My Date with Suze Orman, and her Advice in These Hard Financial Times

Me and Suze Orman

Me and Suze Orman

One of my greatest dreams was realized last week when I got to see Suze Orman live, for free, at the Texas Conference for Women!! (This only comes second to meeting Kenny G…yes, I am a Kenny G fan, and probably one of the only ones younger than 40, as evidenced by the other audience members).

So what did this financial guru have to say to over 5,000 women present (don’t worry men, this applies to you, too)? Here is how it breaks down.

Our Country is Spending a Lot of Money

Anyone with half an eye open knows that our country has been spending its way out of the recession. Now, I am not here to talk politics, but what I am here is to talk about how this may impact you and your family, and how best you can secure your own financial future. When governments spend a lot of money, the money has to come from somewhere. Suze is getting herself prepared for the eventual tax hikes that she believes each income tax bracket is going to see in order to pay for all of this spending in the next few years. How can you prepare for this with your own personal finances? The next bullets all address this.

Debt is Bondage, Especially in Uncertain Times

What better way to prepare yourself for financial insecurity than to be out of debt. Who knows what position you may be in five years from now, or three years from now. But you do know that if you don’t pay down your loans, you will still owe $300, $500, $1,000+ each month. It is best to work on paying down these debts now while you are fully capable to do so, then to straddle yourself with consistent debt in an inconsistent future.

Paul and I are working diligently at this. We have some debts outside of our mortgage that we are working on paying off before we go down the aisle in April and say “I Do”. These include a car loan and student loans. Most of our debts (outside of our mortgage) will be paid off by the wedding, and then we can tackle the remainder of my student loan debt (which is at 1.65% interest) afterwards. What debts do you have, and what is your plan?

Grow Your Emergency Fund to Eight Months

During normal financial times, a health emergency fund is between 3-6 months of living expenses. This depends somewhat on your situation as well, such as how secure your job is, your debt to income ratio, etc. But with the potential of a few rocky years ahead of us economy-wise, it is best to increase your emergency fund to cover 8 months of your bills.

Continue Funding Your IRA

One of the positives about rocky financial times and the stock market going down is that you can continue to invest the same amount of money each month, but reap more shares per dollar. By continuing to contribute to your retirement plans even during a rough economy, when the economy turns around, you will hopefully be in a better position then how you started. Please note that the closer you are to retirement, the more secure your investments should be. You do not want to have the stock market tank again with 90% of your retirement money in it, when you are only a few years away from your retirement dreams.

Convert Your Traditional IRA to a Roth IRA

First of all, the difference between these two accounts is pretty meaningful. With a traditional IRA, you contribute money that has not been taxed yet by the government. That means that when you withdraw that money in retirement, you will have to pay income taxes on it. With a Roth IRA, you contribute after-tax dollars. This means that when you withdraw this money in retirement, you do not have to pay taxes on it. Check out this article for a more in-depth analysis of the differences between these two accounts.

The Roth IRA has income restrictions, meaning that if you earn above a certain limit, you cannot contribute to one. But in 2010, anyone can convert their traditional IRA to a Roth IRA. Please note, you would have to pay taxes on the conversion in today’s tax rate (unless you filled out paperwork when opening the traditional IRA to not take the tax break now). Why would you want to do this?

Suze explained that  we are aware of what our tax bracket is today, but because our government is spending so much money, the tax bracket may jump to unreasonable levels in the future. Wouldn’t you rather pay a smaller tax bill (assuming that the future tax bracket percents will be higher?). Also, once again, this takes the guessing out of your finances. You know what your taxes are today and you know you can afford them. You do not know what your taxes will be tomorrow, nor do you know if you can afford them. So why not take the guesswork out of your finances?

Also, with a Roth IRA, if you find yourself in dire financial circumstances, you can withdraw the amount that you contributed penalty-free (not the amount that you earned), to use to get you back on your feet. If you want to take out your earnings, then you will be penalized, unless it is for qualifying reasons. With a traditional IRA, you will be penalized for taking any money out before retirement age.

A final thought from Suze Orman: she believes that the year 2012 is going to bear the brunt of our financial decisions as a country. She expects tax hikes, increased unemployment, etc. After that, she expects to see the country recuperate itself, and be back to its new ‘normal’ by 2015.

A final thought from me: It was great to see Suze live!

4 comments… add one

  • Congrats on seeing Suze live and thanks for the link!

  • CentralNC

    Love Suze – she makes what is for most a boring topic (finances) very entertaining.

    Tax hikes isn’t likely to be the only way that government will handle debt, mostly for political reasons (raising taxes is a career-limiting move for any politician). Printing money is another popular way to pay down debt, which unfortunately tends to cause higher inflation.

    Everyone should have an investment strategy that protects against inflation, this is more important than ever.

  • CentralNC–Hello again, and thanks for the comment! Personally, I think we definitely will be seeing inflation in the next several years; prices are so great right now. And…Suze rocks!! hahahaha. Have a great Monday.

  • Hello! one of the links within your blog post is busted. I just wanted to give you a heads up ;)

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