Podcast Episode - Suze School: What To Do With an Inheritance

Estate Planning, Investing

September 24, 2023

Listen to Podcast Episode:

Today’s Suze School is all about what you should do with money you may receive from an inheritance.

Podcast Transcript:


Suze: September 24th, 2023 Suze O here and welcome everybody to the Women and Money podcast as well as everybody smart enough to listen.


Suze: All right. So I'm looking around, I'm looking at what's going on in the economy. I'm looking at right now as I'm recording this podcast that we have two very large unions striking the auto workers, the entertainment industry and that is going to cost billions and billions of dollars in the long run.


Suze: I'm looking at a government that is facing once again a shutdown because they can't come to terms on how to solve the budget crisis. I'm looking at students who did not pay their student loans while we were during the pandemic


Suze: and they thought that was going to go on forever and that President Biden was going to be able to excuse those loans or at least a portion of them. I'm now looking at thousands and thousands of students freaking out because they don't have the money to pay their student loans that start when in just a few days on October 1st,


Suze: I'm looking at news where Russia now has just announced


Suze: that they are no longer going to export any natural gas as well as diesel, which will affect things. Now, it is true in the past that Russia cut their 2 million barrel a day exports down to 1 million barrels a day and we got through that, but now they're gonna cut from 1 million to zero with no end in sight.


Suze: And they're doing that at the exact same time


Suze: when winter is approaching


Suze: and it will seriously affect Europe heating as well as everything else.


Suze: I'm also looking at the price of oil which has gone up 30% over the past few months. There are places in California where just the past week or so, gas went up from 5.50 a gallon up to $7 a gallon and probably will not come down for some time.


Suze: And oil has a whole lot to do with more than just what the gasoline that you put in your cars. It has to do with the manufacturing of plastic and other things that then keys into what it keys into inflation. And if inflation does start to go up a little bit there, then that keys into the feds raising their interest rates


Suze: even faster even though they just paused a few days ago. But the fed did say with the two meetings that are coming up, we'll probably raise one more time and maybe next year we'll see what happens, but it could stay higher for longer.


Suze: So what does all of this mean to you?


Suze: It means that


Suze: you have to make moves with your money


Suze: that are really, really careful moves


Suze: just because everything has seemed so great these past few months. That doesn't mean that you should just now be spending money on this and doing this and doing that. Because what we're seeing with credit cards, is credit card debt is going up and up and up, many of them are maxing out. They're maxing out again at the same time that student loan debt is due.


Suze: And we're also dealing at a time when real estate because interest rates are so high


Suze: and the people that own their homes at a lower interest rate, a mortgage of 2, 2.5 or 3% they're just not willing to sell. So the inventory of real estate is going down and down and you're hearing on the news, well, it's not as many people applying for mortgages and things like that and you're translating that to oh, prices are going to come down,


Suze: prices are not going to come down until mortgage rates can come down so that those people who own homes feel ok about selling them because then when they buy another one, their interest rate on that mortgage is not going to be so high.


Suze: So if you're going to buy a home, I would not be out there thinking, oh, I'm just gonna wait until mortgage rates come down, prices come down. I don't think you're going to see that happen as soon as you would. Like. I actually think that we may get stuck at a 5% mortgage rate for some time.


Suze: I don't think, given the oil prices and everything that the feds are going to get their inflation rate down to about 2%. I think they're going to have to settle for about a three or 4% inflation rate.


Suze: So these are all things that we need to get used to. Also just one quick thing for those of us that are collecting social security and we got a really big cost of living increase for 2023. I don't think you're gonna see


Suze: an increase anywhere as near as big as you saw in 2023 and 2024. So don't plan on that. Just plan on maybe 40 or $50 per month increase in your social security check.


Suze: So where am I going with all this? I think we really have to look the big picture. You know, they always say when I'm doing a business deal. Well, let me talk to you about it on the, on a high level and I'm always like, what the heck is a high level. So I think I'll play with you with that where if we look down from above, so we're taking the high viewpoint of everything that's going on.


Suze: I think it's really important that we think about how do we invest money today to make the most out of the situation that we have?


Suze: And I still believe that we can make not for a long time, not for years and years and years, but for a considerable amount of time. Anyway, I still believe that the bond market eventually will be where you would like to have


Suze: a nice chunk of money. Now, you have to decide on that chunk of money. But can you remember that for a year or two? I was saying, no, no, don't buy bonds. Get out of bonds. You don't want long term bonds. And recently I've started to say, yeah, little by little, start investing again in longer term bonds.


Suze: So I want you to have when it comes to your fixed income investments, a dumbbell strategy, I don't even know what that is, but I'm just gonna put it out there and a dumbbell is like when you pick up these dumbbells, like you have weights on one side, weights on another. I want you to have some of your money short term


Suze: in three and six months, treasury bills or certificates of deposits, whatever's paying you the most


Suze: and have a little bit there. But I also want you to start having little bits that you put in every month for your fixed income into 10 year notes or 20 year bonds or 30 year bonds because there will come a time, especially if we enter a recession. I don't know if we're going to or not. There are some incredibly smart people that think we will still,


Suze: there are many that think we won't, but let's just say we did, then interest rates are going to have to start to come down faster than if we don't enter a recession. And when that happens, the price of those bonds will absolutely go up. And when we've seen enough of an increase on those bonds, we will exit those bonds and very possibly at that point in time,


Suze: take that money. And if that starts to happen, by the way, then the stock market could very easily go down and then start to put it into stocks that pay a high dividend yield.


Suze: So that's just things that I want you to think about,


Suze: but we need to stay up to date on all of this and we need to be careful again.


Suze: This is not the time if you have just gotten an inheritance. And what I find fascinating is for some reason right now, I'm getting more and more emails with people saying I just inherited $750,000 1.2 million dollars, 200,000. What should I do with it, Suze Orman?


Suze: So I again, will get to that in a second. What I think we should do with it, but I can tell you one thing, what you should not do with it is you should not put all of it in one lump sum in the stock market at this point in time. Do you hear me if you are going to be investing in the stock market right now, you have got to do dollar cost averaging


Suze: because you never know when these markets could really take a turnaround very quickly and go down. But whether they just go straight down or they go down and up or down dollar cost averaging is the way to go.


Suze: Here's really what I want the Suze School to be about today.


Suze: What do you do


Suze: when you have received an inheritance? And maybe it is the first time


Suze: that you have gotten a large sum of money and now you don't have a clue what to do with it. All right, take out your little Suze notebooks.


Suze: You have to look at your financial situation and you need to write down everything that you have. Let's start with debt.


Suze: I want you to write down how much credit card debt you have. I want you to write down how much student loan debt you have car loan debt, 401k, or any retirement loan debt,


Suze: and then mortgage debt


Suze: and also any personal debt. If you've borrowed money from any single person


Suze: and you have not paid them back yet.


Suze: And I want you then next to each one of those categories to put down the average interest rate that you are paying on that debt.


Suze: That's the first thing that I want you to do.


Suze: Second topic is emergency savings accounts.


Suze: How much do you have in, an emergency savings account? Now, I want to make a distinction here between an emergency savings account


Suze: and a must pay savings account. An emergency savings account is for true emergencies such as your car breaks down and it's gonna cost you $400 to fix it up. Maybe you blow a tire, your air conditioner started to go wonky your refrigerator. I want you to write down


Suze: all the possible little emergencies that would have to be fixed right away. That's why it's an emergency. You don't have a choice. You have got to fix it right away. Now, why am I concentrating on that? Because do you know that almost 74% of the people in the United States


Suze: don't have $400 to fix an emergency?


Suze: That if in an emergency happened for $400 the only way they would be able to pay for it would be a credit card. A 401k loan


Suze: maybe asking friends and family for money or payday loan.


Suze: Three quarters of the people in the United States got that. Everybody.


Suze: I don't want you to be one of those people. It is very important that you know, how much liquid cash do you have


Suze: to pay for in an emergency? And I would like to see you have at least 1 to $2000 in that account.


Suze: Next, I want you to have another savings account called Your Must Pay Savings Account.


Suze: What must you pay every single month? You must pay your mortgage, your rent, your car payment, your insurance premiums, things like that.


Suze: So yes, I know you have a paycheck coming in. Everything is ok. Maybe you've been living paycheck to paycheck, which is why it's incredibly important that you first have an emergency savings account. In case even while you're working, your car breaks down or something is needed where you need the money, you didn't expect to need it. It's an emergency, but you need it.


Suze: However, what happens if you lose your job


Suze: all of a sudden you don't have income coming in. Maybe you were laid off, maybe you got sick, maybe you were in a car accident.


Suze: You need eight months of expenses of must pay expenses in a must pay savings account.


Suze: So those are three categories there right. Next is retirement accounts.


Suze: I want you to write down all the retirement accounts you have and how much money you have in each and the answer to this question.


Suze: Are you maxing out your retirement accounts or are you not?


Suze: All right. So you'll put a yes or no there.


Suze: All right. So let's just stay with these categories, these four categories right now.


Suze: And you have gotten an inheritance.


Suze: Ok.


Suze: If I got a substantial inheritance,


Suze: the very first things that I would do with it is I would do what I would get rid of my credit card debt. If there was enough money, I would get rid of my car loan debt. I would absolutely get rid of my personal debt that I owed anybody money to. I would get rid of my student loan debt. I would get rid of my 401k debt. And depending on the interest rate that you are paying on your mortgage.


Suze: And if you are going to be staying in your home forever and you're older, you're in your sixties. When this happens, I would get rid of my mortgage debt


Suze: by the way that you categorize, this is the highest interest rate to the lowest


Suze: and that is how you would do it. Except for one thing


Suze: if I inherited money and somebody lent me money that I haven't been able to pay them back, even if it's at a 0% interest rate, I would pay them back before I did anything else with any of my inheritance. Once that was paid back, I would then categorize my debt from the highest to the lowest interest rate


Suze: depending on how much money you inherited. And I would get rid of as much of that debt as I could. If the inheritance was totally taken up by getting rid of my credit card debt, student loan, debt, car loan debt. Great. Then if that's it, it's over,


Suze: you don't have that debt anymore.


Suze: That if it's a large inheritance, I would seriously look at getting rid of all debt. The only debt I would think twice about would be the mortgage debt, depending on the interest rate, the tax write off and if you're going to stay there forever.


Suze: The next thing I would do is fund my emergency savings account to 1 to $2000 minimum. The next I would do what I would multiply if it's a large inheritance, I would multiply my monthly expenses of what it takes me to live every single month. And let's say it's $10,000 a month.


Suze: I would multiply that by eight and I would put $80,000 in a must pay savings account. That's a high yield account or a money market account where you could get at it if you needed it


Suze: after I did that, if there was still money left, I would look at my retirement accounts and if I still this year could fully fund them and put money towards them, I would absolutely do. So. Now, once you have done that, if there is still money left over,


Suze: then what I would be doing if I were you, I would be asking myself the question. Do I want to help my children o to college. And if so I might fund, if there was enough money in the inheritance to do so, a 529 plan for them.


Suze: If there was still money left over,


Suze: And she said, no, I don't, they're just gonna eat up all my money. It's too expensive now. And really, she's only like 71 or 72 my age. So it's not too expensive.


Suze: So I've asked her to look into that, but she still is like Suze, I need you to say yes.


Suze: The reason that I am never going to say yes is because as I was starting to say, listen, everybody,


Suze: as we all get older, I'm getting older, many of us are getting older.


Suze: Things tend to go wrong


Suze: and it becomes more and more expensive to live.


Suze: We never know is the stock market going to crash? Is the bond market going to crash? What is really going to happen?


Suze: So it is essential that while you are alive, especially if there's just one of you left now,


Suze: it's you and you are responsible for your own being.


Suze: Then you have to make sure that you keep, unless we're talking about that you have 2030 $40 million but $2 million is not enough to be giving away more than 10% of it. It just isn't.


Suze: And I'm not even sure it would do her kids any good at this point in time because one of them in particular may waste it. They're not very good with money. And there we go again. And now she's going to find herself in a situation that as her kids are getting older, her kids may need money more than her just wanting to give it to them.


Suze: So I'm asking all of you who are in that range and you're thinking about it, please keep it for yourself. Your kids as they get older, they're in their seventies, they're possibly in their eighties. They're going to need it as much as you probably will need it when you get that age as well.


Suze: So I'm asking all of you to just think about that when it comes to not what to do with an inheritance, but what to do with when you sell your home, you get a lump sum, you've hit it big in the stock market, you got a stock buy out whatever it may be. Please be careful about being overly generous to your Children.


Suze: The greatest gift your Children can give to themselves is the gift of self independence, the gift of self knowledge of knowing that they can make it on their own.


Suze: The gift of feeling independent and not dependent on their parents when they're 60 or 70 years of age or any age for that matter.


Suze: So sometimes helping is hurting, sometimes hurting is helping. But my job is to make sure that every one of you, especially as you get older,


Suze: that you are safe, you are secure and that you are strong and that is the sole purpose of the Women and Money podcast. So until Thursday, when M Travis will join us again with an Ask KT and Suze anything, there's only one thing that I want you to say every single day and it is this


Suze: today, wherever I go, I will create a more peaceful, joyful and loving world. And if you do that, I promise you, you will be unstoppable. See you Thursday, everybody. Bye bye.

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