The Money Class

by Suze Orman

  CHANGE YOUR ATTITUDE BEFORE YOU CHANGE YOUR JOB

  In the first class of this book, I explained that there is rarely a bad situation that can’t be improved by a change of perspective. It’s not that you can’t afford a house; you can afford a less expensive house. The problem isn’t that you were turned down for a car loan, but that you were shopping for a car that was too expensive. Change your perspective—and budget—and you can reach your goal. I think that idea is especially timely in how you manage your career.

  As we all know, finding a new job is not exactly a snap these days. As I write, there are five job seekers for every job opening. If you are unhappy in your current job, my advice is to take a step back and see how you might be able to make it work for you, so to speak. The truth you must stand in is that in this lousy job market, the job you have is a great job, for it is a job. And I want to be very clear: You cannot afford to walk away from any job today without having another job lined up. I don’t care how talented and well connected you are, that is just crazy in this environment. It is infinitely easier to get a new job if you still have an old one. Ignore this advice and down the line you are going to end up saying, “I wish I hadn’t.” Please don’t make that mistake.

  That puts it on you to figure out how to turn around a frustrating job situation. If you can’t stand your boss, get strategic about transferring to another division. Wish you had more responsibility? Well, come up with ideas for how you can expand your work. Right now your manager is probably overloaded and worried about her career. Ideally she’d be looking out for you, but this isn’t exactly an ideal time. So be proactive. Don’t just complain that you’re unhappy; offer up ideas on new challenges you could take on that would make you happy. And don’t tie it to a pay raise. Do the work first, and the pay will follow. That’s just the way it has to be in these economic times.

  I also want you to think of how you can change your life away from work, to make the work less frustrating. Hobbies. Working out more. Leaving the office a half hour earlier so you have a little more family time before the fire drill of dinner-homework-bedtime. You can fix a lousy job by reducing its impact on your waking hours. Change your attitude, or your perspective, or your priorities, and watch how things fall into place.

  What You Must Have Lined Up Before You Voluntarily Leave a Job

  Another job. (If you are thinking about starting your own business, please carefully read my advice that begins on this page.)

  A 16-month emergency fund. You read that right: If you don’t have a new job lined up before you quit your old job, then you should have a 16-month emergency fund saved up. Why 16 months? Because it can take you that long to find your next job. It’s as simple as that.

  Health insurance. If you leave a job voluntarily and your next job doesn’t provide coverage, or you decide to start your own business, you must make sure you can get coverage elsewhere. If you won’t be able to switch over to a spouse’s plan, shop for new coverage before you give notice. The cost of insuring a family of four can be $1,000 or more a month. And you want to make sure you have coverage in place before you give notice. You can search for individual policies at ehealthinsurance.com.

  LESSON 2. ADVICE FOR THE UNEMPLOYED

  Anyone who is out of work must stand in the truth I presented at the beginning of this class. Our slow economic recovery means job growth will remain sluggish and that in turn means we could be facing years during which the number of people looking for work will far exceed the number of job openings. I wish I could tell you that if you can just hold on a bit longer everything will make a big turn for the better and there will be plenty of new opportunities. But, sadly, that is not the truth.

  Here are my recommendations for adjusting your career dreams to today’s realities:

  CUT YOUR SPENDING IMMEDIATELY ONCE YOU LOSE A JOB

  There is a dangerous tendency to just stick with the status quo right after you are laid off. Between your severance, unemployment benefits, and your emergency savings you think you are going to be fine for a while, so you don’t feel the need to cut back. But I want to repeat a startling statistic from earlier: Nearly one-third of the unemployed in late 2010 had been out of work for at least one year. That’s likely a lot longer than your severance, and even if your state has expanded the amount of time you can receive unemployment benefits during this slow recovery, the payments, as noted earlier, typically will cover just a fraction of your prior salary.

  That makes your emergency fund all the more important. In fact, my advice is that every family that is dealing with a layoff should take measures to make their emergency fund last as long as possible. I realize it may be harder to add to your emergency fund when your income is reduced; that’s not what I’m suggesting. The goal is to cut your expenses as much as possible, as quickly as possible. Review every expenditure. Spending that you could afford when you had a job is not necessarily spending you can still afford.

  How much to cut? Stand in the truth of the job market in your area, and your field. If you know it may take time to find a job—any job—you must be very aggressive in scaling back your expenses right now. Challenge yourself to reduce your expenses so your eight-month emergency fund could last twelve months. If that means getting rid of one of the cars, or scaling back the kids’ after-school programs, so be it.

  DO NOT DIP INTO YOUR RETIREMENT SAVINGS

  As we discussed in “Stand in Your Truth,” one of the biggest challenges is to weigh the long-term impact of any financial decision. Yet often we get so caught up in the moment that we don’t stop to think through the impact that decision will have on our long-term financial stability.

  This is especially tricky when you have lost a job. You become so focused on just getting by today that you think it is okay to borrow from your future. So instead of leaving your 401(k) growing for your future retirement, you cash it out the minute you are laid off or you chip away at it. You tell yourself you will worry about retirement later; you need to pay the bills today.

  I want you to know how very sympathetic I am to the stress of paying the bills when you have been laid off. But I do not want you to touch your retirement savings. As I explain in all three of the Retirement Classes, the truth you must stand in is that your personal savings are going to play a pivotal role in whether you in fact can live the life you want and deserve in retirement. And the only way that will happen is if you leave your retirement savings alone.

  MAKE SURE YOUR CREDIT PROFILE REMAINS STRONG

  As a job hunter it is your job to impress potential employers, right? You need a résumé that grabs their attention, you need to make an impression during the interview process, and you’ll be relying on your references to sing your praises. You also may need your credit report. If you are applying for a job that requires you to handle money in any way, a potential employer will want to make sure you don’t have any red flags that might make you a high risk around the cash register or dealing with the company’s finances. And even if you aren’t applying for a finance-related position your credit report can still be an important factor in whether you get hired. The credit report has become a data point employers like to consider as an insight into your sense of responsibility and stability. If they find a financial mess, it could give them a reason to reconsider hiring you. In today’s world, where you are competing against so many other applicants, don’t let a shaky credit report keep you from your next job. That means making sure you stay current with all your bill payments.

  If you already have some dings on your report and a potential employer asks for permission to have a look, take control of the situation. Give them permission, but tell them the truth behind your credit report. Acknowledge the problems; don’t hide from them. I can’t guarantee that standing in your truth will get you hired, but I can guarantee you that hiding from the truth and letting a hiring manager find out on his own will likely work against you.

  DO NOT GO BACK TO SCHOOL TO AVOID A HARD JOB MARKET

>   I am all for learning new skills that will help you land a new job. That’s a great use of your local community college. But I do not condone going back to school full-time just because you can’t find a job. You have to have a better reason for going back to school. My litmus test is pretty simple: If the first time you thought about going back to school was about three weeks after your severance ran out, you are using school as an escape hatch. Here are the questions you need to carefully ask yourself—and answer truthfully—if you are considering returning to school:

  • Am I looking for an excuse to stop looking for a job? I am not minimizing how difficult—and even depressing—it can be to remain optimistic and positive in your search for work. But I would recommend you adjust your job criteria instead of giving up. As I explain below, one of the realities all job seekers need to accept is that a job that pays less than a former job is better than no job at all.

  • Do I need this degree or certification? Read that carefully; the emphasis is on “need.” If you haven’t been told outright by those in a position to hire you that you in fact lack a key skill, then why are you so intent on going back to school? Is it because you know for a fact it will make you a better job candidate in the future, or because you think it’s smart to bide your time in school until the job market improves? As I have explained earlier in this class, I think that could be years, not months.

  • Can I afford to go back to school? You are not to tap your emergency savings if it reduces your cushion to less than eight months of living expenses. And as I just explained, you are not allowed to touch your retirement savings. If you are considering taking out a loan to finance a return to school, please make sure you read the college loan lesson in the Family Class. The advice holds whether you are 18 or 38 or 58: Never take on debt that you will have trouble repaying. And when you are older you need to consider the impact more debt will have on your other financial goals. I do not want you to borrow for school if it means that once you have to start repaying the loan you will stop saving for retirement or delay paying down your mortgage.

  GET TO WORK AS FAST AS POSSIBLE, RATHER THAN HOLDING OUT FOR A BETTER OFFER

  The longer you are out of work, the harder it becomes to find work. Potential employers worry that your skills may no longer be as up-to-date as those of another candidate who is currently employed.

  I know you have no intention of becoming chronically unemployed, but what you may not realize is how your mindset could be keeping you from getting back to work faster:

  • Do not hold out for the same job, and the same pay. An important lesson in the “Stand in Your Truth” chapter was the importance of dealing with what is real for you today, rather than staying stuck on what you had in the past. That is very relevant in your job search. What you made at your last job, what your responsibilities were at your last job, is irrelevant. To get back to work you must focus on what is real today. A potential employer with so many qualified candidates to choose from does not really need to worry too much about matching your pay and benefits from your last job; all that matters is what the current market rate is for your job. The faster you accept this cold fact the faster you will get back to work. If your friends and colleagues can’t give you a sense of what is reasonable pay for the jobs you are seeking, websites such as payscale.com and salary.com are a good reference.

  If your issue is that you can’t find any job opportunities that match your skills or salary range, the solution is to not sit back and wait for those jobs to surface. Remember, the focus must be on getting back to work as fast as possible. If that means taking a job that is “less than” your last job and that pays less, I am telling you to take that job! Please listen to me here: In this job market you simply cannot afford to be patient. You think you’ll just give it two more months, then that becomes five months, then a year. And now you have been out of work so long you lose your competitive edge compared to other job seekers who are still working. Having a job today—any job—is far better than continuing to look for a job.

  HOW TO DEAL WITH A STEEP PAY CUT

  Over the past few years I have been told by many unemployed people that they can’t afford to take a lower-paying job because it won’t cover all their living expenses. My answer to them is that they are not standing in their truth. I am going to keep saying this: The reality of today’s economy is that making something is far better than making nothing. If your last job paid $150,000 and right now you can only find a job that pays $80,000 you must take the $80,000 job. And be happy you have work. If that means your family must reduce its spending drastically, that is your family’s truth to stand in. Obviously when you are taking a severe pay cut, trimming the cable bill and eating out less isn’t going to solve your shortfall. You may need to move to a less expensive home, in a less expensive part of town. You may need to consider public schools over private schools.

  A special note for stay-at-home moms: You and I know that what you do is indeed work, and it is in fact the most important “job” in your family. It is so very important that you understand that what I am about to say to you comes from a place of deep respect: Can your family really afford for you to remain a stay-at-home parent? I know that is what you want. And let me be clear: I know the incredible value and gift you are providing for your family. But I am asking you to open your heart for a few minutes and consider that what your family may need from you right now is income. I am not suggesting you take on a 50-hour-a-week office job. How about something part-time? Maybe something that allows you to work from home? Nor am I suggesting that this be a permanent change, only that extra income might be just what your family needs from you right now. That might be the truth you need to stand in—it might just be the best way you can take care of your family today, given their financial needs.

  LESSON 3. STARTING (AND RUNNING) YOUR OWN BUSINESS

  Being your own boss has long been a dream of many, and I understand how alluring it can be right now. For those of you unable to get hired, launching your own business seems like a great way to get back to work. And I know many of you are tired of the long hours and lack of advancement at your current job; the dream is to put all that time and effort into something that you own for yourself.

  MAKING IT WORK

  Being your own boss can indeed be a smart, proactive twenty-first-century strategy, given how many of the old advantages of employment have disappeared. If you’re not going to receive a pension or retiree health benefits, and if even the hardest working, most valued workers have little job security, working for a corporation doesn’t exactly have the same allure as it did in past generations.

  However, at the same time I am concerned that many of you may be considering starting your own business as a solution for the fact that you can’t find a job, or because you are simply sick of working for someone else. Neither of those is a sufficiently good reason, in my opinion. Starting your own business is not a Plan B. You do not decide you want to run your own business just because you have run out of patience looking for a job or working for someone else. You better have a passion, an entrepreneurial talent, and a seriously careful financial plan. In my opinion, the best dreamers are, at their core, deeply, deeply pragmatic.

  LAUNCHING A BUSINESS: CAN YOU AFFORD IT?

  Before you make a move, I would ask you to make a clear-eyed personal assessment and then come up with a business plan.

  The Personal Checklist

  I am going to assume you have a fabulous business idea and the expertise to pull it off. Passion? Check. But that’s not enough to get my approval. You must also show me that you:

  Have an eight-month emergency savings fund.

  Do not have any credit card debt.

  Have a FICO credit score of 700 or higher.

  The Business Checklist

  If you pass those first three tests, great. Now let’s focus on how you will finance the business:

  You have savings (not your personal emergency fund) that can cover up to one year of
operating expenses for your business.

  You will not tap your retirement savings, home equity, a college fund, or any asset to pay for your start-up costs.

  You will not use your home as collateral for any personal or business loan.

  I know those are some tough restrictions to meet. But listen closely: I have seen so many enthusiastic entrepreneurs not only lose their business, but do horrible damage to their family’s financial security when they pour everything into an idea that does not make it. I am a huge cheerleader for anyone who has the dream to be their own boss, but only if the pursuit of that dream does not undermine any of your other dreams.

  IT’S NOT A NO … IT’S A NOT YET

  If you have credit card debt or you don’t have enough excess savings to cover twelve months of operating capital for your business, I am not telling you to stop dreaming. I am asking you to move slowly. Keep working at the job you have, or get any part-time work you can so you can get your finances in great shape before you launch your business. Think of this as a high-level athletic competition. If you walk out onto the field in poor financial shape, the odds are you will lose. Spend some time in the start-up gym, doing some financial training, so to speak, and walk onto the field in amazing shape and you will have the stamina to stay in the game much longer, thereby increasing your odds of coming out a winner.