Money Management

Don’t listen to Suze Orman’s advice on this money issue.  

Suze Orman is a finance expert who offers advice on a wide variety of issues.

In many cases, her advice is spot on. For example, she recommends opening a Roth IRA with a brokerage firm for retirement savings, which makes sense for many people because this type of account provides tax-free withdrawals as a retiree. And she suggests having a generous emergency fund in a savings account, which can help you be prepared for life’s surprises without ending up in debt.

However, there is some advice Orman has given which you may want to think twice about following because listening to her on this issue could mean you don’t make the best use of your funds.

Why you may not want to follow this Suze Orman tip

One Orman tip you may want to avoid listening to relates to what you do with spending money. Specifically, Orman suggests you stop using your cash for specific things.

“Stop leasing cars, stop eating out, stop doing the things that’s wasting your money and makes your life easier, because in the long run it’s going to make it harder,” Orman advised, as reported by CNBC.

On the surface, this may seem like solid financial advice. But, there’s a problem. Spending money on things that make your life easier is not necessarily a “waste.” In fact, in some situations, it’s the absolute best use of your money because making your life easier can make you happier.

Of course, this does not mean you should spend money you don’t have on things like leasing cars, dining out, or other luxuries. You never want to go into debt for unnecessary purchases, as doing so could make it harder for you to accomplish the things with money that are really important — like preparing for your future.

But you deserve to use your money to do things that improve your life and that you enjoy — as long as you budget to make that happen and you think carefully about what you want your priorities to be.

You can use your money responsibly and still spend it on things that make life easier

Rather than focusing on eliminating costs like eating out or other spending that makes your life easier or more enjoyable, it’s better to set yourself up for financial sense without creating a life of deprivation.

There are steps you can take to do that, such as aiming to increase your income when possible and making sure you don’t overcommit to big expenses. Spending too much on your housing payment, for example, could create a lot of financial havoc for you.

If you opt for a less expensive mortgage or cut other big expenses and free up money in your budget for things you enjoy, that’s a much more sustainable and enjoyable way to live since you are only making a decision to cut back once rather than constantly forcing yourself to give up spending money on the things that make life better for you.

The point is to spend mindfully. Define what “wasted” money looks like to you versus the expenses that make you happy, and build a budget that allows you to do the things that matter to you.

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A little extra responsibility isn’t always a bad thing. 

My son, like many 11-year-old boys, enjoys spending a lot of his time watching and participating in sports, playing video games, and teasing his younger sisters. But when he’s not busy doing those things, you might find him sitting down with me (and/or my husband) and reviewing some of our household finances.

My husband and I made the decision to share our household budget with our son about two years ago, when he was only nine. As such, my son is keenly aware of how much we spend on essential expenses like our mortgage payments, groceries, and utility bills. He’s also aware that we allocate money every month to our savings accounts and retirement plans (though he’s unaware of what our balances look like).

Because our son is now a little older, we’ve started letting him make certain low-level financial decisions. And the goal there is to empower him to make smart choices as he gets older.

Important skills to have

Many U.S. adults struggle with financial literacy. And a big reason is that personal finance isn’t a topic that’s broadly taught in classrooms.

Some states are looking to change that. Alabama, Mississippi, Missouri, North Carolina, Tennessee, Utah, and Virginia all require high school students to take at least one personal finance course prior to graduating, according to Forbes.

But in many parts of the country, personal finance isn’t taught in schools. So it’s on parents to take matters into their own hands.

That’s a big reason why my husband and I let our son make certain financial decisions. But to be clear, my son won’t be in charge of picking our next new car (namely, because he’d have us driving the Batmobile if it were a viable option), nor will he dictate which stocks I buy with my brokerage account (because, well, he’d probably pick Nintendo without digging into its finances due to his obsession with his Switch).

But what we will do is let our son decide whether we should buy tickets to a certain event based on their cost and how much we’ve recently spent. And we’ll sometimes let our son decide if we should pay for a takeout meal versus cook one at home, depending on what our grocery spending looks like that month.

These are clearly low-impact decisions. But they serve the important purpose of teaching our son to manage money — even if that money is ours. In fact, because that money is ours, my son tends to contemplate these decisions even more carefully so as to not let us down. And that’s not a bad thing.

Talk to your kids about personal finance

You may not want to go to the extreme we do in our household and share your finances with your kids. But it is a good idea to start teaching them about personal finance once they’re old enough to understand key concepts, like budgeting, saving money, and avoiding debt. It could go a long way toward helping them become financially capable adults.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If you forget about an upcoming subscription payment, it could throw your budget out of sorts. 

Whether you pay for software, use streaming apps, or belong to a fitness center, you’ve likely committed to subscription-based products and services. When you become a member of a program or club or sign up for a subscription, it’s best to review the terms and consider all costs. Here’s what to do the next time you sign up for a new membership or subscription.

1. Take advantage of free trials

Many companies offer free trials of their service, so interested customers can sample the service before spending money. Before paying for a service, you should ensure that you’re investing in something that will fit your needs. Always check to see if a free trial is available.

2. Compare pricing options to maximize your savings

It’s not uncommon for brands to offer multiple pricing options. The most convenient option for many consumers is to pay every month, but typically monthly fees are higher than other payment options. You may save more money by signing up for an alternate payment plan.

Many companies offer significant discounts to consumers who commit to yearly billing. You’ll usually save money overall if you can pay this way. Review your budget before doing so to ensure you can afford the expense.

3. Choose the best payment option for you

Before signing up for a membership or subscription, it’s a good idea to consider how you will pay for it. Consider which card will offer the most rewards if you plan to pay using a credit card.

Some credit cards even offer higher earning rates for specific purchases, like eligible streaming services and apps. If you pay for multiple streaming services, check out our list of the best credit cards for streaming services to learn more about the reward-earning potential of these types of cards.

4. Set reminders to avoid surprise charges

No one likes surprise charges. Seeing an unexpected charge hit your credit card can be frustrating. That can happen when life gets busy, and you’re unaware that a payment is coming up. If you use subscription-based services, you’ll be billed again the next time your billing date rolls around. That might be monthly, quarterly, or yearly, depending on the payment terms.

You can avoid surprise charges by planning for these costs before they pop up. When you sign up for a new subscription or membership, you may want to do one of the following:

Mark the due date on your calendarSet a payment date reminder on your phone

You may want to mark your calendar or set an alert a few days before the actual due date. This way, you’ll know when the payment date is approaching. When you anticipate an upcoming expense, you can budget accordingly and feel less stressed about your finances.

It pays to keep your finances top of mind

It’s a good idea to consider your finances and payment habits before you commit to a new membership or subscription. You can avoid a surprise charge and find ways to save money and earn more rewards on purchases like this by taking some of the steps above. For other money management tops, check out our personal finance resources.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Could this rule help save you from financial disaster? 

Many years ago, my husband and I bought a house. Before we did, we made a simple rule about our mortgage loan that we vowed we wouldn’t break no matter what. When we moved forward with the purchase, and for all subsequent houses we’ve bought, we made sure to follow the same rule.

Here’s what it is, and why we made the commitment to stick to this guideline before becoming homeowners.

This was our rule for becoming homeowners

The rule that my husband and I made was that we would not purchase any home that required us to take out a mortgage we couldn’t afford independently on our own salaries. In other words, our loan had to be for an amount that my husband could afford if I stopped working, or for an amount that I could afford if my husband gave up his job.

This did not mean that we were willing to spend either my entire income or his entire income on our home loan. Most experts recommend you spend less than 28% of your income on housing costs, including principal, interest, taxes, and insurance. So, we made sure our monthly mortgage payment did not exceed 28% of either his income or my income.

This meant we purchased a home that was much smaller and less expensive than the amount we could technically afford. But, as our income increased and as our property went up in value, giving us more money for a down payment, we’ve been able to move up to bigger houses that are a better fit for our family while still sticking within this limit.

Here’s why we felt following this rule was so important

My husband and I made this rule for a few reasons, even though we knew that it would limit the type of home we could to afford.

One of the biggest reasons is that we know life is uncertain. Although we both have our own businesses and thus are not likely to stop earning income entirely, we also know that incomes can go down due to unforeseen events. We also didn’t know if one of us would want to stop working in the future once we had kids.

Since we didn’t want to face foreclosure if something unexpected did happen and one of us had to stop working, we wanted to be sure that our house was affordable with just one income. Setting the rule allowed us to make that happen.

By making sure we kept our housing costs to 28% of one of our incomes, we also ensured we wouldn’t end up house poor. We have plenty of money left over to do things like travel and save for retirement and other financial goals because we didn’t overcommit to a large housing payment.

We have never regretted making the choice to follow this rule, which also gave us peace of mind as well as financial flexibility. And if we buy another house in the future, we’ll be sure to follow it again too.

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A 10% penalty applies to non-qualified withdrawals. 

For many, withdrawing from a retirement account early could come with a sizable penalty. However, the SECURE Act 2.0, signed into law in December, expands permitted withdrawals from retirement accounts, and could save some account holders thousands of dollars in penalties.

Victim relief

Under current law, a non-qualified distribution from a retirement account, such as a withdrawal made prior to age 59 ½, carries a hefty penalty. In addition to being taxed on the full amount of the distribution, you could be responsible for a 10% penalty. The IRS provides a variety of exceptions to the penalty, but prior to the SECURE Act 2.0, offered little by way of exceptions to victims of extenuating circumstances.

One of the more celebrated provisions of the legislation provides for an exception to the distribution penalty for victims of domestic abuse. Starting on Jan. 1, 2024, self-certifying victims will be eligible to withdraw the lesser of $10,000 or half of their retirement account balance to escape an unsafe situation. The withdrawal will not be subject to a penalty, and may be repaid within three years.

Victims of federally declared disasters are also afforded more flexibility when accessing their retirement funds. Affected Americans can withdraw up to $22,000 from their qualified plan or Individual Retirement Account, and employers can increase the amount that participants can borrow from their plan. In addition to being penalty-free, the distribution will be counted as taxable income over a period of three years. The provision applies retroactively to disasters declared on or after Jan. 26, 2021.

Terminal illness

For the millions of Americans suffering from a terminal illness, funding short-term treatments and end-of-life care is of critical importance. Prior to the SECURE Act 2.0, however, many of these individuals would be subject to a penalty in order to access their retirement savings. The new law made some significant changes.

Following the passage of the legislation late last year, distributions made from retirement accounts to those with a terminal illness are exempt from the 10% penalty. The law will help those suffering from a terminal illness, and their families, make the most of their savings.

Long-term care

Today, an American celebrating their 65th birthday has a nearly 70% chance of needing long-term care in the future. Coupled with the fact that the average long-term care stay lasts three years and costs over $80,000 on average, it makes sense that products like long-term care insurance are becoming increasingly popular.

Planning for long-term care insurance often starts many decades before a long-term care stay is needed. For middle-aged Americans, however, affording long-term care insurance premiums can be difficult, especially when much of your wealth is tied up in your retirement plan. Starting in late 2025, Americans will be able to use their retirement accounts to pay for up to $2,500 of annual long-term care insurance premiums — all without incurring a 10% penalty.

Retirement accounts are difficult to tap into by design. However, the restrictive nature of retirement saving may punish those who save for their future but have an emergency in the short term. The SECURE Act 2.0 broadens exceptions to the retirement withdrawal penalty, offering a lifeline to victims of domestic abuse, natural disasters, and terminal illnesses. The legislation also serves to help Americans plan for future hazards, such as a long-term care need.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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