401k, Emergency Fund, Interest Rates, Roth, Roth IRA, Savings Account, Stocks
July 16, 2020
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In this podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners Jessica, Mini, Joan, Gloria, Virginia, and Asuun.
July 16, 2020. Suze O. here and welcome to the Women and Money podcast, as well as the men smart enough to listen. July 16, do you know what that date means? It means yesterday your taxes were due and for me, I can remember years ago when, and this is really many, many years ago, when I owed taxes but I never had the money to pay for them and I would hate, hate April 15. I would postpone it, and I would postpone it, and I would postpone it. And finally, on April 13 or 14 I would go in, have my taxes done, somehow, and miraculously, I scraped together the money to pay my taxes, and then I felt so much better. Do you feel that way? Is that what happened to you this year as well? Does that happen to you year after year? And then I started to realize, Suze, what difference does it make if you just postpone the time from when your taxes are due. Meaning, you didn't go in and do it in January or February or March, you waited until the last minute. What difference does it make when you have to face that date every single year, no matter what? And so that if you could just go and do it and get it over with, then it would free up your energy and you would feel so much better. So, rather than dreading that day, why don't you take that day on like a warrior? And guess what? I started to do that and it really changed my life for me in that that I just felt more powerful. I felt like I didn't have to be afraid of this day, I'm going to figure out this day and I'm going to go, and I'm going to do my taxes. And I don't know why I wanted to tell you that story, but when you are afraid of something, such as taxes, you've just got to do it. So before I go on and answer your questions of Ask Suze Anything, I just want to tell you two more things, which is, did you see yesterday how the Twitter accounts of Joe Biden, Bill Gates, Elon Musk, President Barack Obama, Kanye West, Warren Buffett, Jeff Besos, Mike Bloomberg, and on and on and on, that their Twitter accounts were hacked? And tweets went out, saying something to the effect of, it's time for me to pay the world back. So, if you send in $1k to this account, I'll send you back $2k. And so many people took advantage of it that within just a few minutes I think they had taken in $100k, whoever the scam artists were. And people believed that. So then I started to do a little research and Jack Dorsey, the creator of Twitter, his account was hacked a week ago. So, I think it's really important, everybody, that you really stay on top of it now because it's gotten to the point, really, where we just count on tweets, and we count on Facebook and all these things so much to get our information and to believe things are true. And of course, when you see something coming from Barack Obama's official Twitter handle, you're going to believe it. But if I were you, I don't think I would believe anything anymore where they are asking you to send in money for anything. And I myself have experienced that, where people take out ads and they're all over the internet right now with my picture saying, "this is what I think you should do with money. This is how I think you should invest," and it's not really me, so be careful. I also just want to tell you that starting Monday, July 20, I'm going to start doing an eight-week program on the app, the Women and Money app. And if you don't know how to get it, all you have to do is go to Apple Apps or Google Play, search for Suze Orman, and it will come up. And more and more things are going to start to appear there that you're not going to be able to find anywhere else, and this is one of them. I'm going to start to do an eight-week program, and this program, really, is all about self-care. It's about taking care of yourself in both your health and your wealth because that's what all of us need right now if you ask me. So every single Monday, I'm going to start going over The Eight Qualities of a Wealthy Woman and the men smart enough to participate as well, but eight qualities of a wealthy woman. And on Monday, starting July 20, I will go over what the very first quality is. And then I will ask you a question or what I want you to do, and then you will go and use the little notebook that will be on the app that you'll be able to write things down and record them that way. And then I will read them, and then on Friday, I will go over the answers that are appropriate to what your blocks are and certain things like that. And we will do this for eight consecutive weeks, doing one quality of a wealthy woman each and every week for eight consecutive weeks. So, join me on that because I think you'll find that it's going to be a lot of fun. Maybe if we like it will just all move to Zoom and I'll Zoom you and we can all talk about it that way, too. But that's what's going to be happening on the app. All right, let's go to our very first question. And by the way, if you want to ask a question, all you have to do is go to the app, download the app, and that is where you ask questions. And if your question is chosen, it will be on the podcast. This one is from Jessica, and she says, hi, Suze. I'm a 30-year-old single mother of an eight-year-old. I currently have a mortgage of $100k with a student loan of $5k, no credit card debt, and a car lease that is coming due to trade in this July. I have $52k in savings really not making any interest. I also have a Roth IRA worth about $18k and contribute the max every year. I wanted to know if I should pay off my remaining student loan debt from my savings. I also want to know how much should I invest in a car when I turn in my car lease? Any other recommendations on how I can make the most out of my savings to help it grow would also be great advice. Thank you. Well, Jessica, let me start here for you. You currently have $52k in savings and that savings is also what I would consider your emergency money, an emergency fund. So, my question to you would be, is that eight months of expenses? It might be because I don't want you to be using up your savings or your emergency money, especially in the economic environment that we're in right now, simply so that you can pay off your student loan debt. No, you only owe $5k, keep paying it month in and month out. That's it. I do not want you to go, oh, but I'm not making any money on my savings, and I could save all this money if I just paid off my student loan debt. You're probably paying a 6.8% interest so you're logically thinking, why don't I take some of my savings and save that interest? Because your savings are there to save you if something goes wrong, if you lose your job, if you get sick. So I don't want you to do that. And what's interesting is you say I also want to know how much should I invest in a car. A car is never an investment. A car is the worst investment any money could make, bar none. And I'm not talking about the old cars that people fix up and they make all this money off of, that's a whole business, but just going out and buying a car is not an investment. So you have been leasing your car. You might, if you took really great care of that car and you like that car, you might want to ask the lease company how much would you have to come up with in order to buy that car? And then I would finance it over three years. I would not be using my savings for that, either. And if you don't want to do that, then what you might want to do is look for a car that's new for you but that's a used car. And you're going to find a lot of used cars out there right now because there's a lot of people that aren't going to be able to keep their cars because they don't have a job anymore. So, this is the perfect time for you to stop leasing because leasing is the biggest mistake you could ever make, bar none, in my book. Go out there and see if you could find a used car, but one that's new for you, but finance it, but only over a three year period of time. Because if you need more than three years to make the payments affordable, you're buying too expensive of a car. So use that as a guideline, OK? All right, the next question is from Mini. She says, hi, Suze. I love your podcasts and your app. Yeah, Mini. I am 50 years old, with a 12-month emergency fund in a high yield savings account, several CDs, a fully funded 401k, and a traditional IRA, and I also do a backdoor Roth IRA. My only debt right now is my mortgage at 2.8% that I have about 10 years left. I have a lump sum of $30k and an extra $1k per month that I would like to invest. Where should I invest this? Should I put it all to my mortgage? Should I put it in VTI? What should I do? Thanks for reading my question and looking forward to your response. So, Mini. I love that you have a 12-month emergency fund because you know, forever I've been telling people to have at least an eight-month emergency fund. And really, after this COVID thing, I think I'm going to up that to, a one-year emergency fund, especially because it would just drive all the other financial pundits crazy, who say all you need is three to six months. I might just do it for that reason alone, but no, but truthfully, everybody, I think that really given what's happened here, I think a one-year emergency fund is probably going to be the new rule of thumb for Miss O. here. But, you have extra money, you're fully funding everything, and it's hard for me to answer your question because I don't know what else you're invested in. You say you have a fully funded 401k, a traditional IRA, and a backdoor Roth IRA. So you have investments there, but you didn't tell me what you invested in. So, it's hard to say are you diversified, are you not, are you in individual stocks, what are you doing? So if I had $30k extra and then $1k a month, I would not right here, and right now, take that $30k and invest it in the stock market. If you wanted to take that $30k divide it, let's say by 12, and that gave you $2500 a month. Plus you have another $1k and you want to put $3500 a month into the stock market, I don't have a problem with that on any level. If you don't know what investments to choose, I don't have a problem with VTI, the Vanguard Total Stock Market Index ETF. I also do love the Motley Fool's everybody, and I like their fund which is TMFC. There are so many good ETFs that are out there and ETF stands for exchange-traded funds. And really, what you also might want to do Mini is you might want to start picking individual stocks that you really like and open up another account at like Fidelity, or TD Ameritrade, or Charles Schwab, where you could buy fractional shares or little amounts of money every single month. One share here, two shares there, and build your own portfolio and see how that goes for yourself. Many of you may be wondering why I keep wanting the Vanguard Total Stock Market Index Fund. Why, Suze Orman, did you switch about a year or so ago from the Standard and Poor's 500 Index Fund to the Vanguard Total Stock Market Index Fund? And have you all noticed what's happening in the stock market lately? Have you noticed that we're starting to have a rotation out of stocks like Amazon and Netflix and you know, Shopify and all these stocks that have gone so crazy now it's not even funny? And that money is starting to funnel into more traditional stocks, everyday stocks that didn't go crazy over these past few months. So the reason that I like the Vanguard Total Stock Market Index Fund or ETF is that it's made up of about 3500 different stocks, and as these rotations go from technology to other things, you're covered. You have diversification and your life is very simple, and that's essentially why I like the Vanguard Total Stock Market Index Fund for those of you who want to just start investing and have true diversification. So Mini, I hope that answered your question. The next one is from Joan. I think Joan asked a few questions actually, I see this name a lot. Anyway, hi, Suze is it too late to refinance in this market? I'm looking to go into a lower interest rate, shorter-term mortgage. No way is it too late my dear Joan. Interest rates are down here, they're going to stay down here. So, if you want to refinance, go girl, do it and do it now. Just that simple. The next question is from Gloria, and she says, I have $18k in credit card debt from three different credit cards with an interest rate of 13.99%, 21.99%, and 22.99%. I always made my minimum payments electronically, never missed a payment. I want to start paying my credit card debt off. I can pay maybe $800 per month on top of the minimum payment due. How do you recommend me to do that? So, first of all, Gloria, before I did that, if I were you and you always made your payments on time, which means probably you have a good FICO score, I would see what my FICO score is and if your FICO score is like 720 or 760, you might want to do a balance transfer on all of these cards to the lowest possible interest rate that you could find. And maybe you would even qualify for a 0% interest rate for 21 months. Then, even though it might cost you 3% of the balance transfer fees to transfer it, I think given these high-interest rates, you would come out ahead, especially canceling it with a 0% interest rate. So, that's the very first thing I would do if I were you and check it out. However, let's just say you screwed up your FICO score. You don't have a good FICO score, so, no way that anybody is going to give you a lower interest rate or allow you to do a balance transfer and you are stuck with these three cards. Here's what I would do if I were you. I would take the $800 a month extra that you are going to put towards these cards, and I would put all of it towards the card that has the 22.99% interest rate, the one with the highest interest rate. And I would add that to that card, plus the minimum payment due that you were making on that card, and I would continue to make the minimum payments due on the other two cards. When the 22.99% card is paid off, then you will take that $800 plus the minimum payment due that you were making, and you will apply all of that to the credit card at a 21.99% interest that you have been paying. But for that card, you're going to continue to pay the minimum payment due that you were paying on that card originally, and you are going to add the entire amount that you were paying on the first card to that card. When that card is totally paid off, you're going to take that amount of money that you were paying towards that card and put it all towards the card that's at a 13.99% interest rate, and that's what you're going to do. The key here is as time goes on and the minimum payment due starts to go down because you're paying off the balance, you have to keep paying the minimum payment due that you are paying right here and right now. So, let's just say the minimum payment due is $50 per month. And as you're paying down the balance, now the credit cards say, oh, the minimum payment due is only $25 a month. No, you have to keep paying the $50 a month so whatever amount of money you are currently paying towards the minimum payment due, no matter what they require of you, you're going to continue to pay the amount that you are paying right now. Got that, Gloria? This next one is from Courtney, and it's not a question, it's a statement, and I just want to read it to you. She says, hi, Suze, on an older podcast, Keith was upset that many people collecting unemployment are receiving more money than those who are working. I've been seeing similar statements all over social media, so I want to provide all the Keiths out there with a different perspective. I'm 24 and I recently graduated from college. I moved to a new city and was recently hired at the job I had been dreaming of since I was a child. My annual salary was $32k and I was laid off on March 15 which broke my heart, and now collect $960 in unemployment, which is double my work paycheck. Those of us who are unemployed due to the pandemic do not ask to be put in the situation. I was laid off for three weeks before I qualified for my company's 401k. I have health issues that make me nervous to find a job until my dream job calls me back in September. We need to be thankful for what we have, not complain about what we don't have. Thank you essential workers for all your hard work. For some reason, I just wanted to acknowledge Courtney. You know Courtney is 24. Courtney, when you have the courage to speak up, I think it's really important that you're acknowledged for doing so. I'm not exactly sure, Keith, although I don't even remember the question, to tell you the truth. But a lot of people were upset, not because people were collecting unemployment, but because people had decided, rather than going back to work when their jobs were calling them back to work, they decided to stay on unemployment because they were making more money on unemployment than they were at their job or the job that had called them back, and that's what was upsetting a lot of people. And I'm sure all of us have our own opinions on that one way or the other, but one thing that I've learned in life is that until you're in somebody else's shoes, don't judge them. Don't judge them. You know, recently, and I'm just going to go off track here because I can. You know, recently, KT and I were talking and we realized that a lot of people when you have a lot of money, think there's nothing, nothing could possibly go wrong with them. They have it made, they have a whole lot of money. Then they judge you because they don't understand that things can really go wrong. Besides money, you can lose your health, you can lose a loved one, you could be in a divorce, all kinds of things can happen. But it's really interesting how people will judge just based on superficial knowledge that they may have about somebody else. So I think, especially in times like this, I think it's really important that we don't judge anybody, and that will really try to stay compassionate in nature towards others and just assume that they're doing what they need to do in their lives to live their best lives and let them live their lives, and hopefully, you will be living yours. But Courtney, thanks so much for writing in and I hope your dream job absolutely does come back in September. All right, this next one is from Virginia, and she says, I'm just going to summarize it because it's kind of a long one, which is, I want to start investing in mutual funds or exchange-traded funds and start a diversified portfolio. I'm 37 years old, married, no kids. We rent a small apartment, $25k of student loan debt that I'm paying off each month, and I saved about $2500 of an emergency fund. And she goes on and on about what can she invest in? Here's the problem, Virginia. Until you have an eight-month emergency fund, you cannot take that money and invest it. If you work for a corporation and they match your contribution, you put in a dollar and they give you 50 cents or something like that, all right, contribute up to the point of the match because that's free money. But other than that, honest to God, the eight-month emergency fund is the way to go. And I get it, as I keep reading more about the questions that come in on the app, it's so obvious that the tremendous gains that have been gotten in Amazon and Netflix and all of these stocks. That the more you read about that, it's gotten you into this frenzy of oh my God, I just have to do that. I could buy fractional shares of Amazon, I could do this, I can do that. More than anything, you have got to do an eight-month emergency fund and really do that. And I just want to talk about the stock market for a second here. You know, a lot of this of what's going on right now really reminds me of what happened in 1999 and the year 2000, the very end there and the beginning of the new decade, of when everybody was investing in technology and it was crazy. And I'll never forget going to this one seminar and this one woman says to me, Oh, Suze, I have 90% of my money in technology stocks and the internet and everything. And I'm like, you can't do that. No, don't do that. And she said oh no, no, no, I'm going to do that, I've done it, Suze. They're going up, up, up, up, up. And it's like, OK, and then just a little bit after that, they totally went down. So here's a question for all of you. You have two choices, OK? You have $10k and I guarantee you the first year it will make 80% because that's essentially what happened in 1999. So, it will make 80% guaranteed. But I guarantee you the next year you will lose 50%. Or, you could have $10k and I guarantee you that you make 5% the first year and 5% the second. Which one do you want? And it's very obvious, one year it makes 80% then you lose 50%, so 30%. Versus 10% over two years. Which one do you want, everybody? I know you all want the first one because that's exactly what's happening right now. But here's the problem, $10k and an 80% gain, you just made $8k. So you have $18k next year and you lose 50%. 50% of $18k is $9k. Now you have $9k, you have $1k less than what you started with. Or, $10k at 5%. So 5% of $10k is $500. So now you have $10,500, in the 2nd year, 5% on $10,500 is another $525. So now you have a total of what, everybody? $11,025 versus $9k. Stop going for the big money, got that everybody? If you're lucky enough to have invested in the stock and it goes up, up, up, up, up and it has gone crazy, I don't know, you might want to think about that. So, don't get suckered into investing when you don't have the money, you need the eight-month emergency fund. If you have an eight-month emergency fund or a one-year emergency fund, your investing in the stock market, then in your 401ks, or your Roth IRAs, you're out of debt. You have to do things logically, and when you only have a little bit of money in a savings account, it is not logical for you to want to invest. All right, and one last one. Dear Suze, is it wise to refinance my condo, which is currently at 4.125% for 28 years left? I did pay points for $6k when I bought it a little more than two years ago with Quicken Loans. Now, they're offering 2.5% for 30 years. I'm in Los Angeles a few miles from downtown, and I have no plan to move around for a long time. What should I do? Asuun, here's the thing. I don't have a problem if you want to refinance on any level from 4.125% down to 2.5%, just make sure if you're going to refinance, especially with the same company, that maybe you don't have to pay another $6k in points. And that's going to cost you a whole lot of money. Also, can you just refinance for 25 years versus 30 years? Or if you can afford it, better yet, a 15-year mortgage. So, I just don't like it when you refinance for 30 years when you only have 28 years left. I always want you to go down in years as well as the interest rate when you refinance. All right, everybody, that ends another Ask Suze Anything. Please download the Women and Money app, and tonight, if you happen to be around, join me on Twitter with my friend Jim Cramer and Kelly from CNBC, and we're going to be answering some questions. I'm going to be answering one question in particular. See, you might just want to tune in and say hi. All right, everybody, until Sunday, now you take care. Hi, I'm Sarah, and I'm Robert, and we're from Suze Orman's Women and Money podcast team here to tell you that Alloya's member credit unions are so proud to have brought you this episode. You know, Robert, credit unions live by people helping people philosophy. Absolutely, Sarah. And that means when you bank with a credit union, you can trust that they have your best interest at heart. The fact is, regardless of circumstance, a credit union will have your back and keep your money safe, that's the credit union promise. Go to www.MyCreditUnion.gov to find a credit union that fits your needs. That's MyCreditUnion.gov. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. 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Credit & Debt, Saving, Investing, Retirement