The Money Class
ALSO BY SUZE ORMAN
You’ve Earned It, Don’t Lose It
The 9 Steps to Financial Freedom
Suze Orman’s Financial Guidebook
The Courage to Be Rich
The Road to Wealth
The Laws of Money, the Lessons of Life
The Money Book for the Young, Fabulous & Broke
Women & Money
Suze Orman’s Action Plan
This book is designed to provide accurate and authoritative information about personal finances. Neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services, by publishing this book. If any such assistance is required, the services of a qualified financial professional should be sought. The author and publisher will not be responsible for any liability, loss, or risk incurred as a result of the use and application of any of the information contained in this book.
While the author has made every effort to provide accurate telephone numbers and Internet addresses at the time of publication, neither the publisher nor the author assumes any responsibility for errors or for changes that occur after publication.
A Certified Financial Planner® is a federally registered mark owned by the Certified Financial Planner Board of Standards, Inc.
Copyright © 2011 by Suze Orman, a Trustee of the Suze Orman Revocable Trust All rights reserved.
Published in the United States by Spiegel & Grau, an imprint of The Random House Publishing Group, a division of Random House, Inc., New York.
SPIEGEL & GRAU and Design is a registered trademark of Random House, Inc.
Library of Congress Cataloging-in-Publication Data
Orman, Suze.
The money class: learn to create your new American dream / Suze Orman.
p. cm.
eISBN: 978-0-679-60470-9
1. Finance, Personal—United States. 2. Wealth—United States. I. Title
HG179.O75764 2011
332.024′01—dc22 2011001394
Jacket design: Greg Mollica
Jacket photograph: Brian Bowen Smith
v3.1
To all the great teachers who’ve taught me everything I know
CONTENTS
CLASS 1: THE NEW AMERICAN DREAM
Making Change • The Dreams of Tomorrow Reside in Today’s Choices • The Money Class Curriculum
LESSON 1.
FINDING YOUR TRUTH: A PERSONAL FINANCIAL ACCOUNTING
LESSON 2.
LIVING TRUTHFULLY: HOW TO STAND TALL
Focus on What Is Real Today … and What You Will Need Tomorrow • Live Below Your Means but Within Your Needs • The Pleasure of Saving Is Equal to the Pleasure of Spending • Define Yourself by Who You Are, Not What You Have
LESSON 3.
THE FOUNDATION OF ALL TRUTHFUL LIVING: THE POWER OF CASH
Debit Card Rules • The “Life Happens” Fund • Credit Unions: A Great Place to Save • Safety First with Your Savings • Saving for Big-Ticket Items • The Truth Will Indeed Set You Free
LESSON 1.
HOW TO BUILD HONEST FAMILY RELATIONS
Opening the Lines of Communication
LESSON 2.
HOW TO RAISE YOUNG CHILDREN TO STAND IN THE TRUTH
Your Priceless Legacy • Set the Right Tone • Imparting Good Values When It Comes to Money • Money Lessons for Children • Money Lessons for Tweens and Teens • Money Lessons for Teenagers Heading to College • How to Handle Money Gifts and Savings • The Three-Option Approach
LESSON 3.
HOW TO CREATE A FINANCIALLY HONEST COLLEGE STRATEGY
Who Should Save for College • The Best Way to Save for College: 529 Plans • UGMA/UTMA • Coverdell Accounts • How to Invest Your 529 Plan • The College Talk Every Parent Must Have with a High School Freshman • Borrowing Rules for College Loans • The Risks of Private Loans for College • Stafford Loans • PLUS Loans • How to Choose the Right School
LESSON 4.
HOW TO HELP ADULT CHILDREN FACING FINANCIAL CHALLENGES
How to Handle Student Loans That Are in Default • How and When to Help Independent Children Who Are in Financial Trouble
LESSON 5.
THE CONVERSATION EVERY ADULT CHILD SHOULD HAVE WITH HIS OR HER PARENTS
Building Family Financial Security Under One Roof • Updating Legal Documents • When a Parent Remarries
LESSON 6.
ADVICE FOR GRANDPARENTS: HOW TO BUILD A LASTING LEGACY
Follow the Parents’ Lead • Pay It Forward • Give Experiences, Not Things
LESSON 1.
THE TRUTH ABOUT HOME VALUES
A Decade of Extremes • A Home Is a Savings Account, Not a Hot Stock • Financing Is Cheap, but Not Easy
LESSON 2.
WHEN IT MAKES SENSE TO RENT
The Math of Rent vs. Buy • Advice for Owners Who Now Want to Rent
LESSON 3.
THE NEW RULES OF BUYING A HOME
Set a Budget That Satisfies Your Needs • Know Your Income Limits • Aim to Make a 20% Down Payment • A Special Note About FHA-Insured Loans • Special Rules for Buying Condos and Co-ops • Where to Come Up with the Down Payment • Opt for a 30-Year Fixed-Rate Mortgage • Understand the Risk of Distressed Property
LESSON 4.
WHAT TO DO IF YOU ARE UNDERWATER
If You Are Underwater and Cannot Afford Your Mortgage • Loan Modification • Short Sale • Foreclosure • If You Are Underwater but You Can Afford the Mortgage
LESSON 5.
HOW TO REDUCE MORTGAGE COSTS
When It Makes Sense to Pay Off a Loan Ahead of Schedule • The New Realities of Refinancing • Refinancing Rules • Lower Your Mortgage Costs Without a Refinance
LESSON 6.
THE DANGERS OF HOME EQUITY LINES OF CREDIT
The Dangers of Rising Interest Rates and Falling Behind on Payments • Home Equity Loans
Reverse Mortgage Basics
LESSON 8.
INVESTING IN REAL ESTATE
What You Need to Know Before You Buy Investment Property • What to Do with an Investment Property That Is Underwater
LESSON 1.
ADVICE FOR THE EMPLOYED
Build Your Plan-for-the-Worst Fund • Live Below Today’s Means • Grab Your Full Retirement Bonus • Make Your Case for a Raise and Promotion Through Your Work • How to Ask for a Raise • Change Your Attitude Before You Change Your Job
LESSON 2.
ADVICE FOR THE UNEMPLOYED
Cut Your Spending Immediately • Do Not Dip into Your Retirement Savings • Make Sure Your Credit Profile Remains Strong • Do Not Go Back to School to Avoid a Hard Job Market • Get to Work as Fast as Possible, Rather Than Holding Out for a Better Offer • How to Deal with a Steep Pay Cut • A Special Note for Stay-at-Home Moms
LESSON 3.
STARTING (AND RUNNING) YOUR OWN BUSINESS
Launching a Business: Can You Afford It? • Where to Get the Money to Start Your Business • A Few Words About Micro Lending • Running Your Own Business • When to Expand • When to Close • Standing in Your Truth in Business • Closing Down a Business Responsibly
A Note About the Retirement Classes
The Money Navigator:
A Special Offer for Readers of
The Money Class
CLASS 6: RETIREMENT PLANNING: GETTING GOING IN YOUR 20S AND 30S
LESSON 1.
TIME IS YOUR GREATEST ASSET
Getting Started Early • With Lower Returns, Savings Are More Important Than Ever
LESSON 2.
RETIREMENT ACCOUNTS EXPLAINED
Retirement Plans Offered by Employers • Retirement Plan Withdrawal Rules • Non-Workplace Retirement Accounts • Nondeductible IRAs • Roth IRAs • Retirement Plans for the Self-Employed
LESSON 3.
HOW MUCH YOU NEED TO SAVE FOR RETIREMENT
The Retirement Formula • The Best 401(k) and IRA Strategy • A Word on Vesting • Where to Open an IRA Account
LESSON 4.
INVESTING YOUR RETIREMENT MONEY
The Ups and Downs of the Stock Market • Dollar Cost Averaging • How Much to Invest in Stocks • Choosing the Best Options Within Your 401(k) • How to Build the Best 401(k) Investment Portfolio • Exchange Traded Funds • Bond Investments • Retirement Planning Mistakes to Avoid • What to Do with Your 401(k) When You Leave a Job
CLASS 7: RETIREMENT PLANNING: FINE-TUNING IT IN YOUR 40S AND 50S
LESSON 1.
DECIDING WHEN IT MAKES SENSE TO PAY OFF YOUR MORTGAGE
Questions to Ask Yourself • The Benefits of Paying Off Your Mortgage • How to Pay Off Your Mortgage Ahead of Schedule
LESSON 2.
HAVE A REALISTIC PLAN FOR WORKING UNTIL AGE 66–67
Your Work-Longer Game Plan
LESSON 3.
DELAY YOUR SOCIAL SECURITY BENEFIT
Social Security Basics • Social Security Strategies
LESSON 4.
ESTIMATE YOUR RETIREMENT INCOME: HOW ARE YOU DOING?
Social Security Benefits • Retirement Accounts • Pensions • Lump Sum vs. Annuity
LESSON 5.
SAVING MORE, AND INVESTING STRATEGIES IN YOUR 50S
How to Invest Smart • Making the Most of What You Have • Best Investments Outside Your 401(k) • Bond Investments • No Target Funds Allowed
LESSON 6.
PLAN FOR LONG-TERM CARE COSTS
When to Buy • Making the Financial Case for LTC Insurance • Health Insurance, Medicare, and Medicaid • LTC Basics
LESSON 1.
HOME FINANCES: STAND IN THE TRUTH OF WHAT IS AFFORDABLE FOR YOU
The Affordability Issue • Start the Discussion
LESSON 2.
COPING WITH THE HIGH COST OF HEALTHCARE IN RETIREMENT
Rising Costs vs. Your Annual Retirement Income • Long-Term Care Premium Increases
LESSON 3.
STICK TO A SUSTAINABLE WITHDRAWAL RATE
The Right Rate • How to Make Tax-Smart Withdrawals
LESSON 4.
AVOID LONG-TERM BONDS AND BOND FUNDS
What You Must Understand About Bonds • How to Build a Bond Ladder • Beyond Treasury Bonds: Municipal Bonds and Corporate Bonds
LESSON 5.
EARN HIGHER YIELDS BY INVESTING IN DIVIDEND-PAYING ETFS AND STOCKS
The Case for Dividend-Paying ETFs and Stocks • Stock Dividend Basics • The Protection of a Stop-Loss Order • How Much to Invest • How to Choose a Dividend-Focused ETF • Tips for Owning Individual Dividend-Paying Stocks
LESSON 6.
DOUBLE-CHECK YOUR BENEFICIARIES AND MUST-HAVE DOCUMENTS
Life-Changing Events
Clearing My Own Roadblocks • The Road Ahead, Not the Rearview Mirror • The Legacy We Create