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Suze Orman Money Matters

Suze Orman, Money Matters

Get More for (and From) Your Money in Tough Times

by Suze Orman

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Posted on Friday, March 7, 2008, 12:00AM

There's no market that isn't giving us a hard time right now. The stock market is faltering, the housing market is slumping, and prices at the supermarket, gas station, and everywhere else you shop are on the rise.

With all this pressure on your finances, let's review how you can stretch your stressed-out dollar. You can indeed make more money -- and make more of the money you spend -- in 2008:

• Pay off debt with those IRS checks.

Now that we're in the tax-season crunch, it's time to decide what to do with those fat checks many of you are about to get from the IRS. Last year, the average federal tax refund was more than $2,200. And thanks to the recent economic stimulus package, many people are also in line for another check from the IRS this spring; in some instances, the family check can top $1,500 or more.

I covered this a few weeks ago, but it bears repeating: Pay off high-interest debt with any money you receive from the IRS this spring. If you have an unpaid credit card balance that charges 18 percent interest, wiping out that debt is an automatic 18 percent gain for your personal balance sheet.

That's a fabulous return on investment even when the stock markets are roaring. With the markets in a swoon right now, paying off your high-interest debt is the best investment you can make in 2008.

• Buy more family protection for less money.

According to AccuQuote, the cost of term life insurance continues to plummet. Over the past 10 years, the annual premium for a $500,000, 20-year level term policy for a healthy 40-year-old male (nonsmoker, of course) has fallen 33 percent to a super-affordable $345. That works out to less per month ($28.75) than the cost of a single entree at many high-end restaurants.

Prices have fallen so far that if you took out a policy in the past few years and remain in good health, you should check into refinancing. Price the current cost of a new policy and you could save yourself some serious money, or comfortably increase your death benefit without increasing your out-of-pocket costs. Just remember to never cancel an existing policy until your new one is up and running.

• Say no to a 401(k) loan.

I realize that easy access makes borrowing from your 401(k) account alluring. In fact, a recent survey released by the Transamerica Center for Retirement Studies reports that 18 percent of plan participants currently have a 401(k) loan, compared to 11 percent in 2006.

While it's not surprising that more people are leaning on their 401(k) accounts in these jittery financial times, it's nonetheless a costly mistake: You pull out pretax dollars but pay it back with after-tax money. Then, when you retire and withdraw the money again, it gets smacked with taxes one more time.

This makes no sense, and given the weakening economic outlook -- where job security is once again a front-burner concern -- a 401(k) loan becomes extra-risky. When you're laid off, you typically have just three months or so to repay any loan amount.

I also don't think it makes much sense to raid your 401(k) as a long-term solution to a mortgage reset that's made your home too expensive. Better to try and sell your house and leave your 401(k) untouched; it happens to be one of the few valuable assets that can't be taken from you in bankruptcy proceedings.

• Squeeze more from your employer.

Just because you participate in your company's 401(k) plan doesn't mean you're automatically getting paid every penny you're entitled to in a company match. In fact, if you left it to your company to sign you up through an auto-enrollment plan, there's a good chance your contribution level -- typically 2 percent or so -- is too low to qualify for the maximum company matching contribution.

Check in with your company's human resources department to make sure your contribution level is high enough to get you that maximum company match. That's free money that shouldn't be left off the table.

• Get a great deal on cheap(er) stocks.

One more retirement item: Don't get discouraged by the fact that the stock markets are on a losing streak. I'm not suggesting that you jump for joy, but at the same time a bit of perspective right now is what will make you successful 10, 20, or 30 years down the line.

Market corrections are just part of the investing process. While it's no fun to see your account statement values fall, keep in mind that by continuing with periodic investments in your 401(k) you're buying shares of stock -- through your plan's mutual funds -- that are selling at a discount. In fact, your money goes further today in the sense that you're able to buy more shares.

When the markets rebound -- and if you have a long-term perspective, rest assured that they will -- you'll have more shares that rise in value. That's a winning formula. But it takes the resolve to continue with your investing plan while the markets are weak.

• Be an anti-fee fiend.

Now that you're feeling financially pinched all over, it's time to get serious about what you throw away each year on all sorts of financial fees. When you can buy a no-load index fund with an annual expense ratio under 0.30 percent, there's no reason to fork over 4.5 percent in a sales load for a fund that also charges you an annual expense ratio of 1 percent or more.

High-fee mutual funds don't assure better performance, so why throw away more money? Low-cost mutual funds and ETFs are the smarter move for this -- and any other -- market.

I bet you can also end up saving $200 or more this year if you're diligent about the small nuisance fees financial institutions love to sneak into statements. For instance, think twice about paying your car and home insurance premiums on a monthly or quarterly basis. Fork over the money in one annual premium and you'll avoid the $10 or so "handling" charge that's often levied with the periodic payments.

Don't tell me you'd rather hold onto that money than pay it up front. With savings rates so low, there's no way you're going to earn enough interest from the bank to offset the fees. Besides, it's smarter to make sure your insurance is paid all at once so that you don't run the risk of missing a monthly or quarterly payment and jeopardize your coverage.

Don't let yourself fall into the bank or credit card fee trap, either. Late payments on credit cards will set you back an average of $39 per missed payment. Remember, all you need to do is pay the minimum balance due on-time to avoid the fee. And those "courtesy" overdraft protection plans at your oh-so-friendly bank typically end up costing you $25 or more for each overdraft.

Both these types of charges are the cost of sloppiness. There's never a time when such an attitude is acceptable, but in today's tough economic environment the cost of a carefree approach to fees is especially costly.

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92 Comments

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  • Yahoo! Finance User - Thursday, April 17, 2008, 12:55AM ET  Report Abuse

    • Overall: 5/5

    I will check my car insurance and switch to yearly if I save e even one dollar.

  • Yahoo! Finance User - Saturday, April 12, 2008, 3:38PM ET  Report Abuse

    • Overall: 3/5

    First time I've read this section. Would probably appreciate it more if I kept up with it more frequently.

  • Yahoo! Finance User - Monday, March 31, 2008, 10:57AM ET  Report Abuse

    • Overall: 2/5

    First off... The term insurance quotes she is giving are for a SUPER PREFERRED non-tobacco risk... not too common.. Her 401k loan tax ramifications are a crock of pucky... there is non negative tax consequence from taking a loan... there are risks however in the case of lay-offs/switching jobs. Again, Suze preaches her usual... She is a great debt counselor and a horrible Financial Advisor. When they did a study of what her portfolio held, they found that she did not eat her own pudding... only 1 mil in stocks (which would account for about 4% of her portfolio. Can someone please show me where she mentions that you should keep 4% of your portfolio in stocks and the rest in bonds? refer to : http://www.marketwatch.com/news/story/outing-suze-ormans-investment-portfolio/story.aspx?guid={6F038CB3-5152-4C73-831E-AB9D431F54C3}

  • Yahoo! Finance User - Thursday, March 27, 2008, 1:22PM ET  Report Abuse

    • Overall: 3/5

    Anytime, anyone tells Americans of my generation to save more and borrow less it is a good thing. We need that reinforcement. As for the 401k loan it's good advice now that the market is down. I did not plan it this way but out of necessity I took a 25k loan back when the dow was up at 13500, to pay off 22 % CC debts that were mostly accrued from medical bills and necessity's of paying bill's. So the way I see it I am triple compounding my earnings with the loan by saving on the CC 22%, paying my self 6% for the loan, and buying my funds and stocks back at less than I sold them for when I withdrew. As for the tax on the loan repayment, it's paid already no matter where it goes. Using the 401k to get out from under the bank's grip and exploitation is the proper use of the 401k. I've seen all of my company stock vanish and about 1/2 of my earned company retirement vanish when it was raided by bankruptcy court lawyers. I am skeptical of some greedy SOB not figuring out how to raid the massive amounts invested in the market through 401k's and the market holding it's value until I retire in 2032. "Throughout history the value of every currency has eventually returned to it's initial value, which is the value of the paper it is printed on". Nevertheless it is better to try and save and possibly lose it than the near certain failure of not saving at all. When I find an alternative to the current markets will let everyone know.

  • Yahoo! Finance User - Sunday, March 23, 2008, 11:53AM ET  Report Abuse

    • Overall: 3/5

    Suze...is a VERY good advocate for the average consumer, INDEED ! The only caveat, is that the longer term trend for inflation is going to destroy us. --- rise of agriculture & energy prices. Get rid of corn ethanol & encourage drilling natural gas and/or building more nuclear generators for relief in electricity rates. I personally, would NOT buy any stocks, since the next "Piggy Bank" will be people's 401k & IRA portfolios. Dumping of these stocks will FORCE fund managers to drive down the stocks...and voila....they all become a MARKET risk. I see this trend continuing for about 1 yr or more. Hate to be an "alarmist"... I agree with her point, about avoiding those transaction fees. I also would encourage to reduce your OVERHEAD, whereever possible. Reduction of cell phone usage, high-speed internet, discretionary items, etc. Capital expenditures in your homes, automobiles, personal education are the winners. Take this time to leverage your skill sets for the future. Remember ---- "We are living in a BRAVE NEW WORLD" !! good luck.

  • Yahoo! Finance User - Saturday, March 22, 2008, 8:44PM ET  Report Abuse

    • Overall: 2/5

    Suze gives some good basic advice, but as many have pointed out, the alleged double-taxation on the 401k just isn't true. Even the interest isn't double-taxed, at least not in the sense that your overall tax burden is increased when compared to a non-deductible loan outside of the 401k account. It doesn't matter if you allocate $10000 from your 401k in a bond yielding 7%, or take a loan at 7% and repay it into your account. Either way, you'll pay tax when you withdraw this "principal" and "interest" from your account at retirement. No difference at all. And if you borrow $10000, it doesn't matter to your taxes outside of your 401k whether it is a 401k loan or a non-deductible bank loan... either way you are borrowing and repaying money without paying any additional tax on the principal or interest. No difference at all here either. While there are indeed reasons to be cautious about taking a 401k loan, it is merely an attractive fallacy that there are any negative tax implications in doing so.

  • Yahoo! Finance User - Friday, March 21, 2008, 8:02PM ET  Report Abuse

    • Overall: 1/5

    I believe she throws a lot of "guessed" number with the term insurance. When buying life insurance, your age and health determins the premium of the policy. It would be nice if she mentioned names of the companies that issue 20yr term for that low price. This information can be misleading to those who are new in the insurance market and are searching for quotes and ideas.

  • Yahoo! Finance User - Friday, March 21, 2008, 7:08AM ET  Report Abuse

    • Overall: 5/5

    I have no problem wiht her advice. A lot of us here in America have to learn to follow whatever advice taht is given that will be beneficial. Thanks for posting....

  • Yahoo! Finance User - Thursday, March 20, 2008, 10:04PM ET  Report Abuse

    • Overall: 2/5

    this is like a broken record. i have heard it over and over. maybe i'll buy cheaper coffee. wait, the price of gas just offset that savings. oh well, at least we regulate our resources for the good of our people.lol

  • Yahoo! Finance User - Wednesday, March 19, 2008, 12:34PM ET  Report Abuse

    • Overall: 1/5

    same stuff she's been rehashing for years; yah, we know that banks sneak in all those fees; yah, we know about paying off our credit card balances; yah, we know buy-low/sell-high...how about some new and fresh info. and i agree w/ the comment about her now being anti-fee/anti-broker; that is exactly how she got to be rich; in fact, in her seminars, she even said that she became one of the top-producing brokers at ML, and you can only do that by charging commissions and fees, including those ridiculous front and back load fees on ignorant investors.

  • Yahoo! Finance User - Wednesday, March 19, 2008, 11:13AM ET  Report Abuse

    • Overall: 4/5

    Very good advice.

  • Yahoo! Finance User - Wednesday, March 19, 2008, 10:36AM ET  Report Abuse

    • Overall: 4/5

    I find that the last few comments have been derogatory. I take that these are individuals who have established a life for themselves and have experiences with these tips. However, for young professionals like myself who have yet to understanding the importance of saving and investing for my future is critical, this information is helpful. Unfortunately, as common sense as it may seem for some, there are a lot of people who still have lots of problems managing their finances so little reinforces like that helps. Its a nice way to be "in the know" and a constant reminder of some things we can so easily forget about if our priorities are not in check.

  • Yahoo! Finance User - Monday, March 17, 2008, 5:34PM ET  Report Abuse

    • Overall: 1/5

    .... and she forgot to mention to stop buying your morning Starbucks. It's another "expert" opinon to stop living your life, eat bread and water, and you'll be happy. The tips themselves aren't so bad..... they're just not anything new, useful, and don't have anything to do with your quality of life.

  • Yahoo! Finance User - Monday, March 17, 2008, 2:41PM ET  Report Abuse

    • Overall: 1/5

    any way you slice it. You are always better off borrowing from your 401k paying yourself 6-8 pct interest vs paying a credit card company 16-24 pct. All you really give up is the opportunity cost that the market "might" have gone up 10-20 pct vs the guaranteed rate you'll pay yourself by taking out a loan.

  • Yahoo! Finance User - Sunday, March 16, 2008, 4:52PM ET  Report Abuse

    • Overall: 1/5

    i watched her last night on tv and thought it was hypocritical for her to brag how she was a top broker years ago and now she is anti fees, brokers, etc... how do you think she got rich? from charging fees and commissions!

  • Yahoo! Finance User - Sunday, March 16, 2008, 4:06PM ET  Report Abuse

    • Overall: 1/5

    LOL, nice comment Joe. Hit the nail on the head.

  • Yahoo! Finance User - Sunday, March 16, 2008, 10:57AM ET  Report Abuse

    • Overall: 1/5

    Morth worthless common sense info from the ego queen. Ya know what would be COOL!? If this useless clown actually, ONCE, said something anyone with an IQ over the single digits didn't already know.

  • Yahoo! Finance User - Saturday, March 15, 2008, 8:01PM ET  Report Abuse

    • Overall: 5/5

    Suze is such a financial goddess...she has helped me over the years save countless thousands of dollars. Her common sense, logical, mathematical approach is both winning and financially fiscable. Suze...keep leading those of us who care about our current and future money into financial blissdom and security for years to come. And I watch you faithfully every Saturday night...you rock!!!

  • Yahoo! Finance User - Saturday, March 15, 2008, 3:32PM ET  Report Abuse

    • Overall: 5/5

    Good common sense logic. People are far better at budgeting large ticket items such as automobiles and mortgages than budgeting the small items we sometimes buy everyday. Take for example, the real cost of buying lottery tickets. My father has been retired since 1982. Before and during his retirement he purchased two or three lottery tickets every day. He never hit it big but afterall it was all in fun as he would probably say. In all of his working years he never really acquired a nest egg. Instead he relied upon his 30 year pension along with his and my mothers social security. The death of my mother and the subsequent loss of her social security income along with inflation eating away at his fixed pension has proved to be financially devastating to him. He did not have a nest egg to fall back on. My sister and I are currently paying for his pharmaceuticals because he cannot afford them. Sadly, he could have averted this disaster by paying more attention to what he was spending on the small seemingly insignificant items during his working years and even into his early retirement. One such item was the lottery ticket. Buying lottery tickets sounds innocent enough but easily can contribute to running out of money in the golden years. Why? just look at the numbers. Buying 2 or 3 tickets a day , as my father did, cost about $75 /mo. or about $900/year. (He was lucky enough to win once in a while but these winnings were usually used to buy extra tickets.) What did these lottery ticket purchases really cost over the last 30 years? Saving $900/year at 5% for thirty years comes to $62,000. Hmmm! Not so fun when you look at lottery tickets this way! The point of all this is to warn people not to overlook the smaller ticket items that we purchase often. Controllong these expenses with a disciplined savings plan can make all the difference. Whether it be lottery tickets , eating out , not using store coupons while shopping, buying cigatettes, buying too much junk and processed food, or whatever, you get the point.

  • Yahoo! Finance User - Friday, March 14, 2008, 9:10AM ET  Report Abuse

    • Overall: 2/5

    Suze is so quick to bash anyone making money in the industry over 1% management fees or commissions on mutual funds. So with all the housing troubles how come we don't here anyone talking about helping people with exorbitant realtor fees? Sure let's bash the mortgage people and argue thier fees are excessive, but 6% to buy a house is not excessive?? Come on! With all the carnage left from this housing bust, the Realtors have crept away like a thief in the night while everyone else holds the blame. It's about time someone held them responsible. Make them pay back those enormous commissions for houses that they pushed folks into and coerced lenders and appraisals to get approved

  • Yahoo! Finance User - Wednesday, March 12, 2008, 6:51PM ET  Report Abuse

    • Overall: 1/5

    I don't see the winning formula anyware.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 5:15PM ET  Report Abuse

    • Overall: 2/5

    I'd say that most people's CC debts are about $5000. If your tax return is $2200 $600 economy stimulus, then most people can't still pay-off their debts. In fact, I think they'll get deeper in debt because they'll use half of the $2800 ($1400) to buy stupid things (like BAGDACK says) that costs more than $1400, so they'll end up using the CC to complete the purchase price.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 4:50PM ET  Report Abuse

    • Overall: 1/5

    Orman is simply not qualified to give the financial advice she does. As pointed out by others here she is often wrong and gives out incorrect information. Yahoo finance ought to be able to find someone who knows what they are talking about. Suze clearly does not.

  • Yahoo! Finance User - Tuesday, March 11, 2008, 11:43PM ET  Report Abuse

    • Overall: 4/5

    I agree with most of what Suze said. The bottom line is don't be wasteful. Be careful with what you have and protect it and nurture it. Nurture the money you have by using it wisely, investing wisely, and earning interest on it in your saving account. If you'd like more info abour conserving, visit http://www.GoElectricNow.com.

  • Yahoo! Finance User - Tuesday, March 11, 2008, 1:29PM ET  Report Abuse

    • Overall: 4/5

    For the most part I agree with Suze's advice. She has to keep repeating her self about paying off high intrest loans, start saving and not touching your 401K because thats what most people are gonna do. Soon as they get a check in the mail, their blowin' it on something stupid like the latest video system, shoes and a coach bag. People need to wake up and not spend so much money needlessly and then wait for a hand out to correct their stupidity.

  • Yahoo! Finance User - Tuesday, March 11, 2008, 1:06PM ET  Report Abuse

    • Overall: 1/5

    What makes no sense is why she continues to assert that 401K loans somehow represent double taxation, despite being corrected on this point many times. There are two possible explanations: 1) she is aware that she is spreading disinformation, but has some ulterior motive for continuing to do it that I can only guess at, or 2) she is the most stubbornly ignorant person alive, and cannot understand a relatively simple truth despite it having been repeatedly explained to her. There might be plenty of reasons not to take out a 401K loan, but double taxation ain't one of them. Suze Orman needs to find another line of work if she can't or won't correct her various misunderstandings.

  • Yahoo! Finance User - Tuesday, March 11, 2008, 12:12PM ET  Report Abuse

    • Overall: 3/5

    Overall it's decent advice and a good reminder of what's commonly known. The folks that argue about double taxation are both right. The repayment of the principal is NOT double taxation. You took out money pretax and you are putting the money back in PRETAX. Just consider the loan money that you spent an advance on your paycheck. Another way to look at is to take a 1k loan for 1 month. Hold that 1k in your wallet and do not spend it. After 1 month take that 1k and put it back into the plan. Were you taxed on it? No...the number of paychecks you earned during that month is irrelevent. You weren't taxed on that money. 1 month, 2 months, 3 months..1 year 5 years...same principal. I'll give her that the interest repayment is being taxed twice. But as others have said, if you're going to pay interest you'd be better off paying it yourself. 401k loans are not a bad thing unless 1 of 2 things happen. 1) if you quit/lose your job then the loan MAY become taxable. You can roll your loan over to new employers 401k if they will allow it. 2) You repay the loan over an extended period. The longer that the loan stays out of the plan (ie home purchase loans) the more damage that you are doing to the compounding effect.

  • Yahoo! Finance User - Tuesday, March 11, 2008, 8:45AM ET  Report Abuse

    • Overall: 3/5

    I'd like to see the math how paying someone else interest with also after tax money costs less than paying yourself interest. On the fee reduction side, www.fundgrades.com actually has grades for fund expenses relative to the asset class (along with 4 other fiduciary criteria.) Also, don't forget about 401k fees while you are talking to your employer about your 401k match. www.401kripoff.com has some great articles about getting your 401k fees down.

  • Yahoo! Finance User - Monday, March 10, 2008, 11:53PM ET  Report Abuse

    • Overall: 1/5

    That advice doesn't sound very life changing. Here's some advice that really works: Get out of your high cost mortgage and lock in a long term lease before the REAL collapse in housing comes and sends everyone trying to rent. If you are driving a gas guzzler, sell it before it's depreciation really kicks into high gear as the automotive industry will collapse next. The savings between those two things will be more significant than Ormans whole list. Then focus on going on a diet, 70% of this country is overweight, eat less calories. You will save money and look better!

  • Yahoo! Finance User - Monday, March 10, 2008, 11:49PM ET  Report Abuse

    • Overall: 1/5

    double taxation crap from suze again. You are taking your money out from an account that was never taxed. You put back the money (wherever your funds come from) into the account that should be taxed once you withdraw during retirement. why doesn't this make sense idiots. I just took out a loan from my 401k, held it for 2 weeks, decided not to buy a car, and returned it, where's my double taxation?

Showing comments 6-35 of 92<< PreviousNext >>
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