The Money Connection

Suze Orman is one popular guru–either that, or money problems just plague all of us. She was on Oprah’s show earlier this week talking about the tough times our economy is in and how we can cope. But she’s been talking about these solutions for years–seems like we just don’t want to listen.Sometimes I wonder what the people who write in to advice columnists think about the answers given. Did they follow the advice? Do they even know their question got picked?

Anyhow, I digress. Let’s look at this month’s questions:

Question one: My kid wants to buy me an expensive Christmas present. I wish she’d use her money for herself. What to do, Suze?

Suze says: The important thing to do is to send the message that gifts aren’t measured by how much they cost. Show your kid gifts she’s made for you that you’ve loved. Ask her to remember some Christmas gifts from a few years ago, and if she can’t remember them, then that proves that stuff isn’t a substitute for love [and at this point I'm trying really hard to NOT remember the sheets and towels I got for Christmas my senior year in high school, or the year I got the Wonder Woman doll or the Herself the Elf toys, because they're not that important in the grand scheme of things; my parents' LOVE was the important thing to remember.....yeah....]. Suze also recommends asking your kid to give a little to charity and do some nice things for others to help her learn that there are other types of giving.

Question two: I’m a shopaholic because shopping makes me feel good…but then I get the bills. “How do I give up something I enjoy so much?”

Suze says: Basically, find something you like doing more. This love of shopping only lasts until the bill comes in. “On a deeper level, you value things more than you value money, and that is where the trouble lies.” I think that’s pretty interesting–after all, this person gets the high from shopping, but it’s kind of obvious that there’s a bigger problem when you get the bills for what you’ve bought and you feel guilty. Suze suggests shopping for money: Figure out how much you’re spending on clothes each month (this woman can’t stop buying clothes) and put that money in a box. By the second month, when you want something, you can use the money from the box (voila! No bills at the end of the month! You’ve paid for it already!). However, Suze claims that once you see the money pile up, you’ll want to stop the random spending because you’ll see how much more you really have from not buying stuff. After a few months, you’ll have a nice little chunk of change to invest.

Question three: After I inherited $10,000, my husband and I can’t agree with what we should do with the cash. He wants to pay down the mortgage. I want to take a “once-in-a-lifetime cruise.” Besides, it’s my money, so I should have more say, right?

Suze says: Well, there are a million things you can do with this money, and both of you have taken positions that ALL of the money needs to go to your wish. Before you spend the money, you need to think about a few things, such as, do you have credit card debt? Do you have a six-months-of-living-expenses emergency fund? Do you plan on making any big purchases in the next year or so? If so, use some of the windfall to save for that. Are your retirement accounts fully funded? Do you have college funds for the kids?

Once those are taken care of, THEN you can think about paying off your mortgage early. However, Suze doesn’t advise paying it off in a lump sum. She thinks you should figure out when you want to finish paying your mortgage, then just add extra to your payment to reach that goal.

Lastly Suze says to take whatever’s left of that 10K and invest it. I’m going to quote this phrase because financial advisors would throw around numbers like this, and then the stock market tanked and interest rates went down, and these numbers became implausible: “Let’s say you were about to invest the full $10,000 in a fund and you did not have to pay taxes on the money until you withdrew it. In 20 years, with an annual average rate of return of 11 percent, you’d have about $80,600. Now it’s time for the $10,000 question: Do you want to spend $80,600 of tomorrow’s money for a once-in-a-lifetime cruise today?”

Who’s averaging 11% interest?

Suze finishes up with saying, “There is no such thing as a once-in-a-lifetime anything,” and that you can still have fun when you’re old and retired. Basically, she’s trying to tell the woman to nix the cruise and save up the money so that you’ll see greater cash flow and wealth.

Jill says: I have to chime in here because this answer frustrated me (and it’s not the 11% returns or the 6-months emergency fund—I want to note that because Suze will soon up the number of months you need to have that fund–you definitely hear that you need more today–and it’ll be interesting to see if she explains why you need a longer fund). I know you’re asking a financial advisor, so they’re going to say hold on to the money. However, I am a travel junkie, and I’m all about traveling whenever possible. What if this woman hasn’t had a vacation in five years and sees this as an opportunity to have a trip without taking on any debt? Who says you need to put ALL travel on hold until you’re retired. Even I’ve heard of people who’ve waited until retirement to travel, then BAM! got hit with a disease and travel was out of the question.

My advice would be to take part of the money and invest in for the purpose of taking a cruise or vacation in a year. Then you’re earning interest on it, you can do your travel research, and you can even add to the pot. Maybe don’t take the super-glamorous cruise, but do a reasonable one–or maybe some other type of trip. Life is about experiences too–it’s not only about the money–and I think it’s important to create experiences whenever possible. Use the rest of the money for other investing/paying off debt.

Question four: I’ve been asked to invest in a relative’s startup business, but it doesn’t really sound good to me. How do I say no without upsetting my family?

Suze says: Well, you never know if this business is really going to take off, but you should really go with your gut. Mixing money and family can sometimes lead to money and headaches. What if the business fails? Uncle’s going to feel bad, and you might be upset about the money, and do you want that bad blood? You should be honest with your uncle. She also gives an exception–if you’re debt-free and feel comfortable giving away that much money (and maybe never seeing it again), think about it more as a gift rather than an investment.

A Suze sidebar: Five Wise Year-End Money Moves:

1. If you haven’t done it already, set up that IRA!
2. Figure out the returns on your investments.  If they’re not doing well, you should change the mix next year.
3. Get your paperwork in order so you can file your tax returns ASAP (if you’re expecting a refund)
4. “Act on this important law of money:  You must be responsible to those you love.”  Basically she wants you to think about financial goals for the coming year.  Set them.  Achieve them.   And include things you always keep meaning to do like getting a will.  That sort of thing.
5. Total up your charitable contributions and make sure you’ve been a giving person this year.