The Money Class (3 page)

It is time to move beyond materialism in order to set our sights on authentic happiness.
Authenticity
is a word I find myself returning to again and again these days. I would ask you to put your finger on what is authentic in your own life—and what endures. Surely that is our relationships—with those we love, with our community, with the earth. We strive for connection, we gladly sacrifice and find strength in working toward a greater purpose, a sense that there is a reward in being true to yourself and honoring the limitless power that comes from living a life of integrity. More than anything else, isn’t that the legacy each of us would like to leave behind? Wouldn’t we take pride in knowing that future generations will look to us for inspiration, just as we look for inspiration to the greats who came before us? Then let us embrace the ideals that forged the American Dream, then and now: honesty, integrity, dedication, commitment, courage, and hope. And let us turn toward the future.

The Money Class is now in session
.

CLASS

STAND IN YOUR TRUTH

How do we usher in this new era of personal responsibility? By taking an honest inventory of exactly where you are today and what you want most for your future. Sounds like it shouldn’t be so hard, right? But trust me—getting honest is the hard part. Based on my experience of working with people and their finances for three decades, I can tell you that culturally we have become a nation that hides from that truth.

I see it week in and week out when working on my television show on CNBC. The most popular segment of the show is “Can I Afford It?” in which viewers ask my opinion about a financial purchase they are considering. It is a very simple concept: Viewers want me to tell them whether they can truly afford to buy something.

Before I render my Approved or Denied verdict I insist on finding out everything I can about a viewer’s financial situation. And I do mean everything. My staff and I pore over detailed financial information each guest must submit to be considered for the segment. Invariably we go back and forth a few times with the guest before the show is taped, until I am absolutely clear about whether they will be Approved or Denied.

Those of you who watch the show know that more often than not I have to tell guests they are Denied. I know that many of you think the people who are featured on the “Can I Afford It?” segments are just playing a game. I can’t tell you how often people come up to me on the street and say, “Oh Suze, I saw the show last weekend and there is no way those people were for real—it was crazy what they thought they could afford!”

I am here to tell you they are most definitely real. What you don’t see is that after they have been Denied and the taping is complete, the guests start trying to negotiate with me and my staff. They come back to us and change their story just a little bit in the hope that I will change my mind. The guests most desperate to change the verdict are caught up in what they wish were true; their desires about what they want in the here and now push them to bend the truth, to hide from the truth, just so I will tell them they are Approved.

I wonder if deep down on some level you are struggling with the same urge. That kind of wishful thinking is not unique to the guests who ask me “Can I Afford It?”; it’s something many of us indulge in because it allows us to avoid tough decisions and owning up to a difficult reality that we may not be ready to face.

There is no blame, no finger-pointing that accompanies my observation. As we embark on
The Money Class
I want to be crystal clear about my motivation for writing this book: empathy. I understand how painful it can be to face reality. Especially given the realities we are all facing, detailed in the opening class. It often seems to be in conflict with a healthy optimistic impulse.

So trust me when I say that I know it is not easy. But it is necessary. No, make that
vital
. As I explained in the first class, I am convinced that we can all move toward a better future, but in order to do so we must create a new template for achieving our dreams. An important starting point to these classes is the recognition that the events of the past fifteen years or so that culminated in the financial crisis were caused by a collective disconnect from reality.

The most fundamental lesson of
The Money Class
is this: In order to create lasting security you must learn to stand in your truth. You must recognize, embrace, and be honest about what is real for you today and allow that understanding to inform the choices you make. Only then will you be able to build the future of your dreams.

In this class we will learn:

• Finding Your Truth: A Personal Financial Accounting
  
• Living Truthfully: How to Stand Tall in Your Reality
  
• The Foundation of All Truthful Living: The Power of Cash
  

LESSON 1.
FINDING YOUR TRUTH: A PERSONAL FINANCIAL ACCOUNTING

Moving toward new realistic dreams starts with an honest appraisal of exactly where you are today. I am not going to try to cajole you into this first lesson with some fancy window dressing. I am going to stand in this truth: There’s no way around the fact that every lesson that follows in
The Money Class
can only be helpful if you first take the time to create a personal balance sheet that shows you exactly what you currently spend and owe (your liabilities) and what you have managed to save for your future (your assets).

I realize that sounds like drudgery. But you have it so wrong. Stick with me here, commit to this exercise, and I promise you the experience will be revelatory.

If you already use a software program that helps you track your spending and saving, great. But I suspect that many of you really don’t have such a strong grip on where your money is going, month after month. If that is the case, I would like you to go to my website,
www.suzeorman.com
, and click on the link for The Classroom. The Classroom is where all the tools and resources referenced in
The Money Class
are housed. There you will find my Expense Tracker tool. I have made it as easy as possible for you to determine your monthly income and outgo. But please know that your ability to stand in the truth comes down to how honest you are about inputting the data requested. Please do not guess or estimate. I am asking you to take the time to go through all your statements and documents so you can input dollar amounts into each line item that are a realistic reflection of your actual spending. Be prepared—it could take hours, but that kind of ruthless honesty is necessary to beginning this lesson on a firm and true foundation.

The next piece of information we need is your credit score. You can get that at
myFICO.com
. If you have a FICO credit score that is below 700, you have some work to do.

Improving Your FICO Score

Your FICO score is important for many reasons, which you know if you’ve been following my advice for years, but it’s even more so today. Before the financial crisis a strong FICO score simply enabled you to qualify for the best deals. Now you must have a strong FICO score to qualify for a loan, period. Typically that means a FICO credit score of at least 700–720, and often lenders reserve their best terms for borrowers with FICO credit scores of 740 or higher. A great source of information on FICO scores can be found at
ScoreInfo.org
, a consumer site created by FICO.

Once you complete those worksheets and get a FICO score, please print them out. Hold those papers firm and give yourself credit. You have just taken a giant step toward getting honest. I realize many of you will not like what the numbers tell you. Do not panic. Do not beat yourself up. And do not give up. Making those numbers “work” for you is in fact the basis of the rest of this book.

Understand that we are not going to fix anything here in this class. Our focus right now is on facing the facts, so you can identify the areas of your financial life that are causing you stress. I realize you probably have a sense of that without going through these exercises. But it may be just a sense, or an inkling, or a hazy dread. When you take the time to put it all down on paper it brings everything into a sharp clarity. You are no longer guessing, or able to “bend” the truth. With the facts right in front of you, you have the building blocks of a solid foundation that will enable you to stand in your truth.

LESSON 2.
LIVING TRUTHFULLY: HOW TO STAND TALL IN YOUR REALITY

Now that you have a clear-eyed accounting of your financial reality, our next challenge is to give you the means to take action based on what those worksheets tell you. I need to repeat myself: Do not be ashamed or upset. Know that in spirit I am sitting right beside you and I am excited for you: You have taken a giant step toward getting honest! That is no small achievement.

In the classes that follow I present a series of lessons that will guide you through making the adjustments and taking the proper actions to help you realize your dreams. Those chapters contain all the nuts-and-bolts information you will need. To be honest, the how-to part of those chapters is relatively easy; it is just a matter of understanding some basic financial rules, regulations, and truths and making smart choices based on that knowledge.

What I want to focus on in this lesson is how you find it in yourself to make those choices. The success of
The Money Class
is not just what I can teach you, but ultimately, what you are able to put into action for yourself, for your family, and for the benefit of future generations.

Here are the cornerstones of the better financial life you can build with the lessons that follow:

FOCUS ON WHAT IS REAL TODAY …

The only way you can move forward is to loosen your grip on the past. I know for many of you it is quite difficult to not look in the rearview mirror. You are still hoping your home’s value gets back to where it was in 2006, or you are stuck thinking about how much more your retirement accounts were worth a few years ago, or how much easier it was to generate income when interest rates were higher than they are today. Those of you looking for work are unwilling to settle for a job that pays less than your last one.

Please know that I say this with full knowledge of how deeply wrenching it is: We must let go of the past. The decisions you make today must be based on what is realistic today—not what may have been true in the past, but what you know for a fact is an honest accounting of what is happening for you right here, right now.

 … AND WHAT YOU WILL NEED TOMORROW

What derails so many of our good intentions is that we find it hard to make decisions today that will serve us well in the future. So we spend today rather than save for tomorrow. Or we say yes to something—a vacation with friends, a cousin who is looking for investors in a new business—even though spending that money now will impede our ability to reach long-term goals. The process of standing in the truth must work for you not just in terms of what is right today, but also with a clear appreciation of the measures required to attain a secure future. Money you spend today is money that will not be able to grow and help you reach your most important future goals, be it a child’s college education, paying off your mortgage before retirement, or being able to live comfortably in retirement.

PUT MONEY IN ITS PLACE

Over the years you may have heard me say that money has no power of its own. It might have given you a moment’s pause when you first heard it, but maybe the truth behind it didn’t stick with you. So let’s dwell on it a moment here, because it’s truly an important concept.

When you are staring at the numbers on your worksheets, I want you to recognize that you have been the catalyst that made the decisions to spend, save, and invest those dollars. Money has no power on its own. It is the car; you are the gas, ignition key, and driver. Without you nothing happens. That should actually make you optimistic. You have the power to make the right and honest decisions about how you handle your money. And finding your power will set off a wonderful chain reaction: When you take the necessary measures to regain security—or build it for the very first time—you bring happiness into your life. You are better able to be present and connect with your family; you are less preoccupied by financial anxiety.

I am asking you to recognize and embrace this concept with your head and your heart: Your money has no power of its own; you are what gives it power. That you are here with me in
The Money Class
tells me you are ready to own that power, fix what isn’t working, and build lasting security.

LIVE BELOW YOUR MEANS BUT WITHIN YOUR NEEDS

The reality is that in order to reach your goals, and maintain those goals once they are achieved, you must live below your means. If you do not have money left over each month you will have nothing to put toward fulfilling your dreams. So “below your means” means making a commitment not to spend every last dollar you take home. “Within your needs” requires that you make a clear-eyed assessment of what exactly you are putting in that category. Yes, it is the act of separating needs from wants, something that I’ve discussed in previous books; but now, in fact, I am asking you to take a more penetrating look.

You need a house, but do you need a house that eats up 35% or more of your monthly income? Could your family be just as content in a less expensive house where the rent or mortgage is just 20% of your monthly income?

I find it so interesting that over the past thirty years the average square footage of a new home grew 42%, even though the number of people living in that house actually decreased. That’s a lot more house to pay for, to heat and cool, to furnish and repair. We all need a place to live, but perhaps a smaller, less expensive place would help us achieve our new dreams. You are meeting your needs with the less expensive house but given the lower cost it will allow you to live below your means, and that can free up significant money to put toward other goals.