Financial Fitness

Suze Orman Answers Your Real-Life Money Questions

Suze Orman

“Whole life insurance or variable life insurance or universal life insurance, or this new universal index life insurance that everybody is being sold right now are probably my top four hate investments that I have. I don’t like them. I’ve never liked them and I’m never going to like them, because do you think that there is an insurance company out there that’s going to pay you $100,000 death benefit if you haven’t paid them over the years at least $300,000 or $400,000 so that they can make money off of you? I don’t think so.”—Suze Orman

With tax season upon us, coupled with the financial challenges brought on by the pandemic, it’s no surprise money is top of mind for so many of us.

This special episode is a replay of the live audience Q&A from the virtual 2020 Pennsylvania Conference for Women, featuring personal finance expert Suze Orman.

Women in our community asked real-life questions and she delivered invaluable advice around debt management, retirement, investing and so much more. Listen in and learn how to best navigate this complex time and ensure your finances are secure.


 

This Month’s Guest:

SUZE ORMAN has been coined America’s favorite financial advisor by The New York Times, and “a force in the world of personal finance” and a “one-woman financial advice power house” by USA Today. A #1 New York Times bestselling author, two-time Emmy Award winner, host of the popular Women & Money podcast, magazine and online columnist, writer/producer, and one of the top motivational speakers in the world today, she is undeniably America’s most recognized expert on personal finance. Twice named to the TIME 100 and ranked among the World’s 100 Most Powerful Women by Forbes, Orman was the host of The Suze Orman Show on CNBC for thirteen years, and a contributing editor to O: The Oprah Magazine for 16. However, some may say her true claim to fame is having been spoofed on Saturday Night Live four times. Orman’s incredible journey to becoming America’s most recognized expert on personal finance began as a young broker at Merrill Lynch, helping clients of all backgrounds create a financially secure retirement plan. Orman was an account executive at Merrill Lynch from 1980 to 1983, served as Vice President-Investments for Prudential-Bache Securities from 1983 to 1987, then directed the Suze Orman Financial Group from 1987 to 1997. Currently, Orman hosts the popular Women & Money podcast, serves as the official personal-finance educator for the United States Army and Army Reserve, and is a special advocate for the National Domestic Violence Hotline, bringing her message of awareness and empowerment to women who have suffered financial abuse.

 

Our Host:

CELESTE HEADLEE is a communication and human nature expert, and an award-winning journalist. She is a professional speaker, and also the author of Do Nothing: How to Break Away from Overworking, Overdoing, and Underliving, Heard Mentality and We Need to Talk. In her twenty-year career in public radio, she has been the executive producer of On Second Thought at Georgia Public Radio, and anchored programs including Tell Me More, Talk of the Nation, All Things Considered, and Weekend Edition. She also served as cohost of the national morning news show The Takeaway from PRI and WNYC, and anchored presidential coverage in 2012 for PBS World Channel. Headlee’s TEDx talk sharing ten ways to have a better conversation has over twenty million total views to date. @CelesteHeadlee

 


 

Additional Resources:

  • Listen to Suze Orman’s Women & Money Podcast
  • Did you miss our episode Tiffany “The Budgetnista” Aliche? Make time for that one, especially if you are in any kind of financial struggle right now.
  • Do your own research about the Vanguard Total Stock Market Index ETF (Not financial advice! just linking for those curious about what Suze mentioned.)
  • Check out our independently-owned partner bookstore for titles by Suze Orman and other guests on the show.
  • And, if you lead/manage a team and could use some support and connection as you forge ahead into 2021, please join us at the online Workplace Summit this May 6th. This is an event for men and women and speakers include Malcolm Gladwell, Ijeoma Oluo, Thomas Friedman, and Rana Foroohar.

 

Suze Orman Q&A Transcript:

Moderator:

So I’m going to start off with the first one, which is about co-signing a loan, which I know you mentioned never to do in your presentation but, “I co-signed a loan for my now ex-boyfriend for his truck. He isn’t able to make payment. How do I get my name off that loan?”

Suze Orman:

Here’s the problem. Once you co-sign, you’re never going to get your name off that loan because the reason that you had to co-sign is that he never would have been able to qualify for the loan on his own. So the bank’s not going to allow you or the lenders aren’t going to allow you to withdraw your name from it. So you’re stuck. You’re stuck. And obviously he’s your ex-boyfriend now for who knows what the reason is, but here’s the problem. Let’s say he stopped making payments. He can’t make payments. It’s going to ruin your credit score. And if they repossess that car, you’re the one who’s going to be responsible for the $5,000 or $6,000 or $8,000 or $10,000 or $20,000 that he still owes on it.

Suze Orman:

So, the biggest mistake anybody can make ever with money is to co-sign a loan. Boyfriend, children, parents, anybody, don’t do it. Don’t do it. Don’t do it. Just keep watching your credit report and make sure that the payments are not late, because if they’re late, it’s going to ruin your credit score and you’re responsible for it anyway. So, you might end up having to pay for it. Okay, next one.

Moderator:

That was great. “How do I know if I can afford to buy a home?”

Suze Orman:

Hmmm, that’s a good question. You have to play home. The biggest mistake that people make when it comes to purchasing a home is that they have an apartment that they’re renting. And let’s just say, it’s a thousand dollars a month. And you think if you get $1,000 mortgage, you can afford to buy a home. And it doesn’t work that way, because it’s not just the mortgage. It’s the property taxes. It’s the insurance, and it’s the maintenance. If something goes wrong, you need a new roof, your air conditioning goes down, your windows, anything can happen. So you have to play home or play house. What does that mean? Whatever your mortgage payment is, let’s say your rent is $1,000, your mortgage payment is going to be $1,000. Add about 40% to the mortgage payment, not really, but just in play and we’re going to play now.

Suze Orman:

So, you would add an extra $400 a month to the mortgage payment. What you would do is this, every single month for six months, just pay your rent, $1,000 a month rent, but then put that extra $400 a month away, let’s say in a savings account. You’re playing house now. If it’s easy for you to do, if you can afford it, if you don’t feel like, “Oh my God, I can’t go out to eat. I can’t do anything.” Okay. Then you kind of know that you can afford the house that you’re going to purchase. Am I making sense to all of you? If you find it’s a struggle, if you’re late with the payments, you really can’t afford it. What you need however, besides playing house is you need, in my opinion, at least 20% down. You need an eight-month emergency fund besides that. You should be totally out of credit card debt. You should have a secure job and you should really know about the house that you are buying. All those things are there? Okay. Go ahead and buy. If not, don’t rush to be poor.

Moderator:

Okay. I have one more question about homes and then we’ll move on. “I’m a nurse making a good wage, but swimming in student loans. We have equity in our home. Do we refinance and pay off my loans or no? Help us.”

Suze Orman:

Here’s the thing, student loan debt is probably the most dangerous debt you can have bar none. Why? Because it’s not dischargeable in most cases in bankruptcy. So therefore, if you’re not under the public student loan forgiveness program where you’re going to be forgiven in 10 years and you don’t have to pay it back and you have the student loan debt and you have equity in your home, today’s interest rates are so low. I have to tell you, I would take out the equity in my home or refinance my home and pay off my student loan debt. Why?

Suze Orman:

It’s going to be number one tax deductible when you do that, student loan debt, maybe it’s tax deductible to you, maybe not, but maybe only up to $2,500. I guarantee you that if you are ready, are working and you have the student loan debt, probably your interest rate is at 6.8%, 7%, in the fives, you could refinance for so much less than that. So yeah, I would take the equity out and pay off the student loan debt.

Moderator:

Okay. I’m interested now, so I’m going to ask one more question about student loans and I’m hoping I can guess the right answer based on what you just said. This woman is asking if she should pay off, “My private student loans of about $8,500…” This time we get the amount. “… with variable interest rate currently at 5.75%, or should I max out my Roth IRA for 2020?” She is 40 years old and cannot afford to do both.

Suze Orman:

At 40. Here’s what I would do if I were you. You’re still so relatively young. I would want you to do two things. I want you to max out your Roth IRA, number one, but number two, I want you also to refinance your student loan that you have. You’re paying a 5.5% interest rate. That is crazy. You can go on and find a refinance now that you could go to 2% or 3%. So reduce the interest rate on your student loan. So you’ll be paying less on that and max out your Roth IRA, because these are your compounding years still. So I want you to do that.

Moderator:

That is such good advice. I think a lot of people will want to know that they can refinance that student loan.

Suze Orman:

Yeah, there is all kinds of ways as credit unions are fabulous places for you to look at to refinance student loans. There’s an even a private student loan and maybe you needed to refinance that, interest rates can be at 2.5% or 3% depending on your FICO score. So, I would absolutely take advantage of these low interest rates now and take advantage of the fact that you’re only 40 and you have all those years to get money into a Roth IRA. You have to do both of those things.

Moderator:

Okay. So now we’re going to transition to someone who’s a newbie to investing, which can happen at any age as you know. This attendee loved your new book and is wondering, “Is it okay to put my eight-month emergency fund into a contributory Roth IRA since it seems like I can get it out easily if I need it?”

Suze Orman:

Yeah. So you all have to be very careful and understand all the different kinds of Roth IRAs there are. But the kind where you absolutely contribute every single year to one if you qualify for it, a Roth IRA, in my opinion is the absolute best retirement account you can have bar none. So, even if you have a 401(k) or 403(b) and they match your contribution, you would contribute up to the point of the match at your corporation. And then if you qualify, go to a Roth IRA. The reason I love Roth IRA so much is that, the ones that you contribute to every single year is you can take out your original contributions anytime you want without taxes or penalties regardless of your age or how long the money has been in there. That’s why this woman is asking, can she use it as an emergency fund? So you can, because if you put in $6,000 this year, $6,000 the next year, $6,000 the year after that, you put in $18,000.

Suze Orman:

You could take out that original $18,000 anytime you wanted for an emergency. However, if that $18,000 grows to $20,000, it’s the $2,000 that’ve you earned you cannot touch until you are 59 and a half years of age and the account has been open for at least five years. After that point, you can take everything out tax-free. Here’s the thing. If you’re going to use it as your emergency fund, it can not be invested in the stock market. It has to be invested like in a savings account or a money market account within the Roth IRA. So, keep putting it in every single year that you can, but outside of the Roth, keep building up your eight-month emergency fund. Once you have your eight-month emergency fund outside of your Roth, now you have all of that money inside of the Roth that you can now invest. I hope that was clear. So, we could do an entire seminar just on this one topic.

Moderator:

I have like 20 questions on Roth IRAs right here. So I think it’s great that you mentioned that that’s your favorite. I think that’s enough direction to get people started as to where they should be focusing. All right. This lucky attendee just received $10,000 as a gift. “Should I invest or put in high-earning savings?”

Suze Orman:

So, let me tell you why I like this question for the person that’s out there, is that this is the perfect question to get you in trouble. Because you would never go to a financial advisor and say, “I have $10,000 to invest. I have $100,000 to invest. What should I do?” You would really want that person to know more about you. How can I tell you if you should invest or put it in high-interest savings if I don’t know if you have an eight-month emergency fund? I don’t know if you’re out of credit card debt. I don’t know if you have student loan debt. I don’t know if you want to buy a home and you don’t have 20% down yet. I don’t know if you are needing to get out of your own student loans. I don’t know enough about you to be able to answer that question.

Suze Orman:

So, I can’t answer that question for you, but you could answer that question for yourself. If you had an eight-month emergency fund, if you’re out of student loan debt, if you’re out of credit card debt, if you don’t even have any car loan debt, if you have a secure job, if you’re fully funding your retirement accounts. If all of those things are true, then I would still be investing that. But if you don’t have an eight-month emergency fund, it goes into a high-yield savings account. Oh, you have credit card debt, maybe it goes towards your credit card debt, towards your student loan debt. I think you probably know what to do with the money after that answer.

Moderator:

So this goes along the same lines because of your eight-month emergency fund, which is so important, especially during this crazy time that we’re having. And this woman is asking that her company is hinting at job cuts, currently analyzing “our production.” “And I wanted to ask you about recession proof skills I can get to strengthen my resume.” And you spoke about this a little bit in your presentation as well.

Suze Orman:

Yeah. Here’s the thing. It’s not your resume that’s going to save you. What’s going to save you is you’re going to save yourself. You’re going to save yourself that by making sure that you are out of credit card debt, because you have a job still, you do have at least an eight-month emergency fund because you have a job still, that you are cutting down on your expenses right here and right now, because this is happening. It’s like in Florida or in The Bahamas where I live, when there’s a hurricane, we prepare for it. We know that a storm is coming and we make sure that we have enough food and enough water and all the furniture is inside. We prepare for it. You are needing to prepare for possibly a financial storm because possibly you’re going to be laid off.

Suze Orman:

So what is it that you need to do? Forget the resume for now. What do you need to do to prepare yourself for that? And that’s what I would be doing first, utmost, right here and right now. And your resume, that’s secondary. That’s secondary. What’s really of primary importance is to make sure that you have prepared yourself financially speaking.

Moderator:

So now I’m going to transition to a question that I’m sure many people don’t know the answer to. And this woman says, “My brother is trying to sell me a whole life insurance policy. How do I know if I need this and how important is your age so I can’t provide further information?”

Suze Orman:

Yeah. I always laugh at that because why is it that always when a relative gets into the insurance business, they start with selling an insurance policy to their own relatives? Here’s the thing, everybody. And please listen to me closely. Insurance was never meant to be a permanent need. It was never meant to be there for your whole life. It was only meant to be there during your younger years when if something happen to you, that those who were financially dependent on you before you had a chance to build up any wealth whatsoever, they would be financially devastated. So whole life insurance or variable life insurance or universal life insurance, or this new universal index life insurance that everybody is being sold right now are probably my top four hate investments that I have. I don’t like them. I’ve never liked them and I’m never going to like them, because do you think that there is an insurance company out there that’s going to pay you $100,000 death benefit if you haven’t paid them over the years at least $300,000 or $400,000 so that they can make money off of you? I don’t think so.

Suze Orman:

So therefore, if you need insurance, the only type of insurance that I would personally be getting would be term insurance, which is good for a specific period of time, a term. It could be one year, or it could be five years or 10 years or 20 years or even 30 years. And depending on the term that you choose, the premium is level for all of that period, that term. Because you are not expected to die with term insurance, it’s only supposed to be there during your younger years. Maybe up until your sixties, it’s not that expensive. You in your forties, you could probably get a million dollar policy right now if you were in good health for 30 or 40 bucks, I bet your whole life insurance policy is 10 times that amount of money. So number one, you don’t want a whole life insurance policy. Number two, you only need insurance and answering your question, if somebody would suffer a financial loss, if you die. If something happened to you like that.

Suze Orman:

If nobody is dependent on you, you’re a single woman, you don’t have children, your parents are fine, you don’t need insurance. If you happen to have whole life, universal or variable life insurance, do not go and cancel it right now. You first go and get a term insurance policy in place. After it’s in place and it’s all signed, sealed and delivered, then you can cancel your whole life, universal or variable life if you happen to have one. Chances are you will have paid more in premiums than the cash value is worth, so don’t worry about taxes. Don’t care that your life insurance agent said, “No, no, please don’t do this. You’re wasting money.” Do you know that the highest commission ticket item out there is whole life, universal or variable life insurance policy. It is probable that your life insurance agent made 80% to 95% of your first year premium in commissions alone. Best place, in my opinion to get a quote for term insurance is go to selectquote.com. They’ll give you five quotes and whichever one is the cheapest, that’s the one you take. Sorry for that long answer, but that was important.

Moderator:

In our last few minutes, let’s transition quickly to the stock market because I think everyone is nervous about what happened in 2020. This attendee has a very specific question. He says, “In the next few months, I will be done paying off all of my debt and will begin building a larger emergency fund.” So she’s already listening to you already about the emergency fund. “With this next chapter in life, I would need to begin investing.” She’s 28 years old, making $60,000 a year pre-tax. “Currently I have 10K in a 403(b) at work.” She’s not sure if it’s Roth or not. “Where would you recommend a person new to investing to begin their process?” She’s heard that some places have minimum starting amounts to open accounts, and she’s not sure where to begin.

Suze Orman:

Yeah. So a few things here, everybody. If you are investing with your employer, which would be known as an employer-sponsored retirement plan, better known as a 403(b) if you work for a non-profit, 401(k) if you work for a profit, TSP if you’re working for the federal government, TSA for teachers. Those are employer-sponsored plans. Usually they will offer a traditional or pre-tax retirement account or a Roth retirement account. If I were you, all my new contributions, I would be putting towards a Roth retirement account at my place of employment. I would do it up to the point of the match. And then if you qualify for a Roth IRA, a contributory one, I would then go with all my other money to a contributory Roth IRA. Where would I open up a contributory Roth IRA? I personally would do it at Charles Schwab or Fidelity.

Suze Orman:

I used to tell everybody TD Ameritrade, but Charles Schwab has recently purchased TD Ameritrade so very shortly it will be that. Many of you may have heard of Robinhood, that’s fine as well, but I would be going to a brokerage firm, a discount brokerage firm, where I could make purchases online for absolutely zero commissions. I could buy stocks, I could buy exchange traded funds, whatever I wanted to buy. And as long as I did it online, no commission to buy or sell. I would also want to know that the brokerage firm I was dealing with traded in something known as slices. So for instance, I really liked the Vanguard Total Stock Market Index ETF, symbol V like Victor, T like in Theresa, I like in Isabel. But it’s about, let’s just say $170 a share. That’s a lot of money every month to buy at least one share. But if you’re allowed to buy slices, you could buy $5 worth of that. You could buy $10, $1, just depends.

Suze Orman:

So every single month, you could put in a small amount of money and buy a slice of an exchange traded fund, a slice of Amazon, a slice of Apple, a slice of my other favorite ETFs, very volatile, just so you know, with the symbol is ARKK run by a brilliant woman, Cathy Wood. And it’s an innovation fund, very speculative though. So it could go up and down, but I love it for the long run. That’s what I would be doing and how I would be doing it. In terms of the stock market, I just want to say, I think this year is going to be extremely volatile, up, down, up, down all over the place. I think starting January of 220, probably till April of 220, we could see these markets go up very nicely and then they could go down tremendously again, but it won’t be until, in my opinion, January or February of 2022, so things will have settled down.

Suze Orman:

If you have five, 10, 15 years or longer until you need money, I think it’s fabulous to dollar-cost average every single month into an exchange traded fund, a no-load mutual fund, individual slices of stock or individual stocks. But if you’re going to do individual stocks, just make sure that you own at least 25 individual stocks. It could be 25 slices of different stocks, but you need diversification there. And dollar-cost averaging is simply where you put a specific sum of money every single month into the same investment over and over again. Just quickly, the reason I like the Vanguard Total Stock Market Index ETF is it’s made up of 3,500 different stocks. You have tremendous diversification there. So if that’s all you wanted to do and you just wanted to start, that’s what I would be doing and I would not be afraid of this stock market if you have time on your side and as long as you dollar-cost average, and as long as you buckle up for the ride of a lifetime.

 

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