December 19, 2019
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In this podcast of Ask Suze Anything, we hear questions from Women & Money listeners Becky, Terijas, Bernadette, Ania, Arlette, Mary, Nelly, and Marie.
Can you believe it? It is essentially less than one week away from Christmas for this Ask Suze Anything on the Women and Money podcast, as well as the men smart enough to listen. And we are in the year 2019 and it is almost over, and it always just shocks me that next year is going to be 2020. And what an end of the year it's been for me. You all know that I essentially kind of retired two or three years ago now, and I've never been busier in my life, and I'm not exactly sure how that happened to me. I mean, really, but you'll find out that next year I have a new book coming out in March called The Ultimate Retirement Guide for those 50 and over. And one of the reasons that I wrote that book is because it just seems to me like everything, everything was for the millennials. Everything was for those who were the young-ins. And once you got older, you just didn't count anymore. So, I decided I'm going to focus on those who are actually retiring sooner than later. Those who have retired and those who are really are a whole lot older because so many things have changed. But I'll talk to you about those changes next year on the podcast, which is only in a week or so from now. I also will have a new PBS special coming out in March that goes along with the book The Ultimate Retirement Guide and so many more things.But last week, I was in the studio and I was recording the audio version of The Ultimate Retirement Guide, and somehow I ended up with the worst, I don't know what I had, I don't know was that the flu, I don't know what it was, but it grounded me for longer than I have been grounded since I can remember. So let's hope my voice just last for this, but I'm so happy that I feel much better. All right, do you want to ask a question that maybe I will answer here on the podcast? All you have to do is send in your question to AskSuzPodcast@gmail.com, that's S-U-Z-E if you don't already know, and I read them all. I actually read them all, and sometimes I choose to answer them personally. Sometimes, I choose to read them on the air and answer them, and sometimes I just kind of look at them and go, I don't know what to do with them. Meaning, I've answered this before, should I read it? Whatever. But here's what I do want to say to you is that if you've written in a question, especially if you did it months ago and I didn't answer it and it's a really pressing question, maybe you just got divorced and you are devastated. Maybe you just lost a loved one, a parent, a spouse, anybody, a child and you are just, you have no idea what to do. Or you've just been given a diagnosis that you're going to be dead in a year or two and you just need some help. If you were to just simply write in again and put "urgent" in the subject matter, chances are you will hear from me, but it really needs to be urgent. Do you hear me?The very first question today is from Becky. She says hi, I am 37 and have about $7000 left on my student loans, I also have $18,000 in my savings account as my emergency fund. I am wondering if I should use my savings to go ahead and pay off my loans now and then work to replenish my savings account or continue to pay $1000 a month on my loan and leave my emergency fund alone?Becky, listen to me. You only have $7000 left on your student loans and you have been paying $1000 a month on those student loans, which means in seven months you would have paid them off. Take $7000 out of your emergency fund, just that simple, and pay off your student loans because I am sure that the interest on your student loans is higher than the interests that you are earning on the money in your savings account. Over the next seven months, take the $1000 that you were putting towards your student loan and put it back into your savings account as your emergency fund. It's really just that simple.Hi, Suze. My name is Terijas, and my husband and I are going to file for divorce. We have been married for three years, and it has not been a very good marriage. I wanted your advice on how to deal with his student loan, which I am a co-signer for.Oh, yeah, I thought I was sick last week, that line just made me really sick. That's beside the point, again, anyway. I would like to get my name removed. Is there a way for me to ensure that once he is eligible for refinancing to do so in the divorced agreement? I have searched the internet on this co-sign process for spouse and how I could be removed but I can't find anything promising.Well, girlfriend here is the problem. The reason that you're not finding anything promising is because there is nothing promising that you can do. Chances are you're never going to be able to get your name off of that loan. Therefore, here's what I would suggest to you. Can you just kind of be nice to him, maybe you could part as friends. And if he feels that kind of friendliness to you, he won't screw you by not sending in money on this loan. But you have to be aware that if in fact, he doesn't pay for it, oh, they are going to come after you. And here is the problem. You have to know when he is paying for this loan and when he is not. Because let's just say he stops paying for it, and you don't have any idea that he's not paying for it. A year goes by, five years goes by, the loan grows. It will grow from $10,000 to $20,000 to $40,000 whatever it is, and that's when they'll come knocking at your door. So you cannot ignore this. So every single month you need to call up and ask, has the payment been made? If the payment hasn't been made, you should be prepared to make that payment, because again, the last thing you want to do is see that loan grow and grow and grow, and then have the legal authorities being able to garnish your wages, social security checks and all of that. Got that?Listen, I've talked forever about not co-signing a loan, but the one lone you never, ever, ever want to co-sign is a student loan. A parent, you never want to co-sign a private loan, any kind of loan, when it's a student loan at all. Girlfriends, boyfriends, you never want to co-sign a loan, especially a student loan, because they are not dischargeable in bankruptcy.This next one is from Bernadette, she says I have so many questions to ask. You mentioned the FICO score and how important it is. There is another train of thought that you should take the FICO score down to zero and use cash only.What idiot gave you that train of thought? That is the stupidest thing I've ever heard in my life. Maybe it's even more than stupid. I'm not saying you're stupid, Bernadette, because you're writing in, obviously to ask about this. But whoever told you that, whoever gave you that advice, they're an idiot. They're an idiot, there's no other way for me to say it other than they are a stupid idiot. Is that even such a thing? Anyway, if you are paying cash for everything then really, the FICO score shouldn't matter. Will you please explain why anyone would want their FICO to go down to zero? I resist this. I resist this and I've been trying to get my score back up after a devastating event in my life. It was an 820 prior to the event, I am now back up to 780 so I am making progress. Oh, good, see, you're smart, they were stupid. You were smart. I have to tell you, Bernadette, I don't have a clue, really, why anybody would ever want to take their FICO score down. First of all, you don't take a FICO score down to zero. FICO scores run from about 300 all the way up to 850 and really anything below 500, well, you're just FICO'd. So at one point, you had a FICO score that was almost a perfect FICO score. Today your goal should be to have a FICO score of 760 or above. And you are at that goal. It makes no sense to want to take your FICO score down because it's not just about paying things for cash. That's not it. It's about this. Do you know that there are many states where your car insurance premium is based on your insurance risk score? Your insurance risk score is calculated in the exact same way as a FICO score. Do you know that sometimes your Direct TV bill is based on your FICO score? The lower your score, the higher your monthly payments. Did you know that it is possible that if you just wanted to rent an apartment, that your landlords will not rent you unless they look at your FICO score and to make sure that you have a good FICO score? Because if you're bad with money then guess what, you might not be a good person to rent to, right? Because you might not come up with the rent money and it goes on and on. Oh, do you have enough money to pay for a car outright? Well, if you don't, you're going to have to finance it, but then again, if you have to finance it, don't you want to pay the least amount of interest possible? Oh, you want to rent a car, you might need a credit card to be able to rent a car. But then you wouldn't have a credit card because all you would do is have cash. Here's the bottom line. Whoever told you this, wherever you heard this kind of advice, whether it was a podcast, in a book, from a friend, can you do me a favor? Never listen to them again, they're idiots.The next question is from Ania, she says. I have a quick question. I have about $6000 in a SEP IRA and would like to move it to a Roth IRA. Is there a way to do it without having to pay any taxes? I'm 37, so not at all close to retirement.Here's the quick answer to that. No, there's no way to do it.This next one is from Arlette. She says, hi, Suze, happy holidays to you and KT. Arlette, I'll make sure I tell her. In fact, coming up this Sunday, KT is going to be on the podcast with me and because I really want her to tell you how excited she gets about Christmas every year, and what I'm like at Christmas every year. And I actually want to ask her what makes her so excited. Anyway, make sure you tune in this Sunday and my beloved KT will be on the podcast with me. That will be the first time she's gotten that close to me since I've been so sick. She's not allowed to get close to me when I'm sick because the last thing I want is for her to get sick and then if she gets sick, ugh, it's not good.Anyway, OK, what are your thoughts on financial pundits warning that index fund investing is the next subprime mortgage bubble poised to collapse? I loved meeting you in Santa Barbara last month. Can't wait to hear your response, take care, Arlette.Oh, yes, Santa Barbara, that was so much fun. You know a month ago, and I told all of you about it and many of you from this podcast actually came, I taped a course called The Nine Steps to Financial Independence and it was fabulous. And it will be available for all of you, obviously, to purchase sometime next year. I'm also hoping that it might be a Netflix special, so let's keep our fingers crossed.Arlette, listen to me. The subprime mortgage bubble was a bubble that was created out of greed, out of lies, out of deceit. It was really something that was done so that a few major companies and people could make so much money, it wasn't even funny. In fact, I know one of those people, and every time I see him, I just look and I go, you caused the collapse in 2008. You were one of the people who did it, and part of me just wants to go rrrr at him. But every time I see him, I'm just friendly and go rrrr, and walk on. But it's so different. Index fund investing cannot be compared to the subprime mortgage bubble. Index investing can get larger and larger and larger, and in fact, when the markets go down, it will go down. When the markets go up, it will continue to go up. But I am not afraid that it is going to collapse on any level. For it to collapse, it means the stock market has totally collapsed. So if you think the stock market is going to totally collapse than yeah, index fund investing will collapse.Here's the other thing I want to say, though subprime mortgages never came back. Index investing, indexes will go down and they will come back up because the stock market that its indexed to will go down as well as it will come up. So no, don't worry about it, girlfriend.In fact, here's another question that kind of goes along with the last one, from Mary. She says, hi, Suze. I want to start investing. Do you recommend active or passive investing? I don't really understand stocks, and I don't know if I'll be good at it, but will I make more returns if I choose a passive mutual fund portfolio with the bank, so they manage everything for me? And what does management expense ratio mean? They told me it's their fee for running my mutual fund, they take 1.94%. Is that little or is that a lot? I don't understand, please help me.That is not a lot, Mary. That is the most exorbitant amount I have ever heard in my life as an expense ratio. Really? Shame on that bank. First of all, I'm just going to say, why would anybody use a bank to have an investment portfolio? Why would you not have your money at a discount brokerage firm, even a credit union? But a bank? Really? Let's just have a little lesson here. All mutual funds have a portfolio manager, and that manager is paid a fee to manage the money. A manager that is active, or an active mutual fund, he or she is the one who chooses themselves what stocks to buy, what stocks to sell, combinations of should they have stocks, bonds. They manage the fund, they're active in it, and therefore their fees are usually higher than if it's a passive fund.What is a passive fund? A passive fund has a portfolio manager, but it's called indexed investing, where they simply buy all the stocks on a particular index, be it the Standard and Poor's 500 index, be it the total stock market index, the Russell index, whatever it may be, they don't decide on those stocks because the index is made up of those stocks. They simply buy all the stocks in that index and the only change they make is when one of the stocks in the index is changed out. Maybe somebody decides, OK, in the Standard and Poor's 500 company were no longer going to have XYZ in the Standard and Poor's 500. We're going to take that stock out, and we're going to put in ABC. Then the portfolio manager of a passive index fund has to make a change as well.For active investing, you would never pay more than 1% in an expense ratio, ever. And that's even really high. In an index passive investing mutual fund, now you can buy them for 0% expense ratios. Even when there is an expense ratio, maybe it's like 0.10%, a fraction of what they would be charging you. And when they say for running your mutual fund, the bank doesn't run a mutual fund. What the bank does is they choose a mutual fund, they take your money, they put it in that mutual fund, and that's the last time they touch that money. It is the portfolio manager that buys and sells the stocks or investment vehicles in that fund, not a financial advisor that works at a bank.So let me help you. You are to never walk into that bank again. You might want to walk into a discount brokerage firm such as TD Ameritrade, Fidelity, Charles Schwab. Charles Schwab and TD Ameritrade now are going to become one, any of those are fabulous, and look for no fee and no expense ratio index mutual funds, just that simple.This next one is from Nelly. She says, if one sells a two-story home that is worth about $350,000 and is paid off, to downgrade to a one-story home that's worth about $225,000, will the $125,000 difference be taxable?Nelly, listen to me. It was years ago, so many years ago, I can't even remember how many years ago, where you used to have $125,000 exclusion on anything when you bought a house and blah, blah. All of that went away, like I said, so many years ago. If the two-story home that you were living in is your primary residence or was for two out of the past five years, and you are single, you can have a gain of $250,000 in that home without having to pay any income tax on it whatsoever. So, if you bought that home for $100,000 and now you're selling it for $350,000, you don't owe any income tax on it. If you're married, you each get that $250,000 exemption if you both own it. And I'm just assuming that maybe you are, then it's $500,000 exemption, which is $150,000 more than you paid for it. It has nothing to do with whether you downgrade or not, if you buy another home or you don't. It has to do with the $250,000 per person, you and whoever else you may own that house with, above what you paid for it. You also get to add in all the home improvements. So if you bought a home for $100,000 you put in $100,000 of improvements your cost basis would be $200,000, so you could sell it for $450,000 or $700,000 without having to pay a penny of income tax on it. So, I wouldn't worry about it. The new house that you're buying, the one-story home for $225,000 that you will the buying, again, as long as you lived in that house for two out of the past five years by the time you go to sell it, you too will have another $250,000 exemption or $500,000 if you own it with somebody else.All right, and we'll do one more here. Do you know how excited I am that my voice held out? I don't know, I think it actually sounds better than when I don't have a cold. Maybe you need to write to me and tell me if that's true. Anyway, this is from Marie. She says I am planning on quitting my job because it is a toxic environment, it is hostile towards minority women. It has been the source of my major depression for the last 13 years. Aw, Marie, for 13 years you put up with it. This is caused by the hostile work environment in which I work. What financial requirements would you suggest I set up prior to quitting this work environment?Marie, here's the thing. To quit and to go on, you need at least eight months or a year emergency fund so that when you quit this job and you no longer have income coming in, you have a source of money that could pay for your expenses until you find another job. If I were you, I would be looking for another job now because maybe you can land another job and then quit this job. So I think you just have to really think about that. The other thing is this. Obviously, you could quit. You could live off your credit cards, you could run up your debt. But I have to tell you when you're living with debt and you don't have the money to pay for it, you're going to be equally as depressed. So I get that it's a toxic environment, I get they're hostile towards you. For as long as you have to work there when you look at them, can you look at them as if you're looking at God? Can you look at them with compassion and kindness? Can you take all of their hostility that they put towards you and change that energy into something that's good for you for now? Now I know that's going to sound like a crazy thing. It's like, did Suze's sickness go to her head?This is the time of year, the holidays, when you really have to look around this entire world and what's happening. And do I think that we can solve these things by running away from them? Do I think that we can solve the hostility and the hatred and the vitriol and the absolute horrific, horrific environment that has been created by ignoring it? Nope, I don't. But do I think that we all have enough love within us and kindness within us that no matter what comes our way, that we try to reflect it back with love and understanding and compassion? Compassion for their lack, their lack of being a decent human being, their lack of honoring all those who live on this planet, the lack probably of honoring the planet itself.So as this year is coming to an end, and everybody seems to be rooted in hate, I'm asking you to stay grounded and rooted in love. All right, so I just want to take this time to wish all of you very, very happy Hanukkah and Merry Christmas. I'll get to be speaking to you on the first day of Hanukkah with KT, but I just hope, I just hope that the true gifts that are enjoyed on that day are the gifts of faith. That somehow, this world can turn around and be a place that honors every single one of its inhabitants. I wish you everything you could ever want in your lives and know that from my heart to yours, I love you so very, very much. In providing answers, Suze Orman is not acting as a certified financial planner, advisor, a certified financial analyst, an economist, CPA, accountant or lawyer. Suze Orman does not make any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Suze Orman does not accept any responsibility for any loss which may arise from accessing or reliance on the information in this podcast, and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from the use of the information. To find the right Credit Union for you, visit https://www.mycreditunion.gov/. Interested in Suze's Must Have Documents? Go to https://shop.suzeorman.com/checkout/cart/index/.