Suze Orman says these are America’s common money mistakes — do any of them sound familiar?
Suze Orman says these are America’s common money mistakes — do any of them sound familiar?
Best-selling personal finance author and TV personality Suze Orman has been inspiring Americans for decades to make better money moves and avoid serious financial mistakes. She’s been as busy as ever since the pandemic hit, offering consumers advice on how to weather the coronavirus crisis.
In times of hardship or prosperity, Orman will be the first to tell you that what you don’t do with your money may be even more important than what you do with it.
Here are 34 of her most fundamental tips for avoiding financial blunders — so you can save more money and make it grow.
1. Don’t be too quick to buy a home
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Invest your extra money to buy your dream home
Homeownership is a big part of the American dream, and today’s still-historically low mortgage rates have made homebuying even more appealing. But it’s not always the right choice.
“Sometimes it makes sense to own a home,” Orman tells CNBC.com. “And sometimes, depending on where you live, it makes sense to simply rent.”
If you’re in an expensive city, Orman says why not invest in the stock market instead of pouring a lot of money into property? That way, you can grow your savings — maybe into a down payment on the home of your dreams.
A good way to get into investing is by using a popular stock trading app that doesn’t charge commissions and allows you to buy fractions of shares with as little as $1.
2. Don’t lease a car
In Suze Orman’s words, “you should never, ever ever ever, lease a car.”
If you lease, you’ll sink your money into several years’ worth of car payments and be empty-handed when the lease term is done.
Financing is a better option, but Orman says if it will take longer than three years to pay off the car, then it’s out of your price range.
Buying a used car is another way to go. Models that are just a few years old will have great safety specifications and the same audio-visual tech as a new car, at a fraction of the price.
3. Don’t let spending get out of control
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Don’t go crazy over Christmas shopping.
Even people who normally spend responsibly take complete leave of their senses when special occasions, tax refunds or bonuses roll around. Orman blames a lack of planning and self-control — especially when it comes to giving gifts.
“Challenge yourself not to buy any gift with a credit card … you’re much more likely to purchase only what you can afford,” Orman says. She says holiday credit card debt in particular can linger much longer than the recipient will remember your gift.
Plus, friends and relatives would feel ashamed if they found out their gifts were beyond your means. “Time and love are the most valuable possessions you can share,” Orman writes.
When you do shop, research prices and use tools to avoid overpaying for the items on your list. You might try a free browser add-on that automatically helps you find better prices.
4. Don’t ever co-sign a loan
When a friend or family member in need asks you to co-sign a loan, Orman says the only correct response is to turn them down.
As she puts it: “Don’t be afraid to say ‘no to others and say ‘yes’ to yourself.”
When you co-sign a loan, you become legally responsible for paying back the money. Life is unpredictable, and if anything happens to prevent the borrower from repaying the loan, you’ll be on the hook to make the payments.
Plus, if the borrower is so much as late on a few payments, your credit score can take a hit.
5. Don’t take Social Security too soon
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Don’t retire early
The financial guru advises Americans to avoid early retirement for a very good reason: It’s worth it to delay taking Social Security until age 70.
“Every year you wait between your normal retirement age and 70, Social Security will add a guaranteed 8% to your eventual monthly payout,” she writes, in AARP The Magazine.
She says delaying Social Security until you reach 70 will give you a monthly benefit more than 75% percent higher than what you’ll get if you start at 62.
“Living well into your 80s and beyond is no longer some rare event,” Orman says — and you want to make sure your resources will last as long as you do.
6. Don’t skimp on car insurance
Car insurance policies include three key areas of coverage: for bodily injury liability per person, for total bodily injury liability, and for property damage you cause. Minimum coverage amounts in many states are, respectively, $25,000, $50,000 and $25,000.
Orman doesn’t think that’s nearly enough. “It will be a financial disaster paying out of pocket for serious injuries, loss of wages, rehab and such for the other driver (and their passengers) if you cause an accident,” she says on her website.
Car insurance rates have been falling during the pandemic because Americans have been driving less — and filing fewer claims. If your insurer hasn’t cut you a break, shop around to find a cheaper policy.
Raising your deductibles also can result in significant savings.
7. Don’t borrow from your 401(k)
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Don’t borrow from your 401(k)
Suze Orman calls borrowing money from your 401(k) “the biggest mistake you will ever make” with your retirement money, especially if you use the money to pay off other debt.
A 401(k) loan is better than withdrawing money from your account, which will bring you a tax bill and a 10% penalty if you’re younger than age 59 1/2. Plus, the loans typically come with a lower interest rate than a traditional loan.
But you might be barred from putting more money into your 401(k) for six months, meaning you’ll miss opportunities to make pre-tax contributions that lower your taxable income.
Even worse, by taking part of your retirement savings out of commission even temporarily, you’ll lose out on significant earnings if markets rise.
8. Don’t put blind faith in a financial adviser
It’s important to have a financial adviser you can trust.
“Don’t think that they’re always going to have your best interest at heart, because probably they have their own best interest at heart,” Orman says.
When selecting a financial professional, make sure he or she is a “fiduciary,” which means your adviser has a legal duty to act in your best interest. You might go with an affordable online financial planning service where all of the certified financial planners (CFPs) are fiduciaries.
During your vetting process, ask prospective advisers about how they’ll be compensated for working with you, and about other services they can offer. This will give you a good idea of their motivations when they invest your money.
9. Don’t go without life insurance
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You need life insurance to protect your children in case something happens to you.
About 4 in 10 adults have no life insurance, according to the industry research group LIMRA.
Orman says for parents in particular, life insurance is a product you can’t afford to go without. It provides peace of mind, because it will protect your family if something happens to you and you’re suddenly out of the picture.
And it’s cheap: A healthy 40-year-old woman might pay less than $35 a month for a 20-year policy with a $500,000 death benefit. Orman recommends that you buy “level term” life insurance, meaning the premiums never change.
“C’mon Moms. (And Dads),” says the personal finance guru, on her site. “You can’t tell me that less than one dollar a day is too much to ensure your family is safe no matter what.”
10. Don’t let debt linger
“Debt is bondage,” Orman tells CNBC. “You will never, ever, ever have financial freedom if you have debt.”
Still, she points out that not all debt is the same.
Mortgages and student loans can be considered “good debt,” because home loans usually have fairly low interest rates and your degree is an investment that should generate a higher income over time.
However, credit cards have much higher interest rates. The longer you put off paying down your credit balances, the more money you lose, and you can easily wind up paying for your purchases three or four times over.
It’s not easy getting out from under a mountain of credit card debt, but rolling it into a lower-interest debt consolidation loan can make the debt more manageable and help you pay it off faster.
11. Don’t let your wallet get sloppy
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Don’t allow your wallet to get overgrown.
There’s nothing too profound about this piece of advice. Orman is literally talking about keeping your wallet organized and knowing exactly what’s in it.
Your wallet, she says, is “a picture of your life.” It especially reflects how you think about money and manage your finances. Crumpled bills stuffed in any old way show disrespect and a lack of accountability.
What’s in Orman’s slim wallet? Her driver’s license, health insurance cards, exactly $170 in cash neatly arranged by denomination, and three credit cards with perks that suit her lifestyle.
The amount of cash is no accident; the digits 1, 7 and 0 add up to eight. “In Asia, eight is the number of wealth,” Orman explains.
12. Don’t spend to impress others
It’s human nature to want to impress others. But Orman knows from experience how foolish that is.
She once leased a fancy BMW and bought a Cartier watch with money borrowed from her 401(k) — just to impress a woman she was dating. She says it was “the most stupid thing I’ve ever done with money.”
In the end, spending money you don’t have to impress others will leave you with shallow relationships and stressful bills.
Work hard, invest wisely, and reap your fortune when you’ve made it. And when you do need to buy things, take advantage of online tools that will find you better deals.
13. Don’t say it’s impossible to save
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You might easily find ways to save up to $100 a month.
Orman says too often she tells people they ought to consider saving more — only to have them respond that it’s impossible because there’s never any extra money left over at the end of the month.
“I beg to differ,” she says, on SuzeOrman.com. “There’s no money left because you haven’t evaluated your spending habits. You need to dig deep and be willing to change those habits.”
Practically anyone can squeeze out up to $100 in “hidden money” for saving and investing each month, Orman says. For example, you might use weather stripping and other maneuvers to boost your home’s energy efficiency and cut your utility bills by as much as 10%.
Or, you could start saving and growing your “spare change” with the help of a popular app that invests leftover pennies from your everyday purchases into a diversified portfolio.
14. Don’t retire too early
On a recent edition of the podcast Afford Anything, Orman was asked what she thought of the FIRE movement. That’s FIRE as in “financial independence, retire early.”
Her blunt response — “I hate it. I hate it. I hate it. I hate it” — set off a firestorm among the FIRE faithful.
But she explained that it would take a lot of money to make retirement work at, say, age 35.
“You need at least $5 million, or $6 million,” she said. “Really, you might need $10 million.” In her opinion, anything less wouldn’t offer you enough protection from a potential financial catastrophe, like an expensive illness.
“You will get burned if you play with FIRE,” Orman told her interviewer.
15. Don’t go without a will
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Everybody needs a will, but most Americans don’t have one.
“Do you have your estate planning in place? If not, you might want to think again,” Orman writes, on Oprah.com.
While everybody needs a will, most Americans don’t have one and lack other important end-of-life documents, including a revocable living trust.
That’s a legal arrangement that holds your property while you’re alive and transfers it to your heirs after your death, without the complicated process known as probate.
Orman says set up a revocable living trust for passing down your house and other major assets, and draw up a will for your other special possessions, like great-grandma’s wedding ring or your first-edition book collection.
16. Don’t take out a reverse mortgage in your 60s
A reverse mortgage is a type of home equity loan for seniors that allows you to receive the money as a lump sum or in monthly installments. The loan is repaid, with interest, when you die or sell the house.
You can take out a reverse mortgage starting at age 62, but Orman says that’s risky. In her view, it’s best to treat a reverse mortgage as a last resort for emergency money, and to wait as long as you possibly can before going that route.
“If you tap all your home equity through a reverse at 62 and then at 72 you realize you can’t really afford the home, you will have to sell the home,” she says.
A certified financial planner (CFP) professional can help you find the best way to stretch your retirement savings.
17. Don’t miss out on matching money
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Always contribute enough to your retirement account so you get maximum matching money from the boss.
If you have a 401(k) or other retirement plan through work, don’t leave free money on the table. Make sure you’re putting enough in so that you’ll receive the full matching contribution from your employer.
Orman says your company might kick in 50 cents for every dollar you contribute, up to 6% of your salary.
“Under those terms, if the employee contributed $3,000, the employer would kick in another $1,500,” she says, on Oprah.com. “Hello! That’s a guaranteed 50% return on your investment.”
So, raise your paycheck contributions and start maxing out the match today.
18. Don’t spend on things you don’t really need
There’s no better way to kick-start your savings than by playing the need vs. want game.
The next time you’re ready to buy something, ask yourself whether you really need it. Is it a necessity, such as medication, food from the grocery store or a solid pair of shoes for work?
Or simply something you want — like another drink at the bar, fast food for dinner again or a second pair of knee-high boots?
“If it’s a want, just walk away. If it’s a need, then buy it,” Orman writes. “Try this for six months and you’ll be shocked at how easy it is and how much money you’ll save.”
19. Don’t stay at a job you hate
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Not loving your job? Do something about it!
Suze Orman says polls show that two-thirds of workers aren’t really into their jobs. And if you’re in that group, you’re selling yourself short.
“Staying in a job you don’t like is disrespectful to yourself, and your loved ones,” Orman says, on her website. “There is no way you can tell me that doesn’t negatively impact your relationships.”
But quitting may not be the answer. Before you start looking around for a new opportunity, see if the job you have can be modified to address whatever it is that makes you unhappy.
Just don’t ever frame it that way when you meet with the boss or HR. Instead, tell the management you’d like to talk about how your job might be “tweaked” so you can be more productive.
20. Don’t buy a new car
If you love being the first person to drive a brand-new car and you can never get enough of that new-car smell — well, you’ll have to get over all of that, Orman says.
“The second you drive that car off the lot, it depreciates, 10%, 20%,” she tells CNBC. “Let somebody else get that depreciation.”
Your home may appreciate in value, but that rarely happens with a car. So don’t waste your money on new, but always buy used. It takes some work, such as carefully checking the vehicle and applying for a car title transfer, but you’ll save much more in the end.
Be sure to compare loans, so you get the best rate. Then, keep your vehicle as long as you can: at least 10 years, and maybe even 15 or 20. Orman says that’s how wealthy people do it — including herself.
21. Don’t take a tax refund
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When you take a tax refund, you’ve essentially given the government a free loan.
“If you’re getting a tax refund, you are making one of the biggest mistakes out there,” Suze Orman says.
Why? Because you’ve essentially had too much of your pay withheld for taxes — and have effectively given the government an interest-free loan. When you’re owed a $2,400 refund, you’ve allowed yourself to be shortchanged $200 per month throughout the year.
But surveys have shown that Americans love their tax refunds and eagerly plan out how they’ll use the money each year.
Orman is isn’t backing down. On CNBC.com, she calls a tax refund “the biggest waste of money that you will ever get.”
22. Don’t ever miss a student loan payment
Struggling with student loan debt? Whatever you do, don’t just throw up your hands and stop paying.
“Make paying back your student loan the very first bill you pay,” Orman says on her Facebook page. “It is more important that you make your student loan payments on time each month than any other bill.”
She has called student loan debt “the most dangerous debt you can ever have” because you can’t erase it through bankruptcy.
Federal student loan debt and interest has been paused through January 2021. Borrowers with private student loans can tame their debt by refinancing to a lower interest rate.
23. Don’t invest for the wrong reasons
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Picking stocks can be like throwing darts. You’re not always going to hit it.
Orman says too many people — especially young people — make investment choices purely because a stock seems cool or trendy.
“They decide, ‘This company is great, I’m going to invest in that,'” she tells CNBC.com. If that’s your strategy, “maybe you’ll hit it right, maybe you’ll hit it wrong.”
It’s less risky to diversify your investing, by putting your money into index funds and exchange-traded funds, or ETFs.
If you open an investing account, Orman recommends putting in regular amounts, through what’s called “dollar cost averaging.” Stay steady through the market’s ups and downs and you’ll always come out ahead, she says.
24. Don’t waste money on coffee
Your daily stop to pick up a cup of dark roast or a cappuccino is a habit you need to break, the money maven says. It’s a “want,” not a “need,” and it’s costing you a ton of money.
“You are peeing $1 million down the drain as you are drinking that coffee,” Orman told CNBC (causing coffee drinkers across America to do a spit take).
Here’s the math on that: If you’re spending $100 a month, that’s money that could grow instead in a Roth IRA — to roughly $1 million after 40 years, assuming a 12% rate of return.
But you love those fancy store-bought coffees? Get over that. “Every single penny counts” when you’re saving for your future, Suze Orman says.
25. Don’t retire owing money on your home
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Don’t let a mortgage wreck your retirement.
A survey from mortgage banker American Financing found that 44% of Americans in their 60s and 70s are still paying off a mortgage. “This is so not OK,” Orman has blogged.
She urges people to go into retirement mortgage-free, for two reasons: to stretch their retirement savings, and to rid themselves of debt — an albatross that affects even mental health.
“If you’re going to stay living in that house for the rest of your life, pay off that mortgage as soon as you possibly can,” Orman tells CNBC.
Without a mortgage, you’ll have more financial security in retirement, she says. So work until you’re 70, use excess emergency savings and do whatever else it takes to get that house debt paid off.
26. Don’t buy a home you can’t afford
Being able to afford a certain rent payment doesn’t necessarily mean you can afford a house with a similar mortgage payment.
“The big mistake that many people make,” says Orman, “is that they’re paying $1,500 a month for rent and they go out and look for a home and they can get a home for a $1,500-a-month mortgage.”
But the costs of moving in and keeping up a home over the long term far exceed those of renting a place. And you’ll want to land the best mortgage rate you can get.
Orman reminds potential homebuyers to factor in not only the monthly mortgage payments but also the down payment, closing costs, initial repairs, moving expenses and ongoing maintenance costs.
27. Don’t risk your retirement to pay for your kids’ college
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Don’t make your retirement a lower priority than sending your kid to college.
Orman is incredulous over reports that saving for retirement is taking a back seat to saving for college.
Asset management company T. Rowe Price found in 2018 that 74% of parents put the higher priority on socking money away for their kids’ higher education. An earlier survey identified millennials as the worst offenders.
“Are you nuts?” Orman blogged. “Your 20s and 30s are when saving in retirement gives you a huge advantage: decades when your money can grow.”
When parents whine that they’d do anything for their kids, Orman comes back with, “Top of the list should be to make sure you will never be a financial burden for them.”
28. Don’t sell stocks when markets are bad
When stocks are hurtling lower, as they were in March during the early days of the pandemic, investors tend to drop investments fast. That’s a bad idea, says Orman.
Instead of dumping stock, she advises that you just keep investing the same amount of money each month, regardless of what the market is doing. Using this strategy, a bad month for the market becomes a good month to invest.
“I wish for 2008 again,” she tells Yahoo Finance, referring to the year of the big market meltdown. “That’s when the fortune was made. That’s when you could buy stocks for pennies on the dollar.”
If you train yourself to hold on tight through market dips, you’ll continue to build a solid portfolio with long-term earning potential.
29. Don’t keep kids in the dark about credit
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Teach kids how to use credit responsibly.
Suze Orman shakes her head at reports that millennials are avoiding credit cards.
“I am wholeheartedly on board with preferring a debit card,” Orman says. “But everyone needs to also have a credit card and use it responsibly.”
She thinks parents who don’t teach kids how to use credit do them a disservice. After all, the credit bureaus factor spending and payment history into credit scores, which determine who gets a car, house or small-business loan, and the kind of interest rates they pay.
Orman recommends teaching good credit use in one of three ways: adding your teen to one of your existing accounts; co-signing for a no-fee, low-limit card; or having your kid apply for a secured card that requires a deposit.
30. Don’t let fear stop you from getting rich
Orman doesn’t mince words. “Stop feeling sorry for yourselves and go out there and create the financial life that is waiting for you,” she tells CNBC.
Fear, she believes, is often the only thing standing between you and a pay raise, a better job, shrewd investments and other financial goals. “You most likely are your own financial obstacle,” she continues, “and you have to remove your fears from wanting to create more.”
So, stop saying you can’t do this thing or that thing, or that you’re not smart enough, or that you were never good with numbers, or whatever.
Orman’s best advice is to change your mindset about money, pay off debt and start getting rich.
31. Don’t ever take out a payday loan
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Suze Orman says getting a payday loan is one of the biggest financial mistakes you can make.
If you want to get a rise out of Suze Orman, just ask how she feels about payday loans.
“I am begging all of you, do not take a payday loan out,” she said on one episode of her podcast, going so far as to add that it’s the biggest mistake listeners could ever make.
Payday loans are tempting because they’re relatively easy to get when you’re strapped for cash. However, they’re offensively expensive. The typical annual percentage rate is 400%. By comparison, the average APR on credit cards is around 17%.
Several states have capped the APR on payday loans at 36% percent or have even banned the loans altogether. A lower-cost personal loan is a good alternative.
32. Don’t become a landlord
The return of the house-flipping craze makes Orman nervous.
Even blazing hot markets inevitably cool down. If you can’t sell a flip house at a profit, you may have to rent it out. And being a landlord isn’t as glamorous as it looks on HGTV. Landlords must replace toilets, keep critters at bay, and let in tenants who lock themselves out.
“Do you think … you can attract responsible tenants who would pay enough to cover your property tax and maintenance charges? Even if you could, do you really want to be a landlord?” Orman once asked a fan.
She says don’t do it unless your emergency fund can cover at least eight months’ worth of mortgage payments.
33. Just don’t sell stocks — period
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Suze Orman says with stocks, buy and hold — and hold and hold.
Orman speaks from personal experience. In 1997, she invested around $5,000 in Amazon. She sold the stock a few years later and quadrupled her money.
However, the shares would be worth millions today. “It makes me sick to even tabulate it,” she told CNBC.
Investing in individual stocks isn’t her favorite game plan, but she says people who play the market should at least do extensive research on the companies they’re interested in. She says Google, Facebook and others are expected to retain their competitive edge for years to come.
“If you do buy, though, make sure to hold,” Orman advises. “You keep a great stock forever.”
34. Don’t let vacation time go unused
Suze Orman is all for taking vacations. She’s the first to say everybody needs a recharge now and then — especially people who intend to work until they’re 70.
Saying no to a trip you can’t afford is a good thing, but there’s no excuse for not using your vacation time. And you don’t have to spend a ton of money to enjoy it.
“Unplug from your work. And do something that gives you pleasure. Day trips. A home project you never get around to,” Orman blogged. “There are so many ways to step out of your demanding work routine without spending money.”
If nothing else, you’ll be more productive and engaged on the job.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.