Often people ask me about the financial advice they hear on TV or radio. One of the more popular TV hosts is Suze Orman who is often at the receiving end of criticism for oversimplification of the financial situation of people. She is also the author of six best-selling books and is noted for her no-nonsense approach to personal financial matters.
As someone that was a financial advisor and watches the market, I really like Suze Orman’s overall advice and think helps most people. Obviously, people can have situations that may break one of her rules, but it is not a bad start.
Her teachings and philosophies, however, seem to be in direct contrast to those of Dave Ramsey, another noted financial host. As an example, unlike Ramsey, she does not profess opposition to the use of credit cards and other personal loans.
She has compiled and listed out ‘The 9 Small Financial Steps That Will Pay Off Big in the Future’ in ‘Suze Orman’s 2009 Action Plan,’ a book authored by her.
What are these steps?
- Small savings will add up
Don’t wait for the time when you will have lots of money to save. Save any amount that you can. Saving small sums of money, that you can, will help you build your emergency savings fund.
- Be merciless in reducing expenses
Be honest to yourself and eliminate the expenses you do not really need to incur. There is no easy way of doing this.
- Save regularly through automated contributions
Keeping them as a personal decision-based contribution each time will probably mean that many contributions will never reach the savings fund. Make the contributions automatic. Don’t make yourself either the bottleneck or the decision-maker. It will never happen. Build your expenses around the already scheduled automated transfers.
- Ensure employer contributes the maximum they can
Remember, this is for a good cause; funding your future life. Hence, contribute enough to your 401(k) so that the employer contribution is maximized. No greatness in leaving money behind on the table.
- Make a Roth IRA Investment
A Roth IRA works best for the growth of tax-free income. Read the article ‘What is a Roth IRA – Benefits and Restrictions’ if you would like to know more.
- Invest in stocks, and reduce allocation as you age
Investments in stocks should gradually decrease as you age. A thumb-rule for deciding the allocation to stocks is to arrive at the percentage allocation by subtracting your age from 100. The rest should be invested in bonds. For further diversification, the portion in stocks should be divided in the ratio of 70:30 between US stocks and international funds. (Note: I personally think many people would be better off with mixing in dividend stocks vs bonds.)
- Buy Life Insurance
Buy life insurance. It will give you and your family peace of mind and protection. You can probably get one for $50 every month.
- Create the four most important documents
A will, a revocable living trust, power of attorney for healthcare, and power of attorney for finances are documents everyone should create.
- Make an extra payment towards your mortgage every year
Squeeze yourself some more and make a 13th payment towards your mortgage every year. Doing so could reduce the length of your mortgage by five years.
A Comparison with Dave Ramsey
Dave Ramsey, with his ‘no-nonsense’ methodology for debt elimination, would probably be my financial author of choice. His ‘Seven Baby Steps’ are simple, pretty much nail the issue, and could have you out of debt in a few years. Though one would save more money by reducing the interest-bearing outstanding on the debt that attracts the highest rate first, and not the smallest balance, there is probably a method in his madness; of keeping people ‘in the game’ and motivated enough to pay off the bills.
Suze’s methods and philosophy are more inclined towards debt management. Covering the entire range, from spending habits, through to planning for retirement, her financial plans also address the emotional and psychological aspects that prevent people from building their nest egg. In that sense, they could be considered to be comprehensive. She has her own unique way of connecting with her guests and if often described as entertaining, at least the more entertaining between the two.
They are both equally popular. Hence, it is perhaps only fair that I have the same issue with both of them; of their advice being too generalized, a sort of a one-size-fits-all approach. It may be a sound approach to follow for clothing items but is not suitable for financial advice. Each person’s financial situation is unique.
The above notwithstanding, it must be said that the advice offered by both Suze and Dave is sound financial advice, which is applicable to everyone, and a good starting point for a person who is starting out in the field of personal financial management.