For the last few weeks, I’ve been listening to every Suze Orman show podcast I can find. I’ve finally hit a dead end where I cannot seem to find any of her old shows past 2013. However, I learned so much about finance from her last two years of shows, I don’t think I need to listen to the rest.
Whether you do or don’t agree with Suze Orman or some other high profile personal finance guru, she does offer sound advice for beginners. People who are at their wit’s end with money can find solace in Suze’s advice because she offers solid plans for getting out of debt and starting a path to financial freedom.
Although Suze covered hundreds of financial tips over the last two years, I saw her reiterate these five points over and over again. After doing a little research of my own, I found that I agree 100% with her on these money truths.
To help you on your journey of financial freedom, here are five money tips I learned from Suze Orman.
1. Never borrow from retirement accounts.
I’ll be honest… I do not have a retirement account yet. I just started my job a year ago and they do not offer a 401K plan. As of right now, I have very little money to spare for retirement, but when I do start investing and saving for that part of my life, you can bet I will not borrow from my 401k or IRA.
The reason behind Suze’s logic is that if you ever have to commit bankruptcy, retirement accounts are safe. They cannot be taken from you. When you take money from a retirement account, you will also be taxed on the money you withdraw, so it’s like paying taxes twice! I never knew that, but now that I do, you can bet I will never borrow from those funds.
2. Always choose a Roth IRA or 401K over a Traditional IRA or 401K.
This is a given. If you do your research, you’ll see why Roth IRAs are better than the traditional models. Same goes for Roth 401Ks. This is mainly because they have a lower tax liability. It’s best for young professionals because you pay taxes on the money upfront and you’re in a low tax bracket – unlike a traditional IRA where you’re taxed when the money is taken out – and you’re in a higher tax bracket (hopefully). It’s kind of like delayed gratification. Pay cheaper taxes now, or pay way more taxes later, but get a small tax break from the government. You can also use a Roth IRA as an emergency fund, because anything you put into it can be taken out anytime, penalty free.
3. Never invest in a variable annuity.
If you want to know more about variable annuities, I suggest you read this article. Now, Suze Orman hates variable annuities for several reasons. Here are a couple of them:
- They typically have the highest commission rate for financial advisors. Like 5-8%!
- They have lots of fees and taxes associated with them.
Now, I’m not out to tell anyone what to do when it comes to investing, because I have not started investing and have no experience on the matter. However, based on what Suze Orman has said and my own research, it makes little sense to take a chance on a variable annuity when there are so many other (cheaper) options for investing your money.
4. Keep an 8 month emergency fund in liquid savings.
When the economy crashed in 2008, everyone who had 3-6 month emergency funds thought they would be safe. Come to find out, people were without jobs for much longer than that. Suze decided to start guiding people to save for an 8 month emergency fund, because the job hunt is taking a whole lot longer than it used to, and you may not find something that paid as well as your old job.
I’m all for having more emergency funds built-up. In my opinion, you can never have too much saved for a bad day, week, or year! You have to be prepared to pay for more than just your monthly expenses. Cars break down, people get sick, and accidents continue to happen. Suze recommends it, and so do I. Stay safe with at least 8 months of emergency funds readily available to you.
5.Never co-sign a loan for anyone!
No matter how much you love someone or want to help them, co-signing a loan for a friend or family member could be financial suicide. Too many times, the person you co-sign for will falter and not only will you be liable for their debt, but it could ruin your credit! Everything about co-signing a loan for someone is bad for you and bad for whoever you co-sign for. NEVER ever co-sign.
What do you think? Do you agree with Suze’s five tips?