I was watching a show on NPR/OPB last night during a pledge drive. The gues speaker was SuzeOrman who was speaking on "The Laws of Money and Lessons of Life". It was mostly common sense stuff but she had a couple good points and ways of looking at things. -- AdamShand
This is a very liberal transcription of the talk by me, it is incomplete and any inaccuracies etc are mine and not hers's.
The Five "Laws of Money":
Truth makes money, lies Detroy it. I'm not entirely sure I buy all this, I think lies make some people a *lot* money. However assuming you don't want to be one of those people I think telling the truth is a generally sound principle. Her main point was that lies beget lies and truth begets truth. Part of being truthful about your money is admitting that you can't afford things and that it's okay to tell people that you can't loan them money.
Make decisions based on what you have, not what you had.
This was a big thing for the audience because they were mostly BabyBoomers who got raped at the end of the DotCom years. The big thing was this: If you have an investment and you are unsure if you should keep it, imagine that instead of X number of shares you have the equivelent cash in hand. If you had the cash would you invest it in the stocks you are wondering about? If the answer is "No", then get the hell out. Use this technique to get rid of all of the stocks that you should no longer be holding.
How does it make you feel. She tells a story about two women with identical investments, one of whom is a nervous wreak and one who is is doing just fine. Part of a good investment she says is to feel good about it, if you don't feel good about it, don't do it. She recommends this technique for getting rid of investments that don't feel good. Rate all of your investments on scale of 1 - 5, where 1 is feeling great about it and 5 is terrifying you.
Rating
Feelings
Action
1
Good choice.
Keep it all!
2
Okay but small doubts.
Sell 25%
3
Wonder quite a bit.
Sell 50%
4
Seriously worried.
Sell 75%
5
Nightmares and stress.
Sell 100%
Invest in the known before the unknown. This was the core of the presentation and where most of the financial nformation was. She says that there are two knowns in your life that you must plan for, your death and your retirement (she implies shelter and food later which I'd agree with :-). Before you worry about where to invest your money she says to take care of the knowns.
You almost always pay more interest on your debts then you will earn from your loans, so first, pay off all your debt, especially any credit card debt. Once the
Once your credit cards are paid off, put them away some where safe and only use them in emergencies or if you are disiplined enough to pay them off every month.
- Build an eight month emergency fund. That's how long it's taking people to get back in the job market and find stable work.
- If you don't have time to invest, or you can't afford to invest, pay off other debts. Pay down your mortgauge, your car payments etc.
- Use your stashed away credit cards, you can always get a cash advance on them. It's not the best way to borrow money but it's better then raping your 401k's or IRA's.
- If you have equity in your house, get an equity loan against that. There were some tricks and gotcha's with this that I didn't catch.
- You can remove the original money (what you paid in) from a Roth IRA, regardless of your age, without penalties.
- You can remove the original money from other IRA's so long as you pay it back within 6 months.
Money has no power of it's own. Just remember that there is nothing magical about money. It has no power over you. It only has the power to stop you enjoying your life if you let it. In short, don't let the bastard get you down.
Other Notes:
- She felt that unless you had at least seven years remaining before retirement not to put your money in the stock market, it's too risky for that amount of time.
- Don't pull money our of 401k or other retirement plans. The reason is that you pay into those funds pre-tax, when you pay back the removed money you are paying it back with taxed earnings. Thus when you finally remove the money at retirement and it gets taxed you have been double taxed.
- It's okay to do nothing with your money. If you aren't sure what to do with your money, it's okay to sit on it for a while. Better no investment (or bonds or money market) then a bad or uninformed investment.