Suze Orman at Google


Uploaded by Google on 08.02.2010

Transcript:
>> PATRICK: Good morning, everybody. Yes. I want to talk about the backpack today. My
guest needs no introduction. New York Time Best Seller, Emmy Winner, I was just going
through and she's syndicated in 18 different countries now. Her award-winning show on CNBC
and she's on a crusade to make America save and do the right thing. People listen to her
because obviously her ideas are profound. They make so much common sense and yet so
many people fail at these basic principles of common sense. It's a real pleasure to have
her to take about 40-45 minutes with you, answer as many questions as you have, and
then finally, she'll have a book signing opportunity. So if you--if you want to, obviously you can
jump into that opportunity as well. Without further ado, please welcome warmly, Suze Orman.
>> ORMAN: Thank you, Patrick. Oh, thank, good morning, good afternoon, whatever it is. How
are you, Google? So, let's talk money, yeah? Let's talk money. You know, what I find fascinating
is that I am sure, look at you all with your little things in front of you, right? All
you little tech heads out there that are changing the world, you're spending all your time doing
whatever you can to make this company be the greatest company in the world, which it is.
You've done a very good job in doing that. But what have you done for your selves? What
have you done for your selves with the money that you are making? If I were to ask you
how many of you have credit card debt, in fact maybe I should do that. Maybe I should
ask you all to stand if you have credit card debt, car loan debts, student loan debt, mortgage
debt, stand. If you do, stand, let's see, stand. Uh-huh, you can sit. So here's the
problem. I came to talk to you about money, but I can't talk to you about money because
you don't have any. So, let's start from the beginning and why maybe you should listen
to me rather than anybody else and what we can do about your financial situation. Now
as I look out there, it occurs to me that a lot of you may be wondering why should we'd
be listening to Suze? She's up there. She's seriously rich. What does she know? And by
the way, I'm so glad I am. I'm so glad I am. It's like, what does she know about my situation?
Well, just because I happened to be in California, I just briefly, briefly want to tell you where
I got my start. It was here in California, Berkeley, California. On the corner of College
in Alcatraz in a little restaurant called the Buttercup Bakery. After spending four
years at the University of Illinois, in 1973, I came out to Berkeley, California where I
lived in my van on the streets, on the corner--on Hearst Avenue there because I did not have
the money back in 1973 to be able to afford a first and last month deposit on an apartment
and rent was only $200 a month back then. So I was living in my van on the streets for
three months until I landed my dream job at the Buttercup Bakery, all right, for $400
a month. Now I wasn't just a waitress for $400 a month from 1973 to 1974, oh no, no.
I was a waitress making $400 a month from 1973 to 1974 to 1975 to 1976 to 1977, '78,
'79, '80 when now I'm essential 29 years of age. All right, are you doing the math? Are
you trying to figure out how I am right now? I'm about to be 59. Mm-hmm... I look good,
don't I? So anyway, here I am, all those years being a waitress and I get this idea that
I can open up my own restaurant. And all I need is $20,000 to do so. So I call up my
mother. I asked for $20,000. And she says, "Suze, honey, that's more money than we have
to our name. We can't give you that kind of money." I go into work the next day. A man
by the name of Fred Hasbrook comes in. He said, "What's wrong, sunshine?" I tell him
the story, how I want to open up my own restaurant. Before I know it, I'd leave there with $50,000
in checks and commitments that all the customers had gathered together and gave me because
Fred went throughout the restaurant that day and told them how I was upset because I didn't
have enough money to open up my own restaurant and they backed me. Now, I didn't know what
to do with that money. And so I am told to take it down to Merrill Lynch in Oakland and
open up an account till I can be helped to open up my own restaurant. I go into the account
at Merrill Lynch and, again, to make a very long story short, all $50,000 was lost within
three months. And it was lost because I had a crooked financial advisor. And I was just
listening to what this financial advisor was telling me. Now, I didn't know what to do.
So, now I thought, "I know, I can be a broker. They just make you broker." So, I went and
I got a job at Merrill Lynch. They hired me simply to fill their women's quota. I walked
in with pinstripe pants, red and white, tucked into my white cowboy boots with a blue silk
shirt. I thought that would be a good dress because that was my fanciest outfit I had
and they looked at me and they had never hired a woman before, this was 1980. And the manager
said, "You know, Suze, I'm going to hire you. I'm going to hire you but I'm here to tell
you, you will be out of there in six months because I personally believe women belong
barefoot and pregnant." His name was Peter Sansevero. Anyway, so, I'm hired there and
as I'm working for Merrill Lynch, I'm reading the codes, studying to be a financial adviser
that what my broker did was illegal. He couldn't invest my money in such a way that I could
lose it when that money was there to be safe and sound so I can open up my restaurant.
So, I went in to tell Peter that he had to quit that work for him and Peter said to me,
"Suze, that crook makes us a lot of money. You go down and you sit in your chair and
don't you say anything." I went and I sat down in my little cubicle, on my little chair
and I thought to myself, "Well, Peter told me that I would be out of here in six months
and this was four months into it. He told me that I didn't belong here. Now, I could
sit there and I could do nothing but what happened with Randy who was the Financial
Advisor and what he did to me wasn't right." Now, I was young and I had time to make back
that money to pay everybody back, but what if it were your parents, or grandparents,
or somebody who didn't have the time to make it back. It wasn't right. So right then and
there, I decided to do what was right versus what was easy and I sued Merrill Lynch while
I was working for them. Now, what was great--what was great about that is because I sued them
they couldn't fire me. They couldn't fire me. And two years later, I was their number
six producing broker. They had fired Randy. They gave me back all of my money plus 18%
interest because that is what money markets were paying back then. And here we are everybody,
the story begins. So from that, what I took was that it is always better to do what is
right versus doing what is easy. When one door closes, another door opens up. And if
you were going down one road, and you find you are going in the wrong direction, just
remember God permits U-turns. What I found from that is that it's important to understand
your goal in life and do what you feel really fulfills you, but what's equally as important
is that every single one of you in this room is making money. And by evidence, by the fact
that you all stood up when I asked you or almost all of you, "Do you have debt?" What
does that say about what you were doing with the money that you are making? So, you are
going to have to make a decision and I hope you make that decision right here and right
now. To start giving to your selves, financially speaking, as much as you give of your selves.
You work for a corporation that is one of the--if not, the most generous corporation
I have ever seen bar none. Now, I'm not just saying that because I'm standing here at Google.
Trust me, if I did not like their benefits program, I would be saying it right here because
I don't care. I only care about one thing. I care about you and what you're doing with
your money. My career has been made not by telling millionaires what to invest in, not
by going after those that are really affluent, but by helping America who doesn't have a
pot to pee in, to create something for themselves and their family and therefore the world.
So, you are my audience. You are the ones that I care about. Because of you, I am that
wealthy woman, got that? So, we have to start with what do you have here that you're not
taking advantage of? All I can tell you is that every single one of you in this room
have the opportunity to be investing in your 401(k) plan. Your 401(k) plan, as you know,
matches dollar for dollar up to $3,000 of what you put in, 50 cents up to $8,250 of
what you put in. I don't care if you have credit card debt. I don't care if you don't
have an emergency fund. I don't care if you don't have any money whatsoever. If you are
not taking advantage of your 401(k), you are making one of the biggest mistakes out there.
The most important ingredient in any financial freedom recipe is time. When you have time
on your side, then, you have the ability to mass incredible amounts of wealth. Let me
give you and example. You're 25 years of age. You start putting $100 a month away right
now into this account. And you do so every single month until you are 65 years of age.
For 40 years with normal market returns when everything turns back to normal again. Do
you know what the age of 65? You would have $1 million. But let's say you say to yourself,
"It's fine. I'm still young. I don't want to put my money away right now. I want to
wait. What difference can it make if I make until I wait, until I'm 35." If you wait to
your 35, $100 a month, there's only $1,200 a year. $1,200 a year for 10 years is only
$12,000, what difference can it make? Well, let me tell you, if you start at 35 rather
than 25, when you are 65 years of age, you will have only $300,000. Those 10 years cost
you $700,000 and that is at a $100 a month. Do it at $200 a month, $300 a month and we
are talking about serious sums of money, everybody. Are you with me here? So, if you are not contributing
to your 401(k) plan, you are making a serious mistake. The sooner you begin, the better.
However, however, now listen to me closely, Google, like most corporations, only contribute
up to that point of your match that I told you, the 3,000 or the 8,250. The next question
then becomes, after the point of the match, where Google no longer matches your contribution,
what should you be doing? Here is your plan of action. After the point of the match, if
you have credit card debt or you do not have at least an eight-month emergency fund, you
should stop contributing to your 401(k) after the point of the match and first establish
an eight-month emergency fund for yourself. Why? What have we just gone through, everybody?
What have you just seen in the years 2008, 2009, and if you think it's going to get a
whole lot better 2010, 2011 and 2012, I'm here to tell you I don't think so. I think
you will see that the economy is starting to recover. We obviously did not go off the
deep end. But that came at an incredible price that came at deficits that are beyond our
wildest imagination. And while everybody can say that these deficits, "It's all right.
They don't have to be paid back." You all stood when I asked you if you had debt. Who
is going to pay your debt back for you? Is a magical entity going to drop down from the
skies and say, "Here, I'll take care of your mortgage. Here, I'll take care of your credit
card debt. Here, I'll take care of your student loan debt." You are going to have to do it.
And what happens to you when you don't make those payments? Ring, ring, ring, ring, ring,
ring, creditors coming after you, everybody wanting your money, the credit card company
shutting you down, everybody foreclosing on your homes, everybody taking your cars away
from you. You have got to stay responsible. Do you not to the money that you owe. You
are the ones who will have to keep your budgets in balance. The same is true with the United
States Government. And somehow, this is going to come to play for all of us. The way it's
going to come to play will be in increased taxes. Everybody has been told that and it's
going to happen. Therefore, how do you, how do you make a plan so that you can make more
out of less money? First plan has to be--listen, this is a great company. This is a company
that I hope continues to expand and we never experienced layoffs. But it's not just about
this company. What if you get sick? What if you become ill? What if you can't work? You
need at least an eight-month emergency fund, eight months of expenses that you know you
have to pay if you don't have a paycheck coming in so that you will be okay. After the eight-month
emergency fund, you now need to start paying down your credit card debt. Why does Suze
Orman wants you to have an emergency fund before you're paying off credit card debt?
I'll tell you why. The banks, especially the large banks, if you happen to have an account
with Chase, Citi, Bank of America, you may love that you're banking with them. I don't
like those banks. I don't like those banks at all, because when it comes to credit cards,
even if you have been on time, even if you have never gone over your credit limits, even
if you have an incredible FICO score or a credit score. Do you know that they have increased
your interest rates almost across the board to 29.99%. They have increased the minimum
payments that you're able to make from two percent to five percent. And in many cases,
when you payoff your credit card debt, they are shutting down your credit all together.
So, here's the question, you're being good citizens, you pay down your credit card debt
and now these companies close your credit cards because they no longer want to give
anybody credit. At the same time, you no longer have a paycheck coming in because maybe you've
gotten ill or whatever has happened to you. How are you going to eat? How are you going
to function? You don't have any credit cards anymore to be able to do cash advances because
today the credit industry has changed. So, here's my advice to you. If you happen to
have a credit card at one of those big banks, you need to start taking your power back,
people. You need to start saying to the financial institutions in the United States of America
that you deserve to be respected. You deserve to get more out of the money than you are
getting. One way you can do that is you should open up a credit card at a credit union. By
law, federally chartered credit unions cannot charge you more than 18% interest on your
credit cards. If you want to find a good credit union credit card, you should all go to creditcardconnection.org.
It is the only legitimate site out there that if you put in your zip code, up will come
the credit unions close to your zip code that you can join to possibly do a balance transfer
to. Many of these other sites that list credit unions. The credit unions pay to be on those
sites. So there's a lot of hocus pocus behind those sites. So be very careful as to where
you get your information. By the way, as I'm talking, if you have any questions whatsoever,
go up to those microphones and ask them as I'm speaking, because the truth is good luck
finding another Suze Orman that's going to stand up there and talk to you that doesn't
want anything from you. I don't have an account to sell you. I don't have, you know, I don't
want you as my clients. I only want you to be the financially-free people that you deserve
to be. So, let's summarize here. If you have a credit card at one of those major banks
and you're going to keep it there then you are far better off having an eight-month emergency
fund before you payoff that credit card debt. If however, you are smart and you do a balance
transfer to a good credit union, and not all credit unions are good, then after the match
in your 401(k) then pay down your credit card debt if it's at a credit union and then your
eight-month emergency fund. If you're going to stay at a major bank, eight-month emergency
fund then pay down your credit cards. Yes. >> How do you feel about a home equity line
of credit versus that cash cushion of eight-month emergency?
>> ORMAN: Yeah, you have got to be so seriously careful right now. With a home equity line
of credit, I cannot tell you. And the reason is this. Home equity lines of credit are secured
by the equity in your home if you even have any equity left in your home. The interest
rate on your home equity line of credit is attached to the one or two percent above the
prime rate. The prime rate is always three percent above the fed funds rate. Now currently,
the fed funds rate is at zero. So home equity lines of credit are great. I can tell you
there will come a time when the fed funds rate starts to go from zero to one, to two,
to three. We saw that happened a few years ago. When the fed funds rate was at, like,
one percent and all of a sudden it goes up to five and a half. And now, home equity lines
of credit are 9, 10, 11% interest. And that happened and people freaked. So, I would not,
at this point in time, have a home equity line of credit that I am using. I would've
want to find another way. If you need money or whatever, I would rather see you at this
point because as of yesterday, the feds have decided that they are no longer going to be
buying mortgage-backed securities. What that means to all of you is that you are going
to probably see interest rates for real estate increase by about one percent. So, the low
interest rates that you have been enjoying on mortgages, if you are about to buy, you
did buy, that's about to go from five, five and a half to six. So that will affect home
equity lines of credit as well. So, I would rather see you refinance your house if you
have to. Lock in the low interest rates today. Take the money out, lock in, lock that in,
do you see? And then not be subjected if you need that money, right? Yes.
>> Hi. First I want to say, hey, girlfriend. >> ORMAN: Hey, girlfriend. She obviously watches
The Suze Orman Show. >> I wanted to ask about mortgage. So, my
husband and I have a pretty large mortgage. It kind of makes us nervous. But our Smith
Barney advisor and our accountant say, "Don't pay down the mortgage because you're making
more on investments. So you should keep the money there."
>> ORMAN: Stop. >> That's why I'm asking.
>> ORMAN: Did he make you--in the year 2008, did he make you money on your investments?
>> No. >> ORMAN: Or did he--like, most people. Now,
if he did, then let's tell every single person in this room his name, including me, and let's
go open an account with him. But he is a Smith Barney broker, are you kidding me? Are you
kidding me? There is no way that he made you money unless he had you in cash. And he couldn't
have you in cash because if he had to in cash, he couldn't make a living. And he couldn't
pay his mortgage. Do you understand? So, you have a financial advisor telling you, "Oh
no, you could make it far more in the market." You're down 40%.
>> Right. >> ORMAN: Remember, when something goes from
100 to 50, that's a 50% decline. For something to go from 50 back to a 100, that's a 100
increase. So, even though the markets went up since March about 62% and now it's pulled
back a little, you're still down. Because were you continuing to dollar cost average?
Were you doing those things? Maybe yes, maybe no. And I can tell you, he has you in loaded
mutual funds. Does he have you on mutual funds? >> Some.
>> ORMAN: Some? >> Yeah.
>> ORMAN: So--but here's the bottom line, you stood up and you said to me your mortgage
makes you nervous. >> Yes.
>> ORMAN: It makes you nervous. A good financial advisor would say, "It makes her nervous."
What's the goal of money, everybody? It's not to make you nervous. It's so that you
can sleep well at night. So, you can be the powerful people that you're meant to be, so
that you can work here with all the power. And when your, you know, supervisors or your
bosses see that you're coming to work with all this power, guess what happens? You get
a job promotion. You get a pay raise. If you're somebody who's constantly nervous and you're
freaked out because you don't have enough money to pay your bills, do you think your
bosses can't feel that? Of course, they do. And that keeps you from making the money that
you want to make. So I would tell you that, listen, if you are going to own this home
for the rest of your life, are you? >> Probably for the next 20 years.
>> ORMAN: All right. If you want to pay down your mortgage and you want to get rid of that
mortgage payment, you should absolutely do so. I do not know one wealthy person who has
a mortgage on their home. I have five homes and if I can't write a check for one, I do
not buy it. And I've all of these accountants that say, "But, Suze, you're not getting the
tax rate off." You spend a dollar to save 30 cents. You're still spending 70 cents to
save that 30 cents. I want to know in my life that if you all stop buying my books, you
all stop watching The Suze Orman Show, you all stop wanting to even look at my little
face anymore, I personally don't care, people. I just don't care, because my life won't change
and that makes me more powerful, which attracts more people to me. I would think twice. I
would think twice about you having this particular financial advisor as your financial advisor.
>> Thanks, Suze. >> ORMAN: Anytime, girlfriend. Yes, over there.
>> Hi, Suze. My question is regarding a property that I bought four years ago. So, it's in
Washington State and I live here. I'm losing about $9,000 a year on it. And...
>> ORMAN: Is it underwater? >> Yes.
>> ORMAN: So, you owe more money on it than it's worth.
>> No. >> ORMAN: Meaning if you were to sell it,
right, you would actually owe the mortgage company more money than what you could get
for it? >> No.
>> ORMAN: Then why are you keeping it? >> I don't know.
>> ORMAN: Here's my advice. Get rid of it. >> But I'm going to--if I get rid of it, I'm
going to lose about anywhere between 100 to 140,000 I have a problem with that.
>> ORMAN: You right now, all right, are losing $9,000 a year, right? Do you think that really
in 10 years it's going to come up to the value of what you think you're going to lose?
>> No. >> ORMAN: It's an investment property at this
point in time. If you sell it and you could somehow do it right with tax wise, maybe you
have a tax loss there whatever, but is it really worth it for you to spend $9,000 a
year on a property that probably isn't going to increase in value for a long, long time.
Why is real estate not probably going to go up? That's a question you should all be wondering?
Listen, everybody. A year ago, real estate looked like it was doing great. In essence,
real estate had stopped going up or stop going down. A lot of people were buying real estate.
Do you know when asked, 50% of the people who purchased real estate last year, purchased
it only to take advantage of the $8,000 tax credit that the government was offering. That
tax credit was supposed to expire November 31st of last year. Why do you think they expanded
it till April 30th of this year you have to be under-contract closed by June 30th? And
why do you think they expanded it not only to that, but they expanded the amount of income
you can make so more people could take advantage of that. Because they knew that the only thing
holding up the purchases of these properties and real estate throughout the United States
was the tax credit. Once the tax credit goes away at the same time we're no longer backing
and buying mortgage-backed securities and interest rates and real estates start to go
up. Do you really think that is an environment for people to buy real estate and to continue
to purchase real estate? The only thing that makes Google stock go up is what? People are
buying it. And they're buying it because they see your earnings are good. Everything's good
for the company. They like the management. They have faith in it. And they're investing
their money in it. And the more money they invest in it, the more the stock goes up.
The same is true with real estate. The reason real estate prices skyrocket, especially here
in California, was that everybody was allowed to purchase real estate with no money down.
They didn't have to qualify for any loans. They didn't have to have any income. Everybody
was rushing in to buy real estate, which cause the prices to go up and then everything collapsed.
It's going to take a long time for these prices to go anywhere other than flat or possibly
down again. So, you just have to decide, right, what makes financial sense? Wishing, praying,
and hoping is not a financial plan. Now on the other hand, if you can afford the $9,000
and you--and every--you have that $9,000 deficit and you'll own the house outright just--let's
say in 15 years. And that, therefore, would then make up the $150,000 that you put down
or whatever, then keep it. And then you're even at that point in time. Figure out the
numbers and do what the numbers telling you. And don't be emotionally involved with it.
>> Thanks, girlfriend. >> ORMAN: Yes.
>> Hi, Suze. Thanks for coming to Google. My question's about credit cards.
>> ORMAN: Yes. >> I've had a bunch of credit cards since
college? And they're all the banks that you hate, Chase, Citi, et cetera offered me no
benefits, there's no points, there's no airline miles, there's nothing. Interest rate is terrible,
so. >> ORMAN: Yeah.
>> I don't even carry a balance on them. But I keep hearing from different financial people
that says, "You have to keep your credit cards for 10, 15, 20 years."
>> ORMAN: All right, so let me tell you exactly how FICO works. Do all of you know what a
FICO score is? Does anybody not? >> I don't.
>> ORMAN: You don't. All right, that's--oh we have one honest person in here. Two. Now
we have two honest people. All right, let's try this again. Who doesn't know what a FICO
score is, really? Two, three, four, I love it, great. You see how it is when it comes
to money. You know, we're all such financial fakers. Right, but here's a thing, every single
one of you, whether you know it or not, if you have a credit card, you have something
known as a FICO score. A FICO score is a 3-digit number that determines the interest rates
that you will pay on credit cards, car loans, home mortgages in many states not here in
California. It also determines what your car insurance premium is whether an employer will
hire you and a landlord will rent to you. It is like your financial SAT score. The higher
your FICO score, the lower your interest rates. The lower your FICO score, the higher your
interest rates. FICO scores run from 300 to 850, anything below 500, you are just seriously
FICO'd, got that, okay. From 500 to 850, there are different ranges. Every single one of
you because of the credit crisis, you want to find yourself in the range of 760 to 850.
If you are not in that range, good luck qualifying for a mortgage. Good luck, doing anything
today that has--that's involved with credit. What keeps your FICO score up and what brings
it down. Thirty-five percent of your FICO score is made up of your credit utilization
ratio, or your debt to credit limit. If you have five credit cards, each with a $2,000
credit limit on it, even if it's from Citi, Chase, Bank, and all those others. And by
the way, Wells Fargo, we can add that in there right now. Sorry everybody. They so hate me,
I can't tell you. But you know what? I personally again don't care, right? So, you have five
of these credit cards, each with a $2,000 credit limit, that's $10,000 of a credit limit.
If you owe $2,000 in each one of these cards, you have a $10,000 debt to a $10,000 credit
limit, that's 100% debt to credit limit ratio, down the tubes will go your FICO score. But
as you're getting smart and you're paying off your credit cards, you paid off $2,000
here, $2,000 here, $2,000 here, $2,000 here. And all you have is one credit card with $2,000
left, you now owe $2,000 to a $10,000 credit limit, that's a 20% debt to credit limit ratio.
If you could--and that's good. If you close down these four credit cards, you now owe
$2,000 and a $2,000 credit limit, that's 100% debt to credit limit ratio, down goes your
FICO score again. Here's what you need to do. Your FICO score--and I know this very
well because I have a partnership with Fair Isaac Corporation. So listen to me, do not
listen to other people who talk about this. This is how it works. Your cards, as you have
them, start to get divided into cards that are active and cards that are inactive. The
cards that are inactive eventually, even if you have them and you're never using them,
tend to stop being in the FICO formula. So, you want to keep those cards active. And the
way that you keep them active is maybe every six months, go out there and charge $5 on
each one, pay it off at the end of the month. Six months later, charge $5 again, pay it
off at the end of--you know, when you get the bill. And that now puts those cards in
the active category. Therefore, your credit limit is huge. Your credit limit to the debt
that you may owe on the cards that you really use then will be better, which improves your
FICO score. So, I would keep them if I were you. Also, like for those of you who have
only an American Express card. And you have an American Express card that does not--it
make you, you know, pay it off every month, but that makes you. Sorry, you have an American
Express card that makes you pay it off every month, that's known as a charge card. Those
are not figured in your FICO score, just so you know. Oh, really? Aha. All right? So,
if you want a better FICO score, you need credit cards that give you a credit limit
and that allow you to pay them off every single, you know, as you want them. Either every single
month if you want, but you can carry your balance over time unlike American Express
that makes you pay it off in full. So just know, an American Express card does not add
to your FICO score if it's a charge card. Next, for those of you who maybe really screwed
up, maybe you're really screwed up when you were younger. Although you can't be much younger
than many of you are, all right. But anyway, is that if you've been behind on payments.
And those payments now have gone over 120 days, or you have things that you've never
paid for, if you think you're going to help your FICO score by going back and cleaning
up your record, you won't. Because after 120 days, the longer something that's on your
credit report, the less it affects your FICO score. It's already been calculated in your
score and they continue to discontinue looking at it. So if you have a choice of paying off
a credit card that you're 30 days late on versus a credit card that has not been paid
in a year, pay the one off that you're 30 days late on. Because anything from 120 days
or sooner are the ones that are calculated. Did that make sense? All right. Yes.
>> So given that the real estate market is going down, is this a good time--do you think
it is a good time to buy a house right now? >> ORMAN: Right. This is a good time to buy
a piece of real estate if and only if you get a steal of a deal. And I mean a serious
steal of a deal. So that if we're wrong--and it does, because I think we bottomed here.
But if we're wrong, and it goes down another 5, 10, 15%, you won't be underwater. If and
only if, you have at least 20% to put down. If the only way that you can buy a house is
to an FHA loan where you're putting three, three and a half, four percent down, are you
kidding me? They're going to go bankrupt. They are out of their minds right now. So,
you want to make sure you have at least 20% to put down and, this is mandatory, not only
do you have to be able to afford the mortgage payment, the property taxes, the insurance,
and the maintenance on the house but you want to make sure that you have that eight-month
emergency fund as well. Why? Listen, everybody. The government has been very lenient on everybody.
Currently, if you own a home and it's your primary residency, let's say, you owe $200,000
on it. All right, I get one in California. But just play with me here for a second, all
right? And you could only sell the house for a $100,000. The banks now will let you sell
that house in many cases, not all, for the $100,000, that's called a Short Sale. Because
when you sell it, you're $100,000 short of what you owe to the banks. And they're fine
with that. They called it even. Currently though, you do not have to pay taxes on the
difference between what you sold before and what you owe to the banks. Starting in 2013,
oh, you will owe the banks, taxes--sorry, you will owe the IRS, taxes on that money.
It used to be that way and then a few years ago because of this crisis, they got rid of
it. So if you find yourself where you've purchased a home, you put 20% down and that's a lot
here. That is a lot. You're paying the mortgage, something happens to you, now you can't afford
to pay the mortgage anymore. Now, the price of real estate has gone down, you don't have
an emergency fund to fall back on. Now, you want to sell the house, you're going to be
stuck paying taxes to the government if you have to sell that house for less than what
you owe. So be very, very careful if you do it. Listen, everybody. I wish I could say
to you. We are so out of trouble. We are so okay. I think again what you're going to see
is you're going to see, "All right, 2010, relatively okay, 2011, maybe okay, 2012, I
think we hit right back to where we were. And 2012-2013, we are in trouble again. Finally,
2014-2015 we're maybe on solid ground for the first time." Just--that's my own personal
opinion. I so hope that I am wrong. I cannot even tell you. Yes.
>> Hi, Suze. It's a pleasure and an honor to be here, so thank you so much for coming...
>> ORMAN: Thank you. >> ...really appreciate it. Actually, I have
two questions. >> ORMAN: Yes.
>> If that's okay. First one, we have--we have a mortgage for which the five-year interest
rate is being reevaluated right now. And my husband says, "Not to worry about it." And
we cannot refinance. And I'm actually really worried about it, so.
>> ORMAN: See, here's the thing. When your husband says, "Don't worry your pretty little
head about it." I'm sure you have a husband who won't even ask for directions either,
will he. >> That's right, yeah.
>> ORMAN: Right. And so--and then here you are and you're sitting in a car, and you know
you should turn left and he turns right. And you don't say anything.
>> I do, yeah. >> ORMAN: Oh, you do. But, he still doesn't
listen. Here is the key indicator. When you are worried about something, you need to do
something about it. >> Okay.
>> ORMAN: That's all I can tell you at that point. And it's not just. He says, "Don't
worry, I'm worried," which every spouse is worried about something. That is the spouse
that needs--or life partner. That is the person that needs to be honored because your worry,
or your fear is going to get in between the two of your sex life.
>> Okay. >> ORMAN: Whatever.
>> [INDISTINCT] over there and just express yourself.
>> ORMAN: Does he work here? >> No, no.
>> ORMAN: All right, okay. Okay, you'll never know what I'm going to do--but. But I would
be worried. >> Okay. Question number two.
>> ORMAN: You only get one, goodbye. Just one, we have people here, one question is
all I'm taking per person. I just want to say a few more things here. And then, I'll
go back to questions in a second because we have 15 minutes left. Because I have been
told at 12 o'clock, you are out of here. It's over, Suze. God forbid they should spend another
second of you off the clock, all right. But, I guess, you all come in here and eat. I think
that's really what happens, but here's the thing. Your plan of actions, because I just
want to make that we get everybody in this room. Your plan of action needs to be after
credit card is gone for, you know, and 401(k) plan up to the point of the match, eight-month
emergency fund. I am telling you after that point if you want to buy a home, you need
to start saving 20% for a down-payment. After that point, if you then want to also start
funding your retirement accounts besides your 401(k), rather than going back to your 401(k)
after the point of the match, if you qualify for a Roth IRA. A Roth IRA in my opinion is
the best way for you to be investing for your retirement bar none. Does Google offer a Roth
401(k)? All right, I got news for you. You might want to think about while tax brackets
are still relatively low. You would be far better off contributing in a Roth 401(k).
After the point at the match then an individual Roth. Then a 401(k) where you are getting
a tax deduction, and then a traditional IRA. Let me tell you why. Currently, as I stand
here in front of you, we are at the lowest income tax brackets of your life. Many of
you in this room do not remember the time when tax brackets were 90%. You made a dollar,
90 cents of every dollar you made went to the government. Then it went to 70%, 70 cents
of every dollar you made went to the government. In the 80s, it was 50 cents of every dollar
you made went to the government. Then we went down to 35%. And now here we are at relatively
the lowest tax brackets in your lifetime. Does it make any sense for you to put money
away in a pre-tax account getting a 35% tax right off today, when in the future, tax brackets
for everybody most likely will have to go up, up, up, and up for you to eventually withdraw
that money at possibly the highest tax brackets of your life. I don't think it makes any sense
to do that. Now, if there comes a time when tax brackets on you in your particular situations
skyrocket and you find that you are in the 50 or 60% tax bracket, then you are far better
off putting your money in a regular 401(k) plan in a traditional IRA, because your tax
breaks are so much larger at that time, am I making sense? But currently, with tax brackets
as low as they are, you are far better off putting your money in a Roth IRA. A Roth IRA
where you could withdraw any amount of money that you originally put in without any taxes
or penalties, whatsoever regardless of age. If you are 35 years of age, and you put $5,000
this year into a Roth, $5,000 next year, $5,000 the year after, you put $15,000 into a Roth
IRA. And now, that has grown to $16,000. And you get in trouble and you need money, you
are 38 years of age, you can withdraw anything up to the original $15,000 that you put in
without any taxes or penalties, whatsoever. That's a big deal, people. That's a big deal.
It's only the thousand dollars that you earned that has got to stay in there for at least
5 years until you're 59 1/2. After 59 1/2, you can take all of it out without any taxes
or penalties, whatsoever. You have $500,000 in a Roth IRA. You have $500,000 in your 401(k).
You need to--for whatever reasons, you want to withdraw $500,000 from your Roth after
the age of 59, $500,000 stays in your pocket. If you have $500,000 in a 401(k) and for whatever
reason, you withdraw it all at once, you will pay income tax on that, good luck with California
and Federal, if you keep $250,000 in your pocket. Give up little amounts of money today,
so that in the future, you take the "what ifs" out of your life. So, if you're quality
for a Roth RIA. Who qualifies for a Roth IRA? If you are a single, so you're not married,
you're not with partner. You're single, you're finally single, you can contribute a full
$5,000 to a Roth IRA if you make under a $105,000 a year of adjusted gross income. Once you
make over $120,000 a year, you're no longer qualified for a Roth. If you are married,
finally jointly $166,000, you can put in a full $5,000. If you're under 50--$6,000 by
the way if you're 50 or older, once you have--are at a $176,000, you're no longer qualified
for a Roth IRA, got that? So, if you qualify something for you to think about. By the way,
since I'm talking about it, on your seats happens to be a gift to all of you where if
you want to open up a Roth IRA, I have my own account at a brokerage firm. It's not
going to cost you anything, it's a way for you to be able to invest small amounts of
money commissioned-free and get professional guidance as to what exchange traded funds
you should buy in all kinds of things. However the truth of the matter is if all you're doing
is investing in your 401(k) plan here, you're just fine. This is only for people after you're
at the point of the match here, after you're out of credit card debt, after you have an
eight-month emergency fund, and after you bought a home. And if you haven't done all
of those, just throw this thing away. Or give it to somebody who's in that situation, got
that? All right, next question. Oh, Jeff (ph). Yes?
>> JEFF (ph): Hi, Suze. We got a question that was sent in from our Santa Monica office
from Marty Bryant (ph). And Marty (ph) asks, "I'm 30 and I've been very good about contributing
to my 401(k) and not wracking up debt, but I'm scraping by. I own a townhouse that's
underwater and can't refinance since it's an investment property. What advise can you
share to get in better financials? My mortgage is $2,200 and market rent is $1,500."
>> ORMAN: All right. So, what was his name? >> JEFF (ph): Marty Bryant (ph).
>> ORMAN: Marty, we got problems. No, we got big problems. Because did you noticed how
he said it was investment property. If you are underwater on investment property which
means you owe more than what the property can be sold for, which is this situation.
If you sell it, now the government wants their income tax on the difference because it was
an investment piece of property versus a primary residency. So he is going to owe taxes on
that unless he is technically insolvent. So, it's just--and if he's working here, he's
probably isn't necessary technically insolvent. Marty (ph) should contact a CPA who really
knows what he's doing in this situation to see how can they set things up for Marty (ph)
to sell it and not get screwed by the IRS? One other thing that I just want to say because
we have six minutes left, so I think, I'm just going to end without anymore questions.
I'm so sorry, right? Is this--every single one of you in this room, you are living in
a State of California. Number one, the State of California is a community property state.
If in fact you are married, you have got to be out of your mind if you do not own your
property or stock portfolios outside of your--you know, your retirement accounts. If you do
not own them in community property, you are nuts. In a State of California, you can own
them community property with right of survivorship, that's number one. Number two, every single
one of you in this room should not only have a will, but you should have a Revocable Living
Trust. I don't care how young you are. I don't care how much credit card debt you have. Anything
can happen at any time. A Living Revocable Trust is a great way obviously to pass your
assets to those who you maybe leaving your money to. But it does more than just that.
If you become incapacitated, you're in a car accident, something happens to you. Who's
going to pay your bills for you? Who's going to take care of your money for you? If you
do not have a Living Revocable Trust with an incapacity clause in it, I'm here to tell
you, you are making one of the biggest mistakes out there. It's not what you put in your retirement
account. It's not what Google stock is. It's not how much your pay check is. What your
piece of property is. It's what are you doing to protect yourself, people. Now, there are
so many things that I could have talked to you about. For instance, all of you should
only have term insurance. There is no reason any of you in this room, unless you have some
estate tax planning problem, which some of you may have. But the majority of you don't.
None of you should have whole life universal or variable life insurance. The only type
of life insurance you should have is term insurance. And you have a great term insurance
program, an insurance program here right at Google. But if you need more than what they
offer you here, term insurance is the way to go. For those of you who want to save for
your children's college education, the best way to do so is through a 529 savings plan,
savingforcollege.com, the site by Joseph Hurley is the place to go to get that information.
So, in a very short period of time, we kind of gave you a plan of action. Investing your
401(k) plan up to the point of the match. After the point of the match then either pay
down your credit card debt, if you have credit cards at a credit union, creditcardconnection.org,
or if you're going to stay at these banks, eight-month emergency fund. After either one,
you need an eight-month emergency fund, get yourself out of debt. Again, 401(k) plan up
to the point of the match, 20% savings to buy a home if that is what you want to do.
If not, a Roth IRA fabulous in term life insurance and all of those things are your plan of action.
Do not be afraid for these markets to continue to go down. You should be hoping that the
stock market goes down, down, down. You are all young, why would you want to be buying
Google stock at $600 to share when you could be buying it at $500, right? The lower it
goes, the more shares you buy. The more shares you buy, the more money that you make. Got
it everybody? So do not be afraid. The only mistake that you will make is if you stop
investing month-in and month-out. The only way to be investing right now is through dollar
cost averaging. Now, I only have one minute left. So, I'm going to end on time. But I
had written 10 things for you, because you know how you have these 10--what are they
called? Yeah, 10 things we found to be true for Google. Now, how you all have that. You
all know what those are? Have you memorized all those, if you haven't, you are fired.
Sergey told me to tell you that, right? So, I just want to say money is a lot like the
ethics and the things that are true in Google. So, I wrote my own 10 things that I know to
be true, according to Google standards when it comes to money. Number one, focus on people,
and money will follow. Number two, it is better to do nothing than something you do not understand.
When it comes to money, if somebody is talking above your head and you don't get it, just
do nothing. Never talk to yourself and to trusting anybody when it comes to money, do
you hear me people? Trust yourself more than you trust others. Number three, being rich
is better than being poor. Four, democracy and the deficit, let's pray it works. Five,
you don't need to be on Wall Street to make money. Number six, you can make money without
doing evil. That one, we are right in sync with. Number seven, there's always more money
to be made out there. And that is true even during times like this. Eight, the need for
money crosses all borders. Just like your information does, so does money. Nine, and
I have to tell you this is my favorite, you can be the world's personal finance expert
without ever wearing a suit or being a man. Yes. And number 10, being wealthy is just
not good enough, it is what you do with that wealth that counts. I hope you found this
useful. I hope you watch the Suze Orman Show every Saturday night on CNBC. And Google,
you stay safe. Thank you.