Podcast Episode - Suze School: A Different Way To Think About Your Net Worth

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Today’s Suze School podcast is a lesson on how to figure out your real net worth.  What happens if a disaster strikes and your home is lost or the Stock Market goes down?

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Podcast Transcript:

00:00:49

Suze: April 2nd 2023. Welcome everybody to the Women and Money Podcast as well as everybody smart enough to listen. Today is Suze School and this is a Suze School that I have been telling you I was going to be giving you now for quite some time,

00:01:14

Suze: but always something would get in the way like Silicon Valley Bank going under, a run on the banks, what does FDIC mean and things like that all over again. But today I am finally doing it and the topic of this Suze School is how do you calculate your net worth?

00:01:15

Suze: Because if you calculate it incorrectly,

00:01:20

Suze: you could end up in a whole lot of trouble.

00:01:31

Suze: So recently I got an email from a couple who lived where? In Ohio

00:01:53

Suze: And they wrote me and they said the following: Suze, we have listened to you. Now, ever since you went on the air, we've read every single book we've done every single thing that you wanted us to do. We've followed you in every possible way.

00:02:11

Suze: We have enough money saved for retirement. The person who wrote this said, my spouse has just retired and we were so excited because we were going to sell our house. We were gonna move and everything was fabulous.

00:02:13

Suze: And then the train wreck happened

00:02:17

Suze: and now our home

00:02:35

Suze: that was totally paid off, Suze. We listened to you, we paid off the mortgage of our home. So we didn't even have a mortgage and we were going to use the proceeds of the sale of that house because we knew we were gonna get all of it

00:02:36

Suze: to buy another house outright. And we were going to be great

00:02:43

Suze: and now we can't sell our house because our house isn't worth anything.

00:02:52

Suze: We can't even get a loan because the banks here are not loaning.

00:02:59

Suze: And when we talk about getting money back from the lawsuits and everything, the lawyers are telling us, it's probably going to be 30 years.

00:03:12

Suze: And this couple was absolutely devastated because they now did not know what to do because they owned a home outright

00:03:24

Suze: that had a lot of value to it.

00:03:28

Suze: And now it's absolutely worthless.

00:03:33

Suze: And

00:03:35

Suze: I started to think about that. About how we count on something

00:03:42

Suze: that maybe a natural disaster could really easily just take away from us.

00:03:50

Suze: And when it's a major disaster,

00:03:54

Suze: then sometimes the insurance companies will take a long time to settle if you're even covered. I decided to call this couple because they were so heartbroken

00:04:07

Suze: and I did give them many ideas of what they could do and how we could possibly make it better than it is. But I asked them the question, which was, does your insurance policy cover hazardous materials?

00:04:25

Suze: And they said to me, we have no idea.

00:04:29

Suze: So I then started to think about things and then a week later, there was another train accident. This one however, didn't have any chemicals aboard. And then recently there was another one

00:04:45

Suze: and there are all kinds of accidents happening everywhere.

00:04:51

Suze: Then I started to get emails as well from people who live in the Bay area in California who are writing me saying, Suze, my house that had all my net worth in it.

00:05:05

Suze: Everything I had was in that house, Suze, just fell down a cliff

00:05:12

Suze: because of the rain,

00:05:15

Suze: the hill got too soggy and there went my house and the foundation. Then I get another email, Suze, we lived in a motor home that we owned outright

00:05:28

Suze: and that's where we were living. And even though we have other money in a 401k and everything, the reason we were able to retire is because we thought our net worth was fine because we owned our motor home outright and everything like that. And now Suze, guess what,

00:05:50

Suze: That motor home got caught in a flash flood because of the rains in California. And now it is gone.

00:06:01

Suze: The bad news is we don't have a place to live,

00:06:06

Suze: so it's going to cost us more money and we don't even know if we're insured for this or not

00:06:14

Suze: Because you have to remember everybody, insurance policies can be very, very tricky.

00:06:22

Suze: It could be: you're possibly insured for a hurricane.

00:06:27

Suze: But all of a sudden what happens is that the hurricane breaches a dam and now water comes rushing in and now water floods you out

00:06:40

Suze: and now mold sets in

00:06:43

Suze: and maybe your insurance policy isn't going to cover that.

00:06:49

Suze: So it's really, really important that number one, you know exactly what your insurance policy is going to cover.

00:06:59

Suze: But given the fact that we are having more tornadoes in the Midwest, Mississippi, for instance, than we know what to do with hurricanes that are absolutely when they do come number fives and tremendously damagin

00:07:21

Suze: and you have fires in California. Now you have floods in California. Now you have chemical disasters in Ohio and so on and so forth.

00:07:33

Suze: Are you really safe? Counting the equity that you have in your home as part of your net worth?

00:07:44

Suze: Are you?

00:07:45

Suze: And I can tell you by the number of emails that I've gotten, they thought they were, but it's not part of their net worth any more.

00:07:57

Suze: So it is very dangerous when you think you have more money than what you actually have. Because when you feel like you have a whole lot of money. You then also feel that you can spend more,

00:08:14

Suze: then probably you should be.

00:08:16

Suze: And that's exactly one of the things that was happening and is happening in the United States because the prices of real estate went up so much. A lot of you truthfully felt like, oh, we have all this equity in our house so we could either take out a home equity line of credit and buy this or buy that or go on vacation or even use it to buy another home.

00:08:43

Suze: And then all of a sudden we get in trouble when something happens, I'll never forget back to 2007 and 2008.

00:08:53

Suze: And many of the people, because I was still on the Oprah Winfrey show all the time, many of the producers that worked for the Oprah Winfrey Show,

00:09:04

Suze: they made a great salary. They were good with their money,

00:09:08

Suze: but they had extra money. So a few of them bought homes in Tampa, Florida

00:09:16

Suze: and they bought homes for $700,000, approximately. Beautiful homes and they could afford it

00:09:25

Suze: and they would put down $140,000 as a down payment. They put down 20%

00:09:35

Suze: and they could easily afford the mortgage. That wasn't a problem.

00:09:40

Suze: But that's when the real estate market totally collapsed.

00:09:46

Suze: And you had homes in Tampa that went from 700,000, 800,000, 900,000

00:09:55

Suze: down to $100,000.

00:10:00

Suze: But yet my friends still owed on a mortgage of approximately 5 or 6 or $700,000 depending on their circumstance.

00:10:13

Suze: And they had absolutely no equity in their homes whatsoever.

00:10:20

Suze: So now their net worth went down considerably,

00:10:25

Suze: but their debt went up

00:10:29

Suze: also to astronomical levels. Because they had to pay not only on the mortgage, but they had to pay association dues, which were a whole lot of money wherever they had bought

00:10:45

Suze: and they couldn't sell the house because nobody wanted to buy the homes. And therefore what happened to all of them, they had to sell it in a short sale. Just in case for those of you who don't know what a short sale is.

00:11:01

Suze: a short sale is where the mortgage lender allows you to sell the house for less than what you owe them on the mortgage. So you are essentially short of the money that you owe them when you sell it.

00:11:21

Suze: And the rest is history because for some of those short sales, they owe taxes on the difference between what they sold it for

00:11:31

Suze: and what they owed the bank.

00:11:35

Suze: So

00:11:37

Suze: I have to say we really live in a time and a place

00:11:44

Suze: where the unpredictable has now become the predictable.

00:11:51

Suze: So I am asking all of you if you are calculating your net worth.

00:11:58

Suze: I ask you to look at what your net worth is without the equity in your home.

00:12:09

Suze: And I'm asking you to do that so that you get a realistic view as to what you really could afford if all of a sudden your home went away. And I know you think it will never happen to you. I know you think that, but it absolutely can.

00:12:31

Suze: And if you prepare for the worst, but hope for the best, you will never get yourself into the financial predicaments that so many of you are in right now or were in back in 2007 and 2008 and 2009.

00:12:55

Suze: The other reason that I don't want you to necessarily include the equity you have in your home as part of your net worth is because for many of you, you aren't going to sell that house. You are going to live in that house, hopefully for the rest of your life. That's what many of you tell me.

00:13:20

Suze: But yet when you calculate your net worth, when I ask you questions, you always include 100% of the equity that is in your home,

00:13:35

Suze: But it's in your home.

00:13:38

Suze: So you really can't look at that and figure out, well, I have this equity maybe one day I'll sell

00:13:47

Suze: maybe one day  I can take out a home equity line of credit.

00:13:51

Suze: That's what that couple in Ohio thought. They really thought that everybody

00:13:57

Suze: and now they can't, right at the time that they were planning to do so.

00:14:05

Suze: So if you live in a home that you're not going to sell,

00:14:10

Suze: to make a decision. If you can afford to retire,

00:14:15

Suze: you have to be able to look at everything you have and make sure that what you have is enough at a very conservative interest rate,

00:14:26

Suze: to generate the income that you will need to be able to retire or for one of you to be able to stop working.

00:14:38

Suze: The sad part about the situation in Ohio with this couple is that even though they didn't have a mortgage payment because they owned their house outright

00:14:52

Suze: now they can't stay in their home. They don't want to stay in their home. They're afraid that their water is contaminated. They're afraid that the soil is contaminated. They have a big plot of land, you know, they're gardeners, they're afraid,

00:15:08

Suze: they're afraid. So now they've got to move.

00:15:11

Suze: But where do they move? And now if they move all of a sudden, they have to start paying rent again or if they buy another place, where do they get the money to do? So, most of their money

00:15:29

Suze: is locked up in a 401k, a pretax one as well as an IRA rollover.

00:15:38

Suze: So they can't take out a lump sum of money from there because that will be totally taxable to them. Which is another reason why if they had it in a ROTH retirement account,

00:15:52

Suze: they could have taken a nice sum of money out of there tax free to just do what? Buy a condo or something outright when the time came.

00:16:03

Suze: So, do you understand how all kinds of scenarios can happen?

00:16:10

Suze: And that while I know it feels good to own a home outright and to know you have that equity and to know if you need to, you could sell it and everything.

00:16:21

Suze: But, remember this couple never thought that this was going to happen to them.

00:16:28

Suze: They always thought that they were gonna be able to sell it, buy another one. If they wanted to, they could have taken out a home equity line of credit and purchased even another rental property or done whatever.

00:16:41

Suze: And the sad part is they really can't go to their family members because their family members essentially also live right in the middle of this. And their parents are a whole lot older and they were helping their parents as well.

00:16:57

Suze: Now, I'm sure that many of you have just listened to all this and you're going. But what can I do?

00:17:05

Suze: How do I think about everything now Suze? Can't this also happen to my stocks in my 401k or wherever you're invested. And I want you to listen to me closely now,

00:17:19

Suze: Stocks are always liquid. It's not like an event happens and all of a sudden the house is gone so you can't sell it. You then have to go to the insurance policies and companies and things like that. Stocks are liquid.

00:17:36

Suze: And most stocks and stock markets, if they're good quality stocks especially, come back after 3-5 years. So very seldom have I ever met anybody that had been invested wisely where it was a total loss and it was all gone.

00:17:56

Suze: The other thing you have to remember is you do not live in the stock market, but you live in your home. So you have to know certain things about your home.

00:18:11

Suze: So get out your little Suze notebooks and let's now start to talk about what I want every single one of you to do

00:18:23

Suze: Besides the fact that I do want you to think about the equity in your home differently. All right, I also want you to take steps to protect the equity that's in your home.

00:18:35

Suze: And I just want to say this here very quickly. This podcast was not about stop paying down your mortgage or anything like that. It was about, just look at things realistically as to what can happen. I still want you to make it your number one priority, if you are going to live in your home for the rest of your life or you intend to, to pay down the mortgage by the time you retire,

00:19:05

Suze: just let's get that straight right here.

00:19:09

Suze: The other thing now that I want you to do is I want you to call your insurance agent

00:19:15

Suze: And I want you to ask every and any question that you have and the questions are obviously: what doesn't my insurance policy cover me for? Because most insurance policies do not cover floods or earthquakes or volcanoes or war or nuclear hazards or hurricanes. Things like that.

00:19:45

Suze: Surprisingly many of them do cover for tornadoes. And it's also something interesting for you to know, that, as I said earlier, you have a hurricane and you're damaged, but the real damage is from the water that comes in after the hurricane and causes mold and everything not covered. In a tornado, a tornado blows out a window and then water comes in or something.

00:20:13

Suze: Usually they cover it. But you have to know,

00:20:19

Suze: you also have to ask this very important question

00:20:24

Suze: and the question is this, you bought your house maybe a year, two, three, five years ago

00:20:32

Suze: and real estate prices have gone up dramatically since then.

00:20:37

Suze: Do you have adequate insurance? Are you insured for what your property is currently worth?

00:20:47

Suze: And will your insurance company replace it at what it costs to replace it today versus just what it's valued at? Because remember, we have inflation, everybody.

00:21:03

Suze: So wood today is far more expensive than when maybe you insured it three years ago for a specific amount of money. So it may cost a whole lot more to rebuild that house

00:21:18

Suze: than what you thought it was going to. So does your insurance policy cover you for replacement value or only what it's insured for? You have to ask those questions. Also, you have to ask: all right, my entire neighborhood was destroyed. There is nothing here anymore and I actually don't wanna live here anymore.

00:21:48

Suze: Do you have to rebuild in the exact place that you own that home? Or will your insurance company allow you to use your insurance money to rebuild or buy somewhere else?

00:22:06

Suze: You have to think like that and you have to know

00:22:11

Suze: The other thing that I want you to do is I want you today.

00:22:17

Suze: Not tomorrow, not the next day I want you right now.

00:22:21

Suze: If you can, of course, I want you to go through your home and write down and take pictures of absolutely every single thing that you have in that house, open up boxes, open up cupboards, open up everything and take pictures of it and write down a value of what it is worth. Because I promise you

00:22:50

Suze: if a tornado comes through and everything is gone,

00:22:55

Suze: you will not remember. Remember, I lived in the Oakland Hills when that huge fire destroyed 3,000 homes. And that fire stopped one mile from my house.

00:23:12

Suze: And afterwards I drove through those hills. There was nothing but ash. There was nothing left. A chimney here and there but no cars, everything because the fire was so hot, it melted thing.

00:23:34

Suze: So as I was going through those hills, I'll never forget this. I was stopping to help friends who were sifting through the ashes, looking for anything they could find and I remember saying that to them. Well, do you have a list of everything that was in this house? And every single one of them said to me, "no."

00:23:58

Suze: So imagine right now that everything that's in your house has turned to ash, there's no remnants of anything but ash. Could you really remember everything that's in there? And the answer to that question is you absolutely could not.

00:24:21

Suze: So it is your job today

00:24:25

Suze: or whenever you can really, to protect yourself and everything within your house, because your insurance policy will most likely cover that.

00:24:39

Suze: But only if you can tell them what was in there. Also, you have to ask the question.

00:24:45

Suze: Will it cover the replacement value of what it will cost you to replace the TV today? Or do they only give you the value depreciated of what your TV was that you bought five years ago?

00:25:01

Suze: These are questions that are really important for you to not only ask but for you to absolutely have

00:25:11

Suze: an answer too.

00:25:13

Suze: So again, this is not about depressing you.

00:25:18

Suze: This is about making you a financial warrior, where you are prepared for anything and everything that could possibly happen. Because when you are prepared, when you know the possibilities or maybe even in certain circumstances, now, the probabilities,

00:25:39

Suze: then you feel secure because you are prepared. And what is the goal? The true goal, not only of money, but of the Women and Money podcast. It's to make you feel secure.

00:25:58

Suze: So again, I didn't do this podcast to disrupt your security. I did this podcast to go from false security to true security to actions that I want you to take today and just a new mindset of how to think about the equity that you have in your home when it comes to calculating your net worth.

00:26:27

Suze: All right, everybody. So until Thursday, when Miss Travis joins us again, I know you're going to be so happy to have her little sweet voice, her up voice, her cheery  voice to cheer you all up again. Thursday. With what? Ask KT and Suze Anything.

00:26:48

Suze: There's only one thing that I want you to say every single day. So say it with me. Everybody: Today, wherever I go, I will create a more joyful, peaceful and loving world. And in my own way, that's what I was trying to do today with all of you. And if you do that, then I promise you you will be

00:27:17

Suze: unstoppable.

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