"Are you afraid?" asked Suze Orman. "Are you afraid when it comes to your money? Well, you should be." The lively personal finance expert and host of CNBC's The Suze Orman Show appeared at Chicago Ideas Week (CIW) last night, where she was interviewed by CIW founder Brad Keywell before an auditorium full of people who admitted, via raised hands, that they were racked with credit card debt, that they struggled to pay their mortgages and that they had no idea what a municipal bond was.
"How is that possible?" asked Orman, astonished. "Why aren't we teaching personal finance in school?" (A municipal bond, by the way, is a bond issued by the local government; income from it is oftenalthough not alwaysexempt from income tax.) At Chicago Ideas Week, Orman offered a no-nonsense, tough love type of financial advice that says if you can't afford something, don't buy it. Here are some of the ideas she had:
Idea No. 1: You can't wait for the market to save you.
"The real estate market isn't going to come back until at least 2023," Orman predicted. "If you can't afford your home, you need to figure out what to do. You have to make a plan and that plan can't be that the market will save you." Similarly, if you see a house on the market that looks like a good deal, don't buy it. "Don't you dare," said Orman. Unless, of course, you can easily put 20% of the money down and pay the property taxes, mortgage and insurance comfortably with your current salaryand your job is secure. Then, as long as the house will be your primary residence, go right ahead.
Idea No. 2: Pay in cash
If you pay for something in cash, you won't have debt. It's as simple as that. If you have credit card debt, pay that off as fast as you can.
Idea No. 3: Men need to stop pretending they know more about financial planning than they do. "Men are financial fakers," said Orman. When she worked as a financial planner, she said, married couples would come in for advice and "when the wife got up to go to the bathroom, I'd lay out this very complicated, totally made up plan for the husband. I'd say, 'You do this, and this, and thisare you following me?' and the husband would nod and say, 'Yes, Suze. To the letter.'" Then when the wife came back, she'd ask the husband to explain it to her and he couldn't. "Of course he couldn't! It wasn't a real plan!" Orman says that even today, men feel pressure to pretend like they know what they're doing. "That's how Bernie Madoff happened," she said. "One guy told another guy, who told another guy, who told another guy, and not one of them knew what they were doing." Women, on the other hand, have no problem asking someone to explain an idea to them again.
Idea No. 4: Save money.
This was a weaker point in Orman's talk because she didn't explain how people are supposed to save money. Orman recommends having eight months of savings in the bank so that if you find yourself without a job, you can still pay your bills. That's a nice idea, but many people can barely pay their bills now; how are they supposed to save money? "If you lose your job, how are you going to continue to pay those bills?" Orman counters. That's a good point, but it still doesn't explain anything. Becoming financially secure can sometimes be harder than you think.