MoneyStuffed

I hope everyone had a lovely Thanksgiving. This is a reprinting of my book review for Suze Orman’s The Money Book for the Young, Fabulous & Broke which appeared on my personal website on April 28, 2005:

With all personal finance books, you should take the writing with a grain of salt. You have your own experiences to draw on to see if whether the advice offered is something feasible. The vast majority of personal finance books I read are not only totally unsuitable for my financial situation, they are also incredibly boring to read. To quote the author, “This is definitely not your parents’ money book.”

Personal finance is not the most “sexy” topic out there. It happens to be something most of us have had to figure out for ourselves through mistakes made or through the few fiscally responsibly parents who take the time to teach these things to their children. Most schools do not require a mandatory course in money managment before we graduate, although we could all benefit highly if this were added to the curriculm of high schools across the country (while I am still skeptical on the physical eduation requirement being necessary). These are lessons we need in order to get ahead in life. These are things we can not afford to not know.

Suze Orman recognizes the changing economy and realized the right financial advice for our parents is not right for us, the younger generation. She aims this book at those of us in our 20s and 30s, although it would not be a bad idea for the older generation to read it to understand the younger generation’s financial situation. She understands many of us are starting out and we managed to build up a lot of debt due to the nature of the current consumer and economic environment. She does not hold these actions against us, preaching to us on how horrible we are to mishandle our finances. She tells us how to fix these problems we created for ourselves. She seems to understand the change in economic status in this country means, unlike our parents, we will not have social security, pensions, and other legitimate avenues our parents persued to fall back on.

Ms. Orman also realizes not everyone is a spreadsheet geek. Budgeting is not the grand solution to all our problems. She’s still kind to those of us who are spreadsheet geeks and who like to see the numbers in front of us, but it’s not a requirement to have a successful personal finance plan.

There are several surprising key points Ms. Orman makes, especially if you have read other personal finance books:

• Learn your FICO score and make sure you maintain it at a high level. This score not only effects your ability to get loans, but also the interest rate you’ll pay once you get them!
• Do not close credit card accounts even if the balance is $0. These hold your credit history and effects your FICO score. Instead, keep the accounts open and destroy the physical card if you feel you can not trust yourself not to use it. Credit card companies are always happy to issue new cards.
• We are currently paying the lowest tax rates in the history of our country for our earned income. There is a very high chance these rates can not be maintained for when we retire and need to withdraw our retirement funds. This makes economic sense given the state of the country’s economy. Since traditional IRAs and 401(k)s and other similar plans are taxed when you remove the money later, it makes sense to instead only invest in your 401(k) (or similar plan) for what your employer will match (never say no to free money) and then put whatever else you would put into the 401(k) into a Roth IRA. In a Roth IRA, you pay your taxes now, at a lower rate. You will not pay tax on the interest or dividends earned in the Roth IRA or the money you put in when you take it out during retirement.
• Always pay at least the minimum amounts on your credit card debt. Just missing one payment can have severe detrimental effects on your FICO score
• Do not even think of defaulting on your student loans. This is the best deal in unsecured debt you will ever get and the government will not let you get away with not paying. You are better off paying the miniums or working out a deferral if you are in financial hardship.
• Once you place your finances in order, and get your credit card interest rates on your unpaid balances (and any other loans) below 8% (it just takes a couple of phone calls), then concentrate on building savings. You should work on having 8 months of living expenses available to you.
• Once you set up your 8 months of savings, then concentrate on putting savings into a Roth IRA for retirement.

There are, of course, many other points, but these are the main highlights I was able to pull from the reading. Ms. Orman also understands it might take time to complete each of these steps. She reiterates time and time again to not rush moving on to the next step before completing the one before it, even if it takes several years to do so.

One wonderful feature of this book is the way it is organized. Instead of expecting you to read the book straight through (like I did), Ms. Orman expects you will use it as a guide to answer your specific financial questions. She does not expect people will want to read every situation in her book. After all, not every situation is the same. Customize the book to match your situation and read it. I do say this with a caveat. Reading the book in this manner would have had me skip the part about trusts. I now realize, as a single home owner, it would be a good idea to set up a revocable living trust and transfer title to my home to this trust in order to not burden my family with probate issues in the case of my death. So, there is something to be said to reading the book cover to cover. You might learn something new.

The material in this book is extremely important to read and understand. The way this book is written, in plain English, helps make this the most readable and understandable personal finance book I have ever come across. If you find the Amazon.com price is too much for you, ask for it at your local public library and borrow it. Take notes on the pertinent parts. Ask your parents to get it for you for Christmas, Hanukkah, or your next birthday. They could not buy you a better gift. Just having it as reference material has been invaluable. If you find you will not be able to get the book right away, Ms. Orman’s website has an action planner where you can fill in a questionaire and have a customized action plan set for your particular financial situation. There are also forums and material updates for the book available at the website. When I went to Suze Orman’s book signing in Cambridge, MA, I asked her personal assistant if it were okay to give out the “password” to enter the site and received permission to do so. When you are creating your account, enter in the password ‘98635472′ (no quotes) and you will have no trouble getting started. Above all, the key to maintaining sound personal finances is to pay attention to your situation. Ignoring the problem will not make it go away. Reading this book could be your first, positive step in the right direction.

Related Posts:

• Educating the Young about Money
• Budgeting for Dummies
• A Beginner’s Guide to Personal Finance
• 401K Addiction
• Buy Eyeglasses Online and Save Hundreds of Dollars

This entry was posted on Tuesday, November 29th, 2005 at 1:00 am by Elana and is filed under Book Review, Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.