The Money Class

by Suze Orman

  What is important to understand is that the American Dream is not something to put your faith in, to pray for, to embrace blindly, and hope that everything turns out okay—despite its long, dependable run. Rather, it is a concept, a loose set of goals that beg for individualization. The American Dream was never one-size-fits-all. The New American Dream asks you to fashion a dream that suits you—not one based on false premises and the expectations of others. It asks you to take measure of your own needs and understand what it will take to provide for yourself and those around you—your family, your community, and those less fortunate.

  The truth is, we are on the threshold of an important moment. We can come together, right here, right now, and each one of us can envision our own New American Dream—a dream that is rooted in reality, not superficiality; in truth and integrity, not illusion and faslehood.

  MAKING CHANGE

  I am a great believer in the power of perspective. Often when we find ourselves in a difficult situation we come to believe we have no options. We convince ourselves there is no way out. Despair and frustration take root and convince us that things are more desperate than they may actually be. When I’ve found myself in those situations in my own life, I have learned that a change in perspective can change everything. What seemed insurmountable can be overcome. Not without difficulty, but through ingenuity and dedication. We can make a difference when we think differently. If you have any doubt about the truth of that statement, think of any significant achievement throughout American history, from our founding as a nation built on those inalienable rights and freedoms, to the civil rights movement.

  What we need first and foremost then, to erase the feelings of hopelessness and to ease our fears, is a change in perspective. Let us recognize what the American Dream no longer is, in order to give birth to a New American Dream.

  We must abandon any vestige of the old dream that suggested it was delivered on a silver platter as a matter of national birthright, and that our economy would forever be the rising tide that lifts all boats. The dream I am asking you to create—this New American Dream—is a very individualistic pursuit. It calls upon you to take stock of the challenges we face as a nation with an economy that is still struggling to recover from the effects of a crippling recession. And then it calls upon you to take stock of your own life, your own needs, your own security. We must transform ourselves from dreaming society’s dreams and putting our faith in a false and misleading sense of entitlement, to being a society where each of us strives for dreams that are personal and realistic and that are in the best interests—in the truest and most honest sense—of us and our family. I am calling upon each of us to rethink the very way we dream.

  WHAT I LEARN FROM YOU

  I am confident you are up to the challenge. I know you are absolutely capable of everything I am going to ask you to do. I also can feel that lurking just beneath your fear and frustration is an even more powerful resolve not to resign yourself to a life of less. You are resilient. It is a hidden upside to times of great turmoil. When we are shaken to our core, when the status quo no longer works for us on any level, we are motivated to change. Transformation becomes not just possible, but imperative. How do I know this? I have been listening to you—so many of you—over the years. I have heard your hopes and fears; I have made it my job to expose the falsehoods and deceptions we perpetrate on ourselves and others and encourage honesty and truth. And I hear how ready you are for change.

  To that end, may I share some more statistics with you that I know you will find as heartening as I do? In a 2010 survey conducted by Charles Schwab & Company, 29% of respondents chose the phrase “Decade of Hope” to describe the coming years. Another 27% said “Decade of Great Change” and 20% chose “Decade of Personal Responsibility.” Three-quarters of respondents understand what it is going to take to create a new, sustainable, and achievable dream: hope, change, and personal responsibility.

  Those are the very elements I ask you to bring to The Money Class. At the core of the change I am asking for is a willingness to stand in the truth. To take a clear-eyed accounting of exactly where you are today, what your circumstances are, and then plot a course that addresses your truth. The pendulum has swung out to an extreme and we now must ease it back to a more stable and sustainable sense of equilibrium. To do that, I am going to challenge each of you, after years of overextending yourselves, to put into effect a correction. I am going to challenge you not merely to live within your means, but to live below your means. This is not meant to be a punitive strategy; it is a course in self-awareness, a return to values that our grandparents and their parents embraced. It is at the very core of the American Dream of old. Yes, there is still a beating heart in that dream. It is our duty now to rescue what was so right about it: the virtues of hard work and sacrifice; of self-knowledge and steadfastness in achieving one’s goals; of aiming for something greater and longer-lasting than the fleeting rewards of instant gratification and indulgence.

  THE MONEY CLASS CURRICULUM

  I named this book The Money Class because what I can provide is knowledge—of what actions to take, what behaviors to correct, how to fortify yourself in the face of economic challenges, how to fashion a responsible dream and achieve it—and knowledge is the key. I can take you from here—a place of fear and despair—to there—a place of security and hope. You will need to learn and in some instances relearn what has changed in our world and in your life, and how you must adapt to those changes.

  I understand fully: At this moment in time, you are in fear of the unknown. You don’t know exactly what to do or where to turn because you aren’t sure what works anymore. You don’t know who or what institutions to trust. The truth is, you must learn to trust yourself. To follow a path that is right for you, to make choices that are realistic for you and your family. And becoming that person requires an education, a course of study.

  The nine classes that make up this book begin right here, with a lesson in learning how to dream. In the next class, “Stand in Your Truth,” I will teach you what it takes to become honest and stay honest. That lesson is the catalyst for everything that follows. The subsequent chapters on family, home, career, and retirement can only be put into action if you bring along a commitment to stand in the truth. Each class will begin with an explanation of the important elements that have changed and require us to rethink our assumptions and reimagine what’s possible. Next I will lay out the essential strategies to help you reach your newfound goals. With my guidance and your commitment, we can be a formidable team.

  It is time to move beyond materialism in order to set our sights on authentic happiness. Authenticity is a word I find myself returning to again and again these days. I would ask you to put your finger on what is authentic in your own life—and what endures. Surely that is our relationships—with those we love, with our community, with the earth. We strive for connection, we gladly sacrifice and find strength in working toward a greater purpose, a sense that there is a reward in being true to yourself and honoring the limitless power that comes from living a life of integrity. More than anything else, isn’t that the legacy each of us would like to leave behind? Wouldn’t we take pride in knowing that future generations will look to us for inspiration, just as we look for inspiration to the greats who came before us? Then let us embrace the ideals that forged the American Dream, then and now: honesty, integrity, dedication, commitment, courage, and hope. And let us turn toward the future.

  The Money Class is now in session.

  CLASS

  STAND IN YOUR TRUTH

  How do we usher in this new era of personal responsibility? By taking an honest inventory of exactly where you are today and what you want most for your future. Sounds like it shouldn’t be so hard, right? But trust me—getting honest is the hard part. Based on my experience of working with people and their finances for three decades, I can tell you that culturally we have become a nation that hides from that truth.

  I see it
week in and week out when working on my television show on CNBC. The most popular segment of the show is “Can I Afford It?” in which viewers ask my opinion about a financial purchase they are considering. It is a very simple concept: Viewers want me to tell them whether they can truly afford to buy something.

  Before I render my Approved or Denied verdict I insist on finding out everything I can about a viewer’s financial situation. And I do mean everything. My staff and I pore over detailed financial information each guest must submit to be considered for the segment. Invariably we go back and forth a few times with the guest before the show is taped, until I am absolutely clear about whether they will be Approved or Denied.

  Those of you who watch the show know that more often than not I have to tell guests they are Denied. I know that many of you think the people who are featured on the “Can I Afford It?” segments are just playing a game. I can’t tell you how often people come up to me on the street and say, “Oh Suze, I saw the show last weekend and there is no way those people were for real—it was crazy what they thought they could afford!”

  I am here to tell you they are most definitely real. What you don’t see is that after they have been Denied and the taping is complete, the guests start trying to negotiate with me and my staff. They come back to us and change their story just a little bit in the hope that I will change my mind. The guests most desperate to change the verdict are caught up in what they wish were true; their desires about what they want in the here and now push them to bend the truth, to hide from the truth, just so I will tell them they are Approved.

  I wonder if deep down on some level you are struggling with the same urge. That kind of wishful thinking is not unique to the guests who ask me “Can I Afford It?”; it’s something many of us indulge in because it allows us to avoid tough decisions and owning up to a difficult reality that we may not be ready to face.

  There is no blame, no finger-pointing that accompanies my observation. As we embark on The Money Class I want to be crystal clear about my motivation for writing this book: empathy. I understand how painful it can be to face reality. Especially given the realities we are all facing, detailed in the opening class. It often seems to be in conflict with a healthy optimistic impulse.

  So trust me when I say that I know it is not easy. But it is necessary. No, make that vital. As I explained in the first class, I am convinced that we can all move toward a better future, but in order to do so we must create a new template for achieving our dreams. An important starting point to these classes is the recognition that the events of the past fifteen years or so that culminated in the financial crisis were caused by a collective disconnect from reality.

  The most fundamental lesson of The Money Class is this: In order to create lasting security you must learn to stand in your truth. You must recognize, embrace, and be honest about what is real for you today and allow that understanding to inform the choices you make. Only then will you be able to build the future of your dreams.

  In this class we will learn:

  Finding Your Truth: A Personal Financial Accounting

  Living Truthfully: How to Stand Tall in Your Reality

  The Foundation of All Truthful Living: The Power of Cash

  LESSON 1. FINDING YOUR TRUTH: A PERSONAL FINANCIAL ACCOUNTING

  Moving toward new realistic dreams starts with an honest appraisal of exactly where you are today. I am not going to try to cajole you into this first lesson with some fancy window dressing. I am going to stand in this truth: There’s no way around the fact that every lesson that follows in The Money Class can only be helpful if you first take the time to create a personal balance sheet that shows you exactly what you currently spend and owe (your liabilities) and what you have managed to save for your future (your assets).

  I realize that sounds like drudgery. But you have it so wrong. Stick with me here, commit to this exercise, and I promise you the experience will be revelatory.

  If you already use a software program that helps you track your spending and saving, great. But I suspect that many of you really don’t have such a strong grip on where your money is going, month after month. If that is the case, I would like you to go to my website, www.suzeorman.com, and click on the link for The Classroom. The Classroom is where all the tools and resources referenced in The Money Class are housed. There you will find my Expense Tracker tool. I have made it as easy as possible for you to determine your monthly income and outgo. But please know that your ability to stand in the truth comes down to how honest you are about inputting the data requested. Please do not guess or estimate. I am asking you to take the time to go through all your statements and documents so you can input dollar amounts into each line item that are a realistic reflection of your actual spending. Be prepared—it could take hours, but that kind of ruthless honesty is necessary to beginning this lesson on a firm and true foundation.

  The next piece of information we need is your credit score. You can get that at myFICO.com. If you have a FICO credit score that is below 700, you have some work to do.

  Improving Your FICO Score

  Your FICO score is important for many reasons, which you know if you’ve been following my advice for years, but it’s even more so today. Before the financial crisis a strong FICO score simply enabled you to qualify for the best deals. Now you must have a strong FICO score to qualify for a loan, period. Typically that means a FICO credit score of at least 700–720, and often lenders reserve their best terms for borrowers with FICO credit scores of 740 or higher. A great source of information on FICO scores can be found at ScoreInfo.org, a consumer site created by FICO.

  Once you complete those worksheets and get a FICO score, please print them out. Hold those papers firm and give yourself credit. You have just taken a giant step toward getting honest. I realize many of you will not like what the numbers tell you. Do not panic. Do not beat yourself up. And do not give up. Making those numbers “work” for you is in fact the basis of the rest of this book.

  Understand that we are not going to fix anything here in this class. Our focus right now is on facing the facts, so you can identify the areas of your financial life that are causing you stress. I realize you probably have a sense of that without going through these exercises. But it may be just a sense, or an inkling, or a hazy dread. When you take the time to put it all down on paper it brings everything into a sharp clarity. You are no longer guessing, or able to “bend” the truth. With the facts right in front of you, you have the building blocks of a solid foundation that will enable you to stand in your truth.

  LESSON 2. LIVING TRUTHFULLY: HOW TO STAND TALL IN YOUR REALITY

  Now that you have a clear-eyed accounting of your financial reality, our next challenge is to give you the means to take action based on what those worksheets tell you. I need to repeat myself: Do not be ashamed or upset. Know that in spirit I am sitting right beside you and I am excited for you: You have taken a giant step toward getting honest! That is no small achievement.

  In the classes that follow I present a series of lessons that will guide you through making the adjustments and taking the proper actions to help you realize your dreams. Those chapters contain all the nuts-and-bolts information you will need. To be honest, the how-to part of those chapters is relatively easy; it is just a matter of understanding some basic financial rules, regulations, and truths and making smart choices based on that knowledge.

  What I want to focus on in this lesson is how you find it in yourself to make those choices. The success of The Money Class is not just what I can teach you, but ultimately, what you are able to put into action for yourself, for your family, and for the benefit of future generations.

  Here are the cornerstones of the better financial life you can build with the lessons that follow:

  FOCUS ON WHAT IS REAL TODAY …

  The only way you can move forward is to loosen your grip on the past. I know for many of you it is quite difficult to not look in the rearview mirror. You are still
hoping your home’s value gets back to where it was in 2006, or you are stuck thinking about how much more your retirement accounts were worth a few years ago, or how much easier it was to generate income when interest rates were higher than they are today. Those of you looking for work are unwilling to settle for a job that pays less than your last one.

  Please know that I say this with full knowledge of how deeply wrenching it is: We must let go of the past. The decisions you make today must be based on what is realistic today—not what may have been true in the past, but what you know for a fact is an honest accounting of what is happening for you right here, right now.

  … AND WHAT YOU WILL NEED TOMORROW

  What derails so many of our good intentions is that we find it hard to make decisions today that will serve us well in the future. So we spend today rather than save for tomorrow. Or we say yes to something—a vacation with friends, a cousin who is looking for investors in a new business—even though spending that money now will impede our ability to reach long-term goals. The process of standing in the truth must work for you not just in terms of what is right today, but also with a clear appreciation of the measures required to attain a secure future. Money you spend today is money that will not be able to grow and help you reach your most important future goals, be it a child’s college education, paying off your mortgage before retirement, or being able to live comfortably in retirement.

  PUT MONEY IN ITS PLACE