms. Orman. I wish I could make millions spouting obvious advice, sigh.

  • Nick - Tuesday, July 3, 2007, 10:29AM ET  Report Abuse

    • Overall: 1/5

    This is terrible information that is getting out to far too many people. First....Term insuracne is NOT right for the vast majority of people. You have to take into consideration Estate Tax Costs, espeically since, in 2011, you will only be allowed to pass $1 million dollars to a child (still unlimited between spouses). So let's say your a married couple have a $20 million estate and $18 million is in real estate. Unfortunately you both die in a car accident and your term policy's (which build no cash value) have ended 2 years ago, and you were both 65 and uninsurable at death. Your children will have to come up with almost $9 MILLION DOLLARS in CASH!!! On the other hand, if you had invested in a Universal Life policy, which builds a cash value, when you were young enough and in good health, your Estate Settlement Costs would be covered, but at the same time, if you didn't have that large of an Estate, then you can use that cash value in the policy's to fund your retirement with additional TAX FREE income. THAT IS JUST THE LIFE INSURANCE PIECE. Disability Insurance is very important also. BUT LET ME TOUCH ON YOUR INVESTMENT TOPIC. Yes, you should fund your 401(k) at least to the company match, and if you are eligible for a Roth, you should definitely fund that with any additional dollars (making sure someone is managing this money and getting you proper returns.) Now, with additional money, or if you don't qualify for a Roth, WHY WOULD YOU PUT ADDITIONAL MONEY IN YOUR 401(k)??? Reasons why NOT to: 1) The government has a $4 trillion deficit, how do you think they will reppay that? Buy RAISING TAXES. Your 401(k) withdrawels are taxable at ordinary income rates at the time of withdrawel (making sure you wait until 59 1/2.) Now, if you were to invest that money outside of a 401(k), in a managed fund, you can not only get higher returns with a wider range of investment options, but also pay less taxes, because long-term capital gain tax is what??? 15%!!!!!!!! A lot less than what most people's tax bracket's are. MY ADVICE TO EVERYONE (AND YES THIS IS A BLANKET STATEMENT WHICH EVERYONE SHOULD BE USED TO LISTENING TO SUZIE ORMAN) IS TO HIRE A QUALITY INVESTMENT PROFESSIONAL. If you are not dedicating at least 5 hours a week to your own finances, you need someone who will. Taking care of your finances is a full time job, and that's why financial advisor's exist!! If I wanted to buy Real Estate, I would contact a Real Estate professional, or if I needed to fix my drainage system, I would hire a plumber. Take my advice!! Hire a wealth advisor, financial advisor, wealth coach, investment professional, whatever they want to call themselves but make sure they do the following: (Pay Attention to this, very important).. Make sure they: 1. Are polite, curteous etc. 2. Are Professional 3. Are Experienced 4. Have Credentials 5. Provide Estate Planning advice 6. Provide Insurance advice 7. Provide Investment advice 8. Are a fee-based advisor Interview several and find one that you like. Don't use your accountant. Make sure they are willing to listen to everything and do everything you want, and always get a second opinion, unless you have been working with that same professional for years. You can make yourself rich, and be financially independant, but you need help. Do yourself a favor, and take 'some' or Suzie Orman's advice, but as I said, ALWAYS get a second opinion, no one is 100% accurate. She's in it to make money too, trust me, she's not just there to help people. If she were, she would give some of the millions that she has to those who need it. More advice: LIVE WITHIN YOUR MEANS!! Dont spend more than you make, stay away from credit cards. There is soo much information that you need to know. Buy Low Sell High. Anyhow, good luck everyone, and remember, you can do it, it just takes some work. -Nick

  • C-Tina - Tuesday, July 3, 2007, 8:57AM ET  Report Abuse

    • Overall: 3/5

    For those of us who are the common man this was a great reminder to stay on track. The common man does not have time to continuously read financial advice from so many advisors that knowing one who is giving reliable advice is all we need. We are out there working, having a life, and making the world go round.

  • Yahoo! Finance User - Tuesday, July 3, 2007, 1:38AM ET  Report Abuse

    • Overall: 1/5

    It occurs to me that Suze is here to sell subscriptions and hits to Yahoo! not good financial advice. Not only does she not understand economics or finance, but her advice does more harm than good. A little knowledge can be a dangerous thing.

  • Mom - Tuesday, July 3, 2007, 12:29AM ET  Report Abuse

    • Overall: 3/5

    Wow, there are a lot of arrogant people commenting! By insulting Suze's "finance 101" advice, you're insulting the millions of people who might be benefiting. Those who may not be as financially fortunate or as financially educated. Everyone needs to start somewhere, right? And free insight and knowledge could lead millions to the (sometimes) confusing world of investing which is good for every stock-holder out there. You all should be ashamed of yourselves. If her "advice" is beneath you then don't read it. Case closed. I doubt anyone at Yahoo is perusing these comments for content... but you can bet they're aware of the number of hits!

  • Mike - Tuesday, July 3, 2007, 12:09AM ET  Report Abuse

    • Overall: 1/5

    Why is this woman still allowed to dispense financial advice? Get a real expert, Yahoo!

  • MansfieldMom - Monday, July 2, 2007, 11:59PM ET  Report Abuse

    • Overall: 1/5

    For those who are giving this article anything more than a 2 star...needs reevaluation...There are (very good) reasons why Suze is getting 1 star...Hence the Suze bashing...1 star is well deserve!! Best advice is to always get expert advice on YOUR situation because one size does NOT fit all...

Showing comments 6-35 of 62<< PreviousNext >>
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