Challenge With Dr. Jerry - the First

Start Making Instant Profits From Creating and Selling Ebooks

noreply@blogger.com (Online Courses) — Sat, 29 Oct 2022 13:00:00 +0000

How would you like to EARN BIG TIME from CREATING and SELLING your own EBOOKS

And the beauty of it all is that YOU DONT HAVE TO CREATE THE EBOOK YOURSELF

It's Your Turn To Be The Leader Of The Digital Content Industry

If that appeals to you, then go grab this offer NOW.

It is TIME LIMITED, so you need to act REAL FAST

Click on the Link - HERE

to get the details

9 Steps To Financial Freedom - Summary

noreply@blogger.com (Online Courses) — Sun, 12 Dec 2021 05:31:00 +0000

9 Steps To Financial Freedom by Suze Orman

Her nine steps are:

STEP 1: Seeing How Your Past Holds the Key to Your Financial Future. ...

STEP 2: Facing Your Fears and Creating New Truths. ...

STEP 3: Being Honest With Yourself. ...

STEP 4: Being Responsible to Those You Love. ...

STEP 5: Being Respectful of Yourself and Your Money. ...

STEP 6: Trusting Yourself More Than You Trust Others.

STEP 7: Being Open to Receive All That You Are Meant to Have

STEP 8: Understanding the Ebb and Flow of the Money Cycle

STEP 9: Recognizing True Wealth

The Book Summary

Suze Orman combines wisdom with heart to offer a book that not only gives sound advice, but explores the emotions and memories that subconsciously block our efforts to get ahead. Life is more than "get all you can; can all you get; sit on the can" (as some financial books seem to assume). It's about taking charge of our finances so that we can experience personal freedom, provide for those we're responsible for, and help the less fortunate.

She draws from her experience as a Certified Financial Planner® professional, vice president of investments for Prudential Bache Securities and account executive at Merrill Lynch.

Her nine steps are:

STEP 1: Seeing How Your Past Holds the Key to Your Financial Future

Think back to your younger days. Were there events or words spoken to you that influence your attitudes toward money? Perhaps you lost something precious and to this day you fear losing money, even in conservative investments. Perhaps significant friends or adults made you feel that you were inferior and could never amount to anything. Could these memories be hindering your ability to get ahead?

"...in my experience, most peoples' biggest problems in life - even those that appear on the surface not to be money related - are directly connected with their early, formative experiences with money." (p. 9)

STEP 2: Facing Your Fears and Creating New Truths

Make the connection between your memories and the fears that

followed. Perhaps you're afraid of losing everything and becoming a bag lady. Maybe you fear that if your spouse leaves, you can't support yourself. Do you fear losing your job and being qualified for nothing else?

After you articulate and face those fears, retrain your mind by replacing your fears with new truths. Suze grew up with the belief:

"You'll always have to do without, so you had better learn how."

She created a now truth for herself by writing, about twenty-five times a day, a new truth:

"I am young, powerful, and successful, producing at least $10,000 a month."

Her old belief had crippled her with fear and feelings of inadequacy. Her new truth encouraged her with "a message of endless possibility."

Now, exchange your old, debilitating fears for a new truth that you can repeat to yourself until you believe it and are changed by it.

STEP 3: Being Honest With Yourself

We can't take control of our finances unless we first take stock of our financial condition. In order to do this, we must discover how much we spend each month. Only then can we compare our income with our spending and know how we're doing financially.

"Most of us believe, or deceive ourselves into believing, that we need about $1,000 to $1,500 a month less than we actually do need to go on living the exact same way we live right now."

Why is our projection so far off? We forget to include expenses that don't occur every month, such as new glasses, vacations, insurance premiums, or birthday parties.

The solution?

First, determine how much you're spending. Tally up all your ATM statements, canceled checks, credit card statements and anything else you need to discover how much you spent over the last two years. Make categories for each month such as automobile, food, etc. Divide each category by 24 to discover how much you spend per month in each category.

Second, add up all your income. Include salaries, alimony, interest, rental income that you expect over the next year.

Third, subtract to find the difference between your income and spending.

Fourth, if you find that you don't have enough money to meet your obligations, save and give the way you want, then you've got two options - make more or spend less.

Perhaps you need to seek a new job with better pay. More likely, you need to spend less. Look over your spending in each category to decide exactly what you want to spend, for example, on food or clothing. You may be shocked to discover that, by bringing a sack lunch to work three times a week instead of eating out all five times per week, you can save a substantial amount over time. Add it up! Cut and color your hair every nine weeks instead of every eight weeks. You'll be amazed when you add it up.

Remind yourself of your specific changes in spending by posting the categories on the fridge, or place a yellow sticker in your checkbook.

Begin keeping track of what you spend each month in those categories. Find a system that works for you - perhaps making a chart. And don't feel too bound. If you decide to spend more on one category than you've allotted for the month, simply spend less in another category to make up for it.

STEP 4: Being Responsible to Those You Love

People come first. That means you need to provide for those you love in case of disablement or death. (Suze spends over 80 pages discussing your options in detail. Essential reading!) If you love them, do the following:

Set Up a Good Will and/or Trust

If you own property, a business, or have children, a will might not be enough. Consider transferring your assets into a revocable living trust. Although you can do it yourself, Suze recommends hiring an attorney to do it for you.

Have a Durable Power of Attorney in Force for Health Care

You need to specify your wishes in case an accident or illness puts you in a vegetative state. Do you want your life unnaturally prolonged or not? Who will be your agent or agents to make a decision, if one has to be made?

Have Adequate Life Insurance

Rule of thumb: "...figure you need about $100,000 in insurance for every $500 of monthly income required."

You won't need life insurance by the time you're sixty-five years old, at the latest.

For the vast majority, get term insurance.

Get Long-Term-Care Insurance

"...one out of three people above the age of sixty-five will spend some time in a nursing home." The average length of stay is 2.9 years. It can cost upwards of $4500 per month. Long-Term-Care insurance will pay for that, as well as home health care (check your policy). Get it when you're about fifty-four years of age.

Make sure you get a quality insurance company. You can find ratings at these sites:

www.ambest.com

www.moodys.com

www.standardandpoors.com

www.duffandphelps.com

Get Long-Term Disability Insurance

Workers' compensation covers you only if you're injured while performing your job.

Plan Your Estate Well

STEP 5: Being Respectful of Yourself and Your Money

If your company retirement plan is good, invest the maximum you can each month. Suze counseled a large number of employees from the same company who were being offered early retirement. She soon discovered that most of them either had around $400,000 in their 401(k) retirement plans or had $150,000. That's quite a difference! What caused it? The people with $400,000 had put the maximum amount allowed into their retirement each month. The ones with $150,000 had put in only up to the amount that the company would match.

Here's the problem you must overcome: the more you make, the more you spend. The solution lies in the corollary: the less you make, the less you spend.

"...there is a simple and remarkably effective way to make yourself spend less. You invest more. By putting more money into your retirement accounts, your take-home check will be less and you will quickly train yourself to spend at a lower level, just as you used to do when you were making less money." (pp. 140,141)

Suze counseled a couple who were doing remarkably well on a modest salary. They were investing well for retirement and their children's education. She asked the husband how he did it. He replied, "We only spend what we see." Besides having his company take out the maximum for his 401(k), he also has the company send money directly to his credit union, which in turn sends it directly to a mutual fund. They never see any of that money.

You're not taxed on the earnings that go directly into your 401K. Thus, you have more to invest and it multiplies more quickly. You pay tax (as ordinary income) when you take it out.

Diversify. Don't put all your money in your company stock, even if it's a great company.

If your company doesn't offer a retirement plan, take out an IRA (Individual Retirement Account) and invest the maximum allowed by the law each year. A Roth IRA differs in that you don't get a tax deduction for putting the money in, but you don't have to pay tax when you take it out. It grows tax free.

If you're self-employed, you may open an SEP (Simplified Employee Pension Plan), a Keogh, or a SIMPLE (Savings Incentive Match Plan for Employees).

If you won't need the money for at least ten years, invest the majority of your money for growth - good no-load index funds and managed growth mutual funds, and a very small portion in an international fund.

Dollar cost average - investing every month, whether the market is going up or down.

Don't carry credit card debt! If you can't handle credit cards, cut them up.

STEP 6: Trusting Yourself More Than You Trust Others

Do what you feel is right for you, not being swayed by what "everybody else is doing." If you don't feel comfortable investing in the stock market, don't do it. If you don't feel comfortable selling when "everyone" is selling or buying when "everyone" is buying, don't do it.

It's easier than you may think to take charge of your own investments, rather than paying an advisor to do it for you.

Go with managed or index funds? "...I would just stick with index funds if I did not want to be actively involved with watching everything about the fund I was in." Index funds tend to beat managed funds over time, because of the lower expenses.

Go with no load funds.

STEP 7: Being Open to Receive All That You Are Meant to Have

Suze discovered that by giving to those in need, she made herself happier and ended up receiving more. She looked over her clients and discovered that the ones who gave regularly have more money than those who didn't give. Whenever she got new clients who were hurting financially, but she thought that they might be open to the concept, she encouraged them to begin giving. The results were unbelievably positive.

Give to your parents if they have needs. Giving to friends and other relatives can cause problems. Giving to charities can be the purest gifts.

STEP 8: Understanding the Ebb and Flow of the Money Cycle

No matter how well you plan, money will have its ups and downs. First, take the long view. Since you're planning for the future, this year's problems are probably not devastating. Second, even events that seem tragic today can turn into something positive, if you let them. She gives the beautiful story of her father, who suffered financial setback after setback, only to find success in his latter years, often because of the setbacks rather than than in spite of them.

STEP 9: Recognizing True Wealth

One day you'll be old, looking back at what seems important in retrospect. At that time, what in life will have been of the most value? Probably not your net worth. So don't measure your self worth by your net worth. Decide what's really important in life and put it first.

Culled: HERE

About the Blog

Challenge with Dr. Jerry - the First is a property of Topitup Media and Communications Nigeria and is the Platform by which we organize challenge programs to help individuals take back their lives.

We organize such programs as

Online Book Reading Challenge

Positive Affirmations Challenge

Reinvent Yourself Challenge

and all these are aimed at making anyone become the best version of themselves.

We do hope that you would always join our programs to keep tabs on yourself

Kindly follow us on social media

Quote of the day

"Try not to become a person of success but rather try to become a person of value"

Albert Einstein

BOOK RECOMMENDATION

BUY NOW

Join the JTF Book Club

9 Steps To Financial Freedom - Step 9

noreply@blogger.com (Online Courses) — Sun, 12 Dec 2021 05:05:00 +0000

RECOGNIZING TRUE WEALTH

NOW IT IS TIME to answer the question, What is true wealth, true financial

freedom? This question is the real bottom line of life and each one of us must address it, regardless of the bottom line that shows up each month on our bank statements. Why? Because the quality of our lives does not depend only on how we accumulate, save, and spend our money. True financial freedom lies in defining ourselves by who and what we are, not by what we do or do not have. You are the person you are right now. We cannot measure our self-worth by our net worth.

RUTH’S STORY

I have a friend named Ruth whom I love dearly. Now ninety-four years old, she’s the most extraordinary woman I’ve ever met. She received her Ph.D. in ancient Greek literature from Yale at a time when that was still a rare achievement for a woman, and has spent her life learning, teaching, reading, and living.

She was married for most of her life to Leon, whom she loved deeply. After he died some years ago, she came to me for financial advice. For all her education, she had always left their finances to Leon, and she knew that now she would have to take control herself. After we added all the numbers, she understood that she had far more money than she had imagined she would. She seemed relieved at the news but strangely untouched by it; her money, I would come to learn, has very little to do with who Ruth is.

As our friendship grew, she and I would discuss her finances—and everything else under the sun—every single Wednesday over lunch. There is not a thing that, to this day, I can’t talk to Ruth about. She is so wise, so profoundly contented with who she is, that simply being in her presence restores me in a way that’s hard to describe in words. I feel that she lives in a state of grace, and that whoever is in her presence is touched by it, too.

In recent years, Ruth grew weaker and she finally decided to give up her apartment. She chose to move into a life-care community, where you deposit a large sum of money, pay a monthly maintenance, and receive whatever nursing or medical care you need. We had invested well over the years, and Ruth had more than enough money to stay in her own house with live-in nursing care, which was what I had thought she would want to do—but her inner voice told her she wanted the home. We packed her books and journals, some souvenirs from her travels, her photographs, her tapes of Leon’s lectures, all the things that matter to her, and she moved in.

Ruth to this very day still exudes that state of contentment, of grace, which makes her seem stronger, as if her body weren’t beginning to fail her. Her nieces visit her, as do the friends she has still and some of her former students. Not long ago, I asked her how it felt to be growing more frail. “Suze,” she said, “my future is so tiny and my past and present are so rich. It surprises me to say this, but I’m not afraid. I’m truly happy and content just as I am.” I believed her absolutely.

Ruth’s freedom is in the life she has led and the love she knows now. Within herself she knows beyond a shadow of a doubt that she is rich, not just in money, but in the realm of true wealth, where nothing she has can be taken away from her. Though she’s in weakening health, at ninety-four, every day she feels rich and free, even strong—and the irony is that her real wealth has nothing to do with her money.

If you today could foresee your last days, if you were on your

deathbed right now—and one day you will be, believe me—do you think you would be there wishing you had more money? Or wishing that you were vastly rich in the way my friend Ruth is?

YOUR EXERCISE

Please find a time when you will be alone in your house for at least an hour. While everyone is gone, spend that hour inhabiting, really inhabiting, your house. Pretend, for a while, that your house is a store. Walk around, and imagine that you were going to be putting a price tag on every item in this store. You know what you paid, when they were brand-new, for your sofa, refrigerator, washing machine, dining room table, dresser, and three-year-old car. What do you think they would be worth now? Affix the imaginary price tags to these items based on what they would be worth today if your life really were a store.

Now stop to examine the items that really matter to you, the items that resonate with meaning and memories, the items that tug at your heartstrings. Those tools your dad wanted you to have when he died. The funny lamp you and your first lover bought when you fell in love and thought, in those days, that anything was possible. Your small daughter’s stuffed animals, all lined up on a shelf. Family photos. A wedding ring. The painting over the mantel that was the first art you ever bought. Your mother’s jewelry box and porcelain teapot. Your diary. The scuffed-up desk you’ve worked at since you were a teenager.

What kind of a price tag would you put on these items? What you’re really asking is, What kind of price tag can you put on your life?

NINE STEPS - A REVIEW

The world of money, of numbers and stock markets and interest rates and credit cards, seems on the surface about as far as it could be from the world of spirituality, of seeking meaningful answers to the big questions of life. Imagine how it feels to be on a noisy trading floor on Wall Street. Imagine instead how it feels to be alone in a quiet place of worship. But these two worlds must flow in and out of each other, because it takes both money and spiritual understanding to sustain us. Truly speaking, what determines where our money with its awesome power will go, and what it will do for ourselves and others? If we listen, those answers come from the center of our being, from who we really are.

We have learned how powerful a force money is, how it can create fears that will, if we let them, paralyze us in this life. And we have learned how to silence these fears, and put them behind us. We have learned about the dharma of money, the essential right actions that, once we take them, will put our money, and with it, each and every one of us, in step with the natural order of things, on a course with what comes next, and what comes after that. Most important, we have learned an essential lesson about abundance—that abundance is in crucial ways a state of mind. Our money will see us through this life, and even has the power to live on after we are gone, seeing the people we love through their lives, too, and even on into generations we will never know.

Once we have taken care of the people we love, it is worthy to accumulate money, and in this book we have learned how to attract and create great fortunes. With the responsibility of accumulating money, however, comes the equally urgent responsibility of using money wisely, taking satisfaction in what it can do, knowing as well what it can’t do. Very rich people who take no pleasure in their money and who never share their bounty will never be financially free. People with much, much less, who do take immense pleasure in what they have so carefully created, will in the end be far freer.

I hope that this book will remind you of the richness and worthiness that have been in your life all along, and I hope, too, that this book will help you to create more wealth, to sustain you and those you love. I would like to think that you’ve written notes to yourself in it, turned down the pages that were useful to you, and marked passages that you might want to turn to again later. But this book alone will not make you financially free. Money itself cannot make you financially free. Only you can make yourself financially free, and you can do it—and so much more. You have that power.

Now it is time for this book to end, and for your future to begin. Believe these lessons; live them, for financial freedom is within your reach. I wish you abundance, joy, and true wealth—of all kinds.

About the Blog

Challenge with Dr. Jerry - the First is a property of Topitup Media and Communications Nigeria and is the Platform by which we organize challenge programs to help individuals take back their lives.

We organize such programs as

Online Book Reading Challenge

Positive Affirmations Challenge

Reinvent Yourself Challenge

and all these are aimed at making anyone become the best version of themselves.

We do hope that you would always join our programs to keep tabs on yourself

Kindly follow us on social media

Quote of the day

“Take the first step in faith. You don’t have to see the whole staircase, just take the first step.”

Martin Luther King

BOOK RECOMMENDATION

BUY NOW

Join the JTF Book Club

9 Steps To Financial Freedom - Step 8

noreply@blogger.com (Online Courses) — Sun, 12 Dec 2021 04:45:00 +0000

UNDERSTANDING THE EBB AND FLOW OF THE MONEY CYCLE

WHEN THE THINGS that occupy us so intensely in the present have receded

into the past, we look back at these events, which produce such turmoil and pain, with an entirely different eye. How often have you heard, for example, of someone who is devastated by being fired, only to land a much better job and end up happier? Or of someone whose spouse leaves her, and who decides—one, two, five years later—that it was the best thing that could have happened to her? Or of someone who emerges from a serious illness with a wisdom and appreciation of life that he had never had before? The passage of time always offers a new perspective. “If only I knew then what I know now.” Haven’t you ever uttered these words? Time can reveal many lessons, but often it takes us too long to listen. The eighth step to financial freedom is about understanding and accepting the natural cycles of money—as it ebbs and flows through our lives, sometimes in harmony, sometimes in discord, much like the cycles of our bodies, our planet—and the constant up-and-down movement of the economy you read about in the newspapers.

It is so important to learn to accept that your own money will also have its ups and downs. No matter how carefully you plan—even if you do every financial thing right—money, like every other living thing, isn’t always going to behave in ways you can predict. Sometimes you’ll have

more than you expected, and at other times, money will flow out and you’ll have less than you thought. There may be a time when you have money in the stock market and it goes down dramatically. Or maybe you suddenly inherit a valuable piece of property. Perhaps you are downsized from your job without warning—or given a surprise promotion. I’ve seen this kind of thing happen with my clients again and again. You think your financial life is rolling along a certain track and boom, you’re going in a different direction.

These transitions can be exciting, or often scary, but they are all part of the natural cycles of life—and money. In Step 8, there are two lessons to remember about these natural ups and downs.

First, you must always take the long view of your financial future. If you have taken the steps outlined in this book, the setbacks you may have today or next year will not keep you from financial freedom. In order for you to create what is in your power to create, you must believe that you can and you will.

Second—and for some people this may be more difficult to do than anything else I have told you so far—you must believe that everything that happens is positive, if you are willing to let it be.

I know some of you are going to say, “Suze, how can it be a positive thing if my husband leaves me and cleans out my bank account?” “How can it be a positive thing if I lose all my savings in a stock market crash?” Please understand, I am not saying such events won’t be tragic and painful; I have been through some of them myself, and I know how hard they can be. But I also have learned that they can, if we are open to them, teach us lessons and give us gifts that we would never have found at more comfortable times. Things that seem almost unbearable as they’re happening to you can even, in the long run, lead to riches you never imagined.

This is a very simple truth but it has tremendous power. That is how it got its reputation with our grandmothers. If you can believe that somehow everything happens for the best and hold firm to this belief, especially during troubled times or when you undergo what appear to be setbacks in your life, then you will be able to draw the good out of any situation. You will be looking for the benefit, the hidden treasure, and you will be able to profit from even the toughest experience.

I’ve heard it said that when you first have a dream for yourself, you

think it’s totally impossible. As time goes on, you’ll think it’s highly improbable. In the end, you will know it was inevitable all along. Remember to remember your power—everything you’ve learned with these steps to financial freedom—and put it all into practice every day, because in the grand scheme of life, you’ll never really know how things are meant to turn out until they turn out. And when is that? When they turn out as they’re meant to turn out, you’ll know it.

I learned this from watching the life of my dad.

MY DAD’S STORY

Maybe yes, maybe no.

After his little chicken shack had burned to the ground, my dad was penniless. Because he wasn’t properly insured, everything was a total loss, and he had absolutely no money to start up another business. His health was suffering, too; he had gotten emphysema from all the smoke he inhaled in the fire. It was a very hard time in our family. My mom was already working full-time as she always had, and my brothers and I were doing whatever we could to bring in extra money. Still, for a long time after the fire, there was never enough. Everyone was saying how unlucky my dad had been, which started to bother me, so I went right up to him and asked him if he was unlucky. “Maybe yes,” he said, “maybe no.”

One day I heard him on the phone taking a call. “Really?” he was saying. “How can this be? Are you sure?” And then, “Great! I’ll take it!” I walked into the hallway where the phone was and he looked at me and said, “Honey, we are back in business!” I can remember to this day how thrilled he was. A salesman who had been one of my dad’s suppliers at the chicken shack told my dad that the meat- packing company was going to give him the start-up money to open a new place, and that they had found the perfect location for him as well. I said, “See, Dad? You are lucky after all, aren’t you?” Again he just looked at me and said, “Maybe yes, maybe no.”

A few months later, Morry’s Deli (named after my dad) opened up on Chicago Avenue in downtown Chicago; my brothers and I worked

there every day after school. From the beginning, there was always a line out the door, and this time I knew my dad was really going to make it. Then one day he came home looking forlorn, and said that Northwestern Medical School was expanding and taking over our space, so we would have to find a new location. This can’t be, I remember thinking. We were just starting to do so well. Just to check, I said, “I guess we’re not so lucky after all, Pops,” and he said, “Maybe yes, maybe no.”

My dad began looking for a new place. When the word got out that he needed a new location, a landlord back in Hyde Park, where the original chicken shack had been, contacted him and said that he had the perfect spot and that, again, everyone would help with the cost of moving back to Hyde Park. He was so happy—in fact, we were all so happy since, for my brothers and me, it was a whole lot easier getting to Hyde Park than downtown Chicago from where we lived. The day he signed the new lease, I felt I had to set the luck record straight, so I said, “I guess this means our luck has changed for the better, right, Dad?” “Maybe yes, maybe no.”

The new store was also a success from the day it opened. I loved it. My brothers and I would race around seeing who could make the sandwiches fastest, especially Dad’s corned beef sandwiches, a house specialty. Dad’s health was getting worse, but somehow we were able to manage. My brothers Gary and Bobby took turns running the store, and I would work all summer when I was back from school.

Only two years after the store opened, though, we had another fire. It happened at night, at least, so the blessing was that nobody was hurt. This time, I said outright to my dad that I thought he was the unluckiest man in the world, thinking that finally he would agree. “Maybe yes,” he said, “maybe no.”

It turned out that the fire was caused by an electrical short that had started in the apartments next door. The landlord, knowing that my dad had been doing such great business, put him on notice that he was going to triple the rent after he rebuilt the place. There was no way we could afford it, so, at the age of seventy, with his emphysema getting worse, my dad began looking, once again, for another location. When word got out, a representative from the University of Chicago, who loved my dad (not to mention his food),

called up and said they had this place right on campus and would my dad like to open the first private business ever on the university campus? The spot was perfect, right by the bookstore and a hospital where thousands of people worked, and the rent was affordable. “Wow,” my dad said, “I’d love to!” Then he called up his old landlord to say he wasn’t moving back in. The landlord was in such shock that he offered him back his spot totally rebuilt, and for less rent than he had been paying before. Now my dad was the one in shock. He took both places.

Soon, with my brother Gary’s help, both places were up and running—and successful beyond my father’s wildest dreams. For the first time ever, there was enough money—more than enough. My dad knew, too, that my mom would be taken care of after he was gone, and he was so proud that Gary would carry on the family business. I went up to him one day as all this was happening and I said, “You know what, Pops? You are one lucky duck.”

This time, to my utter amazement, he said: “Yep, Suze, you got that right.”

Not long after that, on June 21, 1981, which was Father’s Day, my dad died—in his eyes a lucky man.

My dad’s gift was knowing that good luck and bad luck are always in the eyes of the beholder, and always cycling; neither rarely stops for long in any one place. He was able to see past the present situation, whatever it was, to the future. Another thing about Dad’s story: Many of the good things would never have happened if the bad events hadn’t happened first. If the second fire hadn’t happened, and the landlord hadn’t tried to raise the rent, Dad would never have found his store at the university nor gotten a better deal at the first store.

YOUR EXERCISE

Please think about your entire financial history. Try to remember all the worst things that have happened to you. Think back to how you felt— tense, afraid, paralyzed, angry, determined to prevail, whatever the emotions were at the time; there may have been several emotions at

once. Remember the entire sequence of events. What happened before the crisis to set it off? What was the crisis itself like? How did the crisis resolve itself? What elements of it seemed crucial at the time, and do they still seem important now? How did it change your life? Write down the story if it will help you remember, or pull out any old notes or papers about it, to help you remember how you felt at the time. Here are a few questions to trigger your memories:

Did you ever not get a job you wanted badly?

Did you ever quit a job or get fired without knowing where your next penny was coming from?

Have you ever lost a lot of money on an investment?

Have you ever had a business deal that you worked hard to put together fall to pieces at the last minute?

Have you ever had a relationship break up and, in addition to the grief you suffered, found yourself also very worried about money?

Have you ever had a friendship end over money?

When and why in your life were you the most frightened about money?

Now, let me ask you this: Have there come any gains from any of these losses? Didn’t any of your misfortunes turn out, over time, to be the best thing that could possibly have happened to you? Didn’t the gains come in ways you could never have predicted? You can turn the same exercise around and do it backward—review events that seemed to you at the time like lucky breaks—and I wouldn’t be surprised to discover that these lucky breaks sometimes brought with them problems or heartaches you never expected. Did that mean they weren’t really lucky? No—it means they were part of the cycle, and the cycle is natural. Gains and losses aren’t flukes, or curses; they are built in, like the doors and windows in a house; and they both have the capacity to bring us closer to the sort of life we long for.

In my own case, I know that my greatest periods of genuine growth came from the not-so-good times. What I got was more than just practical learning, though God knows there was plenty of that and it was

very important. Still, it was the times of having nothing that taught me how much I really did have. They taught me to be grateful and to have faith in the natural rhythms of money and life. That inner knowing is the essence of the eighth step.

INNER KNOWING

It is in this eighth step where we must really take the leap and believe that our own inner knowledge and beliefs are what truly create financial freedom. If you want money in your life, then you must welcome it, be open to it, and treat it with respect. Your beliefs and your attitude are what will make you feel rich, feeling free to believe in yourself, knowing that you will take the right actions with your money, no matter how much money you have or do not have today and knowing that everything really does happen for the best.

Next time you feel that bad luck has struck you again, I hope you’ll remember my dad’s simple phrase—maybe yes, maybe no. If you can face your misfortune and ask yourself how you can find the gift, the lesson, in what is upsetting you now, then you are rich despite the setback. And you are only one last step away from true financial freedom.

About the Blog

Challenge with Dr. Jerry - the First is a property of Topitup Media and Communications Nigeria and is the Platform by which we organize challenge programs to help individuals take back their lives.

We organize such programs as

Online Book Reading Challenge

Positive Affirmations Challenge

Reinvent Yourself Challenge

and all these are aimed at making anyone become the best version of themselves.

We do hope that you would always join our programs to keep tabs on yourself

Kindly subscribe or follow us on these our social media handles

Quote of the day

“Gratitude can transform common days into thanksgivings, turn routine jobs into joy, and change ordinary opportunities into blessings.”

William Arthur Ward

BOOK RECOMMENDATION

BUY NOW

Join the JTF Book Club

9 Steps To Financial Freedom - Step 7

noreply@blogger.com (Online Courses) — Sun, 12 Dec 2021 04:36:00 +0000

BEING OPEN TO RECEIVE ALL THAT YOU ARE MEANT TO HAVE

HAVE YOU EVER felt depressed or worried about something important in your

life—your work, your relationships? When it happened, did you feel that you had no energy to get through the day, even to carry out your ordinary routines, much less to do challenging tasks in your life or your job? When you feel this way, isn’t it true that the phone doesn’t ring, the check or callback about a job you’ve been waiting for doesn’t come, even your closest friends seem to vanish for the time being?

Then your mood turns around. You wake up feeling better and stronger one day—maybe there’s a reason for it, maybe it just happens. Once your mood turns around, everything else does, too. The phone starts to ring again. The check or callback comes. A friend calls to invite you somewhere nice.

Believe it or not, it works the same way with you and your money. As we’ve seen, money is a living entity and responds to energy, including yours, and to how you feel about yourself. When you are worrying about money, feeling powerless over your finances and sorry for yourself, money won’t want to hang around you, either. On the other hand, when you feel you’re in control of your money and have enough to be generous with it, money will naturally flow your way. Strange, perhaps, but still true. You will become that money magnet you want to be.

We all spend a lot of energy fussing over our money, wishing for more income, balancing our checkbooks, wondering whether we’ll have enough to pay the bills. But there’s a question even more important to ask than “Do I have enough?”: Is it possible that you are doing something to prevent more money from coming in? Might you be not only the prisoner, but also the warden in your financial jailhouse?

WHAT I LEARNED FROM THE PARROT SELLER

I was in Mexico once, and there was a merchant at a market who had many parrots for sale. They were just sitting on perches, none of them in cages, none flying away. I was fascinated by the fact that none of them were even trying to escape. I asked the merchant, “Do these birds just love you so much they have no desire to fly away?”

He laughed. “No,” he said, “I had to train them to think their perches mean safety and security. When they come to think this, they naturally wrap their claws tightly around the perch and don’t want to release it. They keep themselves confined, as if they’ve forgotten they know how to fly.”

Was this hard to do? I asked. “With little birds it’s very hard, sometimes even impossible,” he said. “It’s easy with the large birds.”

Suddenly a lightbulb went off in my head. We are, I thought, just like those poor parrots. We have all been taught to clutch our money as tightly as we can, as if our money is the perch of our safety and security. Just like those parrots, we have all forgotten how free we really are— with or without the perch. The more afraid we are, the tighter we hold on, and the more we have trapped ourselves.

When I realized this I asked the merchant how he would go about “unteaching” this behavior. “Easy,” he said. “You just show them how to release their grip, and then they can fly as free as they want.”

Easy for the parrots, maybe, but how, I wondered, do we go about releasing our own grip on money?

YOUR EXERCISE

Please imagine that you’ve gone into your kitchen and turned on the faucet. Make a tight fist with both your hands and try to get a sustaining drink of water from that faucet from your fists. You won’t be able to.

Now open up your hands, cup them. Put them under the faucet and accept the water flowing freely into your hands. You’ll be able to drink to your heart’s content. Your thirst will be quenched and the thought “not enough” won’t even enter your mind.

It works the same way with our money. If we are grasping what we have so tightly, we are not open to receive or even notice all that may be trying to flow our way. We must learn to release our grasp.

MY STORY

When I was starting as a commissioned broker, I never really knew for sure if I would make money the next month or not. It was scary. I’d think, Gosh, I had a good month this month, but what about next month? Then I’d freeze in a panic. The more I froze, the more depressed I felt, and sure enough, suddenly there was nothing I felt enthusiastic about buying or selling for my clients. Even when I did try to transact business with them, they could pick up on the lack of enthusiasm in my voice and didn’t want to buy from me. It was as if they knew something was wrong. It was uncanny.

I remember being in this terrible funk once, and since I figured my clients would pick up on it anyway, the way I decided to deal with it was to stay home from work one day and escape by watching TV. I happened to catch one of those PBS fund-raising drives. As I continued to watch, I became really moved by the participants’ passion, and during one of the pledge breaks, I picked up the phone and pledged $300. Three hundred dollars seemed like quite a hefty amount to me at that time, but somehow I felt that was the right number.

I can’t tell you how good I felt when I hung up the phone. I got up, called a few friends, went back to work the next day. Later that week I was in my office, smiling, when Cliff, one of the brokers down the hall, came in and said, “Looks like you’re in better spirits. What happened?” This made me stop and think for a moment. I really

didn’t know at first, but after retracing the few days before, I realized that my mood had switched right after I gave the money to PBS.

From then on, every time poverty consciousness hit me and I sank into another money funk, I’d remember that first day. I would promptly take out my checkbook and send a check to one charity or another at the time. It was the strangest thing, but I would feel much better right away. Even stranger, as soon as I was feeling spunky again, lots of people would call and want to open a new account with me, or a newspaper article about me would appear and the phone would start ringing off the hook. In every instance, the amount I had given was showered back on me tenfold in no time. More important, with each check I wrote, whether it was for $5 or $500, I felt more powerful. I was able to extinguish the feeling of poverty that had been burning at me. That act, for me, was worth its weight in gold.

It took awhile until it hit me that I had stumbled upon—or perhaps

was guided to—the answer to my questions “How does one release one’s anxious grasp on money? How does one make oneself open to receive?”

By giving.

I started to test my theory back then with my clients. I went back through many of my files and divided my clients into two groups, one that gave money to charity on a regular monthly basis and one that did not. What I found was that those who donated regularly had an abundance of money, more than they really needed. Most of the others didn’t.

I was fascinated by this but couldn’t tell if my little study was accurate, because I had no way of knowing whether my more generous clients had more money to begin with; maybe their abundance had nothing to do with what they were giving. Maybe it was a fluke. So I took a different approach. When new clients who weren’t doing so well came to see me, I asked those who I thought would be open to it to start donating money each month to a place they’d feel good about giving to. To new clients who also weren’t doing so well but (in my opinion) wouldn’t be open to it, I said nothing. I couldn’t believe the results. The better people felt about themselves, and the more they kept their hands open to receive by relinquishing money, the more their financial situation improved. It was thrilling. The key was to start respectfully to

give money away by making an offering on a regular basis. They had moved toward financial freedom by giving their money to others.

MONEY AND GRACE

In a course I once took in Eastern spiritual tradition, I learned about what is called the dharma of money, which means the “right action” of money. Beyond a shadow of a doubt, I now know the following principle is true: We experience prosperity, true financial freedom, when our actions with respect to money are dharmic, or righteous, actions—that is, actions of generosity, actions of offering.

Money flows through our lives just like water—at times plentiful, at times a trickle. I believe that each one of us is, in effect, a glass, in that we can hold only so much; after that, the water—or the money—just goes down the drain. Some of us are larger glasses, some of us smaller, but we all have the capacity to receive plenty more than we need if we allow it. When you make an offering, the glass will be filled again and again and again. I knew I always felt better right after I made an offering

—stronger, worthier, more powerful. And after a while I began to believe that it was no coincidence that after I made such an offering, more money would always begin to flow my way.

This may seem like a very strange concept at first; many of my clients found it so. One question that’s always asked whenever I talk about this step is, “But Suze, I know plenty of people who are as cheap and ungenerous of spirit as can be, people with plenty of money who never give a penny away. How come they have so much?”

THE CHEAPSKATE

People who are cheap are more trapped than any of those parrots on perches. Being cheap has nothing to do with how much money you have. You can be rich and cheap, or poor and generous. Cheap people guard their water glasses and hoard what they have, to make sure nothing flows out. New water always has to flow in to keep the water in the glass fresh and useful; otherwise it grows stagnant, like standing water in a

pond. People who are cheap are letting their money stagnate. What they are missing is the serenity that money handled responsibly, generously, and well can bring, and the pleasure.

Ask yourself this: Who is the most generous person you know? Someone who opens up her home to friends, her heart to those in trouble, her wallet judiciously and without resentment? How do you feel toward this person? Do you think this person can feel your love and appreciation coming back to replenish her?

Now ask yourself this question: Is there anyone in your life who you feel is cheap? How do you feel about this person? Do you think he or she can sense the way you feel?

And what about you? Do you think another person would describe you as cheap? Are you constantly worried that people are trying to take advantage of you and your money? Are you unwilling to let money go easily because you’re frightened of not having enough? If you have truthfully answered “No” to these questions, no doubt you already give freely, of yourself and your money, and already know freedom in your thoughts, your heart, your soul. If you’ve hesitated over any of these questions, or found yourself answering “Yes,” then by freeing up your money in this step, you will also free up your heart.

THE REASON TO GIVE

You open yourself to receive all that is meant to be yours. Giving not only when you feel poor, but also when you feel rich, lucky, grateful, expansive, vital. Giving to say please, and giving to say thank you. It’s the impulse to give that puts you in touch with the best part of yourself

—and the principles of abundance that are alive in the world. Yes, we help ourselves when we give, but that is not why we give.

YOUR EXERCISE

Decide on an amount of money that you feel you can give away freely every month. Let your inner voice determine the amount you should make as an offering. True giving comes as an impulse, so the amount need not be cast in stone, and it may vary from month to month. All that matters is that the amount be meaningful to you and that it be given with thought, humility, and gratitude. You must not give less than your inner voice tells you is the meaningful amount, for that is being cheap. That is not the way you want to thank the world and connect with it. Nor must you give more than you can afford, for that is not being responsible to yourself and your money. Your inner voice will dictate the amount each and every month, but each month it must be something.

If you are going to write a check to donate your money, write the check or make the online payment at the beginning of the month. Why the beginning of the month? So the act of giving isn’t an afterthought. By starting your giving at the beginning of every month, you are making yourself and your offering a real priority, an act that will stay with you throughout the month. If you have so little money that you cannot afford to write a monthly check, make a point of gathering each day whatever spare coins or bills you can, and collect this money in your special place. Watch with respect as your offering accumulates. At the end of the month, and at the end of every month thereafter, please make your offering. Where? Using the following guidelines, choose with your heart

—choosing where to give money is one of the great pleasures there is.

WHERE DO I MAKE MY OFFERING?

The action of giving money is different from giving anything else. Because of money’s living energy field, it is very hard to give it to another person as a gift in a pure, dharmic way—or to put it in more common terms, with no strings attached. If you give money to an individual, often rather than freeing you, that act can create a whole new set of emotional debts that can wreak havoc on your life the same way financial debt can. Any kind of debt is bondage. This doesn’t include giving a present of money for a birthday, wedding, or graduation, but applies only to gifts inspired by a pure impulse to give.

GIVING MONEY TO PARENTS

Studying the teachings of any religion will teach you that you are born with the duty of taking care of your parents, regardless of how well you feel they took care of you. When you give to your parents when they need it, you are truly opening up your hands and releasing your grasp on your money without creating debt. If your parents are in need and you can do this with tremendous humility, so as not to create a reverse bondage, you can give them your offering every month.

GIVING MONEY TO RELATIVES

We do not have the same duty to give to our brothers, sisters, or other family members as we do to our parents. Even though you may love your siblings or other relatives with all your heart, these are different kinds of relationships. When giving to a family member other than a parent, or a person who served in a parental capacity, there is a real danger of this gift of money tainting the purity of your love—thus tainting the purity of your intention. You may be thinking that this doesn’t apply to you, given how much you love your brothers and sisters, but I ask you to take heed. I have seen the bitterness such “gifts” can eventually lead to many times in my practice, and I ask you to think very carefully before you give your monthly offering to a family member other than a parent.

For instance, if you happen to have a brother or sister making far

more money than you are, do you secretly wish they’d do a little something to help make your own life easier? This is a common thought. But if such a “gift” came, do you really believe that no expectations would be attached? Won’t that brother wonder about or care what you did with the money? What if you ran into your sister while you were having dinner at a nice restaurant? Would you freeze with guilt, in case she thought you were spending her gift frivolously? Might your sibling start asking you what you need money for? What if you start doing much better financially? Will you feel the need to give back the money? Will your brother or sister feel you should? If you find yourself answering “Yes” to any of these questions, the gift in question is neither

purely given nor purely received. Maybe yours is one of the rare families where you truly do see each other as one. But most of us can’t open our hands gracefully to give to or receive from family members in a pure way, so I do not recommend making your monthly offerings to family members.

GIVING MONEY TO FRIENDS

With friends, as with family members (other than children and parents), caregiving is not an inborn dharmic duty, which makes it extremely difficult to give money to friends in an appropriate way. I’m not saying that it can’t be done, just that it is extremely difficult.

If you offer something as treasured to you as your money to a needy friend to, say, pay her bills, you have not really done anything to make yourself, or her, more powerful. In fact, you may have created a problem for yourself—because from now on, whenever you see that person, whether you want to or not, you will remember the “gift,” and so will your friend. You will remember it in particular if you fall on some harder times somewhere down the road, especially if your friend is doing much better.

Money can forever alter the love in a friendship, so I do not recommend giving your monthly gift to friends.

GIVING MONEY TO A CHARITY

To my mind, the purest gift, the one that truly loosens our cramped clutch on money, is a gift to a charity. With this kind of gift, no debt is created, no bondage. You are faceless to the charity, a name on a donors’ data bank. Maybe you’re just slipping cash into a donation box, and no one will ever know that you have given it. If you give this way, your gift is pure.

I have found that the most liberating offering of all is one you make to a charity you care deeply about.

YOUR EXERCISE

To see just how powerful money is when it changes hands, try this experiment if you can. Walk up to the first person you see on the street (an ordinary stranger, not a panhandler) and try to hand that person a dollar bill. Note how you feel. How did he look at you? Did he take it? Did he say anything? How much anticipation (or dread) did you feel before giving him the dollar? Were you able to do it at all?

Now take another dollar bill and enter a place of worship. Locate the donation box and place the dollar in it. How did you feel this time? Did you say a prayer as you let that dollar drop? Did you feel better after making your offering? And there was no complicated reaction from the donation box, was there?

Compare how differently you felt after giving each “gift.” Most of us feel awkward handing money to a person (and most of us would also feel awkward being the recipient, which should tell you something as well). Remember, the act of giving is meant to open you up, literally to alter how you feel; its power is rooted in your altered state. Most of us, too, feel a serenity when placing the donation in the box, for such a gift to charity is a pure one without the emotional baggage of giving to an individual person.

THOUGHTS OF POVERTY ARE BONDS OF POVERTY

Regardless of how much money you have, it is the natural tendency of the mind to think: I can’t give money this month, I don’t even have enough to pay the bills. Or: There are so many things that I need, I lack, I want.

This is the exact moment to give, to give an amount that is meaningful but realistic. You must break these thoughts of poverty, for thoughts of poverty are bonds of poverty, for thoughts of poverty are the chains that keep you bound to poverty. Mental chains may be invisible but they imprison you nevertheless. You must and you can break through, overcome, move beyond these mental barriers. You must open your hand. Repeat the new truth you created in Step 3 for strength, think of how much you do have, think of others with far less, and give thanks with your gift.

True financial freedom is a powerful state of mind, a state of being, and it comes from following all nine steps toward financial freedom. When you have reached this seventh step, and feel free to give from what you have and what you are creating, purely and from the heart, you are nearly free. With your offerings you are participating in the flow of wealth, which, I’ve discovered, is never-ending. It isn’t how much you have that creates a sense of freedom. It’s how you feel about what you have, or don’t have, that either keeps you prisoner or sets you free— which is the eighth step to financial freedom.

About the Blog

Challenge with Dr. Jerry - the First is a property of Topitup Media and Communications Nigeria and is the Platform by which we organize challenge programs to help individuals take back their lives.

We organize such programs as

Online Book Reading Challenge

Positive Affirmations Challenge

Reinvent Yourself Challenge

and all these are aimed at making anyone become the best version of themselves.

We do hope that you would always join our programs to keep tabs on yourself

Kindly follow us on social media

Quote of the day

"There are hundreds of paths up the mountain, all leading to the same plateau, so it doesn't matter which path you take. The only person wasting time is the one running round the mountain and shouting and telling everyone that his or her path is wrong" Hindi Proverb

BOOK RECOMMENDATION

BUY NOW

Join the JTF Book Club

9 Steps To Financial Freedom - Step 6

noreply@blogger.com (Online Courses) — Sun, 12 Dec 2021 04:30:00 +0000

TRUSTING YOURSELF MORE THAN YOU TRUST OTHERS

WHEN I WAS A STOCKBROKER, it never ceased to amaze me that when I could buy

the exact same stocks for my clients, some would always make money and some would never make money.

When brokers find stocks they like, they try to do what is called building a position in the stock—buying lots of it for their clients. For instance, if I liked widget stock, I’d call every single client I had to tell them all about widgets.

Then I’d say: “How many shares would you like, five hundred or one thousand?” I was taught in stockbroker training school never to ask a “yes” or “no” question when trying to make a sale. By asking whether clients want five hundred or one thousand shares, you leave the client only with a choice of how many they want, not whether they want them. I was a good salesperson, so most of my clients would buy stock in Widgets at, let’s say, $85 a share. Now let’s suppose all of a sudden Widget cuts its dividend, and before you know it, the stock is down to

$40 a share—and my phone begins ringing off the hook. Some people would invariably say, “Sell, sell, I don’t want to lose more than half my money!” In those cases I had no choice but to sell their stock. Some of my other clients, in for a longer haul, even though they might not have been happy that the stock was down to $40, still knew that this was a

good company and that in time it could come back. Often they would buy more shares at the lower price. Before you knew it, widgets were at

$120 a share. All of my clients had bought the same stock. Some had made money, and some had lost it. By the way, if you think I’m exaggerating the way stocks move, I’m not.

It also worked the other way around. Let’s say this time I was building a position in lobster pots, and all my clients bought it at $6 a share; before long, it went up to $12 a share. Big increase. I’d call my clients and some would say, “Okay, sell it,” and others would say, “Let me think about it,” then call back to say, “No, let’s see if it will go a little higher.” All of a sudden something happened and the stock fell, to $4 a share. All the people who didn’t want to sell it at $12 now got frightened and sold at a loss.

Over the years I started to notice that the people who lost money in either of these ways were always the same ones. They’d sell too soon or too late, but they always lost money. In the business, we called them clients with the “kiss of death” when it came to their investments.

It bothered me when my clients lost money, and I began to think more about it. Finally I realized that it wasn’t a matter of luck, but a matter of, well, spirit, for lack of a better word. It was the attitude, the instinct, with which the client went into an investment that helped to determine whether he or she would make money or lose money. Of course there are good investments and bad investments. But however solid the investment, the investor has to be solidly behind his or her investment as well.

I began to see, too, that the questions I had been taught to ask as a broker worked very well for me—I was rich in commissions—but often worked less well for my clients. I changed my approach. I began really talking to my clients about how they felt about investing in the stock market in the first place. The ones who invariably lost money said that it made them nervous, that they didn’t like it. I asked them why then they invested in stocks, when there were so many other excellent places to put their money, and their answer changed my life: “Because you told me to, Suze.” They were trusting me more than they trusted themselves.

From then on, my heart just wasn’t into selling stocks the way it had been. I can date the beginning of my financial advisory practice from the moment I asked my first client, then the second and third, how they felt

about buying a stock, rather than asking whether they wanted five hundred or one thousand shares. If there was any hesitation whatsoever, I began to suggest that clients pass. I suggested that they pay attention to that little voice inside them, because what it was telling them was what was right for them to do. In 1987, I left the corporate brokerage world to start my own firm, where I could really give advice that was good for my clients, not just good for me. Now I give advice in my books that is good for anyone with financial concerns.

THE SIXTH LAW OF FINANCIAL FREEDOM - Inner Trust First Then Outward Action

There are many ways the universe offers us guidance to protect ourselves, but we usually just turn our backs on this guidance because we don’t recognize it as such. The little voice inside you is actually a powerful signal—I believe it’s the voice of God—and if you listen to it, and take action based on what it tells you to do, it will keep you safe and sound. This sixth step to financial freedom is about finding that voice inside you—and learning to listen to what it has to say.

FEELING YOUR FINANCIAL PULSE

JANET’S STORY

It was Janet’s first time ever buying a stock, and she just felt it was right. So why did she end up listening to everyone else?

I got this broker and told him to buy me one thousand shares of Atari. When I hung up the phone, I felt terrific about placing this order. Atari was around $4 a share, and I had read these articles about how they had all these great things going for them—and I have to admit I loved playing those games on the TV set when they first came out. I just thought, Go for it. I had this extra money that I was saving to invest, and I was so excited. I told all my friends before I did this, and everyone tried to talk me out of it, even this one adviser friend I have who said, “I wouldn’t do that if I were you.” But I went with my gut feeling.

Within two weeks the stock was at $8! I couldn’t believe it; I had doubled my money. When my friends heard this—of course I called them all up—they were so sorry they didn’t listen to me. In fact, a few of them decided that maybe it would go up more and bought some. Even my adviser friend started to buy it for his clients. It stayed at $8 for a little, and then I started to get this feeling that I should sell. So I called my adviser friend again—why, I do not know

—and asked what he thought. He had just bought it at $8 for all his clients, and what could he think? That it would go up some more. I stayed for a few more days but still feeling I should get out. It went down to $7, but everyone kept saying not to worry, they would announce a deal or something and it would go through the roof. My husband needed a new car, and I kept thinking, Well, just cash in, we’ll have enough for a car. But I didn’t. To make a long story short, Atari did announce this new deal, and before I knew it, back it was at $4. So why did I end up listening to everyone else?

If Janet had listened to that voice in her gut, she would have doubled her money. If her friends had listened to their own voices inside them, they wouldn’t have lost money. If her adviser friend had listened to his own inner voice, he wouldn’t have lost money for his clients and himself, if he had invested, too, although it’s worth knowing that many advisers don’t have the money to invest in their own advice, nor are they obliged to. That little voice inside each of these people, perhaps dozens of people all told, was trying to protect them. None of them trusted themselves more than they trusted others. As a result, they all lost.

YOUR EXERCISE

Remember how, when taking multiple-choice tests, you would read the question and, without any hesitation, choose answer A? Then you would start to doubt yourself and begin to think that maybe the correct answer was D. You’d change your answer to D, even though your gut feeling was still A. You’d be wrong. When the test came back, you’d see that you were right the first time. The correct answer was A.

When it comes to every financial decision you will make for the rest of your life, you will choose correctly if you go with the answer that reflects your instinctual response. That answer will always be the right answer for you, the answer that will empower you to make money for yourself.

Please go into a quiet room by yourself. Sit there for a moment in silence—no computer, TV, phone, children. Place your hand exactly on that part of your gut that tells you when you’re nervous about anything; you know the place. As you contemplate the following scenarios, take careful note of your very first response, how nervous or confident you feel about each answer that comes to you right away, before you start to rethink it. You should begin to see how you feel emotionally about investing and about planning for your future and how much you trust yourself.

Your best friend, who’s smart but has never been known for financial expertise, comes to you all excited. He’s heard about this up- and-coming technology stock from another friend of his: a sure bet, he says, a once-in-a-lifetime thing. He’s investing everything he has, and he just knows he’ll see a payback in a month. Would you like to join him?

You’ve helped your sister find a new apartment. The rent is fairly high, and because she’s just out of college, the landlord wants you to cosign the lease. Would this be a good idea?

Your parents just gave you one thousand shares of a stock they bought years ago, in a company that has done well for them all this time. Your own financial adviser wants you to sell it and invest in a company she likes better. What would you do?

Your company has a 401(k) plan, and you’re presented with choices about how you want to invest your money—conservatively, with a modest but guaranteed return; or aggressively, with higher-risk investments but a greater chance for real growth. You must decide by tomorrow.

You are self-employed and you have all your retirement money in a SEP-IRA in a respectable mutual fund. You read in the newspapers that the manager of your fund, which has done well for you, is leaving the company under mysterious circumstances and starting up another fund of his own. The stories seem to suggest that maybe you should transfer the money to this new fund. What do you think?

Your new brother-in-law is a financial adviser, and a successful one at that. Your money is doing well in a mutual fund, but he says he can make it do better by playing the stock market, if you trust him with it.

You are offered a job with a new company that’s just starting up, and you like the people a lot. The salary is about the same as you’re making now, with room to grow as they do, but you wouldn’t be getting all the benefits you have with your present company—no 401(k), no insurance. You feel there’s such energy behind these people, and they really want you. But you’re old enough that you are really beginning to think seriously about the future, and you also feel safe where you are. What should you do?

There are no right answers to these questions and no wrong answers. Instead, the exercise is about getting in touch with your inner voice so that you can begin to listen, really listen, to what it has to say, because this voice will tell you what’s right for you to do. All the brilliantly conducted research in the world about an investment, all the enthusiasm and salesmanship of a broker, all the hype in the press about this company or that one, none of it means a thing if the pure voice inside you says it’s wrong for you to do. You are far better off taking no action than taking an action that feels wrong to you. Sure, it’s fine to ask around and learn what others are doing, but to be able to act upon what your own feelings and thoughts tell you to do is a priceless gift that only you can give yourself. This kind of power comes from trusting yourself more than you trust others.

HOW IT FEELS TO BE A STOCKBROKER

There are some great brokers out there as well as some who aren’t so great, but if you’re in awe of brokers (who now often call themselves financial advisers, figuring, I guess, that broker isn’t the most confidence-inspiring title), or if you believe you can’t possibly take any investment action without one, I want you to know how it feels from the other side. I was a very good stockbroker, but I had no mystical insights, no inside sources, no information I could learn that you couldn’t learn, too. And a good many brokers out there probably feel like the Wizard of Oz hiding behind his curtain. It can be a scary business, investing other people’s money.

There is not one adviser out there who wants to lose money for you, I can promise you that. The good ones would probably rather make more money for you than they do for themselves. It’s also true that financial advisers are real live human beings with feelings, insecurities, bills to pay, dreams of their own, pride, and ego.

Imagine the pressure. Most people don’t want to deal with their own money, so try to think how it feels to be responsible for dozens of other people’s money, their livelihood, their futures. Think how an adviser feels if she recommends an investment to you that she can’t afford to invest in herself. Is she telling you the right thing to do? Think how she feels if she’s also investing in the stock herself—will it cloud her judgment? The pressure, particularly if the broker is a caring person, can lead to what I call the jitters, which is not a good state in which to make important financial decisions.

The jitters occur when raw nerves take over and important decisions about money, which after all are decisions about people’s lives, are made from fear and nervousness, rather than from that pure inner voice and true knowledge.

Suppose an adviser has built a tremendous position in XYZ stock. As he sits at his computer, he watches every time XYZ moves up and he watches every time XYZ moves down. With every tick down, his phone rings and it is a client asking about XYZ; with every tick up, he awaits the next tick down, he gets jittery; the notion hits him that maybe it’s time to sell.

Now he starts punching in the symbol of that stock over and over again to get more detailed information than what the screen normally tells him. He watches the volume: What do others who are selling know that he doesn’t know? He looks at the bid, the ask, the research reports.

What do they really mean? He calls a few of his friends who also have a position in the stock, to see what they think. Even if none of these people had been thinking sell, even if they reply, “Well, I really still like the stock,” something happens. Doubt has a domino effect; I’ve seen it.

Meantime the supervisor walks by to remind the adviser, who works on commission, that he hasn’t met his sales quota this quarter. To do so, he must buy some more stocks on his clients’ behalf or sell some more. Then his wife calls. They need a new furnace. Then a colleague he sits near starts jumping around with joy—another stock she has built a position in has just gone through the ceiling. She begins making excited calls to tell her clients the great news. Then our adviser hears a tick and looks at the screen: XYZ is down another one-half point.

After a few hours of this, the adviser makes the decision, calls his clients, and sells the stock. End of jitters? No way; now the real test begins. If the stock starts rising, the phone begins ringing with clients wanting to know why he sold so soon. It’s almost harder not making as much as could have been made in a stock than it is to lose some and feel relief at not having lost everything. The whole experience goes into our adviser’s jittery memory bank and is automatically recalled the next time he thinks about buying or selling.

It takes an extraordinarily disciplined person to overcome these jitters and to make continually intelligent decisions based on his or her pure inner voice and what can be learned about a stock. It takes even more discipline to believe what you know when the jitters of other people who happen to own the same stock as you are spreading through a brokerage firm like the flu.

If you decide you want to go with a broker, fine. If you already have a wonderful broker who has so far done very well for you, even better. Best of all is if you decide to handle your own money and feel powerful and confident about doing so. In any case, though, it is your money— and it must be guided by what your inner voice tells you to do.

TESTING YOURSELF, TRUSTING YOURSELF

YOUR EXERCISE

With most of us, decisions come, decisions go—we make them and deal with the consequences when we have to. But we all make decisions about our lives, financial and otherwise, all the time: What kind of a car do I think I should buy? When do I think I should buy it? Where should I send my child to school? What color should I paint the bedroom? Do I really want to go to dinner at the Wentworths’ on Saturday night, with such a busy week ahead and my proposal due at work on Monday? Is such-and-such an issue worth the fight it’s going to cause if I bring it up with my partner? Might this or that stock that I keep reading about be a good stock to buy?

Such decisions come up every day, and always that inner voice is there to guide us in making them wisely—if we let that voice have its say. When these decisions come up, I am asking you now to start keeping track of them: What was the decision that had to be made? What did your inner voice, your first instinctual response, tell you to do? What did you actually do? Please write down the answers and keep them wherever you keep the monthly bills. Now see how the decisions played themselves out, depending on whether or not you followed your voice. Should you have painted your bedroom that ivory, which was your first impulse, instead of the yellow? Should you have bought a new car when you knew you should have, before the old one collapsed for good? Did the stock you were thinking about in fact go up? Didn’t you really know deep down inside that little Jenna would be better off at a school that was less competitive?

You will see the results for yourself. Testing your voice will enable you to trust it. It’s your voice, and when you begin to take action based on what you yourself truly believe, you’ll begin to feel power over your life —and over your money.

DO YOU HAVE WHAT IT TAKES TO DEAL WITH YOUR MONEY YOURSELF?

When I started as a stockbroker, the financial world was quite different from the way it is today—and it’s still changing fast. You might think that this means it’s all the more important to have a financial adviser, or a Certified Financial Planner® professional like me, look after your money for you, but the opposite is true. The changes in the financial world are actually making it much, much easier, and much, much safer, for individual investors to invest and look after their own money.

When I first started out at Merrill Lynch, money market accounts were just beginning. Mutual funds numbered in the low hundreds and hadn’t yet been embraced by a wide range of investors, much less changed the way millions of us now invest for our futures. Exchange traded funds (ETFs) did not exist. Discounted ways to invest were just starting, which meant that the most common way into the stock market was through a full-service company like mine. With a full-service brokerage firm you’re paying full-service prices: you’re paying for their real estate, their overhead, their business lunches, their advertising, their commissions on all kinds of brokers. These firms are reputable, certainly, and once you read the rest of this chapter about the language and workings of investment, you may even decide that the way you wish to be respectful to yourself and your money is to have an adviser at a full-service firm, fees notwithstanding. As for the discount firms, they’re thriving. Why?

Because smart consumers always flock to where they’ll get the best deals for their money. On their way, they stop to study what they’re buying and where they’re buying it.

THE ;LANGUAGE OF MONEY

Do you play tennis? If so, you’ve had to learn a few new terms and concepts to play the game—set point, double fault, and so on. If you play golf, same thing—par and eagle. To cook, you need to learn about basting, sautéing, reductions.

There’s also a language of money, and by the time you finish this book you will know it.

If you have ten years or longer before you need your money, you must invest, whether in your 401(k) or on your own. And the more you invest, the better. After you finish reading this section, by trusting yourself, you will know which kinds of investments are right for you.

Those investments don’t have to be in the stock market; you can invest in Treasury notes and bonds or in your house. You can decide whether you want to invest on your own or whether you want to go with an adviser. Again, these are decisions you will reach by trusting yourself.

My own opinion is that most people have more than it takes to invest on their own. The information sources on the Web are extensive and accurate. You can learn a lot this way and, just as important, really begin to feel much more comfortable in the world of money. The point is, you must learn the language of investing and have the knowledge to decide what kind of investing is best for you.

There are also plenty of general-interest money magazines out there. And, of course, money is a popular topic on cable television stations, and in most cities there are financial shows on the all-talk stations. Eavesdrop on the world and language of money, and pretty soon you’ll know you belong.

The price of admission to the world of money is lower than you might think and, especially with the onset of mutual funds and ETFs, the easiest and safest way to create your own fortune. Here’s what you need to know.

WHAT IS A MUTUAL FUND?

A mutual fund starts out as a pool of money that many investors just like you have put their money in together—mutually. The manager or managers of the fund take all this money and put it into different investments. The manager is typically the one who decides what he or she wants to buy and sell, based on his or her judgment and the research of many others in the mutual fund company, but sometimes these decisions are made by a team of people.

The goal of each mutual fund is different and, as a result, each fund invests in different kinds of stocks, bonds, or other investments. Some funds invest for long-term growth, some for income, some for a combination of the two. (Growth funds typically invest in stocks of companies that are growing rapidly and whose price per share may increase dramatically in value. Income funds invest in bonds and have a smaller chance of making a lot of money; they generate present-day income—retirees might own these, for example, after they’ve seen their money grow during their working years.) Some invest in stocks just in the United States; some, those known as international funds, invest only in stocks overseas; funds called global funds invest in both. The variations go on and on, but if you have a specific interest, I guarantee that you can find a mutual fund that addresses it. When you invest in a mutual fund, basically you own a tiny fraction of each share of stock or whatever they’ve purchased, so even if you own just one mutual fund, your money is still quite diversified, because you own a little of everything they’ve invested in.

If you had a financial adviser at a full-service brokerage firm like Merrill Lynch, he or she would have to consult you before making any transactions, and you would have to pay a commission almost every time you bought or sold anything. That’s not the case in a mutual fund, where the manager has free rein over the money in the fund and you’re not charged a commission when transactions are made. You will receive a prospectus and information with a breakdown of what the mutual fund has been up to, but you’re not notified day to day. By buying shares in the fund, you have made the decision to trust the fund manager.

A good mutual fund is a great way to invest money, particularly small sums of money: You achieve diversification, commission-free trading within the account, and a professional manager or team of managers who are buying and selling and doing what they think best.

OPEN-END FUNDS

Once a fund starts to do well, the word gets out and it seems as if everyone wants to invest in it. A fund that continues to take on new investors’ money and keeps getting larger and larger is known as an open-end mutual fund. This means there’s no set limit as to how much money the managers will permit to be invested in the fund. At their discretion once they’ve taken in more money than they feel is manageable, the manager and others in authority may sometimes close the fund to new investors, but this is a decision they can make anytime, as they go along.

How Is an Open-End Fund Priced?

At the end of each day, the manager totals up the entire value of the portfolio that constitutes this mutual fund. He divides that total by how many shares are owned by the investors. This figure, whatever it comes out to, is called the net asset value, or NAV. It is what each of your shares is worth. If you are a new investor and want to invest $1,000 into this mutual fund, and the NAV that day was $10 a share, you would own one hundred shares of the mutual fund. If the fund’s value goes up by $.25 a share, you will make $25. The more shares you have, the more you make—and the more you lose if the fund goes down.

WITH THOUSANDS OF MUTUAL FUNDS AVAILABLE, HOW DO I CHOOSE?

You can buy mutual funds that invest in almost anything you want. Once you decide on your goals, you now have two other choices: Do you buy a managed mutual fund, or do you buy an index fund?

MANAGED FUNDS

A managed fund is run by a manager who decides what he or she is going to buy and sell with all the money the investors have deposited into the fund. If you know what kinds of things you’d like to invest in, you find a like-minded manager and choose that fund, if its track record stands up to scrutiny. When you buy a managed fund, you’re actually investing in the manager who’s in charge of the fund. A good manager buys and sells wisely, so that the NAV or the value of your shares goes up and you make a profit. A mediocre manager could lose you money. Thus it’s important to keep track not only of how your fund is going, but also of the manager who’s responsible for your return.

Rule of thumb: Before you ever buy a managed mutual fund, look to see how long the manager has been in charge. Is the current manager the one responsible for a fund’s good track record, or has that person moved on, leaving someone new in charge? It’s the manager’s track record you want to know about, in other words, not the fund’s, because the manager is the one who creates the fund’s success.

A number of websites monitor the funds—how they’re doing, who is moving on—but the one I like best is called morningstar.com.

INDEX FUNDS

When you don’t know which mutual fund to buy, and don’t want to learn all this stuff about managers, you have a great option: You can buy an index fund.

There are several indexes that track the values in the stock market. You hear about these every day when you listen to the news and constantly hear the newscasters quoting the Dow Jones Industrial Average. You know how they’ll say, for instance, “The Dow Jones is up twenty-three points today and closed at 11,000.” The Dow Jones average is an index based on thirty stocks. If these thirty stocks happen to go up, so does the Dow Jones average, and if they go down, same thing. I always found it fascinating that so much seems to rest on just thirty stocks, but it’s used widely.

To my mind, a far better index, and one that’s also widely referred to, is the Standard & Poor’s 500 index; also known as the S&P 500. This index tracks five hundred good-size stocks, which is a lot more than thirty. You will often hear this index quoted right alongside the Dow Jones, and when you do, pay attention. This is also a great index because so many people use it to measure the market—which means that many, many experts are keeping tabs on it every single day.

Another very popular index is the Nasdaq. This index currently tracks about 5,000 different stocks, mainly in the technology area. Since its inception in 1974, the Nasdaq index market has been the industry innovator. It was introduced as the world’s first electronic stock market. With the boom and bust of the dotcom stocks, most of you by now have heard of the Nasdaq, and the truth is, as time goes on, you will hear more and more about it.

There are other indexes that track the American and overseas stock markets (as well as indexes that track the bond market, but we are focusing on stocks here); they aren’t quoted as much as the Dow Jones, Nasdaq, or S&P, but they’re also used to track how everything is doing overall. Among them: are

The Wilshire 5000 equity index. This index tracks thousands of stocks of companies of all different sizes, large and small. It’s also outgrown its name—it really follows almost seven thousand stocks. Even though it’s not widely quoted, it’s one of the best.

The Russell 2000 index. This index tracks two thousand stocks that are traded on the OTC (over-the-counter) market

The EAFE index. This one owns stocks of companies based in Europe, Australia, and the Far East.

Managed mutual funds constantly compare their performance to that of the various indexes. A fund will boast of “outperforming the S&P 500” over a certain period of time, meaning it increased in value by a greater percentage than did the S&P index. (Of course, many funds underperform the indexes, too.) So one easy and effective way to invest is to buy what’s called an index fund, which simply mirrors an index, by buying all the stocks in the index it is associated with. Its performance will, by definition, match that of the index exactly, whether that’s the S&P 500, the Dow Jones, or the EAFE less the expenses of the index fund. Many mutual fund companies offer S&P index funds, as well as growth, international, and bond index funds, and it’s easy as can be to sign up with one of them.

You should also consider exchange traded funds (ETF). Just like an index mutual fund, an ETF tracks a benchmark index. But it trades just like a stock; in fact, you need to have a brokerage account to buy and sell shares of an ETF. The fact that an ETF trades during the day—unlike a mutual fund where the price is set just once a day after the market closes—can give you the ability to move in and out of an investment at the market price when you place your order. Some people consider that a nice advantage, though when you are investing for the long term, I don’t think that’s too important. You want to buy and hold anyway. But the real advantage of ETFs is that their annual expense charge is even lower than the typical index fund. There are some ETFs that charge just

0.10 percent a year. The largest ETF firm is Barclays, which runs the ishares ETFs; you can learn more at www.ishares.com.

WHICH IS BETTER, A MANAGED FUND OR AN INDEX FUND/ETF?

When it comes to mutual fund investing, it is true that there are some genius managers out there—who can outperform the S&P index in a given year or for a few years. But it is rare for a managed fund to beat its benchmark index on a consistent basis. And many younger funds simply lack the track record to know how they will do over the long term. Remember, when you are investing for growth, you hope to leave your money right where it is for at least ten years. Only time will tell which would have been a better way to go, but if I were a betting woman, I would just stick with index funds and ETFs if I did not want to be actively involved with watching everything about the fund I was in.

Index funds and ETFs have lower fees than actively managed funds and typically generate no, or low, annual tax bills. All this in the end adds to your overall return.

Expense Ratio

Every mutual fund and ETF charges annual expenses, known as the expense ratio. The average is about 1 percent a year for actively managed stock funds. And I’ve seen them higher than 2 percent. Whatever the expense ratio, it will definitely affect your net rate of return. Let’s say that one spectacular year the manager of your mutual fund makes a return of 20 percent. Do you get that 20 percent? No. Before you get your money, the fund subtracts the expense ratio. If the expense ratio is 1.5 percent, your real return will be 18.5 percent.

Some of my favorite index funds and ETFs, on the other hand, have total expense ratios of less than 0.20 percent and do very well, thank you. Why in the world would you want to pay someone to manage your money for you if that manager couldn’t consistently outperform the index that it’s comparing its performance to? You wouldn’t.

Capital Gains Tax

The other advantage of an index fund over a typical managed fund— and this can be major—is that mutual funds are set up so that if there’s a capital gain when they sell a stock, that gain is passed through to the investors. At the end of the year the fund will pay you (or reinvest in the

fund, your choice) all the realized capital gains they’ve acquired that year. Whenever a mutual fund has a capital gain distribution, it also reduces the NAV by the price of the capital gain. Let’s say that you’ve invested in a mutual fund with a NAV of $10, which itself has a capital gain distribution of $1. If you have chosen not to reinvest capital gains, you’ll get $1 for every share you own, and you’ll have to pay tax on it. If you have decided to reinvest the capital gains, then the fund will buy you as many shares as that capital gain allows, but you’ll still have to pay tax on this amount. In addition, in both cases the NAV of the mutual fund has now been reduced to $9 a share. That said, funds you own in a 401(k) or IRA do not owe tax each year; your investments grow tax- defined, or in the case of a Roth IRA or Roth 401(k) tax-free if you follow certain rules.

Maybe this doesn’t sound so bad, but depending on how much money

you have in the fund, you may be unpleasantly surprised to see what this capital gain distribution does for you if it happens to come in a year when you’re in a high tax bracket to begin with. It’s definitely a drawback in a managed mutual fund that you have no say or way to plan in its decision whether or not to take a large gain in a given year. All that fund cares about is making the greatest return for you, which is fair enough. They don’t care whether it’s a convenient year for you to pay taxes on a capital gain.

Happily, this isn’t as big a problem with an index fund. Since index funds buy the whole index, they do not in general distribute capital gains. Why? Because they don’t sell with such planned regularity. They buy and sell when only one of the stocks of the index is removed and a new stock takes its place. Since a fund that matches the S&P 500 index is meant to track the stocks in the index, it has to make these appropriate changes as necessary. But these trades occur with nowhere near the frequency they do with a managed fund. So if the idea of paying taxes on unexpected capital gains worries you, this should be taken into consideration before you decide on a managed fund or an index fund. Exchange traded funds are even more tax efficient; you owe tax only when you sell, and assuming you have a profit.

Remember, it’s not how much you make that counts. It’s how much

you get to keep.

LOADED FUND, NO-LOAD FUND: WHAT’S THE DIFFERENCE?

The difference is about 4.5 percent, give or take, out of your pocket.

In addition to the expense ratios that all funds charge, if an adviser suggests you purchase a fund and you do so through him or her, you may also pay the adviser a commission. The average commission costs about 5 percent. The commission is known as a load. Think of it as a burden on your money.

A no-load fund, on the other hand, is a mutual fund you buy directly, and therefore there’s no commission attached to it. In my opinion, no- load mutual funds are the only way to go. Many advisers charge clients a flat fee and use no-load funds. If you work with an adviser, this is the way to go. Think about it. If you were to invest $10,000 in a no-load mutual fund and decided, two seconds later, that you wanted to withdraw your money, you’d get all $10,000 back, assuming the market didn’t move. Loaded funds, on the other hand, would cost you.

The Price of a Load

There are two kinds of loads, a front-end load and a backend load fund. Backend load funds also have a high expense ratio because there is a special fee known as the 12b-1 fee, buried in the expense charge. Sound confusing? It’s meant to be. The people making this money, your adviser or broker, would rather you didn’t know how much you were paying.

Front-end loaded funds charge a load up front. They are also identified as A share mutual funds. When you see the name of the fund spelled out anywhere, if it has an “A” or says “A shares” after the name, then you know it’s a front-end loaded fund. If you invested $10,000 in a 5 percent loaded fund, and decided two seconds later to withdraw your money, you would get back only $9,500—the adviser got that $500. This fund would have to go up more than 5 percent in value just for you to break even.

Funds with a backend load, also known as a deferred sales charge, are even worse.

When mutual funds first came onto the scene, you could buy one only through a broker, so they were all loaded funds. Over the years, though,

many mutual fund companies came out with no-load funds, and slowly but surely investors began seeing their value and investing. This migration was putting a big dent into the profits of brokerage firms that sell only loaded funds, so they came up with a way to make you think you could buy a no-load fund through them: It’s called a backend load fund and it has a big charge, known as a 12b-1 fee, hidden in the expense ratio. Any fund with a “B” after its name levies this fee. Let me explain how this works.

These funds are typically sold to you by a financial adviser. Some of these advisers sell you these funds under the pretense that you are not going to pay a load to be in the fund as long as you stay in it for five to seven years. If you cash out before then, there will be, the adviser will explain, a “surrender charge” starting at around 5 percent and going down by 1 percent each year until it reaches 0 percent. (In a true no- load fund you can cash out the same day without paying a penny.) Not too bad, you might think, since I plan to leave the money in there for a long time anyway, so it won’t really cost anything. Wrong. You will be stuck paying a much higher expense ratio because of that 12b-1 fee I mentioned earlier. It can add 1 percent to your overall expense ratio every year. You need to understand how that extra one percent can add up over the years. If you stay in the fund for fifteen years, and it charged

you a 1 percent annual 12b-1 fee, the cost of that 12b-1 fee is like

paying an extra 15 percent sales commission. Who can afford that?

This 12b-1 fee is in addition to the other fees as well. You’ll also have to pay the management fees and other costs that are part of the regular expense ratio. The 12b-1 fees are put in place to pay the adviser’s fee for having sold you the fund. How it works is that you buy the fund, the brokerage firm advances the broker’s commission to him the day you buy it, and you keep paying and paying so that the firm will get back the money they paid to the broker. Your 12b-1 fee is how they get the money back. If you close the account early, your surrender charge is what guarantees the company it will get back more than it paid the broker: a no-lose proposition for the brokerage firm, but you lose all around.

In other words, these B-share funds with large 12b-1 fees are a rip-off. I would avoid them if I were you. And even though some fund companies now offer a deal where your B-share fund automatically

converts to A shares (they tend to have a lower expense ratio) once your “surrender” period is over, I still think those first few years of paying such a stiff 12b-1 fee is too costly. You really should focus on true no- load mutual funds.

Why Would My Adviser Sell Me These Funds?

Because that’s how he or she makes a living, and you’ve not chosen an adviser wisely. True financial advice is to tell the client how to get the most bang for the buck, even if it means the adviser won’t make a lot of money with the transaction. Advisers are there to help you get rich, not to get rich off you. It’s the adviser’s fiduciary responsibility to tell you if there’s a less expensive way for you to make money—and give you the choice of what you want to do after explaining how much each of your options will really cost you.

But no-load funds can be purchased without the help of an adviser— no middleperson, no commissions, no hidden costs, just smooth sailing to greater and greater wealth over time. And as I mentioned, many advisers in fact use no-load funds and ETFs for their clients, choosing instead to charge a flat fee for their services. Such fee-only advisers are the only advisers you should ever consider. Do you need an adviser? If after reading this next section you feel you do, then you do, for your own peace of mind. But you may just want to test the waters yourself. At my website, suzeorman.com, you can learn about The Money Navigator. This is a monthly newsletter that I launched in 2011 along with economist Mark Grimaldi. The Money Navigator highlights no-load mutual funds and ETFs that Mark recommends for investors saving for retirement. The newsletter also provides recommendations for mutual funds that are popular investment choices in many 401(k)s. You can sign up for a free one-year subscription at suzeorman.com by entering the code “financial freedom.”

TESTING THE WATERS

MY MOM'S STORY

Whether you want to believe it or not, you and you alone have the best judgment when it comes to your money. Here’s a story about me and my mom:

A few years ago, I had a terrific hunch about a particular stock. I just knew it was a great buy, especially priced as it was at around

$1.50 a share. So I told the person that I love most in the world, my mom. My mom has always lived really, really frugally and, since my dad died, has managed to have enough to live comfortably on, but she has never been a great risk taker in the stock market; in fact, she still worries about me when I buy or sell stocks. This time, to my amazement—maybe she caught the excitement in my voice—she said she also wanted to invest in the stock I had chosen—$5,000. Eighty- three years old, and now she decides she wants to jump into the market!

Now—again to my amazement—I began to caution her. Did she understand that any stock that was selling for only $1.50 a share was totally speculative? Yes, yes, she understood that perfectly well. Did she understand that she could lose the entire $5,000? Yes, she understood. She felt the worst-case scenario was that if she lost it all, she would have $5,000 less to leave me when she died. Was I willing to take that risk? (I hate it when she outsmarts me at my own games.) I was willing, so my mom and I invested in the stock that same day, each of us putting in $5,000.

Everything was holding steady pretty much until a few months later, when the stock started to go down and down and down. My mom, who by now was really into this, began calling me up every day and saying, “What do you think we should do?” I would say the same thing I would have said to my clients, “What do you think you should do?” and, satisfied, she’d say, “Let’s just hold it.” That was how I felt, too, until the day the stock hit twelve cents a share, which made me begin to doubt my own inner voice. Five thousand dollars is a lot of money, and this was my very own mother.

That was the day she called up to say, “Let’s buy more.” I couldn’t believe it.

I said, “What did you say?” and she said, “I just have this instinct to buy more.”

When she said this, I’m sorry to say I did not encourage her to follow her instincts. Instead I said something to the effect of, “Mom, are you crazy? This stock is almost belly-up and we can’t throw good money after bad.” I’m also sorry to say that now she began to mistrust her own instincts as well and simply agreed with me. We left our money where it was, but our hopes fell and now we both trusted less in what we had believed about the stock.

To make a long story short, the stock fluctuated between twelve and twenty-five cents a share for almost a year, then: boom. It started to skyrocket, and soon after that we had both tripled our money. One day, while the stock was still at this high, my mom called again. “Suze,” she said, “I’ve decided that it’s time to sell.” This time I didn’t stop her from listening to her inner voice. I said, “Go for it.” She made three times the money she put in, and she was perfectly happy about it.

Even so, my mom would have made ten times, not three times, her money if I hadn’t drowned out her inner voice and made her doubt what she knew to be true for her. If that spark of instinct had been guiding her actions, she would have been far better off than she was by letting my doubts get in her way.

The moral of the story is that—whether you want to believe it or not

—you and you alone have the best judgment when it comes to your money. You must do what makes you feel safe, sound, comfortable. You must trust yourself more than you trust others, and your inner voice will tell you when it is time to take action.

I’m not in any way suggesting that if you take your nest egg and go out and find a speculative stock to invest it all in, you’ll get rich. You won’t. You’ll be a sitting duck if you do that. What is more, I doubt your inner voice would guide you in that direction anyway.

Nor am I suggesting that you shouldn’t listen to others or learn about what you’re planning to invest in. You need information to make good decisions. But your inner voice will help you weigh that information properly. What I am suggesting is that you test the waters before you jump in with everything you have and that you practice listening to that

inner voice. As soon as you see how easy it is to stay afloat, and get used to the investing temperature, so to speak, you very well might want to go in deeper.

GETTING READY TO GET STARTED

It doesn’t matter if you have a large lump sum you want to invest or if you’re just starting from scratch and want to put in a little here, a little there, as you can. Rule number one is that to invest in the stock market (through mutual funds, exchange traded funds, and the like, not just by buying and selling this stock or that one, the way my mom and I did), you must invest only money that you will not need to touch for at least ten years. Why? Because, as we’ve seen, there has never been in the history of the stock market a ten-year period of time where stocks have not outperformed every other investment you could have made.

Not that history always repeats itself, but this is a spectacular indicator. However, if you do not give your money ten years, you will be taking a significant risk. If you don’t have the time to leave this money sitting there, it is possible that when you do need to take it out, that need will arise at the worst possible time. Let’s say you invested in 1999 and were planning to withdraw the money to buy a house within the next four years. You decided, Okay, I’ll just invest in the market, make all I can, and then have more money when the time comes to make the down payment. One year later you find the house you want and make the offer, which is accepted—on April 14, 2000, a day the market goes down considerably, and the day you had decided to sell, for you need your money. You will most likely take out far less than you initially put in. If you could have just waited—but you could not, for you needed the

money to buy your home. So time is everything.

Remember dollar cost averaging (this page)? This is the technique that works so well for long-term growth, in which you are investing wisely by limiting your risk. If you are investing that $50 or more a month, or if you have a huge stash of cash in a savings account that you now feel right about testing the waters with, this is your method of investing, because with dollar cost averaging you raise your chances enormously of ending up a winner.

I am not talking here about you turning into one of those tycoons in B- movies who is always shouting, “Buy, buy, buy,” or, “Sell, sell, sell,” into the half dozen phones on his desk. Instead I’m talking about you venturing into the market in a safe way, spreading your money among dozens or hundreds of stocks, via mutual funds that gifted professionals spend their lifetimes watching and guarding, and having time and the market touch your money with magic. These days the richest and savviest investors may like to shout, “Buy, buy, buy,” or, “Sell, sell, sell,” into a phone from time to time for the thrill (and potential payoff) of playing the market on a hunch or a tip. But these same investors have most of their money exactly where I am going to tell you to put yours: in a safe place, where over time it will grow and grow.

If you are reading this and still feeling your inner voice say, No, I can’t

do this, it’s not right for me, then listen to that voice and read on, because I will also tell you how to choose an adviser for your money, if that’s what makes you feel best.

But if you can, try testing the waters on your own first. Most people, I find, discover they truly love dealing with their money once they understand how to do it. Just remember: Give your money ten years to grow.

IF YOU HAVE A LUMP SUM TO INVEST

Let’s say you have $20,000 to invest. Maybe it’s sitting right now in a retirement account at work, and you think you might want to be more aggressive with the way in which you invest it—or some of it. Maybe you’ve just gotten an inheritance or a huge raise at a new job. Maybe you’ve just had this money sitting in a savings account, have felt for a long time that you could do more with it than leave it in that savings account, and suddenly decide: Now’s the time. Whatever the case, let’s say it’s $20,000, but it can in reality be more or even much less. Let’s see how to invest it.

So that you can get used to the investment waters, rather than investing 100 percent of it all at once, I want you to divide it up and start investing slowly over the first year, to see how it makes you feel. The chances, I think, are good that by the end of the first year you’ll be

ready to plunge in.

Take 80 percent of what you have to invest, which in our example is

$16,000, and put that money in a Treasury bill or note, or just leave it in your money market or savings account, anywhere it will be kept safe for you for about a year. After that year is up, it will be up to you if you want to keep investing it so safely, invest more on your own, or if you want some professional help in investing it. Your inner voice will tell you which is best for you. Trust yourself.

If these are not funds you are investing within a retirement account, the best way to buy a Treasury bill or note is by contacting the Federal Reserve office nearest you—or by calling 800-722-2678 or visiting www.treasurydirect.gov and setting up what is called a Treasury direct account. This is where you buy your Treasuries directly from the Federal Reserve absolutely free of charge. You could also, if you wanted, buy your Treasuries from a broker, either a discount or full-service broker; but this would cost you about $30, and why spend $30 if you don’t have to? The other reason to buy your Treasuries directly is to get used to them and the way they work (they’re simple!). When it comes time to stop investing for growth, many people transfer some or all of their money from the market into Treasuries and draw the money they need to live on from the interest. This might be part of your overall plan, too, and it’s a great idea to become familiar with how they work right now.

So $16,000, or 80 percent, goes into Treasuries or is just kept safe. The other 20 percent, in this case $4,000, is what you’re going to invest in the market.

When Do I Buy?

Now you have $4,000 and you’re ready to invest. If you were asking me for advice right now, I’d tell you to sign up for a free one-year subscription to The Money Navigator. This is a newsletter I launched in 2011 with economist Mark Grimaldi that provides recommendations on mutual funds and ETFs for your retirement funds. The newsletter highlights funds and ETFs that match your appetite for risk as well as your life stage; typically the younger you are, the more you will want to have invested in stock funds and stock ETFs. You can learn more at suzeorman.com. Enter “financial freedom” as the gift code to receive

your free one-year subscription.

You are not going to plunk down this $4,000 all at once, remember; you’re going to use dollar cost averaging. Divide the amount you have to invest by 12; in this case, your figure would be $333.33.

Now you’re going to take this monthly sum and, on the same day each month, put it into a good no-load mutual fund or ETF month in and month out for the first year, using the dollar cost averaging technique.

You can choose either a managed fund or an index fund or ETF; and with dollar cost averaging the beauty is that when the market goes down, you’ll simply be able to buy more shares. So don’t be afraid. You have plenty of time to let that money sit. Buy, too, when the market is up, because next month—who knows?—it might be up even more. Just buy, each and every month.

After the year is up, you will have a sense of how you felt about investing, whether it felt right to you or not. I have to tell you that nearly everyone I’ve dealt with feels truly powerful once they take the financial reins of their lives in hand in this way; in fact, most people say that if they’d known it was this easy, they would have done it long ago. When the year is up, they usually invest all the rest of their money as well, or whatever percentage they feel comfortable with. Before you know it, using AAII, other publications, and the Web, they have invested in other mutual funds they like, which means they have a diversified portfolio. They’re off and running.

What Do I Buy?

What you will buy will depend in part on how much you have to invest, because some funds have a very small minimum, while with others you need more to invest. The minimum will also vary depending on whether you’re investing in a retirement account or on your own in a regular account. Vanguard, for instance, which is one of the great mutual fund companies, has a minimum of $3,000 if you just open a regular account with them. If you open an IRA at Vanguard, the minimum drops to $1,000. Most mutual funds typically require $1,000 or so to get started.

You have a choice when it comes to buying mutual or index funds or ETFs. You can buy them directly through the fund company itself, or you

can open an account at Charles Schwab, TD Ameritrade, or any of the other great, low cost brokerage companies and buy the same no-load fund through them. (Make sure there is no transaction fee involved; there shouldn’t be.)

Some of the great families of funds:

VANGUARD

800-662-7447

WWW.VANGUARD.COM

T. ROWE PRICE 800-638-5660

WWW.TROWEPRICE.COM

FIDELITY

800-343-3548

WWW.FIDELITY.COM

WHEN DO I SELL?

There is no harder question when it comes to the stock market. And there’s no single correct answer, because the market never stops going up and down. To answer the question of when to sell, don’t worry about what the market is doing. As always, just keep in touch with your inner voice and your time frame.

The answer will vary, depending on your individual circumstances. If you’re very lucky, you may never need to use this money or need the income it could generate for your retirement. If that happens to be the case, then the answer may be never; you can let your beneficiaries inherit it. Currently, when your beneficiaries inherit something, its cost basis for determining gain or loss for tax purposes is what the inheritance was worth the day they inherited it. So if you bought one thousand shares of stock at $10 a share years ago, and over the years the stock splits and the price rises so that you now own eight thousand

shares at $40, this means that your $10,000 investment is now worth

$320,000. If you sell it, you will owe capital gains taxes on $310,000, the difference between what you bought and sold it for. Now let’s assume that instead of selling it, you left it to your beneficiaries; because they inherited it, their cost basis is what the stock was worth when you died: $320,000. If they then sold it for $320,000, they would not owe one penny of capital gains taxes.

In all likelihood, however, you’re counting on this money for retirement. This means you will one day want or need to switch some or all of your money from growth-oriented investments to an income- generating investment, such as Treasury notes or bills. In any case, you will need to keep a careful watch on that ten-year time horizon.

Let’s say that you have had your money diversified among several mutual funds for nine years already, and you know you won’t need it for another ten years, if then. As long as those funds are performing as well as or better than other funds that are similar to it, just leave it where it

is.

Now let’s say you’ve had your money diversified among several mutual funds for seven years, but this time you know you will probably retire in about three years. At that time you will need this money to start generating income so you can begin to live off the interest that the principal will generate. You will have to make a change. With your eye on your timeline, it is time to start reevaluating right now. Let’s say, too, that you had a great run in the market over these seven years, and you’ve averaged about 15 percent a year on your money.

What do you do? It’s terrific that you’ve done well, but don’t try to outsmart the market. You do not have ten years ahead of you in which you can leave your money just to sit there. Consider taking some of your profits now.

It may turn out that the market suffers a setback, so that if you had ignored your nervousness, you would have been left back at square one. Or the market might skyrocket after you withdraw your money. Who cares? You have made your money. You have listened to your inner voice. You are far better off selling and ceasing to worry than you are letting your fear drain you and make you feel powerless. This is the money you intend to live on for the rest of your life, and you must trust yourself more than you trust others about where to keep the money safe

that will keep you safe.

That said, please think through your retirement time horizon. Just because you may retire in five years, that does not mean all your money should be out of the stock market by the time you retire. The fact is, you could spend twenty to thirty years in retirement. Consider that the average life expectancy for a sixty-five-year-old male is seventeen years, and for a sixty-five-year-old female it is twenty years. That means that half of today’s sixty-five-year-olds will still be alive—and needing money

—well into their eighties and a portion of those people will still be alive in their nineties. With the prospect of such a long life, you should consider keeping some of your retirement money in stocks, even after you are retired. Not all, and certainly not most of it, but some of your money belongs in stocks. Because stocks, over the long-term, have the best prospect of generating inflation-beating gains for you.

If, however, you have ample money that you are confident you will be just fine living off the income generated by your bank accounts and bond investments, that’s great. Just make sure that you have accounted for the fact that over twenty years a 3.5 percent rate of inflation will reduce the purchasing power of $1 to about 50 cents. If your conservative investments earn less than 3.5 percent, you may have a hard time keeping up with the price of things in twenty years.

Plunging in Deeper?

Once you have invested for a year, you may decide, as thousands of other people have, that yes, you’re up to the task and ready to plunge in deeper. Watch carefully over what you are creating, keep in mind your time frame, and listen, always, to your inner voice.

If instead, after this first year of investing, you find you’re not comfortable with it, and your inner voice says that you would rather have professional help before you plunge in deeper, then again, you must listen to that voice. And you must find the very best help you possibly can.

FINANCIAL ADVISERS

MY STORY

If after I became a broker, any of my clients had ever asked me— and thankfully no one ever did—what I had done for a living before I went to work for Merrill Lynch, I would have told them the truth: Before becoming a broker, I worked as a waitress at the Buttercup Bakery in Berkeley, California. My dream was not to become a broker, but to open a hot tub and sauna place, with a restaurant and haircutting salon built right in: one-stop shopping if you happened to want a meal, a haircut, and a sauna. I would go on and on about this dream to my regular customers, and finally one day a man named Fred Hasbrook gave me a check with a letter that read, “For people like you to have your dreams come true. To be paid back if you can at 0 percent interest in ten years.” I was stunned, and even more stunned as word got around and others of my regulars chipped in, too. Believe it or not, I soon had a $50,000 nest egg with which to start my business.

At the suggestion of one of my benefactors, I put the money into an account at Merrill Lynch and was assigned to a broker, a sweet guy whom I’ll call Rick. I told him I wanted to keep my money safe, and he had me sign some papers that I didn’t even read. Off I went, to have blueprints for my business drawn up. I still have those blueprints.

To make a long story short, that sweet Rick—knowing that the money wasn’t mine, knowing that I wanted above all to keep it safe, and knowing that it was being held there so I could open my business

—had me investing in these things called options on oil stocks, the most wildly risky and speculative investments I could have been in. I felt funny about this from the beginning, but I didn’t know enough, or trust myself enough, to understand why or say no to Rick’s grand schemes. In the end, I agreed because I trusted Rick. With his nice office and pin-striped suits, he was the closest I’d ever been to Wall Street or big money. At first we were doing pretty great. In those early weeks we were up $5,000. I couldn’t believe it! I had never

made so much money without even trying, so I became totally

intrigued with this new way to make money and thought that I had better study up on this great new moneymaking discovery.

This was in 1979, before anyone had computers at home, and I was trying to figure out about these options from reading the newspapers every day. I had stock quotes and options quotes pasted up all over my bedroom walls, trying to make sense of them. Finally I began to get the hang of it and understand what we were doing—and how what we were doing was very, very wrong for me. My understanding came too late, I’m afraid. The reversal of oil stocks happened quicker than you could say sauna and hot tub, and I lost it all, all the money I had put in and all the money I had made. Everything. My financial “adviser” had done me in, not to mention what he had done to all those people who had tried to help me.

It took me a long time to get a true understanding of what it takes to handle other people’s money. It is not like Monopoly, when after you’ve finished playing the game you simply take the houses off Park Place, pack up the money that comes with the game, and go on with your day. So much more is at stake.

Rick may have been my broker, and a reckless if not unscrupulous one at that, but I couldn’t have been luckier that he was at least with a reputable and nationally recognized firm like Merrill Lynch. Merrill came through in the long run and covered the losses in the account, after I demonstrated that he had misled me about the risks inherent in what we were doing, so in the end I was able to pay back all the money to my investors. I had picked the right firm, at least, if not the right broker at the firm—and both decisions are extremely important if you decide to go with a full-service brokerage firm.

Soon afterward, I joined Merrill Lynch.

Why would Merrill Lynch hire a waitress? They weren’t hiring a waitress. What they saw in me was that I would be an excellent saleswoman, and they were right.

At major brokerage firms, the brokers or financial advisers (which is what I became at Merrill Lynch) are mainly commission-based advisers who do not usually come up with the ideas of what you should buy or sell. Most of them take the recommendations of the financial analysts

who work for the firm. Your adviser takes these recommendations, checks to see whether they’re suited to your needs and financial situation, and tries to sell these investments to you if they (and you) meet those criteria.

My story about Rick isn’t meant to frighten you out of asking the help of an adviser, if you feel that’s the way to go. Nor is it meant to suggest that all advisers are disreputable, because most do have your best interests at heart and, if the firm itself is reputable and you yourself trust the adviser, you will almost certainly be safe. By turning your money over to someone else, however, you must not give up feeling responsible for it, as I did when I signed those papers. The ultimate responsibility for your money must always remain in your own hands.

WHAT DO FINANCIAL ADVISERS DO?

Many people I speak to tell me one fact and one fact only about their lives: how much they have to invest. This tells me nothing about them and nothing about their financial situation. If someone says she has

$10,000 to invest, but also has credit card debt of $8,000 at 18 percent, it may be that her best investment of all would be to pay off that debt first thing. If someone is going to be looking after and investing your money, that person should know everything in your financial picture, including how you feel about risks and what your goals are—the questionnaire I used to send my clients (this page) will give you an idea of what a concerned and competent adviser will always want to know.

If you’ve joined the AAII, you will see that there are many different titles and certifications of advisers or planners, some far more qualified than others. Some will just provide you with a financial plan and send you home to carry it out; some will be on your payroll for as long as you want, taking care of your money. You won’t want, for example, the adviser you hire to be licensed only to sell you securities. You want to know that your adviser cares enough about managing money to have gone to extra lengths to become a Certified Financial Planner® professional (this is what I am). A Certified Financial Planner® professional has had to pass a series of exams that deal with every aspect of finance, including risk management or insurance, retirement planning,

taxes, and estate planning. It usually takes two years to study for and pass these exams, and those who do pass are required to stay up-to-date by taking continuing education courses and to abide by the standards of the Certified Financial Planner Board of Standards, Inc. (the CFP Board; visit their website at www.cfp.net).

HOW MUCH DO FINANCIAL ADVISERS CHARGE?

When you go to interview financial advisers, you are considering whether you want to hire each one: You are the boss, regardless of how much they know about money. You are the boss of your money, and when you hire someone to take care of it—just as when you hire a qualified gardener to look after your garden or a qualified child care worker to take care of your child—you are the boss of that person as well.

When I was seeing clients, I set up my own, somewhat unusual, fee schedule with this in mind. When someone—rich, poor, doesn’t matter— called my office for an appointment, that prospective client was first sent a letter stating what they were expected to bring along to the appointment and explaining my fee structure. About a week later my secretary almost always would get a call from them saying that the only thing they were having a hard time with was how much I charged. My fee structure dictated that clients must pay me what they thought my services were worth to them. At the end of our session, which ran an average two hours, they decided what my services were worth. My clients were the boss.

Apart from my way, there are a few ways that advisers charge for their services.

FREE CONSULTATION

An adviser who sees you for free is trying to convince you to hand over your money to him to invest for you—and reap the commissions for himself. Since mutual funds, if purchased through an adviser, carry heavy commissions, around 5 percent, most likely mutual funds will

make up a hefty part of your portfolio if you go with this adviser. So if you go in to see an adviser for free, so to speak, and hand over $20,000 for him to invest in those loaded funds, then you will have paid $1,000 for that “free” session. The second that you sit down in that office and tell the adviser how much money you have to invest, he knows what it means for him. If you come in with $100,000, he’ll get about $5,000. Not bad for an hour or two of work.

FEE-BASED

This is where you simply pay the adviser an hourly fee to tell you what to do with your money. She does not do it for you.

FEES PLUS COMMISSIONS

You pay the adviser a fee to tell you what to do, to create a plan with your money. If you decide you’d like him to implement it for you, he’ll also get a commission.

REGISTERED INVESTMENT ADVISERS (RIAS)

Another option is to hire a registered investment adviser (RIA), who will create, in effect, a personal mutual fund for you and serve as the manager of it. RIAs usually require a large minimum to start with, ranging from $50,000 to $5 million, with the average minimum being about $250,000.

An RIA manages your money for you on an ongoing basis, for a fee that is usually a percentage of the money you’ve given her to manage. This percentage can range from .25 to 3 percent a year, but you should not pay more than 1.5 percent including all commissions. Think about this. The amount you pay is a percentage of the money she is managing: Isn’t this a great incentive for her to make your money grow? If you gave her $100,000 initially, and by the end of the year you had $200,000, if you were paying her 1 percent, she’d have made $2,000. (And I hope you would send her an enormous bouquet of flowers as well.) If you lose

money, she loses, too. This is an adviser who is truly on the same side of the fence as you and whose compensation is attached to a real incentive to make money for you.

Most RIAs will ask you to sign what is called a discretionary account trading form, where you give the RIA permission to trade your account without getting your permission for every transaction. This is absolutely the only time you should even consider doing something like this. You must still make sure that your money is held in a reputable institution like TD Ameritrade, Charles Schwab, or Fidelity, for example, and all the RIA has the right to do is buy or sell, not withdraw money except for any fees she is owed.

Not many RIAs buy mutual funds because it does not make sense to pay the RIA 1 percent a year to manage your money and also to pay the full expense ratio of the mutual fund. If you decide to hire an RIA, please find out what she invests in before you sign on.

INTERVIEWING A FINANCIAL ADVISER

If you’re in a domestic relationship, you must both go to see the adviser. (I wouldn’t see clients who were married or living together unless they came in together.) Before you do, I urge you and your partner to have a talk about what you want to accomplish with the adviser and the fears about money you have and make sure you both have a thorough understanding of where you stand right now. After you’ve chosen an adviser, you must make all decisions as a team and both be kept up-to- date with what the adviser is doing.

I met so many people, women in particular, who didn’t have a clue what to do when their husband or partner died or when they went through a painful separation or divorce. I also saw how bewildered many people became when their parents died, leaving them an inheritance. When you have suffered a loss, you are in a state of grief, and this is not the time to make major financial decisions. Run as fast as you can from an adviser who suggests big changes at this time. My advice is to leave your money in a high-interest-bearing account for between six months and a year, until your inner voice feels okay about doing something with these funds. To be respectful of your money, you must give yourself time to heal.

If you and your partner are interviewing an adviser together, you must both feel comfortable talking to him intimately about your money. The adviser should address you both equally, give you plenty of time, and answer questions and explain fees in a way you can easily understand. You should also be comfortable with the kinds of investments he suggests and understand everything about them when he explains them to you. If he fails to meet any of these criteria, find another adviser.

When you interview anyone for a job, it is up to you to outline your requirements. For example, here are several expectations you should have for a prospective financial adviser:

That she will call or e-mail you every time she makes a change in your account (unless she is an RIA).

That she will explain in thorough detail why she wants you to make every new transaction

That she will tell you without your having to ask if she is selling something for you that’s not in your retirement account, fully explaining the tax implications.

That she will explain every commission

That she will never pressure you into doing anything that does not feel right to you.

That she will send you a confirmation from the brokerage firm that holds your money, telling you what’s been bought or sold. This confirmation must always match transactions you gave permission for.

That she will send you a monthly statement summarizing all that month’s transactions, including deposits, withdrawals, and current positions held. This statement must come directly from the brokerage firm that’s holding your money, not from your adviser’s office.

That she will prepare both quarterly reports and an annual report that will tell you the exact return she is getting on your money, as well as all fees and commissions. The figure on her report must match the report that is generated directly from the brokerage firm. These reports should also show you all the realized gains or losses (all the money you actually made or lost from selling an investment) and all the unrealized gains and losses (investments you own but have not yet sold and thus

that have not yet realized a profit or loss). These reports should also include returns of the overall index, so you know whether you’re doing better or worse than the index. You want everything in writing.

That she will never ask you to write a check made out to her personally. All the money that is handed over needs to be placed in an institution (Schwab, TD Ameritrade, Vanguard, or the like), and every check is to be payable to the institution. This is absolutely essential. More than one “adviser” has flown the coop with dozens of clients’ money.

That she will return your calls in a timely manner

That she will always get you the information you request about an investment and find out any answers to questions you have that she doesn’t know

That she will keep you informed about your money, not just call you when she wants to buy or sell something. If a stock has gone down, or is not performing the way she expected it would, you are to hear about it from her, not read about your money first in the newspapers.

You should type up all these requests on a piece of paper and have your adviser sign an agreement to do all the above.

NOW THE ADVISER MUST INTERVIEW YOU

Just as important as what you ask the adviser is what the adviser asks you. Remember: People first, then money.

I learned, in my practice, that I got a better understanding of my clients when I went over the topics on my questionnaire in person with them, rather than having them fill out the answers on their own. Sometimes people had a hard time writing things down or tended to leave things out, so talking through the questions enabled me to find out more about my clients than simply reading through hastily filled out answers. Other advisers feel that this is too time-consuming, but this process is not about saving time. It’s about saving—and making—money. Whether your prospective adviser has you fill out the form or talks you through it, it is absolutely essential that you feel this person wants

to get to know you and your money, wants to understand your fears and anxieties about investing, understands how you feel about taking risks, has your best interests at heart. Advisers you interview must spend a lot of time, a couple of hours, getting to know you and your money. They can’t simply plug your answers from a questionnaire into a computer and give you a plan—at least not if it is to work well. What needs to be built is a responsible, respectful, and trusting relationship, and you must not settle for less. Following is the questionnaire I used to go over with my clients, outlining the concerns any prospective adviser you interview must address:

To view the full-size worksheet, or to download the PDF, please visit http://rhlink.com/nsff001.

TEACH YOUR CHILDREN WELL

You want your children to do the best they can in every way, and you want to give them every advantage you can give them, right? You feed them well, dress them well, teach them everything about the world you know to teach them. You are stunned by how much love you feel for them, and now you understand why parents always say they would step in front of a speeding bus to save their child. You would, too, and of course you are teaching them how not to step into traffic, how not to step into the course of that bus when it’s barreling down the street. You want your children to know how to stay safe.

Money, however, is also a safety issue in your children’s lives. Just as you, and I, and all of us need money to keep us safe, so will your children need to know all the steps to financial freedom.

Remember how, in the beginning of this book, you went back to your own childhood and began to reconstruct your money memories, to show you how they led to your fears about money today? So, too, are your children becoming imprinted with money memories right now, and it is your responsibility as a parent—or aunt, uncle, godparent, or friend of a child—to give careful thought about how you transmit messages about money to the children in your life.

Over the past few years a small industry has arisen with books, games, and computer programs to teach children about money, which I think is great. If you have a child, buy as many as you can and pull the best

ideas and information from them. The advice won’t all be the same— that’s okay; again, you will follow your inner voice about what and how you want your kids to learn. The best thing about these books and products is that they open up the dialogue about money, a subject that has been treated as a secret for so long. But they’re only good as far as they go, because money messages are transmitted as much through the heart as through words you learn in a book. If your kids hear you swear at your stack of bills, if they sense fear, if they’re constantly told what you can’t afford, that’s what they’ll learn, even if you go by the books to try to teach them healthier messages.

Today’s children will inherit a global economy, a high-tech world, an increasingly competitive universe in which they’ll have to make their way. Yet so many parents I see, when I ask them how they teach their children, talk about piggy banks and passbook savings accounts and allowances and how they plan to start saving for their children’s college education one of these days. A piggy bank will not exactly teach your children about life in the twenty-first century. It is just another financial symbol relaying the message that to retrieve what you have saved, something has to break. We relay this message many times over to our children, especially when it comes to college funding. In order to send our kids to school, the bank truly has to be broken wide open. You know it, and your kids can feel it, too.

COLLEGE: RUNNING THE NUMBERS

The cost of four-year colleges tends to rise steadily at about 6 percent or so, while inflation is typically in the vicinity of 3 to 4 percent. Assuming that your child has seventeen years to go before entering a four-year school that today costs $25,000 a year, for room, board, tuition, and so forth, the total cost of sending your child to college, in today’s dollars, will be above $200,000. If it is your plan to pay for a four-year college education for your child, here is what you need to know.

HOW WILL I AFFORD COLLEGE?

If these numbers seem staggering, don’t let them be. Try to make decisions today about education tomorrow that will be respectful to you and what you do feel is possible. This is where your inner voice will come into play.

There are alternatives to schools that cost this kind of money. The average state school today is considerably less for residents. In my case, I had to go to a state school while most of my friends went to private schools, because my mom and dad didn’t have the money for a private school—big deal. What was great was that I knew what to expect. I knew that I would have to work to get myself through school, and work I did (and have done better [financially speaking] than some of my friends who were given more expensive educations, I might add). So don’t feel bad about what you know you can’t afford.

Financial freedom is more than just having a lot of money; it’s also being proud of what you have and realistic about what you don’t have and instilling that pride in your children. It is not being respectful of yourself and your money to go into financial debt forever to pay for an education. Greatness will come to one’s life regardless of where one gets an education, because true greatness starts from within, not from without. True greatness and true education start with the messages that are passed down, the conscious messages and the unconscious ones.

THE SOONER YOU START SAVING, THE BETTER

The best time to start saving is when that baby you know you want to have is still a gleam in your eye—just a few years can make a tremendous difference. Let’s say you meet someone and you know that within a year or two you’ll be getting married and that shortly after, you’re planning on having a child. If you start putting money away right then and there, you’ll have to put away less than if you wait.

Let me show you the difference a few years can make. First let’s say that your child was just born today and you have projected that you will need $200,000 in eighteen years to pay for his/her college education. You feel you could average about a 6 percent annual return a year on your money that you would invest to meet this financial obligation. You could either put $70,000 in one lump sum and never have to put in

another cent or if you did not have that kind of money, you could start from scratch with investing about $515 a month starting this year and continuing until your child is eighteen.

However, if you were to wait and not start saving until your child was eight years old, you would then have to set aside $112,000 in one lump sum if you could, or if you did not have money to start with, you would need to set aside about $1,200 a month.

It is far easier to find $515 a month than $1,200. So start early.

UGMA ACCOUNTS

Many people open what is called a UGMA account—Uniform Gift to Minors Act account. There’s a tax break on money contributed to these accounts, but there are also drawbacks. If you are going to start saving for a child’s education, I urge you to know all that you can about the ramifications of putting the money in your child’s name versus your own name, but here are the main things to be aware of.

When putting money into a UGMA account for your child, you are just the custodian for it until she turns eighteen or twenty-one (account regulations vary by state, so make sure you check), at which time you legally have to turn everything in the account over to your child. There is nothing wrong with this, but you have to keep the following in mind. If Johnny Angel turns out to be Johnny Devil and decides to take this money at that time and not go to college but to buy the latest BMW on the market instead, he can. I’ve seen it happen. Now, to avoid the above scenario, some may suggest that a UGMA account can be hidden from a minor, but this is a problem for two reasons. First, any minor over age fourteen is expected to sign his or her tax return and thus has a good chance to notice the income from the account. Second and more seriously, if the custodian fails to turn over money that is due to the

UGMA beneficiary, he or she breaches the statutory trust terms set by

law and is liable for the consequences of that failure, just as a trustee would be, which may include surcharges and other sanctions from a court. So when you put money into a UGMA account, it is your child’s, not yours.

TAXATION OF UGMA ACCOUNTS

Most people open a UGMA for the tax break that they do give you; in my opinion, there is nothing wrong with that. But in most cases this tax break is not as great in the end as one may think. Very likely, you’ll be investing in good growth-oriented mutual funds or stocks, which you will keep for many years, which in turn will make the tax consequences negligible. But this is how UGMAs are taxed, just so you know.

Assuming the child has no other income and is under age nineteen (or if a full-time student through age 23), the first $950 in investment income from a UGMA is tax-free. The next $950 is taxed at your child’s lower tax rate. This is what is known as the kiddie tax. But any investment income beyond $1,900 is then taxed at the parent’s tax rate. Once a child is older than nineteen (or twenty-three if a full-time student) all investment income in the account is taxed at the child’s tax rate. These numbers are for tax year 2011 and are indexed for inflation. Also note that the IRS regulations require all minors fourteen or older to sign their tax returns. Finally, please note that these tax rules are for income earned by a minor; there is no special treatment for UGMA accounts.

Financial Aid

Another element to keep in mind with UGMA accounts is that it may make it harder for your child to qualify for college financial aid. To determine how much financial aid your child can qualify for, your assets will be taken into consideration. Assets in your child’s name will be assessed at the rate of 20 percent. If you have accumulated $50,000 in the UGMA account, your child will have to contribute 20 percent of that, or $10,000, before financial aid could kick in. But only a maximum of

5.6 percent of certain assets in the parents’ name are taken into consideration, so if instead you kept that $50,000 in your name, just

$3,000 or so of that money will be used to determine your child’s financial aid package. This is a big difference.

EDUCATIONAL SAVINGS ACCOUNT (FORMERLY THE EDUCATION IRA)

For years, the government has been offering an Education IRA (officially

now known as the Coverdell Education Savings Account) as another way to save for a child’s education. You can save up to $2,000 per year per child (or, as the IRS terms it, per “beneficiary”). This contribution level is in effect through 2012; future limits will be set by Congress. As with the Roth IRA, your contributions are not tax-deductible, but your earnings are tax-free when used for “qualified educational expenses.” Qualified expenses may include not only college and graduate school expenses but also tuition or other costs for grade school and high school and incidental education expenses, such as computers and educational software.

You don’t have to be related to a child to contribute to an Education Savings Account, so godparents, friends of the family—anyone—can open an Education Savings Account to help fund a particular child’s education. The only restriction here is that the beneficiary, or child, must be under the age of eighteen when contributions are made.

There are income limitations in effect for the person making the contribution to a Coverdell. For single individuals, eligibility starts to phase out at $95,000 of income and is completely phased out at

$110,000 of income. For married couples filing joint returns, the limits are twice those for single individuals. That is, eligibility to contribute starts to phase out at $190,000 of income and is completely phased out at $220,000 of income for married partners filing jointly.

There’s more good news. You can take tax-free distributions from a Coverdell and still be eligible to take the American Opportunity credit or the Lifetime Learning credit, as long as the funds from the Coverdell and the credit are not used to cover the same educational expenses. For example, if a child’s tuition is $25,000, and a withdrawal of $15,000 is made from a Coverdell, the excess of $10,000 can be used to claim the American Opportunity credit or Lifetime Learning credit (see this page–t his page). But money in a Coverdell account may make it more difficult for your child to qualify for financial aid.

Please note: Your contributions to a Coverdell do not have any impact on your eligibility to save any amount up to the maximum allowable in a traditional IRA, a Roth IRA, or a combination of the two. In other words, you can save for your child’s education in a Coverdell and still put money away in an IRA for your own retirement.

Taxation and Regulations

Distributions from a Coverdell will not be subject to tax if used for “qualified education expenses.” If distributions are not used for qualified education expenses, they will be subject to tax and included in the gross income of the person receiving the distribution. Additionally, if they are not used for qualified education expenses, a 10 percent penalty will usually apply. All funds in an Education Savings Account must be distributed before the time the beneficiary reaches the age of thirty, but the account can be transferred to another beneficiary, without tax or penalty, if the new beneficiary is a member of the family of the old beneficiary.

More Help with College

American Opportunity Credit

This tax credit replaces the former Hope Scholarship credit. In 2011, the allowable credit is $2,500. The credit can be claimed for the first four years of college. The way the credit works is that you can claim a 100 percent credit on the first $2,000 in qualified tuition and fees. Then you can also claim a 25 percent credit on the next $2,000 in tuition and fees; that works out to another $500 credit. The combined value is

$2,500. There is an income limit to be eligible to claim this tax credit. In 2011, individuals with income below $80,000 can claim the full credit; between $80,000 and $90,000 a partial credit is available. Married couples that file a joint tax return can claim the full credit with income up to $160,000. A partial credit is available for joint filers with income between $160,000 and $180,000. No credit is allowed if your income is above those upper limits. The credit is in place through 2012. Beyond 2012, it must be reauthorized by Congress.

The Lifetime Learning Credit

This is an additional credit to help pay for college, but you can’t claim this credit in the same year you claim an American Opportunity credit for school for the same student. There is no limit to the years this credit is available, so it can be especially useful for graduate students or if you

want to take classes to improve your job skills. You can claim a 20 percent credit on up to $10,000 in qualified tuition and fee expenses. That works out to a maximum annual credit of $2,000. Individuals with income above $60,000 and married couples filing a joint tax return with income above $120,000 are not eligible for this tax break. The Lifetime Learning credit limits discussed here are in place through 2012. Beyond 2012, the program requires Congressional reauthorization to stay in effect.

529 COLLEGE SAVINGS PLANS

Another way to save for your child’s education is by using what is called a 529 plan. Many states have adopted these plans that are open to anyone to use at any accredited college of their choosing.

In a particular 529 plan, regardless of what state you live in or what state your child actually ends up going to school in, you or anyone who wants to can put tens of thousands of dollars, up to $300,000 per account in some states, into one of these savings plans and use this money to pay for the costs at any accredited school of higher education. The costs include not only tuition, but also books, computers, and room and board. What you need to know is that anyone can put money into a 529 plan regardless of the relationship that person has to the beneficiary of the plan. There is no income limit on who can fund a 529 plan.

Taxation of 529 Plans

When the earnings of this money are withdrawn from these accounts and used for educational purposes, there is no federal tax due. If the funds are put in a 529 plan within your own state, then when you go to take the money out to pay those school bills, state income taxes will also be avoided on the earnings on the fund. Not only that, but if you contributed to a 529 plan in the state where you live, you may get a tax deduction or credit for your contribution. If you invest in a 529 plan outside of the state in which you reside, you will not get a state tax deduction.

Other benefits include the fact that if you have a 529 plan and your

child gets a scholarship, in most cases you can get the 529 plan refunded to you without a penalty. Also, if your child decides not to go to college at all, you can ask to get a refund or else transfer the money to another family member. If you do get a refund under this circumstance, please know that there will be a 10 percent penalty, plus taxes due, on the earnings in the account. But the bottom line is that unlike a UGMA account, in a 529 plan, you can take this money back and do whatever you want with it whenever you want. With a UGMA account, the money belongs to the child, who can access it at a state-mandatory age. You can’t touch it. Money held in a 529 by the parent also qualifies for the preferential treatment when computing a family’s financial aid eligibility.

Here are a few more things you should know about 529 plans. When

you invest in a 529 plan you are simply putting money in an investment account that someone else is managing. If you do not like the investment performance of your particular 529 plan you can transfer your money to another 529 plan. You can make this transfer only once in any twelve- month period. Find out what the 529 plan that you are interested in invests money in, what their investment return has been, and who manages the money. On the other hand, be cognizant of tax benefits. Many people think that it is better to invest in a 529 plan out of state that’s been getting better returns than their state’s 529 plan. This could be true, but it will depend on your state plan and your own state income tax bracket, as well as the returns for the different plans. Run the numbers. This is what you need to take into consideration: any state tax deduction for your contributions as well as your child not having to pay state income taxes on the funds they withdraw to pay for educational expenses. And pay very close attention to the annual expenses charged by the mutual funds offered inside the 529. A low-fee plan that is out-of- state can be smarter than an expensive in-state plan. Compare those bottom line numbers to the return the out-of-state 529 plans have been getting. The numbers will tell you which way is the best to go.

For the best up-to-date information on 529 plans, visit the website www.savingforcollege.com.

YOUR CHILDREN’S REAL EDUCATION

College notwithstanding, your children’s real education about money will take place all through their childhood, in the way you talk about money, in the way you present what working is all about, in the way they learn what they have a right to hope for in this world.

Children can absorb so much, if you will just trust yourself and open up to them. Play money games with them, using mail-order catalogs and price tags in stores—teach them value. When they’re old enough, tell them about your 401(k), your strategies for investing, and what this all means in the context of their young lives. Rather than a traditional passbook savings account, give your children a little money in a mutual fund and let them keep careful watch over it. Talk to your children about how the world presented in advertisements, with a stunning array of things to consume, is different from the real world. Turn the dinner table conversation to the subject of money, and talk to your children about what it means to save for college, for example. Explain what credit cards are, and what you’re doing when you go to the bank, and what the cash machine is all about. Talk about what it means to be poor. Talk about what it means to be rich. Talk about charity, and let your children see it in action often. Talk about prices, and values, at the supermarket. Talk about mortgages, and debt, and insurance, and how you make choices about money.

By talking to your children about money, you will be talking to them about the way the world really works. And teaching them well.

ON TRUSTING YOURSELF

With this sixth step toward financial freedom, you have now learned to trust yourself more than you trust others. Now, along with that trust, you must watch over all that you have begun to create.

Whether you are managing your money yourself or have handed it over to an adviser, or a combination, you must know exactly how it is doing at all times. Remember, not only must you trust yourself; you

must also be respectful of yourself and your money.

You can keep track any way you want, but you must keep track, studying all statements carefully and keeping watch in between. The easiest way to do this is by signing up for an online service like America Online, which will automatically value your portfolio and tell you exactly how much you are up or down every time you punch into it. Make checking your mutual funds and any other investments you own a part of reading the paper every day. It can be a pleasurable part of your day: you are creating wealth.

Your wealth.

With these last three steps we have covered the vital forces behind the doors to financial freedom

YOU MUST BE RESPONSIBLE FOR THOSE YOU LOVE

YOU MUST BE RESPECTFUL OF YOUR MONEY AND YOURSELF

YOU MUST TRUST YOURSELF MORE THAN YOU TRUST OTHERS

Once you have taken these steps in their entirety, you are blowing the door to financial freedom off its hinges. You will then be in a position to walk through that door. The next step, the seventh step to financial freedom, guarantees that you do not unintentionally limit what is to be found on the other side.

A NOTE ON STEPS 7, 8 AND 9\

When I was a little girl, my grandfather, at the end of his long, hard life, would often say to me, “Suze, listen. They can take your money, they can take your business, they can take your family, they can even take your mind. The one thing they can never take,” he would say, “is your heart, and you must grow up valuing your own heart. Love life for what you can give it, Suze, and don’t get bitter over what it will take from you.”

Who are the people in this life you truly love and cherish? What are the things you value most? What do you think, deep down inside, is the key to your freedom? Do you really think the answer is something as simple as money?

Most people have the goal in mind that they want to be free from their worries about money. That’s a perfectly good goal, and that’s what the purpose of the first six steps of this book has been: to help you break through the barrier of financial anxieties and put yourself in control of your money.

To me, though, that is just the beginning of financial freedom rather than the end of it. I have come to believe that the pursuit of money for its own sake is a hollow pursuit indeed. So these last three steps to financial freedom are not about money, but about true wealth. About abundance. About my grandfather’s lesson that true financial freedom is when you know you are rich, with or without a penny.

The advice in these three short but all-important chapters is radically different from what you will read in any other financial book and unlike what you will hear from any other financial adviser. These last three steps will take you beyond what money can buy, and they will, if you let them, make you rich or, perhaps, remind you that you already are.

About the Blog

Challenge with Dr. Jerry - the First is a property of Topitup Media and Communications Nigeria and is the Platform by which we organize challenge programs to help individuals take back their lives.

We organize such programs as

Online Book Reading Challenge

Positive Affirmations Challenge

Reinvent Yourself Challenge

and all these are aimed at making anyone become the best version of themselves.

We do hope that you would always join our programs to keep tabs on yourself

Kindly follow us on social media

Quote of the day

"Listen to your heart because wherever your heart is that is where you'll find your treasure" - Paulo Coelho

BOOK RECOMMENDATION

BUY NOW

Join the JTF Book Club

9 Steps To Financial Freedom - Step 5

noreply@blogger.com (Online Courses) — Tue, 07 Dec 2021 11:13:00 +0000

9 Steps To Financial Freedom - Step 5

BEING RESPECTFUL OF YOURSELF AND YOUR MONEY

MONEY IS A living entity, and it responds to energy exactly the same way you do. It is drawn to those who welcome it, those who respect it. Wouldn’t you rather be with people who respect you and who don’t want you to be something you’re not? Your money feels the same way.

THE SECOND LAW OF FINANCIAL FREEDOM

RESPECT ATTRACTS MONEY - DISRESPECT REPELS MONEY

This is one of the reasons why the rich get richer. If you’re respectful of your money, and do what needs to be done with it, you will become like a magnet, attracting more and more money to yourself.

For some of us, this goes against the grain. We’ve all heard that “money is the root of all evil,” and it’s easy to have the notion that caring for our money is a task that should be beneath us. We know there are more important things in life—like people, as we saw in the last chapter. But that doesn’t mean you should neglect your money. Remember, your financial life is like a garden. If you tend a garden carefully, nourishing the flowers, pruning, and weeding, it’s going to be a lot more beautiful than if you simply water it halfheartedly now and then.

Wouldn’t you like your financial garden to be beautiful and bountiful? Don’t you deserve it? If you treat your money with disrespect, you are actually not giving yourself the respect that you deserve. And when you fail to respect yourself and your money, you actually repel wealth from yourself, and you block more wealth from coming your way.

The consequences of not respecting money may show up in your life in any number of ways. You might lose some of what you have just by neglecting to pay attention to it. As soon as you pay off one credit card, your car breaks down and now you owe even more. Maybe you didn’t get that job you felt certain was yours. A wonderful relationship, or so you thought, just goes out the window over money. However this repulsion takes place in your life, the root cause of it is disrespect of yourself and your money.

When I say this to some people, many of them get very defensive and say, “But Suze, I am the most respectful person I know when it comes to money.” When we look closely at all their actions relating to their money, however, we eventually see that they are not as respectful as they would like to think.

When you start really respecting yourself, those you love, and your money, the result is that you start having control over your money. What follows from that is control over your life.

YOUR EXERCISE

Please write down all the ways in which you are both respectful and disrespectful of yourself and your money. Contemplate this for a while, and you’ll begin to see how the actions you take in your life, and with your money, can erode your relationship with yourself and your money. Some questions:

Do you spend more money on your friends than you can afford to?

Why?

Do you find yourself buying more presents for your children for the holidays or their birthdays than feels right to you?

Why?

Will you spend money on others but never a penny on yourself?

Why?

Do you send things Federal Express or next-day air because they’ll come pick it up, rather than going to the post office to mail it far more cheaply?

Why?

Have you ever bought a dress or suit and decided, when you got it home, that it really didn’t suit you, then neglected to return it to the store in time to get your money back?

Why?

Do you give to charities because you really believe in the cause or to impress people?

Why?

Do you put away as much money as you possibly can for retirement each year?

Why not?

Do you borrow things from friends and fail to return them? Why?

Do you sometimes “forget” to pay off personal loans from friends with the same regularity that you’d pay off a credit card? Why?

Do you constantly pay late fees on your bill payment?

Do you send your clothes out for dry cleaning when all they need is a quick once-over with an iron?

Why?

Do you often go out to dinner simply because you don’t feel like cooking? At what cost over time?

Why?

Do you sometimes pay your bills late when you didn’t have to?

Why?

After you have written your answers, go back and think of occasions when your respect led to something great happening or when your disrespect brought with it some unhappy consequences.

It’s very subtle, but the way we treat ourselves and our money touches upon every aspect of our lives.

Those people who are respectful of themselves, respectful of others who have money as well as those who do not, respectful of what money can and cannot do, are said to be people with a golden touch. I’m sure you’ve said it yourself about someone: Whatever she touches turns to gold. But a golden touch with money isn’t something you’re born with, like perfect pitch. It is something you can learn, something you must learn if you want to be blessed with financial freedom

YOUR EXERCISE

Please take out your wallet or whatever you keep your money in right now. How are your bills organized? Are the ones mixed in with the tens? Are they all facing different ways? Are they stuffed in there in such a way that you have to unravel them to see what they are? How you actually keep your money is where respect for it starts. Keeping your bills neat and in order, caring for them the way you care for other important things in your life, will serve as a constant reminder of the respect that you and your money deserve.

This is what Step 5 of the nine steps to financial freedom is about— being respectful of yourself and of your money and taking actions to give that respect meaning.

PAYING YOUR BILLS TO YOURSELF

A few years ago I was asked to counsel the employees of a company that was offering early retirement to those employees fifty years old or over. I’ve given seminars to such employees before and also personally counseled more than one thousand people who have been offered early retirement, and I’ve seen how terrifying such an offer by an employer can be. If the employee is emotionally ready to retire, and financially ready to retire, it can be great. Seldom, though, do we have all our emotional and financial ducks in a row at such an early age. Many people are afraid to take offers of early retirement. Yet however afraid they are to say yes to the offer, they’re more afraid to say no. Why? Because if they say no, they’re at the mercy of their company, with no guarantees of employment for as long as they’ll need it. And once they turn down the offer the first time, they may not have a second chance.

This time I discovered something very interesting. Even though most of these people had worked for this company for twenty-five years, and most of them were earning the same salaries the whole time, there was an even split of the people who came for counseling, with only a few exceptions. The vast majority of people who came either had around

$400,000 in their 401(k) retirement plans or else they had around

$150,000—big difference.

What accounted for the difference? Were some simply better investors than the others? No. Nearly all these people had all their money in the company’s stock, even though they had other investment options. Had some been in the company plan longer than others? It wasn’t that, either. Most of them had been in the plan for about the same time, give or take. Had some withdrawn large amounts of money from their retirement plans, even at a penalty? There were a few of these, but they were the people who only had anywhere from $10,000 to $50,000 left in their plans, and they were a small minority.

One single factor accounted for the difference. Those who had

$400,000 or more had from the beginning put in the maximum amount they were allowed to put into their 401(k) account. Those who had

$150,000 had simply put in 6 percent of their salaries because that was all the company matched. Their attitude was: Why put in more than the company will match? (Sound familiar?) One good reason for these people would have been $250,000 more in retirement security.

To look at it a different way, that extra $250,000 would give them an extra $850 or so a month without their ever having to touch the principal, or a hefty amount to invest for growth to cover inflation concerns, or to leave to their family when the time came. For most of the people I counseled, that $250,000 meant the difference between knowing that they would never have to find work again unless they wanted to and being afraid that one day there would be no choice.

Now, there is one scenario where I think it can make sense to not invest the maximum in your 401(k). If you are eligible for a Roth IRA (see this page) but you are too cash-strapped to contribute the maximum to your 401(k) and fund a Roth IRA, you are to scale back your 401(k) contribution. Make it your goal to contribute just enough to your 401(k) to qualify for the maximum employer matching contribution (but not a penny more), and then concentrate on investing in a Roth IRA, which in my opinion, is the best retirement investment available. But if you can manage to invest the maximum in both the 401(k) and the Roth IRA, that’s an even better move.

THE IMPORTANCE OF INVESTING

There are only three honest ways in this life to get money. The first is to work for it. The amount of time most of us are able to work will be limited—by age, health, elimination of our jobs, whatever—and there will be many years, for most of us, when we’re spending money but not earning it. Do you know that many of us will spend more time in retirement than we ever did working?

The second way to make money is to inherit it. Are you among those who are hoping that an inheritance will be your saving grace? If you’re waiting around for the heavens to rain money down on you, I hope you paid close attention to Step 4. With life expectancy inching up to the eighties and beyond, you might well hit your own retirement years before you ever see a penny. What is more, for the majority of us, inheritance is rarely a sure bet. One nursing home stay, a few investments gone bad, a large probate or estate tax bill—anything can happen.

The third way to make money is the most powerful and respectful way there is. This is to invest the money you save during your working years wisely, so that when you no longer want to or are able to work, your money will work for you. The earning years of your retirement money can go on forever—money is a living entity, remember? If invested with respect, if invested in time to let it grow, these earnings will take care of you well and go on to take care of those you leave behind.

ADDING YOURSELF TO YOUR PAYROLL

It is not respectful to yourself, to others, or to your money not to plan for your future. It is not respectful to yourself, to others, or to your money not to take full advantage of the 401(k)s or IRAs or the other retirement plans that are available to you. It is not respectful to yourself, to others, or to your money not to face your debt, to learn the basics of investing, and to stand guard over your money, making sure that every penny you’re spending is a penny that must be spent. What day you pay your bills, when you send in your taxes, and what hidden costs you pay for your checking account all can make a difference in how much money you have and how much money gets attracted your way. We all think that a bigger paycheck would be the answer to our financial woes, but that is rarely the case. Respect starts with the money you are earning right now and what you do with it.

THE THIRD LAW OF FINANCIAL FREEDOM (PART 1)

THE MORE YOU MAKE THE MORE YOU SPEND

Remember your first paycheck from your first job, how it seemed like so much money and how everything seemed possible? Remember your first raise, how your expenses expanded to spend it, and you wondered how you ever managed to get by on that first paycheck? With every subsequent raise, you’ve probably increased your spending to use up every penny of it—even though you got by perfectly well before your most recent raise, the one before that, and the one before that.

THE THIRD LAW OF FINANCIAL FREEDOM (PART 2)

THE LESS YOU THINK YOU MAKE THE LESS YOU WILL SPEND

No, no, no—this does not mean you should make less money; I hope you make as much money as you can! But there is a simple and remarkably effective way to make yourself spend less. You invest more. By putting more money into your retirement accounts, your take-home check will be less and you will quickly train yourself to spend at a lower level, just as you used to do when you were making less money. (If you still don’t see how you can spend less, reread Step 3, which will show you how to do so.)

If you do this now, if and when that day comes when you’re asked to attend an early retirement seminar, or when those rumors in your office about downsizing become reality, you’ll be ready. You’ll be the one with the $400,000 or more with which to face the future.

You may say, “But Suze, I can barely afford to pay my bills as it is. How do you expect me to live today and still put money away for my retirement?”

If you think you cannot make it today, while you’re working and have a paycheck coming in, how in the world do you think you’re going to make it in the future, when you will have essentially the same bills to pay but no paycheck coming in? The answer is that you won’t. But if you set it up now, even on a modest salary, you can put aside an impressive amount of money.

Some years ago a couple came to my office—early forties, nicely dressed, two children, annual salary of $35,000 (which would be closer to $70,000 in today’s dollars). The wife didn’t work outside her home, because the children were too small, although she planned to go back to work in a few years. They owned their own house and had fourteen years left on their mortgage. They paid their credit card bills in full every month. They already had a sizable nest egg, because the husband had been aggressively investing the maximum in his 401(k) plan at work. They had a few other investments that were doing nicely, earmarked to fund their children’s education. I remember asking them, “How is it possible that you can do all this on just $35,000 a year?” He

answered: “We only spend what we see. The company takes out the maximum for my 401(k), and I also have them send money directly to our credit union. The credit union sends money directly to a mutual fund to invest it. Our take-home money isn’t much, but at least we know we can spend it all and not have to worry. So it works.” I asked them why they had come to see me, and they said they wanted to make sure they were covering all their financial bases. With immense respect for the job they were doing, I sent them home and told them not to change a thing.

MAKING YOUR MIND YOUR FRIEND

Your mind is the most powerful tool you have, and in the same way my clients just mentioned did, you must make it believe that you make less than you do so that you will naturally spend less.

Your mind believes that if you bring home a monthly paycheck of

$3,000, then you have $3,000 to spend. And you’ll spend it, all of it. If you get a raise and start bringing home $4,000 a month, you’ll spend all of that, too, and wonder how on earth you managed on less. But if you start bringing home $3,500 a month, your mind will adjust to it, and you’ll naturally spend less. The way to do it is exactly the way my clients do: just put it away before you ever see it.

You won’t be depriving yourself. You’ll be paying yourself. You’ll be on your own payroll and soon be able to enjoy two of life’s great pleasures: counting your money as it grows and dreaming of how you’ll spend it when the time comes.

TIME AND YOUR 401 (K)

JUDY’S STORY

“I would happily save more for retirement,” Judy said, “but I can’t afford it

It was actually quite a few years ago when my mom died and left me what I thought was a nice inheritance. At the time, I had just a few credit card bills—not more than, say, $2,000. But I sure loved having more money in the bank. My partner and I had been living together then for about eighteen years, and we had always had a nice sharing relationship financially. But things seemed to change after I got that money. Before I knew it, I had spent more than half of it, on things I had never really given much thought to before. And Deb, well, she started to spend more, too. Before I knew it, our credit card bills were up to around $7,000. And that was before we bought our new apartment. But now I’m getting nervous about the future. I have a 401(k) plan at work, and I put in 6 percent, which is what the company matches. Deb doesn’t even have a retirement plan at work. I probably should put more money away for retirement, I know it makes sense, but I really can’t afford to, not with the mortgage and everything

Judy had it backward. In fact, she couldn’t afford not to put more money away for retirement. Having worked at the same corporation for twenty- seven years, she had missed out on thousands upon thousands of dollars she could have saved painlessly, effortlessly, and tax-deferred. By receiving a little less in each paycheck, she would have earned herself far, far more in the long term for her retirement, which would be upon her not too many years down the road.

THE FOURTH LAW OF FINANCIAL FREEDOM

IT'S NOT WHAT YOU MAKE - IT'S WHAT YOU GET TO KEEP

With Judy, as with the rest of us, it is not the amount of money earned that is important. It is how much of that she does not have to give to the

IRS, how much she really does get to keep.

Money that goes into a retirement fund is money you do not have to pay taxes on until you take it out. Or if you use a Roth IRA or Roth 401(k) to save for retirement, you invest dollars that have already been taxed and then in retirement all withdrawals will be tax-free. Depending on your income tax bracket, you might be able to keep up to 35 percent more of your money (the highest federal tax bracket through 2012). Because of the tax savings, contributing the maximum to your retirement account right now will not deprive you of as much current income as you might fear. And where it will make a vast difference is in what you’ll have to spend later.

Let’s say that I convinced Judy to raise her 401(k) contribution to

$500 a month or $6,000 a year, and let’s say that she is in the 35 percent federal tax bracket. By investing in the 401(k), she will have cut her monthly federal tax bill by $175. If she had not invested in the 401(k), that $500 would be taxed before she got the money, leaving her with just $325 to spend.

Your situation might be a little different, depending on what tax bracket you are in or whether the state you live in imposes an income tax, but the concept always holds true.

Finally I convinced her, and she promised to up her contribution to the maximum that very week, which she did. She called me a few days later: the very day she raised her contribution, her boss had called her into her office to give her a midyear raise. This was the first time in all these years she had been given a raise before the end of the year. She was stunned.

I wasn’t. This sort of occurrence, however you want to explain it, is not uncommon; I’ve seen it happen many times. I attribute it to the second law of financial freedom: Respect attracts money.

Judy had decided to respect herself, chosen to put the creed into action and take the steps to nurture her money. And by doing the right things with her money, she attracts more money.

EXERCISE

If you are covered at work by a 401(k), 403(b), or SIMPLE plan, I want you to go into your human resources office and up your contribution. You must contribute at least enough to qualify for the maximum matching employer contribution. That match is a free bonus you do not want to pass up. After you have achieved that, your focus should be on also funding a Roth IRA. Then, if you have the ability to save even more, you can increase your work-based contributions even higher. The absolute best move is if you can fully fund your work retirement plan as well as a Roth IRA. If you have not signed up for your retirement plan, please do so now. If you are self-employed or your place of employment doesn’t offer a 401(k) or similar plan, please read on and take the actions that are right for you. Once you’ve done this, write down the date you took the action and begin to keep track, and see what happens in your financial life that never would have happened before. For Judy, it was a midyear raise. Soon you will see that there is a direct correlation between taking a step toward financial freedom yourself and watching your money take a step right back toward you.

IF YOU’RE AFRAID TODAY, YOU’LL BE MORE AFRAID IN THE FUTURE

You need not feel afraid about increasing your contributions. None of these changes is cast in stone, and you could always change back if you felt you had to. Among all the people I’ve had do this, by the way, not one single person has ever regretted it—or changed his or her contribution back to where it was. You cannot afford not to try this out. There will be a day, you know, when you won’t be able to bring in a paycheck, and you must prepare for that day now.

Companies are offering 401(k) plans because most of them do not offer pensions anymore. When many of our parents retired, things were different. Back then, many received a monthly paycheck from their longtime employers after retirement—that’s why retired people were called pensioners. Also, even a generation ago people were not living to ripe old ages, the way we are now, and retirement was a shorter-term eventuality. For most of us, the pension check is a relic of the past.

If you’re counting on Social Security to see you through retirement, count again. That is not the most secure bet you could make. When Social Security was first created, the average life expectancy was sixty-two. The architects of Social Security expected that very few Americans would live long enough to collect it. Surprise! Now that the average life expectancy extends well into the eighties, most of us will spend more years in retirement than we ever did working. This is placing a tremendous strain on the Social Security system, so much so that recently the government has changed the ages as to when you can collect your full Social Security benefit. Starting with people born in 1938, the normal Social Security eligibility age will rise by two months for each year, until it reaches sixty-six if you were born in 1943. It then stays at sixty-six for everyone born through the end of 1954. If you were born after the year 1954, then the age to receive full benefits starts to climb again by two months a year until it is finally capped at sixty-seven for those born in 1960 or later.

Not only does the change affect when you start collecting your full

benefit amount, but it also affects you if you decide to take your Social Security payment before your full benefit eligibility age. For instance, if your full benefit eligibility age is now sixty-six but you wanted to take your Social Security benefits at age sixty-two, your benefits will be 25 percent lower. People whose normal retirement age is now sixty-seven will see a 30 percent benefit reduction if they choose to take their Social Security at age sixty-two.

The way it used to work was you could get your full benefits at age sixty-five, but if you did take them at sixty-two you only had a 20 percent reduction. But now, not only do you have to wait longer to get your full benefit if you were born after 1938, but if you take your Social Security at sixty-two, you get less as well.

On the bright side, the yearly rate of increase in benefits for those who wait past their full eligibility age to start collecting Social Security will gradually rise, up to 8 percent for those born in 1943 or later. This incentive is not offered beyond age seventy, however.

The current eligibility age of 65 for Medicare, the nation’s health insurance program for the elderly, is not affected by the Social Security changes.

If all this is confusing, take a look at the chart above. The figures on the left refer to the year you were born and the figures in the second column refer to your actual full benefit age calculated by the SSA. The last three columns show you what will happen if you decide to start taking Social Security before reaching your full retirement age.

You can obtain an estimate of your Social Security benefits at the SSA website at http://www.ssa.gov.

So, as you can see, the government has the ability to make changes whenever they want; in my opinion, if you are counting solely on Social Security, you could be in danger. It is so very important to also save for retirement outside of your Social Security payroll deductions. For most of the people I have come in contact with, their saving grace is their 401(k) or other retirement plan. Almost certainly it will be for you, too.

RETIREMENT PLAN BASICS—HOW THEY WORK

The employer-sponsored plans known as 401(k) and 403(b) allow you to contribute a portion of your salary. A 401(k), which takes its exciting name from a section in the tax code, is an all-around plan that almost any employee of any company can enter into. A 403(b) plan is what you have if you work for a nonprofit organization, such as a hospital, university, or research organization. The 401(k) and 403(b) plans work in much the same way; if I refer to a 401(k) plan here, it will also apply to you if you have a 403(b) plan.

How Much Can I Put into My Plan?

The percentage and the amount you can contribute may vary from employer to employer; some employers limit the percentage of your salary you can contribute. Regardless of the percentage your company allows, the maximum dollar amount the government generally allows as of the year 2012 is $17,000 per year for 401(k) plans and 403(b) plans. That contribution limit is adjusted for inflation annually.

Individuals who are at least 50 years old by the end of the year can make an additional contribution to their plan. For 2012, the additional 401(k)/403(b) contribution limit is $5,500 and will be indexed for inflation in later years.

In addition, with a 401(k) the government has interesting regulations that affect how much you can contribute if you are making a lot,

$115,000 or more, in 2012. (This figure also changes for inflation.) When you earn this kind of money, the government considers you to be a “highly compensated employee,” and out of fairness to all employees it does not want the average percentage for those earning $115,000 or more and putting the maximum into the plan to be far greater than the average percentage of all other employees who are not as highly compensated. The term “highly compensated employee” means any employee who, during the current year, made at least $115,000, or your salary is in the top 20 percent at your firm. A plan where the more- highly-paid individuals contribute much more than the less well-paid is called “top-heavy.”

This means that if you are highly compensated in the government’s eyes, you might not even be able to contribute the full $17,000 to your 401(k). In fact, if employees at your company who are less well paid are not putting in anything at all, you may not be eligible to contribute anything whatsoever. Make sure your plan administrator has addressed this potential problem. Otherwise, if you are highly compensated and have put too much in your plan, they’ll have to give the money back to you, and it will be taxed as ordinary income.

How Do I Put Money into My Plan? What Happens to the Money?

The percentage that you decide to contribute, once okayed by the company, will be taken from your paycheck.

The company administering the plan then invests your money for you. You will usually have a choice of several investment vehicles, which might include mutual funds, bond funds, or individual equities such as the stock of your own company. Typically, the choices will offer a range of risks and returns. Some investments are highly predictable, such as bonds, which produce steady income at minimum risk. The stock market is more variable, and the most aggressive growth funds may swing up and down considerably in value, while they offer a higher return over time.

Usually you will be given extensive information about your investment options, and you can divide your contributions as you see fit among the different investments.

Plans today allow you to transfer money within the plan from one investment to another or to change how you want future contributions to be allocated among the investments. All it usually takes is a phone call. So if you have invested all your money in a stock fund, for instance, and the stock skyrockets and you sell your shares within the plan because you made 30 percent on your money, you will not owe a penny at that time in taxes. While the money sits in the plan you do not have to pay taxes on it.

Should I Invest All My 401(k) Money in My Company’s Stock?

It’s never wise to put all your eggs in one basket, particularly in stocks. The stock market has ups and downs, and individual companies may fall on hard times very quickly, due to management mistakes, changes in the economy, or sheer bad luck.

This doesn’t mean your company is a bad investment or that you shouldn’t express your loyalty by being a shareholder. But even great companies can see frightening declines in their stock. By all means, invest in your own firm, but spread your money around so that you’re protected if the unexpected happens. Diversification should be your watchword. I recommend you limit investments in one company to 10 percent or less of your assets.

When Do I Owe Taxes on a Retirement Plan?

The taxes on a traditional 401(k) will be deferred until you take your money out, at which time it will be taxed as ordinary income. But if you withdraw funds from a retirement account before the age of fifty-nine and a half, you will pay ordinary income tax as well as a 10 percent penalty. You will also pay a state tax and penalty, if applicable. With a SIMPLE, it works the same way after the first two years. But if you take out the money within the first two years you participate in the plan, an early withdrawal tax of 25 percent will apply.

However, there are exceptions.

Getting Around the 10 Percent Early Withdrawal Penalty

Very few people know about this, but it’s true.

If you’re fifty-five or older in the year of retirement from your company, you can withdraw whatever you like from what’s known as a qualified employer retirement account without any tax penalty whatsoever. You will pay tax on this money as if it were ordinary income. The tax will be withheld from your withdrawal off the top in the form of a 20 percent withholding tax. You’ll get a refund of this withholding tax if when you file your return you owe less than was withheld. If you owe

more, you’ll have to pay the balance.

This holds true only for employer-sponsored retirement plans such as the 401(k)and 403(b). If you take your money out of your 401(k) and put it (without you touching it) into, for example, an IRA rollover, this 20 percent withholding rule won’t apply to you.

What If I Leave My Present Employer?

When you leave your place of employment, many times you can leave your 401(k) right there and not have to take it out until much later. Other times you might want to withdraw your money, and some companies may encourage you highly to take it out when you leave, although if you have more than $5,000 in the plan, they can’t force you to do so. In any case, there might come a time when you need a place to which you can transfer the money.

You usually have two choices. If you’re merely changing jobs, you may be allowed to move it to the 401(k) plan at the new company. The other option is to arrange for a trustee-to-trustee transfer of the money from your current plan into an IRA rollover account which is often called a direct rollover. If you do this, you can continue to shelter all the money from taxes and invest it for your retirement. You can open an IRA rollover at a bank, a mutual fund company, an insurance company, or a brokerage firm. I prefer discount brokerages or low-cost mutual fund firms. IRA rollovers are governed by the same regulations as an IRA account (described later in this chapter).

Substantially Equal Periodic Payments to Avoid the 10 Percent Withdrawal Penalty

There is one other way to get money out of your retirement accounts and avoid that 10 percent penalty if you are not the permissible age or if your money is in an IRA or IRA rollover. You can do this by using a technique called substantially equal periodic payments (SEPP). Simply put, you have to take out a specific amount of money every single year until you are 59½ or for five years, whichever period is longer.

So if you are fifty-seven and you start to take money out of your IRA account under SEPP, you will have to do so until you are sixty-two. If you’re fifty-two when you start, you’ll have to continue withdrawing the money until you’re fifty-nine and a half—again the rule is whichever time period is longer.

The amount you can withdraw is calculated by one of three methods; the method you choose will determine the actual dollar amount you must take out yearly. This exact predetermined amount must be withdrawn every year for five years or when you reach fifty-nine and a half, whichever is longer. Very few people know about this loophole, IRS code 72(t)(2)(A)(IV), but it’s there if you need it. Make sure you consult with a financial adviser, accountant, or brokerage house who is familiar with this law.

When Do I Have to Start Making Withdrawals from My Retirement Plan?

The longer you can let it sit there, in most cases the better off you’ll be. But the government won’t let it sit there (tax-free!) forever. They want their taxes on your retirement money. According to a formula specified by the IRS, you have got to start taking money out of traditional retirement plans [except for Roth IRAs and Roth 401(k)s] by April 1 in the year after you turn seventy and a half. There is one big exception: If you are still working, your retirement money is in an employer-sponsored plan such as a 401(k), and you are seventy and a half or older, and you do not own more than 5 percent of the business, you do not have to make withdrawals until April 1 following the calendar year in which you do retire.

What If I Don’t Have a Retirement Plan at Work?

Ask your boss to get you one. Take a poll and you will see that almost everyone you work with probably wants one, too. Choose the best person to approach your boss to ask about establishing a 401(k) company plan or a SIMPLE for all of you. Offer to do the research yourself or with a colleague. Many excellent plans are offered by different mutual funds companies, all of whom will set up a plan for your company’s needs; Fidelity Investments (800-343-3548 or visit www.fidelity.com) and Vanguard Group (800-662-7447 or visit www.vanguard.com), for example, are two of the largest 401(k) money managers and wonderful places to start looking.

INDIVIDUAL RETIREMENT ACCOUNTS

If you are working for a company that still won’t offer you a retirement plan, your only other option is an IRA, or individual retirement account. You can make an IRA contribution of up to $5,000 for yourself, and if you’re married, you can also contribute $5,000 for your nonworking spouse. Individuals who are fifty or older as of the end of the year could contribute an additional $1,000 in 2012, for a maximum contribution of

$6,000. All IRA contribution limits are adjusted annually in line with inflation. In order to make a contribution, the combined income of both spouses has to be at least equal to the amount contributed to the IRA. You can also have a traditional IRA in addition to an employer’s retirement plan, but your contributions may not be tax-deductible.

There are three different kinds of IRAs that you can choose from: a traditional IRA, the spousal IRA, and the Roth IRA. Here are the new specifics.

The Traditional IRA

If your earning allows it, the traditional IRA gives you a current-year tax deduction. If you are eligible, you can contribute $5,000 to your IRA, and if you are in the 25 percent tax bracket, you will save $1,250 that year in income taxes ($5,000 × 25%). What is more, while the money is in the IRA, both your contributions and the IRA’s earnings grow tax- deferred, which means that the income taxes on any growth of the funds are deferred until you actually withdraw any of the money, at which time you will pay ordinary income tax on the amount withdrawn each year. With a traditional IRA, in most cases you cannot withdraw the money prior to age fifty-nine and a half without paying a 10 percent penalty on the amount withdrawn. (Exceptions to this are if you use SEPP, this page, or for the reasons listed below.) On the other end, if you do not need the money, it can sit there until you have to start making withdrawals by April 1 of the year after you turn seventy and a half. But remember, if after that date you have not taken out the required amount there is a 50 percent penalty on the amount that should have been withdrawn. The spousal IRA follows the same guidelines.

Who Can Withdraw Money Penalty-Free from a Traditional IRA?

There are two other circumstances in which you are permitted to make an early withdrawal without paying the penalty.

1. If the money is used by a “first-time home buyer” to purchase a principal residence. The distribution may come from the buyer’s IRA or from an account belonging to the buyer’s spouse, or the child, grandchild, or ancestor of either the taxpayer or the taxpayer’s spouse. There is a lifetime limitation of $10,000 that can be treated as penalty- free “first-time home-buyer” distributions.

2. Distributions for higher education expenses at an eligible education institution to the extent that such distributions do not exceed the qualified higher education expenses of the taxpayer, taxpayer’s spouse, or any child or grandchild of either the taxpayer or the taxpayer’s spouse for the taxable year.

Who Can Take Advantage of the Traditional IRA Deduction?

The traditional IRAs, including spousal IRAs, have rules regarding deductibility that are determined by whether the taxpayer is covered by a qualifying retirement plan at work and, if so, by what the taxpayer’s filing status and income are for the year. In 2012, the range was

$58,000-$68,000 for single taxpayers and $92,000-$112,000 for married filing jointly (MFJ). However, a spouse will not be considered covered by a retirement plan simply by virtue of the other spouse’s being covered. The spouse without a qualifying retirement plan will be able to make a fully deductible contribution to an IRA if the modified joint AGI does not exceed $173,000. Between $173,000 and $183,000, deductibility is phased out.

The Roth IRA

The Roth IRA differs, in that you do not get to take a current-year tax deduction in the year that you put the money in, or, for that matter, ever, but—here’s the lure—from the moment of deposit, no matter where you deposit it or what your return, your contribution grows tax- free. When you take your original contributions out, you will not pay any taxes or penalties whatsoever. That’s right, you can take your initial contributions out anytime, regardless of your age, without taxes or penalties (subject to a special rule on withdrawals of converted IRAs within five years of the conversion). And to get your hands on the earnings tax-free, the only rules are these: The money your contributions earn has to stay in the account for at least five years before you can withdraw it without taxes or penalties, and you have to be at least fifty- nine and a half years of age. The other ways to get your hands on the earnings penalty-free are if the owner has died or is disabled, or if the distribution is made for a qualified “first-home” purchase ($10,000 lifetime limitation is applicable) as long as the five year rule is met.

Who Can Take Advantage of the Roth IRA?

In 2012, up to $5,000 (or $6,000 if you are at least 50 years old) can be contributed by single taxpayers having less than $110,000 in modified adjusted gross income (MAGI). Married taxpayers filing jointly have full eligibility if they have a MAGI of $173,000 or less. Eligibility is lost at $125,000 MAGI for single taxpayers and $183,000 MAGI for MFJ. Taxpayers can have a combination of Roth IRA and traditional IRA accounts as long as the combined contributions don’t exceed the yearly maximum allowable for either type (which can be as much as $5,000 [or

$6,000 for those at least fifty], as of 2012).

A law that went into effect in 2010 now makes it possible for anyone

—regardless of how high their MAGI is—to invest in a Roth IRA. If your MAGI is greater than the limits above you first must make your contribution to a traditional IRA. Once you have done that you can then convert that traditional IRA to a Roth IRA. I recommend consulting with a tax adviser before you proceed with this strategy. It can indeed be a very smart move for you, but there are some rather confusing tax rules that come into play. That’s where a tax pro with experience in Roth conversions will be indispensable.

IRA Conversions and Qualifications

As of 2010, anyone—regardless of income—can convert to a Roth IRA. If you do this, what you need to know is that even though you may be under the age of fifty-nine and a half when you take the money out of your traditional IRA to convert to a Roth, the 10 percent penalty tax will not apply—but you will owe ordinary income tax on any money that you converted.

To Convert or Not to Convert, That Is the Question

Because the Roth IRA and the conversion feature continue to cause tremendous confusion, many websites and help departments at brokerage firms have been set up just to answer this question for you, given your particular circumstances—most of them in the hope that they will end up with your IRA money one way or the other. Try them out and do the calculations for yourself, using the sources available to you, and see if it makes sense for you in your particular situation to convert or not and then check your answers with a professional.

If you do decide to do a conversion, make sure that you can pay for the taxes out of your savings or your income, but not from the money in the IRA. Also, remember that no one ever said you have to convert all the money that is in your traditional IRA into a Roth; you may just want to convert a small amount so the tax bite is not so bad. Before you do anything, however, I would suggest getting a professional opinion—from someone who does not want to get your IRA money to invest, such as a CPA or an enrolled agent who does not take money under management.

Roth IRA and Roth Conversions

Q. If I open up a new Roth IRA and contribute $5,000 a year or convert my traditional IRA to a Roth IRA do I still have to wait till I am fifty-nine and a half to take the money out without penalty?

A. No. The rules that govern Roth IRAs and converted Roths are different than the rules that govern traditional IRAs.

In a contributory Roth IRA you can at any time you want, regardless of your age or time the money has been in the account, withdraw your original contributions without any taxes or penalties. So let’s say you are now thirty-nine years old and for the past three years you have put

$5,000 a year into your Roth IRA. You have put in a total $15,000 of original contributions. At any time you want, you can withdraw up to

$15,000 without penalties or taxes. Remember, you are only thirty-nine, not fifty-nine and a half, but that does not matter. The money has only been in there three years, but that, too, does not matter. Your yearly contributions can be withdrawn at any time, with no restrictions whatsoever and without taxes or penalties.

However, the earnings on your contributions have to stay in the

account until you are at least fifty-nine and a half years old and the account is more than five years old. So let’s say that the $15,000 over those three years grew to $17,000. Yes, you could withdraw the $15,000 at any time, but the growth on that money or the $2,000 has got to stay in the Roth IRA till you are fifty-nine and a half and for at least five years before you can withdraw it without taxes or penalties.

Roth Conversions

When you convert money from a traditional IRA to a Roth IRA, the withdrawal privileges work like this. The money that you originally converted has got to stay in the Roth account for more than five tax years or until you are fifty-nine and a half, whichever comes first, before you can withdraw it without taxes or penalties. You do not, however, have to be fifty-nine and a half to withdraw the converted amount to avoid the 10 percent penalty, you just have to have met the five-year holding requirement. So let’s say that you are thirty-nine and you convert $50,000 from a traditional IRA to a Roth. That $50,000 has got to stay in the Roth IRA for at least five years. After that time, even though you are just forty-four, you can withdraw all $50,000 without any taxes or penalties. The earnings on that $50,000, however, cannot be withdrawn without penalties or taxes until you have attained the age of fifty-nine and a half.

Q. When does the five-year period begin for contributory Roth IRAs? This confuses me, since I am putting money in every year.

A. The time clock starts for all your contributions from the year of your first contribution. So let’s say in the year 2011, you deposit $5,000 into a Roth. The five-year time clock began—on January 1, 2011. Every contribution made from this point on will be backtimed to the year 2011.

Q. When I die, will my beneficiaries have to pay income taxes on the money that I leave them in a Roth IRA?

A. No. That is one of the beauties of this account. The money that you leave your beneficiaries via a Roth will be income tax-free when they take it out.

Q. Do I have to start taking money out of a Roth IRA when I turn seventy and a half, like I do with my traditional IRA?

A. No. You can leave the money in there for as long as you want.

Q. Can I convert my 401(k) to a Roth IRA?

A. Yes.

Q. Can I have a 401(k) and a Roth IRA?

A. Yes. In fact, you can have almost any retirement plan and also have a Roth IRA if you meet the AGI income levels listed below.

Q. Does this mean I can have a traditional IRA and a Roth IRA?

A. Yes, as long as between the two IRAs you have not in one year contributed more than the $5,000 annual cap for IRAs (or $6,000 if you are fifty or older).

Q. Are there income limitations to who can have a Roth IRA?

A. Only if you want to contribute directly to a Roth IRA; anyone can contribute to a traditional IRA and then convert to a Roth. To make a direct investment in a Roth IRA, the maximum adjusted gross income limitations are as follows: for those filing an individual return, $125,000; for joint returns, $183,000.

Q. Is there an income limit to be able to convert a traditional IRA to a Roth IRA?

A. No.

Q. When do I owe the taxes on the money that I have converted into my Roth IRA from a traditional IRA?

A. You owe all the tax in the year of the conversion.

Q. What if I converted my traditional IRA to a Roth at the time the market was really high? Since then, the market has taken a tumble. I now owe a lot of taxes on an IRA that in reality is worth a lot less. Is there anything that I can do?

A. Yes. You have until October 15 of the year after the conversion to “recharacterize” the account back into a traditional IRA. You can then convert it back again to a Roth IRA as long as you wait until the later of

1) the year after the year of the original conversion, or 2) more than thirty days after the date of the recharacterization. (Please note that I said the later of the two.) Just be sure that your income allows you to be eligible still to do a conversion at this later time. For instance, let’s say that you have a traditional IRA worth $100,000 and you converted it to a Roth. Six months later in the same year, the market has gone down

and now that $100,000 is only worth $78,000. Since you converted your traditional IRA when the value was worth $100,000, if you do not do anything, you will owe income taxes on $100,000. What you could do is recharacterize back to a traditional IRA, then reconvert back (30 days later or the next calendar year, whichever one is longer) to the Roth with hopefully a lower conversion value. This is something that you should always keep in mind. It could save you lots of money, but make sure you check with a tax professional before doing anything, since these laws can change.

IRA Guidelines

A few thoughts to keep in mind. Are you eligible for a company retirement plan like a 401(k) and do you also qualify to fund a Roth IRA? If so, it can be confusing as to whether you should fund your 401(k) plan or the Roth IRA first. It would be best to fund both to the maximum if you can. But if money is tight and it is an either/or situation, then this is what I would do. If you have a 401(k) plan where your employer matches your contribution, meaning that for every dollar you put into your retirement plan at work, they put money in for you as well to match in full or in part, I would first fund my retirement plan at work up to the point of the match. Now, if you don’t get a company match on your 401(k), I would make my first priority the Roth IRA before investing in the 401(k). If you have been investing in a nondeductible IRA, you, too, should definitely consider switching to a Roth IRA; for most people it makes the nontax-deductible IRA obsolete. If you are not covered by a company retirement plan, and can really use the tax write-off right now from a traditional IRA deposit, but you are a spender and not a saver and—realistically—will fritter away the tax savings from a traditional IRA instead of investing them each year, then you might want to lean more toward the Roth IRA as a savings against future taxes that you would have owed with a traditional IRA. In other words, pass up the current tax savings for the future big picture. If you are very young, just starting out in your career, and in a low tax bracket, by all means look into a Roth IRA, which can jump-start your retirement savings by a lot, even if you switch tactics later. Let’s say that from ages twenty-one to thirty you invested $5,000 a year into a Roth IRA

averaging an annual return of 6 percent every year and then you never deposited another cent into that account and just let it grow; at age sixty, you’d have more than $400,000 that you could access totally tax- free. Big difference, if you think that all it would have saved you in taxes in a traditional IRA (if you are in a 15 percent tax bracket) would be about $750 a year, or $7,500 over ten years. As you can see, it makes no sense to have to pay taxes on $400,000 later on in life (when you might be in a very high tax bracket) just to have saved $7,500 over ten years early in your career. By the way, if your tax bracket changes and you want the deduction of a regular IRA, you can make that change anytime you want. Rather than making a deposit into your Roth IRA that year, switch to a traditional IRA.

Benefits of Withdrawal of a Roth IRA vs. a Traditional IRA

With a traditional IRA, upon your death your spouse is the only one allowed to take over your account as if it were his or hers. Thus surviving spouses (if withdrawals had not already started) can continue to use the tax deferral strategies until they really need to live off the money, or until age seventy and a half when withdrawals have to start. However, if you are currently not married, then your named beneficiary for these funds will have to start taking withdrawals that year and continue them over his or her entire life expectancy. But what usually happens is that the beneficiaries wipe the account clean over a short period of time. This often results in a significant tax bill for your beneficiaries. This can be avoided with a Roth IRA. In this case, your beneficiaries would also get the money tax-free. No doubt this will make you the most loved relative in the family.

Comparison of the Traditional IRA and the Roth IRA

Another possible advantage of the Roth IRA is that you do not have to start withdrawing money at age seventy and a half. With a traditional IRA, you have to start making withdrawals by April 1 of the year after you turn seventy and a half. Because of this, a Roth IRA could also help you tax-wise down the road. When you have to start taking money out of your traditional IRA—even if you don’t need it—these add to your tax bracket, which affects the bottom line all the way around. One last factor is that if you really need help saving money, if you tend to sneak into your future piggy bank when you want money available to spend on today’s eventually useless treasures, gear yourself toward a traditional IRA where it is harder to get at the money without sustaining penalties before age fifty-nine and a half.

What’s the Difference between a 401(k) and an IRA?

Well, you can invest a lot more in a 401(k). In 2012, the general limit for an IRA contribution is $5,000, while the 401(k) limit is $17,000. And if you are at least fifty years old, your IRA limit for 2012 is $6,000 and your 401(k) contribution limit is $22,500. This is a big reason to push for a 401(k). Even with a SIMPLE (see this page) you can possibly put away $6,000 more a year than you can with an IRA.

Maximizing the Impact of a Roth or Traditional IRA

Most people wait to contribute to their IRA until they file their taxes in April of the year after—a mistake that adds up. For the tax year 2012, you have the right to put up to $5,000 in your IRA in January 2012 if you are under fifty years old. But most people will wait until April 2013 to do so. This is an incredible waste of money. If you possibly can, I urge you to put that money away at the beginning of the year rather than at the tax deadline.

If you invested your $5,000 in January 2012 and that money sat there averaging a 6 percent return, by the time April 15, 2013, came around, you would have an extra $393 in the account compared to if you waited until April 2013 to make your 2012 contribution.

If you don’t have $5,000 at the beginning of the year, and so can’t make the investment all at once, start putting $416 (or whatever you can) each month into your IRA. You will still come out ahead than if you had waited to do it in one lump sum on April 15.

RETIREMENT PLANS FOR THE SELF-EMPLOYED

If you’re self-employed and are not incorporated, you also have excellent options for funding your retirement. You can open up what is known as a SEP, a Keogh, or a SIMPLE. All three of these are great ways to plan ahead. In order to qualify for these three retirement accounts, your earnings must be reported on Form 1099-misc. or be earned as fees for services you’ve provided. (Company employees, on the other hand, are usually provided with W2s to report the money they’ve earned.)

If you have people working for you, after a certain period of time you’ll have to fund the SEP, Keogh, or SIMPLE plan for them as well.

Simplified Employee Pension Plan (SEP)

You can open a SEP, or simplified employee pension plan, and put away up to 25 percent of your income or $49,000—whichever is less—per year in payments for yourself. SEP-IRAs can be set up at banks, mutual funds companies, brokerage firms, discount brokerage firms—almost anywhere you’d like to invest (read Step 6 and decide). If you have employees who have worked for you for three out of the past five years, you will have to put money in their SEPs as well, to the tune of the lesser of 25 percent or $49,000. Please keep in mind that these figures change yearly, so check with a tax professional to find out the current limits. The above figures are for the year 2011.

Keogh

A Keogh plan (named after Senator Eugene Keogh, who came up with the idea) can also be used to fund a retirement for the self-employed. Keoghs are more complicated than SEPs but used to allow you to set aside more money than you could with a SEP. That is no longer true. The amounts are the same as with a SEP. You must also fund a Keogh for anyone who has worked for you for at least one year. And you must contribute the same percentage for those who work for you as you do for yourself.

Keoghs are divided into two types of plans. The first is known as a money purchase plan, and the second is known as a profit-sharing plan. With both, you can invest the money just about wherever you like. However, due to the new, more generous limitations for SEPs, there is currently no reason to set up either type of Keogh, since a SEP plan is easier to administer.

SIMPLE

SIMPLE, or Saving Incentive Plan for Employees, lets you put up to

$11,500 a year (for 2011) into a plan for yourself. The limit is $16,500 if you are over fifty years old. There is no percentage limitation for a SIMPLE, as there is for a SEP or Keogh. If you have any employees who have worked for you and have made at least $5,000 in compensation over the past two years and are projected to do so again, they, too, are eligible for a SIMPLE.

As a self-employed person with employees who are eligible, you are required to follow one of two contribution formulas for your employees: either the matching contribution formula or the 2 percent formula. Under the matching contribution formula, you must match dollar for dollar what the employee elects to put into it, from 1 percent up to 3 percent of their compensation. You get to decide. However, if you choose the lower match, you cannot do that for more than two out of any five years. With the other formula—the 2 percent contribution formula—you simply decide that you are going to contribute 2 percent of the employees’ compensation.

Note that all contributions are considered vested the second they are made. This means that they belong to your employee even if he or she leaves your employ the very week after you made the match.

WHICH DO I WANT—SEP, KEOGH, OR SIMPLE?

One thing to know, particularly if paperwork makes you crazy, is that there’s more paperwork involved with a Keogh than with a SEP or a SIMPLE (for which the paperwork requirements are almost nil). With a Keogh, from the moment you have more than $100,000 in the account you have to file what’s called a 5500ez form at tax time. Not all that bad, but it’s still paperwork, and paperwork that’s not required with a SEP or a SIMPLE. If you don’t have employees, or if you do and you don’t mind contributing the same percentage of their income for them as you contribute of yours for yourself, the SEP is the way to go. If you have employees whom you do not want to contribute a lot of money for, or if your income is so low that you can put more away with a SIMPLE plan, then go with it. If you’re self-employed, you must take advantage of one of these options. Whichever way you go, you cannot lose

TIME CREATES MONEY

Employed, self-employed—it doesn’t matter. When it comes to money, time is probably the most important factor in the growth process. The more time you give to your money and the more time it has to grow are the two key ingredients to attracting and creating large sums. The amount you will have accumulated when retirement comes will determine what kind of lifestyle you will then be able to afford.

If you’re forty-five, and start putting $100 a month into an account that averages a 6 percent return, you’ll have $46,400 by age sixty-five.

If you start ten years earlier, at thirty-five, your $100 a month will have grown to $101,000 by age sixty-five.

If you can start saving $100 a month at age twenty-five, you will have $200,000 by age sixty-five.

Time accounts for the difference. By waiting twenty years, from age twenty-five to age forty-five, to start saving just $100 a month, you pass up more than $150,000.

MULTIPLYING YOUR MONEY

Time plays an essential role in building your future wealth, not only because the longer you contribute, the more you’ll have, but also because with time, the contributions you have already made will do more work for you. This second feature that makes time so powerful is called compounding.

When you leave your money invested over time, the amounts of money that your contributions are generating on their own are the worker bees of your money hive.

For instance, let’s say you are investing $6,000 a year, and that $6,000 is earning 6 percent. Let’s assume that your investment will be able to average that 6 percent over the next twenty years, and that you continue to add $6,000 at the beginning of every year as well. There will come a point in time when the earnings on your account will add up, by themselves, to more than the $6,000 you are putting in every year. This is when those worker bees really start to make that money honey.

Take a look at the chart on the following page and see how many years it takes before you are earning as much in interest as you are putting in. Look a little farther down the road, and you’ll see that in just a few more years you could be earning two times more a year in interest than what you are contributing!

Why? Because of the magic of compounding. It is for this reason and this reason alone that you cannot afford to let one year pass without making a contribution into your retirement plan. When it comes to the

wonderful effects of compounding, you can never make up for lost time. This is why in the example just given, twenty years makes such a tremendous difference in what you will have in the end: more than $150,000 worth of difference

. This table illustrates the power of compounding at a 6 percent return; the higher the return, the better the results. In this case you have invested $120,000 over these twenty years. At 6 percent throughout, you have earned $114,000. You have earned, in other words, nearly as much as what you put in! Compounding is extraordinary, and the main ingredient of compounding is time. Give yourself that time.

Whatever your return, you can’t afford to miss out on the golden

opportunity that time allows. You work so hard for your money. Now let your money in return work hard for you.

CONSIDER THE FUTURE VALUE OF YOUR MONEY

Start training yourself to understand not just what your money is worth today, but what that same money will be worth in the future. Like a slide projected on a screen, your money becomes much larger over time. Consider the “big picture”—that compounded future value—when you are looking at the money you could save or spend today. Whenever I had a client come to my office who wanted to do something that day that would cost a lot of money, I always calculated what it would really cost by looking into the future. That’s the true cost of today’s desire.

I once had a client come in and say, “Suze, I want to take a year off work, and $20,000 out of my savings, to go live in Europe for a year.” No problem, I said, as long as she could understand what that meant for her future. That $20,000, if left invested at a 6 percent annual return, would, in twenty years’ time, when she turned sixty-five, be worth

$64,000. Did she feel comfortable spending $64,000 to take a year off, not to mention the money she’d lose by giving up a year’s salary? “But Suze,” she said, “in twenty years $64,000 won’t even be $64,000, because of inflation.” But using a 3 percent inflation adjuster, in twenty years that $64,000 would still be worth $36,000. The trip would cost her

$36,000.

It is so important to see what things are really costing you, and the way to see this is to see money over time. It is when you start looking at money like this—finding out how what you do today affects your future before making your decisions, which must be based on reality and not just on hope—that you will really begin to understand money. Desire the trip, understand what it will really cost, decide whether you can afford it, and if you can, then take it by all means. Or scale it back, if that makes more sense. Or wait a year. If not this year, then the right actions with your money will still get you to Italy next year or when the time comes.

And when you’re doing the right things with your money, when you’re being respectful, the right time will always come

DOLLAR COST AVERAGING

One thing that your mind will try to tell you is that when you invest money, whether in your retirement account or on your own, you have to keep it safe and sound, that you can’t afford to take risks with it. Wrong. The truth is that you really can’t afford not to take risks. You have to invest this money for growth, especially if you are under the age of fifty. The younger you are, the more aggressive you can be.

As long as you have at least ten years during which you won’t have to touch this money, invest the majority of it for growth.

Put your money in whatever stock or equity mutual funds your 401(k) offers. If you are in a SIMPLE, IRA, SEP, or Keogh, and just want to keep your life as easy as possible, look into good no-load index and managed growth mutual funds (this page) as well as exchange-traded funds (ETFs). Your investment mix can also include a small percentage in international growth funds if your company offers it. Over the years, stocks or equities have outperformed every other investment out there— so again, the younger you are, the more aggressive you can be.

When you start approaching retirement, and know that you will soon be living off this money, it’s time to consider easing up on your more aggressive investing. Even so, it’s always best—and perfectly safe and sound—to have a nice mix of funds and keep your money diversified.

BUT I DON’T WANT TO LOSE MY MONEY

Of course you don’t, nor does anyone want you to. When you begin paying yourself every month, as you do with a retirement plan, not only do you get more long-term bang for your buck, you also take some of the risk out of investing this money. So you don’t have to be afraid. When you put the exact same amount of money month in, month out, into the same investment vehicle, you are taking advantage of the investment strategy known as dollar cost averaging. It puts time, your money, and the market all on your side at once. (We’ll talk about this more later.)

I believe this with all my heart, but regardless of what I say or what anyone says, you should invest only if you want to. The reason I say only if you want to is that even though investing for growth may be the right thing for you to do economically, it’s not the right thing to do if it keeps you up at night worrying or makes you afraid all the time. As you’ll see in the next chapter, you must always trust your own gut feelings about money. If you can’t live with risk, you must invest where you feel safe investing. Perhaps your new truth will make you feel stronger about taking risks. Maybe reading throughout the rest of this book will make you feel differently about risks and your fears about money. But respect yourself first, and however you choose to invest, take care to understand how things work—or you might end up doing what Michael did.

MICHAEL’S STORY

With time on your side, you win when the market is up—but you also win when it goes down.

My company has a 401(k), but I never joined it. I knew that it would be a good way to build up retirement money, but I never knew which investments to put my money in, plus I was afraid to make the wrong choices. I’m more a cash kind of guy. But now I’m starting to make more, and I’m thinking of getting married to my girlfriend. I’ve been feeling more like a grown-up, I guess, and I was really thinking it was time to invest.

Since it was the beginning of the year, I thought why not start the year off right, and I signed up, and started to contribute the maximum I could, which they told me was $750 a month based on what I made. I put all the money into this one aggressive growth mutual fund that seemed as though it had done really well over the years. The first month, fine, and the second. But then the market dropped, and the fund tumbled way down. I couldn’t believe it. By the time I had added my third payment, my $2,250 was only worth about $1,950—I had already lost money. I was somehow seeing my fear come to life. But I decided to stick with it. Two months later, after I put in another $750 for each of those months, I should have had $3,750, more if it was actually earning money, but when I looked at my statement I only had $3,343. I was still losing money. This was when I couldn’t take it anymore, so I went back to the human resources department to withdraw from making any more contributions to the 401(k). I mean, there’s no point in losing money. I thought at least I could wait till the market started to go up and maybe then I would rejoin.

Michael’s trouble was that he understood only the concept that when you buy something you want it to go up, better known as “buy low, sell high.” He didn’t understand that what you want to do with dollar cost averaging—which is what you’re doing with a 401(k)—is to buy low and lower and lower and then sell high. Michael had actually chosen a great fund to invest in, and since he had many years left until he retired, he should actually have been thrilled when it took a tumble. But no one told him that.

BUY LOW AND LOWER AND LOWER AND THEN SELL HIGH

With dollar cost averaging, you are taking the money you’re investing and averaging the cost of the shares you’re buying over time. Since you are investing every month, wouldn’t you rather buy into your funds when the market is low, so you don’t have to pay so much for your shares? Of course you would. When what you are buying goes down rather than up, that means you’re paying less and are able to buy more. I always think of it as a mutual fund sale—getting what I want for less than others had to pay just a few months earlier. Michael got upset because the shares he bought went down in price over a few months. Had he stayed in for the long run, however, he would have made everything back plus more when his mutual fund started to climb again.

BE ON ALERT WHEN THE MARKET GOES DOWN

When I say you should be happy if your fund starts to go down as you’re

buying it, I mean be happy if all the funds that are similar to yours are also going down. You want to make sure that your 401(k) plan, and any other mutual funds you hold, are with a good portfolio manager (this page), one who is able to do as well as or better than other comparable managers. If your fund is going down and the others are all going up, then you do need to take action; check with your human resources department. If the market starts to go down, just keep an eye on your funds to make sure they’re not going down more than other similar funds. If your portfolio manager can keep your money from going down as much as the others in a down market, think what she’ll be able to do when the market goes back up!

DOLLAR COST AVERAGING: BETTER THAN INVESTING ALL AT ONCE

Michael’s plan was to invest $9,000 a year. What if he had invested the entire amount in January, when the market happened to be at its highest? He would have paid top dollar for that mutual fund. Let’s see how this would have played itself out. If the mutual fund he wanted to buy was at $15 a share, Michael could have bought 600 shares for his

$9,000. But now let’s see what would have happened if he had just stayed in the 401(k) and continued to put his $750 a month in this mutual fund over time, rather than all at once

The price of the mutual fund at the end of the year was $10 a share, which means that Michael’s $9,000 investment would now be worth

$7,753 (775.27 × 10), for a loss of $1,247. That’s a 13.9 percent loss on paper.

But if you look at what happened to the shares, they dropped 33 percent in value from 15 down to 10. So here is a fund that went down 33 percent from the start. This is what Michael’s loss would have been on paper if he had invested all at once. With dollar cost averaging, however, his loss was only 13.9 percent. Let’s look at the actual dollars and cents of it. If he had invested the entire $9,000 in January, when shares were $15, he would have only 600 shares, not the 775.27 he would have had with dollar cost averaging. His fund on paper would be worth $6,000, not the $7,753 it could have been worth. Dollar cost averaging can really cut your risk. Michael lost money, but he didn’t lose his shirt.

YEAR AFTER YEAR, IT GETS BETTER

Michael is investing here for the long term, not just for a year, and this

fund is not going to stay down forever. Let’s take dollar cost averaging through another year.

Let’s say the market starts to rally, as it always does sooner or later, and he keeps putting in the $750 every month. Since the market is going up, by the end of the year he has been able to buy 685 shares, fewer than the year before; the fund ends up the year at $15 a share.

In total, he has put in $18,000 over the two years, in a fund that started at $15 and ended at $15 but was considerably down in between. He now owns a total of 1,450 shares, 765 from the first year and 685 from the second. But since the market was down so much of the time, what’s the best you think Michael can hope for—that he broke even? He did better than that. At $15 a share his total shares are worth $21,750, which is a 21.7 percent gain on his money over the two years of market fluctuation. Not bad, huh? If you’re not going to be cashing out for years to come, the more shares you accumulate the better. When the market does skyrocket, you will have made very good money.

This is not to say that if you buy stock that starts to go up, you should be sad—but here is a no-lose case, because you win in the end with a downslide as well. With dollar cost averaging you don’t lose as much as you could have if you had invested in one lump sum just before the market goes down. If the market goes straight up from the time you started, you won’t make as much, either. In my opinion, this is a really safe way to take risks—the best of both worlds.

TAKE THE LONG VIEW

Michael also wasn’t trusting the principle that time creates money. At forty, Michael had twenty-five years for the money to grow before he would turn sixty-five, well more than the ten it generally takes to watch your money really grow. I am always thrilled for myself and others when the market goes down and we have money available to buy more shares. The best investment advice I could give Michael was to go back into the 401(k) and take that $750 he wants to put into it every month. But this time he should diversify the money among two or three other good funds in the plan, be patient, and wait for time to touch his money.

This kind of investing is being respectful to what you have and

respectful to what you want to have. It is not going out on a financial limb or taking a gamble with everything you have.

But you also have to watch over those things that whittle away at the money you want to create. You must also be respectful to the money you don’t have

Your money is governed by how you treat it; it’s that simple. It thrives when you are being responsible, respectful, and doing honorable things with it. For many of us, debt is too big a part of our overall money picture not to give it the respect that it is due. How we treat our debt and the people who are a part of that debt plays a major role in our path to financial freedom.

HAVE THE CREDIT CARD COMPANIES SEDUCED YOU?

Credit card companies are very smart and seductive, and they know exactly what to do to get you deeper and deeper into trouble. Have you ever noticed, for example, if you’re one of the many among us who are susceptible to credit card debt, that you find that as your balance keeps creeping up and up, your “available credit” total keeps going down and down? Before the financial crisis, what typically happened was right before you used up your total credit limit, all of a sudden, without even asking for it, you get a letter in the mail, saying that because you’re such a great customer, they’re raising your credit limit by $2,000. What a great company! With financial “friends” like this, who needs enemies? Before you even know it, you had used up that extra $2,000 limit, and were in more debt than ever before. Not to worry.

YOUR CREDIT HABITS CAN COST YOU A LOT MORE THAN YOU MIGHT THINK

You also need to realize that how you handle your credit cards and all your debt will have a large impact on so many parts of your financial life. That’s because every credit and debt move you make is tracked and then used to compute a FICO credit score for you. Trust me, if you somehow don’t know about your FICO score, that doesn’t mean you don’t have one.

Your FICO credit score is used by mortgage and auto lenders to determine what interest rate to offer you on a loan; it is also used to determine the interest rate on your credit card. A version of your FICO score is often used by insurance companies when they set your premium rate. It also can come into play when you try to rent a home; landlords will check your FICO score to see if you are reliable. And cell phone companies might require a deposit if your FICO score is too low. The bottom line is that a good FICO score is a financial boon for you, while a low FICO score is going to cost you money, and maybe even more.

If you don’t know your FICO score, I want you to find out right now. While the truth is that many companies offer to tell you your credit score—some of them for free—there is only one company that offers the gold standard of credit scores: FICO. The FICO score is the only one you should care about, in my opinion. That’s because the vast majority of mortgage lenders, auto lenders, and other financial types use the FICO score when sizing you up. So what good does it do to get a “free” credit score that businesses don’t use? More important, if you are applying for a mortgage and the lender is going to use your FICO score to set your interest rate, don’t you think it makes sense for you to know your FICO score in advance so you can do everything possible to make sure it is super high?

As of 2011 you could obtain a FICO credit score for free at

www.myfico.com. You actually have three FICO scores (more on this in a minute), but unless you are buying a home, it is fine to just get one of your scores.

Your FICO score will range between 300 and 850. If your score lands in the 300–620 range, you have some serious financial problems. Basically no lender or company will want to do business with you without charging you some mighty hefty fees and interest rates.

Above 620, the FICO computers sort you into one of six basic ranges

Congratulations if your score falls into the 760–850 range. You are in the highest FICO range and that typically means you will be offered the best terms on loans and other financial products. For example, in mid 2011, here is the interest rate on a thirty-year mortgage you might qualify for based on your FICO score. And in the right column is the monthly mortgage payment you would owe on a $200,000 mortgage

Now you see what I mean when I say your FICO score can cost you a lot of money. If your score is between 620–639, your monthly mortgage payment on a $200,000 loan will be nearly $200 higher than if you land in the top FICO range of 760+.

THE FACTORS THAT MATTER TO FICO

Your FICO score is the result of how you rate on five broad measurements of your financial personality. Here’s the breakdown:

The biggest factor is your tendency to pay your bills on time. You don’t have to pay the entire bill; all that matters is that you at least send in on time the minimum payment due each month on your credit card bill and other debt payments. In the eyes of FICO and the financial world, your ability to make your payments on time is an indication that you are a responsible person who would make a good credit risk. One important note: paying on time means the money arrives on the due date, not that you put it in the mail on the due date.

Your debt-to-credit limit ratio is the next most important factor in determining your FICO score. Your debt is the combined balances on all your various credit cards: the sum of what you owe. Your credit limit is the combined total of the maximum amount each credit card company is willing to let you charge. (Included along with that calculation is whether you carry balances on other accounts, and how much debt you have left on loans such as a mortgage or car loan, compared to the original amount borrowed.) The lower your ratio, the better.

How long you have had a traceable credit history accounts for about 15 percent of your FICO score. That’s one reason I do not recommend ever canceling a credit card that you no longer use. Another reason is that when you cancel, you wipe out the available credit limit for that card, and that will cause your overall debt-to-available-credit ratio to rise. It is smarter to simply stick an unused card in your desk drawer, or if you think you will be tempted to use the card, then simply take a pair of scissors and cut it up. You can’t use the card, but your history is not wiped out.

The remaining 20 percent of your score comes down to how many new credit card accounts you are applying for and the mix of debt you have. To help your FICO score, you don’t want to open a lot of new cards at once. As for the “mix” issue, lenders like to see how you handle different types of debt. So if you have a credit card, a retail credit card (such as a department store), as well as an installment loan like a car loan, you have a broad mix of debt.

If your FICO score is below 760, paying attention to any of these five factors can improve your score. You can learn more about boosting your FICO score at www.myfico.com.

KNOW WHAT’S IN YOUR CREDIT REPORT

So where does FICO get all the information about you that it uses to compute your FICO score? There are three major credit bureaus that track and keep records of all sorts of your financial transactions. Based on the information that each of the three credit bureaus supply to FICO, you are then assigned three FICO scores.

The three credit bureaus are Equifax, Experian, and TransUnion.

You need to make sure that the information in each of your three credit reports is correct. You would be amazed how many reports contain incorrect information, from misspelled names and addresses to old accounts that you closed down years ago but that are still showing up on your report as active. There’s also a huge problem with identity theft; when someone steals enough of your private data—typically a Social Security number and name is enough—to open accounts in your name (that then show up on your credit report), or simply gets access to your credit card number and makes unauthorized charges on your account. Any wrong information is going to pull down your FICO score, so that’s why you need to make sure your credit reports are clean and up-to-date.

You can now receive one free credit report from each of the credit

bureaus every year. Be very careful how you go about getting your free report. Plenty of businesses pretend to offer it for free, but then sneakily get you to pay for other services. You should never ever have to share your credit card information to get your credit report. Simply go to

www.annualcreditreport.com to get your report.

I recommend getting one report every four months. For example, you might start with Equifax and then four months later get your Experian report, and four months after that your TransUnion report. By using this system, you have created your own ongoing checking system. For free. I think that’s a lot smarter than paying money to any of the credit bureaus for one of their “monitoring” services.

If you do uncover a basic problem such as an incorrect address, you need to contact just that credit bureau; it is then required to forward your corrected information to the two other bureaus.

You can contact the bureaus at:

Equifax www.equifax.com	800-685-1111
Experian www.experian.com	888-397-3742
TransUnion www.transunion.com	800-888-4213

But that said, getting problems corrected can be a big hassle. If you need to challenge information in your report—such as a loan you paid off that is showing up as delinquent—you will need to file a dispute with the credit bureau. It then has thirty days to check into your claim and get back to you. With any luck, you will get the matter resolved quickly, but I won’t lie; it can take a lot of time and perseverance to prove your case to the credit bureaus.

And when identity theft is involved, it can be a truly difficult experience to straighten out your record. Here’s your plan of attack for identity theft:

When you suspect identity theft is involved, contact one credit bureau and request a fraud alert be placed on your account. That credit bureau is required to send the alert to the two other bureaus. You can contact the fraud divisions at Equifax (800-525-6285); Experian (888-397-3742); and TransUnion (800-680-7289). This alert will require all creditors (card companies, department stores, etc.) to contact you directly before granting any new credit. It will also inform anyone taking a look at your credit report (such as a mortgage lender) that there may be a fraud problem here that could help explain a low score. The standard fraud alert lasts for ninety days.

You will also want to contact your local police department and ask to file a criminal complaint. Some police departments don’t like doing this because these are such hard cases to crack. But just be politely persistent that you need the report; it is going to help you clean up your record. Next, you need to fill out the Federal Trade Commission’s Fraud Affidavit form and submit it to all creditors where you have an identity theft dispute. You can get the form at www.consumer.gov/idtheft/pdf/affidavit.pdf. Having both the police report and the fraud affidavit will help you deal with the credit bureaus and the company whose charges you are disputing. Both will have a formal “dispute” report/process for you to complete.

BREAKING THE CREDIT CARD HABIT

Credit cards can be as addictive and destructive as hard drugs, with the same ability to create a false sense of euphoria, give you a quick fix by satisfying temporary desires. Drugs are different in one respect, though. In most cases you have to seek out the drug dealer. Credit card companies seek you out. The more you use the cards, the more new cards, with enticing offers and promises, will come your way. In fact, all you have to do now is answer the phone. Credit card companies have taken to the phone lines to call you directly to see if they can get you addicted to what they have to offer.

DEBIT CARDS BETTER THAN CREDIT CARDS

One of the best ways for you to steer clear of the temptations and high cost of credit cards is to use a debit card instead. There are two basic types of debit cards. You can have a debit card linked to your checking account or you can have a prepaid debit card. The key aspect of both

types of cards is that your spending is basically limited to the amount of money you have in your checking account (assuming you turn down overdraft protection, which you should), or the amount of money you load onto a prepaid debit card. That is, there is really no way you can be tempted into spending more than you have and then be faced with a big

balance you can’t pay back at a ridiculously high interest rate.

Debit cards, especially prepaid debit cards, have become very popular in the past few years, and I expect they will become even more widespread in the future. As with all financial products, there is a wide range of cards to choose from, and if you’re not careful you can end up paying very high fees. You need to make sure a prepaid card is a good deal. Key elements to keep an eye out for:

Is there an activation fee? Is there a monthly fee?

Is there a charge very time you swipe the card?

Is there a charge when you use an ATM more than once a month? Is there a charge to pay your bills online?

Is there a charge to check your balance?

Is there a charge to load money onto your prepaid card? Is there a charge to cancel your prepaid card?

In 2011, among prepaid debit cards that levied an ongoing monthly fee, that charge could be as high as $9.95 a month. Some cards with a lower monthly charge hit users with fees for various services, such as bill pay or using an ATM. In 2011, there were some prepaid debit cards that if you weren’t careful could end up costing you $50 a month. That is just crazy if you ask me.

One drawback of debit cards is that as of 2011 the three major credit bureaus do not track your payment history on a debit card. As I explained on this page, the information that the three major credit bureaus (Equifax, Experian, and TransUnion) collect is the basis for computing your FICO credit score. So as crazy as it is, debit card users are penalized because their payment history does not help them build a strong credit report. At my website, I have information for a low-fee prepaid debit card, The Approved Card, which is the first card that will share your debit card transactions with one of the major credit bureaus,

TransUnion. You can learn more at suzeorman.com and theapprovedcard.com.

ARE YOU IN CREDIT CARD TROUBLE?

If you can’t pay off your credit card debts right now, today, then you’re in credit card trouble, which can erode a solid financial foundation faster than anything. It’s true that if you’re in credit card trouble, you got yourself there, but it’s also true that the credit card companies worked as hard as they could to help you along. I’ve seen this happen so many times and I’ve seen the damage debt can cause. If you are in credit card trouble, you have to get out of it—and stay out by learning to avoid credit cards like the plague.

WHAT DEBT FEELS LIKE

Debt feels like the heaviest burden of life. It weighs down your spirits, keeps your mind occupied with your burden, and makes you feel bound

—because you are bound.

There are two kinds of debt, personal and institutional. Personal debt is money you owe to a family member, friend, or any other human being. Institutional debt is money you owe to a credit card company, a business, a school, the IRS, a bank, and so on. When debts start taking on a life of their own, and start growing faster than you can pay them, the weight of the debt drains everything—the money you’re saving for your future, your capacity to save and invest more, your ability to pay the debt as it keeps growing. My friends who are bankruptcy lawyers say that if your credit card debt is equal to your annual salary, you will never be able to get out of debt. You are in essence bankrupt.

FACING THE TRUTH ABOUT DEBT

When people start facing the truth about their finances, they’ll often say, “Well, I owe my brother $5,000, but what I’m really worried about is that I owe $8,000 on my credit card bills.” But I’ve seen money destroy

personal relationships so many times, and I know what loaning money to, or borrowing money from, someone you care about can do to both of you. Remember: People first, then money. Personal debt is every bit as important as institutional debt, and I would much rather have a credit card company, with all its resources, tracking me down than watch as my best friend grew more and more resentful the longer I waited to pay her back the money she lent me in good faith and that is long overdue to her.

It’s this simple: Whether it’s personal or institutional debt or both, you must face your debt head-on. Otherwise the disrespect starts to take root in your soul. Even if you have permission from the person who loaned you money to take your time, it will still weigh heavily on your heart every time you think about it (which will be often) and fail to take action. It will be harder and harder to face people to whom you owe money in person. Remember: Disrespect repels money. Not paying your debts is a serious form of disrespect that makes it almost impossible to find new ways to create new money to pay off old debts. Not paying debts will not make them go away; instead, it will make your money vanish, and possibly your friendships, too.

THE RICH CAN GET POORER

This was a shocker to me, but the more people I started to see after I opened my practice, the more the numbers spoke for themselves. Most of the people who had major credit card debt were people you would consider affluent. It seemed as if the more money they made, the more disrespect they had for their money.

My associate, Janet, did an informal survey in our area, and out of the sixty people we talked to, all leaders in the community, all of them carried credit card debt. How much debt? Only eleven had debt below

$1,000. All the rest had debt ranging from $6,000 to $45,000. When we started asking around among these people if they thought others like them carried debt as well, they all guessed wrong. They would say, “Absolutely not.”

All these people made great money and were highly regarded in the community. Credit card debt is rarely created out of true need. It fills up,

even if just for a moment, something else that is missing. If you hide it from others, as these people did, and believe you’re alone in your debt, you create a secret as burdensome as the debt itself.

THAT SECRET CREDIT CARD

Another scenario that plays itself out often is when one spouse or partner has to admit to the other that he or she is hiding debt, usually credit card debt, from the other. That secret Visa card with the growing balance. The department store bill on which you keep paying the minimum balance due, but that never seems to go down. The big check you wrote against your Optima card and haven’t been able to pay off. Cash advances here, cash advances there. You just sort of don’t tell your partner for a while, and then it’s too late to tell.

This terrible secret is a burden to you, if you’re carrying it, and it’s an unfair burden on your partner, who, if you share expenses together, is unconsciously also carrying the debt. Debts can’t be kept secret forever. I’ve had blowups in my office. More than once I’ve heard, “Oh, so that’s the secret. I thought maybe you were having an affair.” Responses to the news vary. Some couples decide to deal with it together, some feel that the person who created the debt has to deal with it. But even if there’s a blowup, the result of letting that secret out is always a relationship that’s truer and more honest.

Please tell your partner if you’re hiding debt. Your integrity and self-

respect are more important than whether your partner gets mad at you. Get help if you need it. You’re not alone. Nonprofit credit counseling bureaus have been set up all over the country to help in cases just like yours; call one if you feel you need one. You can get out of debt. So many others have, and you can, too—and once you do, you’ll create so much more money, without being drained by your debt and your secrets

THE FIFTH LAW OF FINANCIALFREEDOM - YOU AND YOUR MONEY MUST KEEP GOOD COMPANY

In life we are very much influenced by the company we keep. If you have surrounded yourself with people who are healthy, eat well, exercise, and are well balanced, chances are good that you yourself live a vigorous and healthy life. If you surround yourself with people who drink, smoke, take drugs, and so on, I would venture to guess that your vitality level is not so high.

It works the same way with your money; the only way to keep it vital and make it grow is to keep it in a healthy environment. Credit card companies are never good company to keep, unless you’ve chosen one wisely, use it sparingly, for convenience, and pay it off in full every month, with only the rarest exceptions. Being respectful of your money also means being respectful of those to whom you owe money, and being respectful to yourself also means getting out of debt—as fast and efficiently as possible.

HOW CREDIT COMPANIES WORK

CARYN’S STORY

Caryn tried everything to get out of debt. But the credit card companies kept winning.

Every time I start to make a dent on my credit cards, something happens, and boom, I’m right back charged to the max. It’s hard to move $15,000 of debt. For a while I was putting the odd $100 into a savings account and just paying off the minimum, but then I noticed that sometimes my finance charges were bigger than the amount I was putting away. So that was losing money. Before I save any more, I just want to get rid of this debt. It hasn’t helped that my back is bad again, making it hard to work. Since I couldn’t work, I decided to figure out everything there is to know about credit cards, all the fine print, and at least get the best deal I could. I had about five different cards, all with different interest rates, and I got obsessed—with

getting a better rate, a bigger grace period, with all the new offers. I figured that some have to be better than others, right?

But it is hard to tell what’s the best deal. They charge every which way. One card sent me a bill saying, hey, you can skip this month’s payment. I thought they were doing me a big favor, but no. They charged interest on the money I should have paid. When the bill came the next month, it had grown by two finance charges. If I had known, I would have paid the money the first month. One time I thought I found a really good deal—5.9 percent. Turned out it was 5.9 percent on the balances I had transferred, but much higher on cash advances and new purchases. I would have been better off staying with the company that charged me 9.9 percent on everything. Then there was that so-called grace period. I learned the hard way there, too. I thought that no matter what I bought I would have twenty-five days to pay it off before I was charged interest on it. I was out with a friend and she wanted to buy an anniversary gift for her parents—we were at an art fair and she saw this wonderful sculpture she wanted to buy for them. She didn’t have her credit card with her, so I said I’d use mine and she could write me a check and I’d just pay the bill when it came. Done. When I got the bill, I couldn’t believe it. They began charging me interest on that sculpture the day we bought it. But they had told me there was a grace period.

When I called them up they said no grace period for me because I

carry a balance. Only if I paid off the card every month could I have the grace period. Also, no grace period on cash advances; I found that out the hard way, too. Cash advances cost the highest interest rate, plus a fee on top of that—about 5 percent of the amount I withdrew just for withdrawing it. I hadn’t even thought of that. So I went back and checked. Already this year I had paid $220 in fees for cash advances.

I guess it’s all there, in small type, but who can figure it out? How do you get out of credit card debt?

There’s nothing like credit card debt to paralyze us. The sad part is that most of us don’t have a clue how the cards we have really work. When you were reading Caryn’s story, did you already know as much as she had found out about how the cards work? Probably not. The only thing most of us pay attention to is the interest rate they are charging us, and even then some of us don’t take any action. Even though we know there are credit cards at lesser rates, we just don’t want to deal with it. Grace periods, average daily balances, the forms we might have to fill out … most people would rather keep paying 18 percent or more just so they don’t have to deal with it.

Throwing away hundreds of dollars in unnecessary interest payments every year is truly being disrespectful of your money. Caryn was so close to getting the formula right that I told her simply to keep obsessing about it—and acting on what she learned. She has, and little by little she is erasing her debt. She has also become something of a crusader and is starting a business creating a newsletter to keep people up-to-date on all the rates and scams: all she wishes she had known about before.

WHEN YOU SHOULD SWITCH CARDS

If you have a good credit history, credit cards will make it very easy for you to switch to the card they’re offering. Caryn had discovered that you can switch your balance to an account with a lower (much lower) interest rate with a few phone calls and five minutes of paperwork.

And continued vigilance.

Too-good-to-be-true offers are usually just that: too good to be true. Open and read every credit card offer you receive in the mail. Ask and answer for yourself all the questions that follow. It may be that you have to roll over your debt two or three times a year to get the best deals. That’s a few calls and fifteen minutes of paperwork a year, and it might save you literally hundreds of dollars. When can you stop being so vigilant? When your debt is gone and you’ve taken the steps to guarantee it won’t go back up again.

WHAT YOU MUST KNOW ABOUT YOUR CREDIT CARDS

If you spend just a few minutes working on your debt as hard as you work on your job, you’ll at least create intelligent debt—debt at the lowest possible cost. You’ll also become aware of what you really owe,freeing up the paralysis you feel dealing with it. And with your knowledge, you’ll be facing your debt from a position of power, instead of one of weakness. The credit card companies are expecting you to behave a certain way—to be ignorant of the real costs of your debt and too lazy to change it. They want your money. You have got to want your money more than they do, or they’ll get it.

If you currently have a credit card or are considering a new card, here is what you need to know.

What Is the Minimum Percentage That Is Required to Be Paid Every Month?

The answer to this will vary from 1.5 percent of your balance to up to 4 percent. Here, for once, you want the figure to be higher, rather than lower, because the lower your required payment, as the credit card companies well know, the longer it will take you to pay off the debt.

In fact, it is essential that you pay more than the minimum each month. (We’ll talk about why later in this chapter.) But the higher the minimum is, the better.

What Is the Cash Advance Fee Charge, and What Interest Rate Applies to Cash Advances?

This is where these companies can get you big-time. Even if your introductory rate is zero percent, if you take out a cash advance, regardless of whether or not you owe a balance, many companies charge a fee of as much as 4 percent of the amount of each cash advance. And there is no grace period with the cash advance; you start paying interest immediately. By the way, even if you have a zero percent interest rate, you are going to get hit with a different rate on the cash advance. It typically is more than 20 percent. Some cards will charge you less for cash advances or tell you to use the convenience checks they supply, but you have to ask, because many companies charge those exorbitantly high interest rates even when you use their convenience checks. “Convenient” for them.

Is There an Annual Fee?

The best cards will not charge a fee, or just a small charge of less than

$20.

Then there are the essential questions: What is the current interest rate? How long will this rate last? What does the interest rate go up to after the introductory period?

Again, you need to scrutinize all offers carefully—sometimes the rates for balance transfers and cash advances are higher. And their introductory rate may jump by 20 percentage points or more after a few months. Obviously you want the card with the lowest introductory rate, and the longer the low rate lasts, the better. In any case, you don’t want a card whose normal rate is above 10 percent.

Take a look at the table that follows and you will see how much more you will pay and how much longer you will pay with higher interest rates. If you have an $8,000 credit card balance and are paying a monthly minimum of $320:

GETTING CONTROL OF YOUR DEBT

First thing: Put all your credit cards away in a drawer so you will not be tempted to frequently use the cards. If you know you won’t be able to control your spending, then cutting up your cards may be the best move for you. But ideally what I want you to do is keep your cards but not use them more than once a month for a small purchase. If you don’t use the credit card at all, the card company may cancel your account (not the debt you already owe; they will just cut off future purchases). That can have a negative impact on your FICO credit score. When an account is closed down your overall available credit limit will drop, and as I explained earlier, your debt-to-overall credit limit is a major factor in your credit score. So that’s why it is best to keep an account open. But be honest with yourself here. If you know you will be unable to curb your overspending, then you need to consider cutting up the cards completely. If the card issuer ends up canceling your card, that’s the price you will have to pay for gaining control over your overspending.

TAKING STOCK

Now is the time to sit down with your debt, study your statements, face what you owe, and see what they’re charging you to owe it.

Make a list of all the money you owe in descending order, starting with the highest interest charges first. List as well the phone number of everyone you owe money to. Please include personal debt. Debt is debt, and just because most personal debt doesn’t inspire the fear of most corporate debt, on the scale of self-respect it weighs in pound for pound. List the amount you owe, the interest rate, and the minimum monthly payment. For example

If you’re late with any of these payments, personal or institutional, call them up now and tell them why. All the entities to whom you owe money already know that you don’t have the money to pay the bill or you would have, so don’t be embarrassed. With your new truth from

Step 3 in hand, pick up the phone and call. You’re in debt, that’s all. You’re not a failure or a bad person. If someone is rude to you, be very kind and gentle in return. Explain your situation. It might be that you’re late but will have the money in two weeks. Or it might be that you can only send them $25. In any case, call them before they call you.

If you’re not late with your payments, call up the high-interest credit card companies anyway, tell them you’re considering switching to a better value card, and see if they’ll match a lower rate. You can negotiate with them, and often they will reduce your interest rate right on the spot. If they won’t make good on your request, try to move the balance to a card that meets the criteria just discussed. If what they will agree to is not as good a deal as you can get elsewhere, you’re out of there.

Offers keep changing from company to company, so keep up-to-date on the best offers by checking a current issue of Smart Money magazine (http://www.smartmoney.com) or Kiplinger’s magazine (http://www.kiplinger.com). You can also check via the Internet site www.creditcards.com.

If you have a blemish on your credit record, try to clean that up before you start switching companies. Credit card companies don’t like it even if you’ve been just one payment late, and for that reason alone a better company could turn you down.

DIGGING YOURSELF OUT OF CREDIT CARD DEBT

If you’re in big credit card trouble, don’t panic. But you can get out of it, a step—or a month—at a time. I have found that most people are not aware of how very important it is to pay more than the minimum. Let’s say you owe an average balance of $1,100 on a card that charges 18 percent interest. If you pay the minimum 4 percent every month, and you never charge another thing, it will take you about seven and a half years to pay off your debt. It will have cost you $576 in interest.

Same situation, but if instead you had paid $10 more than the minimum each month, you would have cut the payment period down to two years and your interest payments would be just $218. That is a savings of $358. Ten dollars a month is only thirty-five cents a day.

Remember, with many cards, the more you owe the longer it will take you. I have seen cases where just paying the minimum every month would mean that the debt would take forty years to pay off, to say nothing of the thousands and thousands in interest it would cost you.

Let’s assume that you owe $4,000 and see what a difference a few bucks will make at different interest rates. Once I showed my clients this chart, they began to see what a difference a little more money each month can really make

A STEP-BY-STEP PLAN

These are the steps that many people, including quite a number of my former clients, have taken to get out of debt. You can do it, too.

1. Figure out the absolute largest amount you can afford to pay monthly toward your credit cards. Let’s say that amount is $600 a month. You may think this is a lot, but when you carry a lot of debt on at least several different cards, this is probably not much less than what all your payments add up to.

2. Review the list of creditors you owe money to and total the cost of the minimum monthly payments, plus $10, for each of them. If the minimum payment on one card is $150, write down $160, and so on; then take the total of those figures.

3. Subtract this total from the number you wrote down in step 1. Let’s say the minimum payment plus $10 for all of your credit cards is $400. You’ve decided that in fact you can pay $600 a month toward eradicating the debt. Subtract the $400 you must pay from the $600 you can pay, and this leaves you with $200 extra to pay on your credit cards.

4. Now take the “extra” $200 and put it monthly toward the credit card that is charging the highest interest rate. When that card is paid off, put it in a safe place where you won’t frequently use it, or cut it up. But don’t cancel the account; it will hurt your FICO score to close out the account.

5. Now you start all over. Stick with $600 a month (unless you can raise it!) as your debt-paying allocation. Total all the minimum payments of your remaining cards, adding on $10 to each card. Let’s say that this figure is now $300 a month. Subtract this from the $600 you have allocated a month, leaving $300. Pay that $300 to the card that is now charging you the highest interest rate.

WATCHING YOUR DEBT GO DOWN

This whole process may take months or it may take years, but with each payment you will be closer to becoming debt free, at which time you’ll be free to pay yourself more and more. Look at the statements each time carefully, keep transferring accounts for the best interest rate deals as

necessary, and take pleasure and pride each time the amount due is smaller. With each payment you are that much closer to financial freedom.

BORROWING FROM YOUR 401(K)

You may be able to borrow from yourself to pay off your credit cards through your 401(k) plan at work. Many employers will let you borrow up to 50 percent of the money you have in your plan, up to $50,000, to buy a house or pay off bills or for other situations that qualify. Be careful in doing this, however; the supposed upside is that when you borrow money from a 401(k), you have five years to pay back the money (rather than the forty years it could take you by paying the minimum on some credit cards). In addition, the interest you pay goes right back to yourself

—that’s right. It’s your money, you’ve borrowed it from yourself, and you’re paying it back directly into your account; all the payments plus interest go to you. Usually you will pay yourself about 2 percent above the prime rate, which is the basic interest rate set by the government.

But the realistic downside is this: when you borrow money from your 401(k), you are losing out on the growth potential of the money. So it’s a decision to be made cautiously and wisely.

Another consideration is that if you take out a loan on your 401(k), you are in essence paying back money that you have never paid taxes on with money you have paid taxes on, and then, when you go to take the money out sometime in the future, you will have to pay taxes on it again. That really makes no sense. So you really have to think about this carefully before you take out a loan from a 401(k). Not only are you losing growth on this money, but you are subjecting yourself to double taxation.

Another prospective downside is that if you happen to leave the job or get fired, the money you borrowed is due in one lump sum at that time. If you can’t pay it back, you’ll pay taxes on the money as if it were ordinary income; if you’re under the age of fifty-five, you may also have to pay a 10 percent penalty on the amount you haven’t paid back. If you are thinking of taking out a loan, and there is a possibility you may leave your current employer, you might want to reconsider your

situation before you take out the loan; make sure you understand what you would have to do if you were to leave your job.

HOME EQUITY LOANS TO PAY OFF CREDIT CARDS

Another alternative, if you’re really in credit card trouble, is to take out a home equity loan to pay off your debt. A home equity loan can have its advantages. The loan may be at a lower interest rate than your credit card, and often that interest is tax-deductible, so you’ll have converted a high-interest, non-tax-deductible debt to one that has lower interest and is probably tax-deductible.

The amount of money that you can take out of your home with this kind of loan is based on a percentage of the equity that you have in your home. Equity is the difference between what your house is worth and how much you owe on your mortgage. In other words, if your house is worth $200,000 and you have a mortgage of $150,000, it means that you have about $50,000 equity in your home.

Can you then take out a $50,000 home equity loan? Probably not. Most banks will let you borrow a total of only 80 percent of the value of your house, including all current mortgages. If your house is worth

$200,000, 80 percent of its value is $160,000. Subtract the $150,000 you owe on the first mortgage, and this gives you the amount you can get on a home equity loan if you qualify: in this case, $10,000.

EQUITY LINE OF CREDIT

Another option is an equity line of credit, which enables you to borrow money as you need it against your house. Rather than a fixed interest rate, an equity line of credit usually has a rate that varies according to what interest rates are doing. Also, the payback period is not set—so be sure you’re very disciplined if you consider this alternative. With this type of loan you do not have to pay back principal each month if you don’t want to. You can just pay the interest if it better meets your needs. A home equity loan, on the other hand, works pretty much like a regular mortgage. You can get a fixed interest rate and pay back the loan over a

fixed period of time, usually from five to fifteen years.

WHICH IS BETTER: BORROWING FROM MY 401(K) OR A HOME EQUITY LOAN?

Before we compare the numbers, think about whether you are disciplined or not—it may have been lack of discipline in most cases that got you into all this debt to begin with. With a 401(k) loan you don’t have a choice. You have to pay back the loan in five years. Home equity loans, on the other hand, can go on for up to fifteen years. So you have to make sure that you don’t let the loan drag on for fifteen years, that you stick to a maximum payback period of five years, just as you would with a 401(k) loan. If you will agree with yourself to do this, and if the interest rate is favorable compared to your credit card’s interest rate, I would say in general that a home equity loan would be better.

Now let’s look at the economics.

401(K) LOAN FEES VS. HOME EQUITY LOAN FEES

With a 401(k) loan, fees are variable: some employers will charge you for taking out the loan and some won’t. Some make you pay a fee of up to $100 just to fill out the paperwork, and some charge a yearly fee while the loan is outstanding. The same is true of home equity loans: some can be gotten for no fees except for an appraisal on your home ($200–$350), and some will charge you fees up front to get the loan or do the paperwork, which can add another $100 or $200 to the bill. But if you look carefully, you should be able to find a home equity loan that can be gotten for no fees, no points, and a very small appraisal fee, if any.

With both kinds of loans, the application process is usually fairly easy. You may have to fill out a form, or you may be able to do it over the phone. However, loans from either source take time to process, so if you’re desperate, ask your employer or lender how long each loan will take to process and when you will have the money in hand.

Who Decides What Investment My 401(k) Will Come From?

If you take out a 401(k) loan, it will depend on your company’s policy who decides which investments get sold. Some let you decide; others decide for you. Ask about how this works in your company. If you do have a choice, and if you have some of your money in a bond fund within your 401(k) plan, take your loan from that fund. Your equity funds will still have their full potential for growth, and since a bond fund is mainly giving you income anyway, it makes the most sense to take it from there.

USING YOUR 401(K) OR HOME EQUITY TO PAY OFF CREDIT CARD DEBT

I don’t think either move makes sense. Borrowing from your 401(k) isn’t nearly the great deal all your colleagues rave about. I already told you about the problems with 401(k) loans. My issue with home equity loans and home equity lines of credit is that they are what is known as secured debt. That is, you are putting your home up as collateral. Your credit card debt, however, is unsecured. There is no collateral you put up. So to take out an HEL or HELOC—that puts your house at risk if you fall on tough times and miss too many payments—isn’t a smart move when dealing with unsecured credit card debt.

CONSUMER CREDIT COUNSELING SERVICE

Okay, if you are struggling with credit card debt, and I am telling you that tapping your 401(k) or borrowing against your home isn’t the right move, what is?

First, call up your credit card issuers and see if they will lower your rate, or work out a payment plan with you. When you are at your wit’s end, you might want to check out a nonprofit organization that has been set up to help educate you on your money and at the same time, set up a payment plan with you so that all of your cards will be paid off within five years at most.

My favorite of them all is a group known as National Foundation for Credit Counseling (NFCC). To find the office nearest you, please call 1- 800-388-2227 or visit www.NFCC.org.

This is how they work: You hand over all your credit cards to them, and for about fifteen to thirty dollars a month, you will pay them one check and then they will pay your creditors for you. Most likely they will be able to get you a lower interest rate on your cards than what you are currently paying. They can do that because they have deals with many of the credit card companies themselves, so that they are able to negotiate a better interest rate with your current cards than you are able to. In fact, it is the credit card companies that help to fund most of these kinds of companies, for they believe that it is better to get some of their money back rather than none at all. Many people take advantage of organizations such as the NFCC, but they do have their drawbacks as well.

Below is an interview with Caryn Dickman, who is the woman in our

story here and who has worked for the NFCC. Please read it carefully; it will help you answer many of the questions that you may have about NFCC.

CD: Can you talk to us a little about what a debt management program is?

NFCC: A debt management program is when we negotiate with the creditors to reduce the interest rates or to eliminate them altogether. A lot of creditors, because they’re going through NFCC, will go ahead and completely eliminate the interest rates. This is really great. In other words, if I, as Joe Consumer, were to call the creditors and say “Let me work out a payment arrangement”—sometimes what they’ll do is say, “Okay, fine, we can do that and we’ll lower your payment, but your account is going to continue to age.” So you’re constantly going to be behind. Most of the time when going through NFCC, you don’t have a problem because we negotiate that by saying we don’t want any of this in arrears, we don’t want the person to be continually showing as behind. I want them brought up-to-date as of today. When we sign the contract, I want the interest rates either eliminated or reduced and this

is what we do. Sometimes we have to get nasty with creditors.

CD: Then does the client pay NFCC every month or can they continue to pay themselves?

NFCC: Well, what happens is they give us the money; they’re not

actually paying us, they’re actually giving us the money and we put it in a trust account. And it sits in the trust account until Thursday of every week. We make payments on Friday mornings.

CD: In that respect, when you get a credit report it would say that the accounts are being paid by NFCC?

NFCC: A credit report will never show us because we don’t report to the credit report agencies. Everything we do is confidential. It is between us and the client.

CD: What about the company that’s owed money?

NFCC: Right. Now what the creditors will do sometimes is that they will put a line in the credit report saying paid through a NFCC. The reason why it’s a good thing when this happens is because we really don’t want the client to accumulate any more debt. And sometimes what will happen is, because somebody’s habits haven’t changed and their skills haven’t developed yet, they will go and try to get more credit. In that case, having this line on their credit report is good because they know not to give them any more credit until it’s paid off.

CD: And when it’s all completed, then if they do want to reapply for credit, can they get it? These are the kinds of things that keep people from wanting to use your servces; they’re afraid that they won’t be able to ever get credit again.

NFCC: If they choose to reapply, that’s not a problem. We have a pool of creditors that we work with that actually want to give credit back to our clients.

CD: My question is what is the point at which you advise people to go bankrupt?

NFCC: There is a point and quite frankly, sometimes—we never say you have to go bankrupt. What we do say is you may want to contact a lawyer; that is one of your options. Another one is that you can fight your way out of this situation and we can also show you how to do that.

Basically what happens is if somebody can’t meet the basic living expenses, forget about the debts. If they can’t pay the rent and they can’t afford food and they can’t manage their fixed expenses, then that’s when we say to them you’re going to have to look into some other way of taking care of this, because there’s not enough money here to make it even with our recommendations. We try to explore all options like having people move in with their families. Maybe that’s not even an

option. Maybe there’s just no other way. That’s when we’ll say it’s time to go ahead and see a lawyer.

Sometimes, however, I have had clients say that’s absolutely not acceptable. And I say, fine, let’s figure out another way of doing this. Let’s figure out how I can help you and what I can do. There are tons and tons of jobs available right now. Are you willing to work two jobs? Are you willing to go and get some training so that you can get a better paying job? We have this huge referral book and our counselors are really well trained—some of them have been doing this for years, so they know what’s available.

CD: Is the training free?

NFCC: Sometimes it’s free; it depends on the situation. If somebody, for example, is on welfare right now, we know we can go through the county and help them get the training for free. If they’ve been downsized, there is usually a way we can figure out how to get it for free or at a very low cost.

CD: Another question I wanted to ask is how is coming to NFCC different from collection agencies?

NFCC: Collection agencies work for the creditor. We’re working for the client. That’s the biggest difference. And basically what we do is we’re not trying to get the creditor’s money back. That’s not our purpose. Our purpose is to help you by giving you the tools that you need in order to gain control so that you can sleep at night, so that eventually you can start saving money, so that you can get out of debt, so that you can have an emergency fund, so that you don’t have to constantly be worrying about this same problem over and over again. A collection agency’s primary purpose is to get money back; they don’t care how it’s done.

CD: Who pays them?

NFCC: They get paid by the creditor. What happens is most organizations have their own internal collection agency. And basically the way they work is that they’re paid a salary, for example, $24,000. Then, of course, they get commissions on top of that $24,000. So they get paid by collecting money from you. The more they collect, obviously, the more money they make.

CD: Okay, so when you go to a creditor and you say you have a client who wants to pay it off, just get rid of all the interest, why would they choose to let that happen as opposed to letting their own collection

people go after them?

NFCC: Well, because a lot of times what happens is their own collection people have tried and failed. That’s usually what happens. Basically, there are a couple of reasons why. One is that our program has been more successful than their collection departments. The reason why it’s generally been more successful is because we’re on the clients’ side. Also the creditor would rather get some money back than none at all. Many people come here distraught; they’re at that point where they’re on the verge of bankruptcy. Also, we do get money from the creditors. About 75 percent of our funding does come from creditor contributions. But please remember they are contributions. We’re not getting paid. It’s also cheaper for them to use a nonprofit organization because it’s tax deductible and it’s voluntary. They have to pay their employees; that’s not an option.

A question I hear fairly often is “Is this going to go on my credit

report?” And basically the answer is it’s up to your creditor. Usually it’s that line that says paying through NFCC. Is that negative? Some people look at it as negative and some people think of it as something positive because you’re doing something about it and taking control.

CD: Another question you must get a lot is “When I walk in here are you going to rip up all my credit cards?”

NFCC: When you walk in here, no. If you choose to go on the debt management program, then what we will ask you to do is cut up all your credit cards.

CD: Every single one of them?

NFCC: Every single one of them. However, if you have your own business or if you have an emergency or there may be an exception, sometimes we let you keep one.

CD: What is the average amount of time that people stay on the program?

NFCC: Basically, we don’t like people to be on the program for more than five years. We want to get them out of debt in five years. That’s our goal. The average length of time is three and a half years with an average debt load of $22,000.

CD: I keep coming back to this question. How long does the fact that someone has been using NFCC stay on their credit report?

NFCC: Generally, things stay on your credit report for seven years.

Now what we have done is with those creditors that work with us, they are usually really great about just going ahead and taking it off and showing it as a zero balance and that’s it.

CD: How often do you have “repeat offenders”?

NFCC: The rate is not high. Unfortunately, we don’t have solid numbers. What I really find is the number one reason why people have so much debt is because they don’t have the skills or they didn’t implement them. So, in other words, they’re not tracking where their money is going. They don’t have a spending plan. And they don’t have their goals. It’s like they’re driving around and they’ve got no map and they have no idea where they’re going. You need to do all this planning and preparation.

BANKRUPTCY REALITY

Be very careful if you think that you can escape your money problems by filing for bankruptcy. It is not easy to qualify to file for protection under Chapter 7. Instead, the likelihood is that you will be required to enter credit counseling, and if you still can’t work out a repayment plan with your creditors, you will be required to file Chapter 13, in which your debts will not be forgiven; the court will set a payback plan for you.

AFTER THE DEBT

Once out of debt, you’ll find the pleasure of not creating debt far exceeds the momentary thrill of buying something on credit that you really don’t need, can’t afford, and won’t really care about much beyond the time you get it home. What is more, all the money you’ve been pouring into interest charges can now go instead toward creating wealth, investing in yourself and your future.

FOUND MONEY

If you saw a quarter on the street, would you stoop to pick it up? Of course you would—we all would. Would you throw a dollar on the street for someone else to pick up? I doubt it. Yet without even knowing it, you may be throwing away hundreds or thousands of dollars in found money for you and your future just by the way you’re dealing with your financial life.

Most people try to set up their lives for convenience, to make things easy. But easy can be costly. Respecting yourself and your money means wanting to put every penny you can to work for you. Respect attracts money, remember? You might have “found money” right now, a few hundred dollars a year here, a few hundred there, or more. Wouldn’t you like to find it? You can if you are just willing to look. If you’re willing to rearrange the pieces of your financial life just a little, you’ll be able to see the solution to the puzzle—and find the money.

YOU MUST LET YOUR MONEY EARN THE HIGHEST WAGES POSSIBLE

ROB’S STORY

“I suppose I could be making more money on my money,” said Rob. “I guess I’m just too lazy to figure out how.”

I do work in landscape design and make pretty good money at it. Last year I made about $60,000. I’m getting better at the building side of it—making walls, building arbors—so this year I should do even better, maybe $70,000 or $75,000. But the money I earn is seasonal. Maybe in February, someone will come and ask me to design something, so that’s when it starts. I’m busy all through the summer and into the fall. By Thanksgiving I’m usually through, then a few months of downtime. The thing is, all my money comes in all during the season for me to live on all year. I pay taxes, I put some into a SEP-IRA, but the rest is just in my checking account. This way, I can always see exactly what I have. I’ve got about $10,000 in there now,

and just got my first call about next season, so I’ll have enough. I know that $10,000 should be earning more than 2 percent interest, but I haven’t taken the time to figure out how.

You and your money must keep good company, remember? If there is a company, bank, brokerage firm, credit union, mutual fund company, or anywhere else that’s offering you a higher interest rate or lower fees than where you are currently keeping your checking or savings account, it is your duty to yourself to transfer your money into a higher-paying account. You put time and energy into finding the lowest rates for your credit cards, right? That same kind of energy needs to go into finding the highest rates for your cash. Going through Rob’s checking account statements for one year showed me that for four months during that year he had $45,000, give or take, in his checking account. Talk about throwing dollars on the street! During those four months alone, had he kept the bulk of his money in a money market account earning, say, 2 percent, his money would have earned $225. Over the course of the year he was losing much more.

Rob’s case is unusual, in that his money is seasonal, but not unique— I’ve had plenty of clients who receive bonus money, sizable tax refunds, and big checks and simply deposit them into their checking accounts, or savings accounts where the interest isn’t all that much better, then just leave it all there until it dwindles away. I also have had clients who keep a lot of money in their savings accounts so that they’ll have free checking at the same bank, when they could be making much more if they moved their savings to a money market fund. By saving the checking fees, they are giving up much more that their money could be earning for them elsewhere. And I have had clients who keep huge balances in checking accounts, just “so they can see their money at a glance.”

I tell them what I told Rob, you can see your money just as well in a

money market account or a bank certificate of deposit that pays more than your checking account.

HOW TO SAVE SMART

It is very important to keep some of your money absolutely safe and sound. This is money you want to be able to tap quickly in the case of an emergency. I believe the best way to be respectful to yourself is to aim to have at least eight months of living expenses set aside in a safe emergency savings fund.

STICK WITH FEDERALLY INSURED BANKS AND CREDIT UNIONS

The safest place for your money is a bank or credit union account that is federally insured. If your money is at a bank, you want to make sure it is a member of the Federal Deposit Insurance Corp. program (FDIC). One quick way to confirm that a bank is federally insured is to check its website homepage or the door of a branch location; you will see an icon that says “Member FDIC.” You can also check online at the FDIC’s deposit insurance website: http://www.fdic.gov/deposit/. If you use a credit union, your job is to verify that your credit union participates in the insurance program run by the National Credit Union Administration (NCUA). If you see “NCUA” on the website or front door of your credit union, that tells you members’ savings accounts are in fact federally insured. You can learn more about NCUA insurance at www.ncua.gov/NCUAsafe.aspx.

The insurance coverage for both banks and credit unions is virtually

identical. In the event anything were to happen to your bank or credit union, the government agency (FDIC or NCUA) steps in and promises to make sure that you do not lose a penny in your savings up to certain limits. Here is what you need to know about how deposit insurance works.

You have $250,000 in coverage per bank or credit union. If you have less than $250,000 in savings accounts at any single bank, you have nothing to worry about. You are fully insured. That $250,000 coverage amount was made permanent in 2010. At my website, suzeorman.com, I have information on how you can have higher coverage if you own different types of savings accounts.

The limit is per bank, not per bank branch. Be careful. If you

have $250,000 in the ACME bank’s branch on Main Street and another

$250,000 in savings that you deposited at another ACME branch across town, you will not be fully covered. The $250,000 is per bank or credit union, across all its branches.

Not everything sold at a bank or credit union is covered by insurance. Only deposits are covered by the insurance programs. That includes your basic checking and savings accounts, certificates of deposit (CDs), and money market deposit accounts (MMDAs.) But mutual funds sold by a bank or credit union are not insured. This is very important to understand: if you invest in a mutual fund through your bank and that fund loses money, you are not covered by the insurance programs. This is also true of a type of savings account offered through mutual fund companies, called money market mutual funds (MMMFs). I discuss MMMFs in more detail below, but please be aware that there are these two very similar looking savings accounts, but only one, a bank MMDA, provides you with insurance.

SAFETY COMES BEFORE INTEREST

The financial crisis that began in 2008 has caused the interest rate on safe savings accounts to plummet to near zero. In late 2011, a one-year CD typically had a yield of less than 1 percent. And the Federal Reserve, which controls short-term rates, has signaled it intends to keep rates very low through mid 2013. As frustrating as it is to see your money sitting in accounts that earn so little (or nothing), remember what this

money is for. Safety. Emergencies. You want to know that at a moment’s notice you could access the money and know it will all be there. Sure, there are other investments that may pay you a higher interest rate—for example, I happen to think stocks that pay dividends are a great investment. But saving is not the same as investing. Keep your savings safe in a federally insured bank account. That’s how you protect yourself and your family. Now, that said, I want you to scour your bank or credit union offerings to find an account that pays you something, especially if you have a very large sum at the bank. For example, if you have

$150,000 in a non-interest-bearing savings account, you’re earning nothing. Shifting that into an account that earns a little something, even just 0.25 percent, would earn you $375. Earning something is better than earning nothing. And once interest rates begin to rise (though it looks like that may not happen until at least late 2013), you will see the rates on these savings accounts rise as well.

MONEY MARKET MUTUAL FUNDS - NOT WORTH THE COST

As I explained earlier, money market mutual funds are not the same as money market deposit accounts. Money market funds are typically the cash accounts available through the fund company or discount brokerage where you have your money invested. MMMFs are not eligible for federal deposit insurance. The reality is that they have historically been extremely safe. They invest in the same types of short-term securities as a money market account at your bank or credit union. But in the event a money market fund runs into any trouble, there’s no insurance program that will make sure shareholders get every penny back. One rare event occurred in 2008 during the financial crisis: a money market mutual fund that had a big investment in a short-term security of Lehman Bros. got into trouble when Lehman Bros. went out

of business. The impact for investors in that money market fund was a loss of 3 percent. While no one wants to lose 3 percent on any investment that is super safe, it is important to realize that in the depths of such a crisis, the impact on this money market fund was pretty minor. Still, if you want to make sure your savings are 100 percent safe and sound, I recommend you stick with a money market deposit account at a federally insured bank or credit union.

Money market mutual funds are also handicapped by the fees they charge to shareholders. The fee is typically very small; it might be just

0.20 percent a year. But when rates are very low, you can’t really afford to give even that much away. Consider that in 2007 before the financial crisis, the average money market mutual fund paid about 4.5 percent interest. Paying 0.20 percent or so for the convenience of having a cash account with your investment portfolio wasn’t a big deal when you were earning so much. But in late 2011, the average money market fund pays about zero interest. I don’t think it makes a lot of sense to pay anything in a fee when you’re not earning anything.

If you have money in a money market mutual fund, think through whether you might be better off, at least during a period of low interest rates, shifting some into a federally insured account at a bank or credit union. And if peace of mind is a priority, then you definitely want to focus on a bank or credit union MMDA.

FOUND MONEY - OTHER SOURCES

There are lots of other ways we leave quarters on the sidewalk. Here are ways to pick up that found money.

PAY TAXES QUARTERLY RATHER THAN MONTHLY

If you are self-employed or retired and getting a pension check, did you

know you don’t have to have taxes taken out of your checks each and every month? The interest that this tax money could earn could be about

$100 or $200 a year, which invested yearly over forty years at 8 percent

could net between $25,906 and $51,811.

If you can, pay your taxes by using an estimated tax payment schedule, which means that four times a year (April 15, June 15, September 15, January 15) you need to send in an installment payment of the taxes that you will owe. Here, too, you have a choice. In these four installments you need to send in either 90 percent of this year’s projected tax or 110 percent of the tax you paid in the previous year.

Let’s say last year you owed $8,000 in taxes, but this year you took a large sum of money from your retirement plan and, as a result, you will owe about $18,000 in taxes. Your choice is to send in 110 percent of last year’s taxes, which totaled $8,000, over those four installments at

$2,200 each, or pay 90 percent of what you expect this year’s tax liability to be—in this case 90 percent of $18,000 = $16,200.

Who wants to part with money, particularly to the IRS, before they have to? You would pay the $8,800 (110 percent of $8,000), in four installments of $2,200 each, and keep the remaining $7,400 you owe in a money market or interest-bearing account of some kind. Instead of letting the IRS earn interest on your money, you’re doing it. And it can add up to a nice sum.

PAY OFF YOUR THIRTY-YEAR MORTGAGE IN FIFTEEN YEARS

Let’s say that you buy a house with a thirty-year mortgage of $200,000 at 6 percent. You will be scheduled to make 360 payments of $1,199.10, paying a total of $431,676 by the time your house is paid for. That interest can sure add up, to the tune of $231,676, over time. However, if you pay off this thirty-year mortgage in fifteen years, you will pay far less in interest. Your payments would be higher, $1,687.71 a month rather than $1,199.10, but since you would be paying them for only half the time, you would have shelled out a total of $303,788 to own your house free and clear, or about $128,000 less than if you did it over a thirty-year period of time. That’s quite a savings.

If this is something you’re thinking about doing, please make sure you

consult a financial professional. There are other factors to consider—the present tax deduction on the interest from a primary-residence mortgage; what the $489 difference in monthly payments would add up to if you invested it well instead (and whether you would be disciplined enough to do it). This is an emotional decision, too, as well as a financial one: if you bought a house with a thirty-year mortgage at age forty, how would you feel knowing that those monthly payments would cease when you were fifty-five? Or when you were seventy?

Several other options are available to you as well. Sending in one extra mortgage payment per year, for example, and specifying that it be used against the principal will start to reduce a thirty-year mortgage. If you do this, it will reduce a thirty-year mortgage to just under twenty- five years and a fifteen-year to about thirteen years, depending on your interest rate. Beware, however, of banks that offer to do this service for you (deduct from your account bimonthly) and charge a onetime $300 fee. You can accomplish the same goal by simply sending in an extra payment.

DON’T APPLY FOR A THIRTY-YEAR MORTGAGE WHEN YOU INTEND TO PAY IT OFF IN FIFTEEN YEARS

Did you know the interest on a thirty-year mortgage is usually higher than the interest on a fifteen-year mortgage? The 6 percent you’re paying for your thirty-year mortgage in the previous example would most likely have been only 5.5 percent, or 0.50 percentage points less, if you had applied for a fifteen-year mortgage to begin with.

You need to give thought to this before you apply for your mortgage. If you are planning to pay it off in fifteen years, why would you apply for a thirty-year mortgage in the first place, the way so many people do? For a safety net, right? You figure that if money gets tight, you can always go back to paying it off with less expensive monthly payments over a longer period of time.

Your safety net, based on the difference between a 5.5 percent, fifteen- year mortgage and a 6 percent, thirty-year mortgage will cost you an additional $103,000 in interest payments.

DON’T HAVE THE MORTGAGE COMPANY WITHHOLD YOUR PROPERTY TAXES AND INSURANCE PAYMENTS— PAY THEM YOURSELF WHEN THEY COME DUE

Wasn’t it nice when you signed up for your mortgage and the lender said, “Why don’t we just go ahead and add your property taxes and insurance to the bill every month, and we’ll pay it all for you?” Sure it was nice. For them.

Property taxes and insurance both come due twice a year, but by saving yourself the hassle of writing four simple checks a year, you’re paying them every single month—and losing out on the interest the money could be earning. It is not farfetched to think you could have earned $240 a year on the interest from your insurance and property taxes. Let’s say you did. Over forty years (which is about how long people really pay mortgages, by buying a house, selling it, buying another house, and starting the mortgage process all over again) at 8 percent, you could be paying your bank $62,173 in lost interest and earnings just to be your personal secretary and write those four checks for you. Over thirty years you could have lost out on $20,187; over fifteen years, $6,517. And if you’re carrying two mortgages, your savings will more than double.

DON’T PAY CREDIT CARD FEES WHEN YOU DO NOT HAVE TO

Some credit cards do not charge annual fees, but those that do levy an average fee of $43. If you are paying $43 a year, you are essentially wasting $5,693 over the next thirty years. That’s how much your $43 a year would grow to assuming an 8 percent average annual return. Over fifty years, you are throwing away $28,662. To me that’s found money.

DON’T PAY FULL-SERVICE COMMISSIONS WHEN YOU CAN GET WHAT YOU WANT FOR LESS

Often I encounter people who tell their brokers exactly what to buy or sell, yet they are still paying full-service commissions on their trades. When I ask them why they don’t switch to a discount broker, the answer is usually: “Well, we’re settled where we are, so why change?” Or, “Well,

he’s a great guy.” (Or, “He’s done so well for us,” which is curious, since they’re the ones making all the decisions!) Even if you’re forty-five right now, if you save just $300 a year on commissions and invest the money at 6 percent over the next forty years, that adds up to $49,000. Will you still be making investments in forty years? If you’re alive, you will. Are you sure you like your broker that much?

NEVER BUY A LOADED MUTUAL FUND WHEN YOU COULD BUY A NO-LOAD FUND

Let’s say all you ever invest is $5,000 a year in an IRA, and you put that money in a loaded mutual fund with a 5 percent commission. (The difference between loaded and no-load funds is explained in Step 6.) Five percent of $5,000 a year is $250. If you start your IRA at the age of twenty-five, by the time you turn sixty-five that $250 that you did not need to spend every year invested at 6 percent a year would have added up to more than $40,000. It seems to me that the one who will eventually be loaded is that broker who is selling everyone these funds.

DON’T GET A TAX REFUND AT THE END OF THE TAX YEAR

Would you lend me, every year for the next thirty years, a few thousand bucks interest-free?

Well then, why would you make that loan interest-free every year to the IRS?

This drives me crazy. Every year at tax time I used to get a few new clients who were all excited because they had just gotten their refund back from the IRS. Well, they could have begun investing it months before and, on a $4,000 refund, could have already earned a good bit of interest. The IRS takes your money, but know that it doesn’t give any back with interest—these refunds have been earning interest for the IRS, not for you. Make sure you send them your fair share of taxes when they’re due, but not a penny more. No refund is what you want. Let your money work for you instead.

ON BECOMING RESPECTFUL

When someone says to me, “Oh, I don’t know, I guess I just don’t really care about money,” I always say, “But if you don’t care more about your money than anyone else, who is caring about it on your behalf?” When someone else says, “Well, I just don’t think about money,” I say the same thing: “But if you don’t think about your own money, who will? You must think and care about your money until you’ve taken the necessary steps to know that you have done everything you can to show respect for your money, which is a way to show respect for yourself.” Then your money will think and care about you in return.

That’s what this step has been about: respect.

With this step, the path to financial freedom is coming into view. You’re almost there, you’re on course. Now you can clear out the debt that’s cluttered up your present and weighs you down in fear. The future looks clearer, too, now, doesn’t it? Now you can see that you can create enough for tomorrow once you’ve acted today. You have to count every penny to make every penny count. When you have done that, you can begin to create money, more and more money.

Respect for your money and respect for yourself are linked. Building one builds the other. With the next step, you will learn how much you already know deep inside you. We all have a wisdom within us that will tell us, if we listen, how to act, with our money and with every other aspect of our lives. To get in touch with that voice from the core of our being is not only a step toward financial freedom. It’s also a step toward spiritual serenity. That they go hand in hand is not as curious as it may seem at first glance. When you can create money, you are suddenly free to live a life rich in all kinds of ways

About the Blog

Challenge with Dr. Jerry - the First is a property of Topitup Media and Communications Nigeria and is the Platform by which we organize challenge programs to help individuals take back their lives.

We organize such programs as

Online Book Reading Challenge

Positive Affirmations Challenge

Reinvent Yourself Challenge

and all these are aimed at making anyone become the best version of themselves.

We do hope that you would always join our programs to keep tabs on yourself

Kindly follow us on our social media handles

Quote of the day

“We are happy when for everything inside us there is a corresponding something outside us.”

-William Butler Yeats

BOOK RECOMMENDATION

BUY NOW

Join the JTF Book Club