Podcast Episode - Suze School: What Are You Really Worth?

Investing, Saving

March 09, 2023

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?  If you calculate incorrectly, you could be in big trouble.

Podcast Transcript:


Speaker 1: Okay, Susie. Are you ready for today's podcast?


Suze: Oh, you bet I am because I'm unstoppable.


Suze: March 12, Suze O here and welcome everybody to the Women and Money podcast and everybody smart enough to listen. And I do mean everybody. how thrilled are all of you that it's daylight saving time. I like anything that has the word saving in it


Suze: and I particularly like daylight saving time because it stays lighter longer. And for a Fisherwoman like KT and I both are we like to stay out late because that's when the tuna like to bite. But when it's dark out, we don't like to bring in the boat when it's dark because it's not easy to get in a little channel that we have to come in. And so we're so happy.


Suze: The other thing that I'm really happy about is finally, finally, the will and trust kit, the MUST HAVE™ Documents is back on sale. So for those of you who want a living, revocable trust in advanced directive and durable power of attorney for healthcare, a will and a financial power of attorney,


Suze: those must have documents are sold in a kit called the Must Have Documents/p>


Suze: and they are now back on sale. We upgraded everything so that when you buy them or now if you have it already, you can upgrade to the latest and greatest edition for absolutely free.


Suze: You would purchase them by going to hayhouse.com, or you can download the Women and Money app by going to Apple apps or Google Play. And there's a little place on there. One of the little squares, the Suze shop, you can get them there as well.


Suze: The price is $99 and I just want to remind you it's $99 for over $2500 worth of state of the art documents.


Suze: Anyway, today is Suze School. This is an interesting Suze School because it's about net worth.


Suze: How do you calculate your net worth?


Suze: Because if you calculate it incorrectly,


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


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


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.


Suze: We have enough money saved for retirement. The person who wrote this and 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.


Suze: And then the train wreck happened


Suze: And now our home


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 going to get all of it,


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


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


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


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.


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


Suze: that had a lot of value to it.


Suze: And now it's absolutely worthless.


Suze: And


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


Suze: that may be a natural disaster, could really easily just take away from us.


Suze: And when it's a major disaster,


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


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?


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


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 the other day, there was another one


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


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.


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


Suze: because of the rain,


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


Suze: and that's where we were living. And even though we have other money in a four oh one K 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 Susie, guess what,


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


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


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


Suze: because you have to remember everybody. Insurance policies can be very, very tricky.


Suze: It could be your possibly insured for a hurricane.


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


Suze: and now mold sets in


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


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


Suze: But given the fact that we are having more tornadoes in the Midwest than you would know what to do with hurricanes that are absolutely when they do come number fives and tremendously damaging


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.


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


Suze: Are you?


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.


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


Suze: then probably you should be.


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.


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


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,


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


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


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


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


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


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


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


Suze: Down $200,000.


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


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


Suze: So now their net worth went down considerably,


Suze: but their debt went up


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


Suze: and they couldn't sell the house because nobody wanted to buy the homes. And therefore what happened to all of them,


Suze: 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, 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.


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


Suze: and what they owed the bank.


Suze: So


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


Suze: where the unpredictable has now become the predictable.


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


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


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.


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.


Suze: My job is to protect you. My job. According to me,


Suze: my job is to want to make sure that when you look at something,


Suze: you look at numbers that really nothing can happen to.


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.


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,


Suze: but it's in your home.


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


Suze: Maybe one Day I can take out a home equity line of credit.


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


Suze: and now they can't write at the time that they were planning to do. So.


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


Suze: to make a decision, if you can afford to retire,


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


Suze: to generate the income that you will need to be able to retire


Suze: or for one of you to be able to stop working.


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,


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,


Suze: they're afraid. So now they gotta move.


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


Suze: is locked up in a four oh one K A pretax one as well as an Ira rollover.


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,


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


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


Suze: And that? Well, 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.


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


Suze: They always thought that they were going to 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.


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.


Suze: And that brings me to something else that could affect the value of your net worth. And that is called a possible recession. If you look at the difference between the two year and the 10 year Treasury Notes,


Suze: there is a 1% difference between what a two year Treasury note is offering and a 10 year treasury note is offering. Now, why does that matter?


Suze: It matters? Because the two year Treasury note is 1% higher than the 10 year Treasury Note. You might want to go and look up the rates on treasuries and you will see, I gave a really detailed podcast on this called the inverted rate yield curve.


Suze: And in history, one of the greatest predictors of a recession


Suze: is one shorter term notes like the Treasury notes are paying you more than the longer term Treasury notes or bonds. That's called an inverted yield rate curve because normally you are paid more money, the further out you're willing to lock up your funds.


Suze: Now, if you look at what's going on right now


Suze: on March 8th, 00:20:52

Suze: if you looked at the treasury yields between the two and the tens, the spread was roughly about 1% a little bit more than 1%


Suze: Which is the deepest inversion it has ever been since 1981.


Suze: And again, I repeat, an inverted yield curve has been one of the most reliable leading indications of a U S recession. Now, from the time that you start seeing them till the time you go into recession can be a long time because the very first time


Suze: that the yield curve inverted


Suze: In recent past was in July of 2022.


Suze: So what that tells you is that you really have to manage your risk big time when it comes to the market because we are still in an equity bear market cycle.


Suze: A lot of you are looking at your portfolios. Now,


Suze: a lot of you are looking at the equity that you have in your homes


Suze: and you are making plans based on what those amounts are


Suze: and you're calculating them in your net worth.


Suze: And there's nothing wrong with that.


Suze: As long as you always do a scenario of


Suze: what would happen if


Suze: something happened to my house and I lost my house, would I still be able to do X Y and Z?


Suze: What would happen if the markets went down another 20 or 30%? Would I still be able to do X Y and Z? Especially if I needed that money.


Suze: So it's really important when you look at your net worth, you do not get carried away with all these numbers thinking you are just doing fabulous


Suze: unless you have so much of a net worth that. Even if you lost your home, you lost a good portion of your portfolio,


Suze: you would still be more than okay because you have a whole lot of money where in treasuries, certificates of deposits, maybe in savings accounts, maybe a municipal bonds that are triple A rated and have true diversification for your safe money like that.


Suze: You know that I really, really love


Suze: treasury bills as well as certificates of deposit, especially at Alliant Credit Union.


Suze: I love that. If you're doing either of those, you're limiting your maturity to three and six months right now because interest rates are absolutely going up.


Suze: But at least, you know, that money is safe and sound as long as you are within the limits of the N C U A or F D I C insurance.


Suze: And there will come a time here. I promise you when I'll be telling you okay, don't renew at three months.


Suze: I want you to renew it a 20 year bond


Suze: so that you can lock it up and know that it is safe giving you an interest rate that you don't have to worry about.


Suze: So I just want you to have a realistic view of what can happen


Suze: and how you think about your money.


Suze: That is the Suzie School for today.


Suze: So until next Thursday, when it's asked Katie and Susie anything, there's really only one thing that I want you to say every single day


Suze: and it is this. So say it with me today. Wherever I go, I will create a more joyful, peaceful and loving world. You know, Katie the other day said, do you think people think that's corny, Susie? Do you think maybe we should do a different ending? And I said, no, Katie, because look at this world, look at the things that are happening everywhere.


Suze: And if we just, every single one of us could just do that, we could do our part to bring a little peace, joy and love


Suze: to everybody and everything that we see.


Suze: And again, if you do that, I promise you you will be unstoppable.


Suze: Common.


Suze: I'm a bush with no brakes. I'm invincible.


Suze: The island every single day your minds about.


Suze: I don't need,


Suze: I'm Sally.


Suze: I'm gonna stop above today.

Take advantage of the Ultimate Certificates with Alliant Credit Union at: bit.ly/3kwMcjR

Get Suze’s special offers for podcast listeners at suzeorman.com/offer

Join Suze’s Women & Money Community for FREE and ASK SUZE your questions which may just end up on her podcast!

To ask Suze a question, download by following one of these links:

CLICK HERE FOR APPLE: https://apple.co/2KcAHbH

CLICK HERE FOR GOOGLE PLAY: https://bit.ly/3curfMI

Suze Orman Blog and Podcast Episodes

Suze Recommends

Suze Orman Blog and Podcast Episodes

Family & Estate Planning

A Quick Task to Ease Your Mind

Read Now

Suze Orman Blog and Podcast Episodes

Podcast Episode - Ask KT & Suze Anything: Should We Buy or Rent When We Retire?

Read Now

Suze Orman Blog and Podcast Episodes


Your Ultimate Savings Opportunity Starts Now

Read Now