The 9 Steps to Financial Freedom by Suze Orman Part 3
This is a continuation of a four part series reviewing The 9 Steps to Financial Freedom by Suze Orman. If you missed the first parts, you can view them here:
- The 9 Steps to Financial Freedom by Suze Orman Part 1
- The 9 Steps to Financial Freedom by Suze Orman Part 2
Step 5: Being Respectful of Yourself and Your Money
Well, the first sentence of this chapter had me cracking up, and I completely disagree. BUT, the financial law Orman states below is still sound. Here’s the excerpt:
Money is a living entity and it responds to energy exactly the same way you do. It is drawn to those who welcome it, those who respect it. Wouldn’t you rather be with people who respect you and who don’t want you to be something you’re not? Your money feels the same way.
So, uh, yes Mr. Orman….I want my money to be exactly what it is: a financial tool and a vehicle to get me where I am going. I do not want it to be a personification of my great auntie. I did enjoy the financial law that immediately followed this sentence.
The Second Law of Financial Freedom:
Respect Attracts Money, Disrespect Repels Money
Orman goes on to use this as proof of the “Rich get richer” theory. Personally I believe the rich get richer because they constantly take time to educate themselves about their money and investments, they spend the necessary time to manage that money, and they are smart enough to hire other people to manage specific areas of their finances when they need to. They also regularly save, invest, and spend less than they earn. Summing that up by saying “respect money” leaves a lot to be desired, but I do think it is essentially correct.
Next, Orman asks a series of questions designed to get you thinking about ways that you are respectful and disrespectful towards your money. Things like:
- Do yo spend more money on your friends than you can afford to? Why?
- Do you more presents for your children on holidays and birthdays than feels right to you? Why?
- Do you spend money on others but never a penny for yourself?
- Do you put away as much money as you possibly can for retirement each year?
- Do you borrow things from friends and fail to return them?
- Do you sometimes “forget” to pay off loans from friends of family members?
- Do you often go out to dinner simply because you don’t feel like cooking?
If I were to answer honestly, there are a few things on that list that are bad habits of mine. Things like spending too much on my friends and my child – I am definitely guilty of that. I do put away money for retirement, but I have not yet managed to max my contributions in any given year – that is my goal for 2009. One of my goals this year was to stop eating out so much, and I have accomplished that.
We are all works in progress – my issues may not be your issues, but I do think that The 9 Steps to Financial Freedom does a great job of highlighting the most common issues and shedding some light on the psychology behind them.
Orman goes on to explain one of the most important financial principles : Pay yourself first. As she puts it:
It is not respectful to yourself, to others, or to your money not to take full advantage of the 401(k)’s, IRA’s, or the other retirement plans that are available to you.
It is not respectful to yourself, to others, or to your money not to face your debt, learn the basics of investing, and to guard over your money, making sure that every penny you’re spending is a penny that must be spent.
We all think that a bigger paycheck would be the answer to our financial woes, but that is rarely the case. Respect starts with the money you are earning right now, and what you do with it.
Orman goes on to give an excellent rundown of the traditional retirement vehicles, (IRA’s 401(k)’s and the tax advantages of these. She also spends some time talking about retirement vehicles for the self employed, which I was very impressed with. That’s not something always you see covered in traditional retirement books, much less basic financial management books. If you are new to the topic of retirement then The 9 Steps to Financial Freedom is a good book to start with. It won’t bog you down but pretty much everything you need to know to get started is covered throughout the book.
Orman also has an excellent section on how credit card companies work. If you regularly carry a balance on your credit cards, then this section will be a real eye opener. Let’s take a look at some of the high points.
Orman uses a case study to highlight some of the following issues:
- There is no “grace period” on the interest you are charged if you carry a balance on your credit cards.
- Cash advances accrue interest at a higher rate, and they are the last thing your payment is applied to. Which means that if you carry a balance you could be paying twice your normal interest rate on those cash advances as long as you have a balance on that credit card.
- Unexpected finance charges will eat you alive. (*Always call and have these removed! It’s easy to do)
- Balance transfer credit cards typically charge a different interest rate on new purchases than they do on the amount you originally transferred to the card.
There is another truly excellent quote here that I wanted to pull out for you:
If you spend just a few minutes working on your debt as hard as you work at your job you will at least create intelligent debt – debt at the lowest possible cost.
That is a brilliant, brilliant quote. Generally you prosper in direct relation to the amount of time an energy you devote to a topic. If you spend your time and energy taking care of your debt, it will decrease, and you will become wealthier. If you ignore your debt, and let fear or resistance be your guide, you will only get poorer with time.
If you are carrying large amounts of debt on your credit cards, Orman also discusses the pros and cons of Home Equity Loans vs. borrowing from your 401(k). This is a realistic discussion too! Most books just tell you that you should pay down your credit card debt (yeah you know, right?), but they don’t discuss the nuts and bolts of actually doing that. One more point in favor of this book in my opinion.
The last bit of excellent financial advice in this chapter I really loved. Orman advises not getting a tax return at the end of the year. She puts it very well when she says:
Would you lend me, every year for the next thirty years, a few thousand bucks interest free?
Well, then why would you make that loan interest free to the IRS?
Orman’s basic point is that you could have begun investing the money months before and been earning interest on it ever since. I know I generally look forward to getting that money back when it happens, but that statement right there really got to me, and I am going to rethink my own finances, especially where taxes are concerned!
Step 6: Trusting Yourself More Than You Trust Others
Orman actually gives her own case study here, and I loved reading it. Basically, she highlights her time as a stock broker. She was trained to sell stock to people, and did things like using affirmative questions. She would call her clients, and suggest a stock. Instead of asking them if they wanted the stock, she would ask them how many shares of the stock they wanted. According to Orman about 85% of her clients would the stock that she suggested.
However, over time, she noticed something: Some people would get nervous and sell when the stock she suggested dropped, while others would hang on to the stock and more at the lower price. On average, the people who got nervous and sold the stock ended up with far less money than the people who held. And they were often dissatisfied with her!
So when Orman asked them why they had chosen to invest in the stock, without fail they responded “Because you told me to Suze.”
This really troubled Orman. It bothered her enough that she stopped encouraging clients to stock when she felt they weren’t comfortable with it, left her job as a stock broker, and started her own firm where she could give honest advice to her clients.
The moral of the story here is, trust yourself first. It’s your money, and you should be comfortable with where it’s going – not dependent on the advice of a financial advisor, or a stock broker.
I definitely support Orman’s theory here, but I do believe you need the financial advisor and stock broker too! However, there is no excuse for not educating yourself about your possible investment options. I believe in choosing my advisors well, taking their opinion into account, and making my own decision based off of my own research. Never off of a phone call where someone says “You should this stock, it’s great!”
Always, always choose investments based off of your own research and conclusions – the point of experts, in my opinion, is to highlight and explain options for my money that I might otherwise have missed. Not to run around willy-nilly and make all of my decisions for me. No one is that good!
That ends this week’s review of The 9 Steps to Financial Freedom. Next week, we wrap up the book!
I hope that you have enjoyed reading these reviews. If you have questions, comments, or suggestions for things that you would like to see me cover, please let me know! I will definitely act on your feedback.
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