Mike Playing the Role of Suzie Orman

It’s financial times like these that get everybody talking about their money.  For the vast majority of people, managing money is a simple exercise in math and logic.  I’m amazed at how bad somepeople are at this task.  Suzie Orman has made a living telling people to do basic math.  Watch her show.  She’s not telling people how to leverage their portfolio to take complex positions in foreign markets.  A lot of her advice is telling people to pay off higher interest loans first, or don’t spend more than you make.  Not rocket science. 

 

I know things are bad, really bad for some folks.  In many cases, they are bad because they made one or more really poor decisions.  So with apologies to Suzie, here’s my free personal finance advice.

 

#1 – SOLID ASSUMPTIONS

When gas shot up earlier this year, I was amazed at the number people who were shocked.  Really?  You didn’t think gas was going to get more expensive over time?  I know the increase was sudden, but I have to tell you, I wasn’t shocked by it.  I was annoyed, but not shocked. 

 

Planning for your financial future requires that you make educated guesses on some things.  So let me take out the guess work for you.  Just think like this:

 

Everything is going to cost more in the future.

 

You heard me.  Everything.

 

Gas is going to cost more.  Food is going to cost more.  Insurance going to cost more.  Clothes, college, everything.  And if you just think like that, planning can get easier.

 

Here’s your second assumption:  Unexpected things are going to happen that are going to cost you money.  Maybe a pipe will burst in your house.  Maybe your car will break down.  Maybe your best friend will have a shotgun wedding in the Bahamas and you’ll really want to go.  Who knows?  But I promise you, over the next 12 months, you’ll need money for something that you hadn’t even though of today.  You’ll need a contigency fund THAT IS NOT A CREDIT CARD for those things.

 

#2  - CREDIT CARD COMPANIES AND BANKS ARE NOT YOUR FRIENDS

They are businesses.  They don’t know you.  They don’t give a crap about you.  They want to make money off you.  And there is nothing wrong with that.  All businesses try to make money off their customers.  But the point here is that a banks and credit card companies will likely offer you more money than you should ever borrow.  Don’t just assume that if it’s offered you can afford it.  Likely, they are offering you enough to keep in debt, and paying them for months and years.

 

#3  - CREDIT CARDS ARE THE ABSOLUTE WORST WAY TO FINANCE SOMETHING

You wouldn’t put your car on a credit card, would you?  (The answer is no.)  Then why would would you take trips, eat meals, and buy electronics that wind up costing you as much as a car on a credit card?  The interest rate is huge.  You are going to wind up paying 15-20% or more for everything you finance using that card if you pay it off over a long period of time.  If you can’t pay for it in full when you purchase it, or get it 0 interest until you can pay it off in full, you should only use a credit card to finance something key to your survival as a last resort.  And a nice pair of jeans isn’t key to your survival. 

 

#4 – DON’T COUNT YOUR CHICKENS BEFORE THEY HATCH

I know several people, smart people, that think their current salary is their low point of income relative to their futures.  Simple put, they think they are going get raises and bonuses every year.  And typically they are right.  When they are, things usually go pretty well.  But when they are wrong, it kills them. 

 

Think about the bad things assumption.   What if you get laid off?  What if your industry tanks?  What if you just get pissed one day and tell your boss to f- off?  All those things happen, to good people, and many of them are entirely outside your control. 

 

#5 – YOUR JOB IS AS SECURE AS YOUR LAST PAYCHECK

Most of us are at-will employees.  That means that at any time , you can quit or your company can decide they no longer require your services.  Personally, I take this literally and to its extreme.  No matter what state my company or the economy,  I consider my job as secure as my last paycheck.  In reality, that’s it.  And I have a plan for what I’m going to do if my job goes away tomorrow.   I keep my resume up-to-date.  I know what companies I’d contact if needed a job.  I know how many months of expenses my savings can cover.  (You should have at least 3 months, and ideally 6.)  I know exactly would luxuries I would drop immediately upon the loss of my job.   I’m good at what I do and I don’t plan to lose my job, but I feel better that I know I’m prepared for exactly that.

 

Take those five guidelines, and you’ll be just fine.  Yeah, it may mean you don’t do or have a lot of things you think you should, but you’ll be living inside your means.  And you’ll feel better when bad time come around.

Tags: financial advice, financial crisis, personal finance