The Suze Orman Budget Plan We All Should Follow
You have probably heard the name Suze Orman. She is a finance expert who has written books, been on Oprah, and even had her own show. While she does have some excellent budgeting advice, not everyone agrees with all of it.
Suze Orman’s Budget Tips To Reach Financial Freedom
Still, she has some great ideas for living on less, saving and investing:
Live Within Your Needs
If you do not pay attention to any other point of the Suze Orman budget, at least pay attention to this one: “Live below your means and within your needs.” Basically, understand that you do not have to spend money just because you have it.
If you are looking at two coffee machines, you might automatically think you should get the most expensive one. Many people assume that the more expensive a product is, the better. That is not always the case.
Instead of just getting it because you can, take a look at both. Does the cheaper one do the same thing as the more expensive one? If the more expensive one has more, do you really need all of those bells and whistles? If the cheaper one gets the job done, go with the cheaper one.
Set Up Automatic Savings
It is so easy to plan to save money. Actually doing it, though, is another thing entirely. Here is the solution: Keep your hands off of it. Set up automatic savings so that the amount you choose goes straight to your savings account without you ever seeing it in your checking. This easy budget step can grow your savings astronomically without your help.
Stop Leasing Cars
Here’s the problem with leasing a car: It is a never-ending cycle. When your lease term is up, you lease a new one, then another one after that. You never own a car and you are making car payments until you stop leasing. The money you are spending out on car payments for years or decades could easily be used to fund you retirement or a whole new life. Just buy a car, instead.
Cut the Caffeine
The Suze Orman budget also suggests cutting out your coffee habit. She explains that if you normally buy a $3 cup of coffee but start putting that $3 into an IRA, you could earn up to $1 million in 40 years- depending on the interest rate of the IRA, of course. Orman says, “You need to think about it as: You are peeing $1 million down the drain as you are drinking that coffee.”
Make Coffee and Food at Home
Cutting out coffee completely may not be desirable for you, though, and that’s okay. Instead, make as much of your coffee at home as you can- this alone will help you cut back on your coffee spending tremendously. If you still want to buy coffee outside of your home, just do not let it be a daily habit. Let it be a treat for yourself on Fridays or something along those lines.
It is also important to note that investing $3 a day may not lead to a full $1 million. To earn that, the investment fund rate would need to be at least 12 percent. Still, the foundation of her rule is correct: Cut down or out unnecessary expenses and put the money saved into an interest-earning account.
Get Healthy
Suze Orman also suggests that we should all get healthy- who can disagree with that? When you are not healthy, you generally end up at doctors and even dentists more often. You probably need more prescriptions than a healthy person. Also, there are a lot of premature deaths due to a lack of health. Make your health a priority so you can save some money, feel better, and be around for your family for longer.
This does not mean you need to buy a gym membership, though. There are plenty of workout videos on YouTube. You can walk or run for free. Or you could invest in some workout equipment- remember to keep the investment as low as you can. You do not need to spend $3,000 on a new treadmill with a bunch of extras. Spend $30 instead on some hand weights or even a couple hundred on an exercise bike or treadmill. Additionally, you could start your own garden for some healthier food without paying a ton extra at the grocery store.
Trim the Conveniences
The Suze Orman budget also suggests trimming all costs for what she considers conveniences. Some of those conveniences include eating out, hiring a house cleaner to do your chores, hiring a laundry service, having things delivered that you can pick up yourself, and so on. There does happen to be some debate on this topic. While the Suze Orman budget suggests you should cut it all out, that may not be the best move. Instead, weigh the cost of the convenience against the benefits you are getting and cut out anything that is not worth the cost. Let me give you a couple of examples:
Hiring a Housekeeper
Most people that hire a housekeeper do so because they are limited on time. The last thing they feel up to is cleaning after they have been working all day. Additionally, most of them do not want to spend what little time they have with their family cleaning.
There is nothing wrong with any of that. It is important to remember that your kids will not be kids forever and marriages take work. If paying someone to come in and clean your home allows you more time with your spouse and kids, the benefit probably outweighs the cost.
You might still be able to cut down, though. Some people only have a cleaner come in every couple of weeks or once a month. Some only have the cleaner do the heavy-duty chores. Is there a way you can cut down on the cost? If so, go for it. If not, remember that if the benefit outweighs the cost, there is no reason to change.
Delivery Services
Delivery services, in this sense, is referring to having fast food delivered or even groceries. It is true that these costs can add up easily. However, again, the benefit might outweigh the cost for you. This is probably especially true if there are some physical limitations or you are a new mom who still does not feel like getting out. Again, you have to consider the cost versus the benefits. Cut back where you can, but keep what you need.
Get Out of Debt
Everyone, I think, can agree with this pearl of wisdom from the Suze Orman budget: Get out of debt as quickly as you can. Debt can completely control and possibly ruin your life. It causes stress you do not need, and it can prevent you from reaching your financial goals. The quicker you can get out of it, the better off you and your family will be.
Have an Emergency Fund
Most experts say that you should have at least three to six months worth of expenses socked away in an emergency fund. The Suze Orman budget, on the other hand, suggests that you should have no less than eights months of expenses put away, even if it takes you years to save that amount. The truth is that it is best to have as much as possible put in your emergency fund, but six to eight months is a great place to start.
Do Not Co-Sign
While you may want to help out a family member or friend by co-signing a loan for them, the Suze Orman budget says you should not. The reason is simple: If the borrower defaults, you are responsible for it. Their actions can destroy your credit and make you pay for something you are not even using.
Choose Debit
Credit cards are one of the biggest forms of debt in this country. Getting out of it can feel like an uphill battle. The Suze Orman budget suggests never getting into it in the first place. Instead, Orman says to use a prepaid debit card or a debit card tied to your checking account.
Most prepaid debit cards have ridiculous fees, so it is probably best to avoid those. Besides, not everyone accepts them. Using a debit card tied to your checking account is the better option. Just be sure that you do not have overdraft protection on that checking account or you could end up over your limit anyway.
Make Student Loan Payments When Due
When creating your money budget, Orman states that paying your student loan on time is more important than paying any other debt. Student loans cannot be wiped out by bankruptcy and the government can take it’s money back through your paycheck or other methods.
Other debts can be wiped out with bankruptcy, so student loans should be the highest priority. If your student loan payments are too high, take a look at other repayment options. You may be able to get a much lower payment based on your income. It is always worth a shot. Just try your best not to let them get behind.
Protect Your Family
One “extra” the Suze Orman budget supports is life insurance. In fact, she tells you it should be a priority, especially if anyone depends on your income. You have two basic options when it comes to life insurance: permanent life and term life.
Term Life
It is simple: it covers you for a set period of time, like 10 or 20 years. Most people get a term life policy to cover them in times that they are paying on a mortgage, their kids are still living at home, and so on. Term life can usually be purchased for a very affordable amount, can protect your loved ones, and can give you peace of mind.
Permanent Life
Also referred to as “whole life”, covers you every day between the start of the policy and the date you die- provided you pay your premiums. It does usually earn cash value and leaves something behind for your loved ones. Many people actually purchase it for that reason alone.
Permanent life insurance, however, is usually much more expensive, so wealth experts actually suggest something different when it comes to passing money on to your loved ones. Have a term life policy in effect until your mortgage or other debt is paid off. That way, if something happens to you during that time frame, your family can pay off your mortgage and debts without any additional burden.
Any money you wish to leave for your children should be placed in investments instead as those investments can typically gain much more money over time than life insurance.
Trim Your Bills
Cutting down the amount you spend on bills is part of every budgeting process when you are trying to save, and the Suze Orman budget is no different. In fact, she challenges every single person to cut all of their bills by 10 percent, and that is very possible. With some work, some time, and some negotiation, you should be able to easily shave 10 percent- maybe even more- from each bill you pay each month.
Some bills you can cut entirely, such as:
Memberships you do not use
Cable
Landline phones (if you do not actually need it)
Insane data plans that you do not use
Some you cannot necessarily cut the rate, but you can cut the usage of them, such as your electricity and water. Go through each monthly expense and determine ways to save.
Follow Your Gut
Sometimes, a plan, idea, or investment looks excellent on paper, but something just tells you to back away. You need to pay attention to your gut. It does not matter if an expert is telling you it is the right move. If you do not feel right about it, you need to stay away. Your gut picks up on things that your brain may not, so pay attention to it.
Diversify
The Suze Orman budget leads you to diversify your investments. According to her formula, you subtract your age from 100. The answer equals the percentage of your investments that should be in stocks while the rest is in bonds. The idea is that you are being less risky with your investments as you get closer to retirement.
Invest in a Roth IRA
A Roth IRA should be one of your investments. Depending on your income, you can invest up to $7500 per year if you are over 50. While it is ideal to invest the maximum amount each year, that is not always possible. Invest what you can as often as possible.
Do Not Forget 401(k)s
The Suze Orman budget also places an emphasis on 401(k). While she does suggest that you invest in them, you should choose the one that costs you the least amount in fees. If you leave a job, roll over your 401(k) to your new company’s plan if possible. Also, if your employer offers a company match, take advantage and invest as much as you can.
Add an Extra Mortgage Payment
The mortgage is often the highest monthly expense a person has, and the repayment term is usually pretty long. With the Suze Orman budget, you cut that down though by adding one extra mortgage payment each year. You can either do this by making a 13th payment each year or by adding extra to each payment you make.
For instance, if your monthly mortgage payment is $1200, you can add on $100 to each of your regular 12 payments. An extra payment may not seem like it will do much, but each year you do this can actually shave years off of your total repayment term. Imagine paying your 30-year mortgage off in 15 years. That would be awesome, wouldn’t it?
Conclusion
As you can see, Suze Orman shares great ideas, but some areas are not as cut and dried as her tips suggest. As with any budget advice, you have to modify it to fit you. If there was one way to budget, save, and invest, we would not need financial experts in the first place.
Use what you can from the Suze Orman budget tips and modify any tips you need to for you and your family. Yes, you want a secure future but you also want to live a decent life now. Your personal budget should reflect your desires for both the present time and the future.