Some of the more outspoken posters got tweets back from Orman’s Twitter account.  20 and Engaged has a history of the interactions here.

Am I a Suze hater?

People don’t reach prominence by trying to please everyone.  Suze Orman has been in the financial realm for a long time — certainly longer than any personal finance blogger I’ve met — has nine consecutive bestselling books under her belt, as well as successful radio and TV gigs.  She has a wide following mainly because she gets in people’s faces about the soft spots in their financial lives.  This doesn’t resonate with everyone, and that’s to be expected.

But for the record, no, I’m not a Suze hater.  She’s helped many, many people get on the right track with their finances through direct advice and education.  It’s clear that she engages with people, listens to them, and genuinely wants to help them.  This can’t be taken from her: She’s done well for herself on this earth by helping a lot of people.

Now, back to the prepaid debit card.  Piece of junk?

Suze Orman’s message is clear, but what’s also clear is that she is a sharp businesswoman and a tireless self-promoter.  (She’s the latter because she’s the former.)  She’s in a position to use the leverage of her large audience to spread her message, help even more people … and sell more products.  The Approved Card is the newest product.  Is it better than cash?  Maybe.  Is it a good long-term solution for managing personal finance?  Possibly.  For people who need a shorter leash for a season, a prepaid debit card with a healthy dose of Suze could be part of the solution.  Is it without risk?  No, but nothing is.

Regardless, I certainly don’t fault her for offering this product.  She should be free to do so, just as people should be free to sign up or not.  Time will tell whether it was a good product or not, and the market will decide whether the $3+/month is worth the value that Suze Orman adds.

Postscript: Are my blogging colleagues idiots?

Absolutely not.  I’ve met many of them personally, thanks largely to Phil’s work.  (Phil was the closest recipient of this barb from @SuzeOrmanShow.)  But since we all just live in Clay Shirky’s internet. and since now consumers of the media have not only the ability to talk back easily but also to talk with each other easily, repercussions from bad PR can be swift and long-lasting.  Ticking off bloggers in one’s niche is rarely a good idea.

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If you’re stashing your cash in a traditional savings account earning next to nothing, you’re wasting it. Make sure you’re getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.

Now, there isn’t a thing wrong with these banks.  I’ve used ING Direct for years, and I’ve had nothing but good experiences with them. I’ve heard many good reviews of Everbank as well.  I guess over the past few years we’ve had our expectations of “high-interest savings account” lowered a bit.  Both ING Direct and Everbank are quoting rates around 1% APY.

One percent per year. And this is supposed to be an alternative to wallowing in a low-interest account?!  By most measures, this is wallowing in a low-interest account!

Certainly it’s better than earning nothing, but truth be told, it’s not a whole lot better than nothing.

It makes me wonder if the whole idea of passive retirement income is out of reach for most people. How much would someone have to have saved up to have a retirement income of $50,000 per year in investments earning 1%?  Fifty thousand dollars is one percent of $5 million.  And this income is before taxes and the devaluing due to inflation!  Even if the return rose to 5% — say, with some very well-chosen dividend stocks — then this still requires $1 million invested.

Five million dollars is a lot of money, and with average retirement savings not even cracking six figures it’s not an amount of money that most people have at their disposal.  So for most people, there has to be more.  There probably has to be some kind of active income earning going on.  Things like building up a side business in an area that can be done part-time (or even full-time) in the normal retirement years.

This transition is far easier if the business is already chugging away when the traditional retirement age comes.  But this requires planning and consistent effort well before that time occurs.

Are you on top of this?  Are you laughing in the face of low-interest passive investments and taking the bull by the horns?  I hope so.

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I went straight to graduate school after college and was a “poor student” for quite a while: another six years after graduating from college.  I quadrupled my salary when I left to get my first real job.  All of that money!  It was pretty hypnotizing.  I really can’t imagine what I would have done with the money had I come into it in my early twenties.

But some are earning the same starting salary out of college now that I did out of grad school ten years ago.  Inflation has taken its toll, but not a whole lot.  $63k/year is quite a chunk of change.  It’s likely far beyond what that person had earned prior.  So why not enjoy the wealth a little bit?  Certainly a $500/month car payment when it’s within budget isn’t out of line?  It is for a BMW 328i, and it is even used!

“Younger self, this is your older self, and I have something to tell you”

Finances change throughout a person’s life.  The level of responsibility (usually) goes up:  marriage, children, house, college, weddings, and so forth.  It’s easy to see the parts that have passed, but it’s not so easy to comprehend the financial challenges that lie ahead.  What appears to be a wide-open budget that can easily accommodate a $500/month car payment in addition to a hefty gas bill — the 2008 BMW 328i gets only 21 MPG combined, and filling up the tank is getting ouchier every day — won’t be so wide-open after a family and all of its trappings are in the mix.

And that’s the main reason why it’s so important to save like crazy when you’re young and relatively unencumbered with other financial responsibilities. Take it from a husband and father pushing forty: saving is a lot harder with other mouths to feed and other payments to make.

How did you live as a student?  Was is so horrible?  Probably not.  Now there may be student loans to pay off and housing to pay for as well as some basics, but even after all of that, there’s probably a relative fortune left after the end of the month.  Just because it’s there doesn’t mean that it needs to be spent.

The other reason to sock away money now is that the power of compounding and the power of dividends have more time to work.  Starting earlier with a good investment strategy for your excess cash will give you an enormous financial leverage later.  Likewise, starting later will saddle you with an enormous financial handicap.

A cushy job right out of college is the opportunity of a lifetime.  Take advantage of your youth to set yourself up financially!

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Whether those financial windfalls are spent or saved wisely, though, is an entirely different matter.  Fortunately, it’s not that difficult to put these windfalls to effective use.  Here are two simple but broad principles that will help you to take full advantage of your windfalls if, and when, they come.

1. If you know that you’re receiving a windfall, make sure that you have the windfall in hand before you spend it.

Not all windfalls are planned, but some, like bonuses and tax refunds, may announce themselves beforehand.  If you’re owed a refund by the IRS and/or your state revenue department, then you’ll know how much you’ll be getting back if you did your taxes correctly.  (We’re in line to get a five-digit refund this year, thanks to a homebuyers’ credit.)

Short of taking out an expensive refund anticipation loan — please don’t do that! — the refund can’t be spent until the check clears the bank, or until the ACH deposit hits your bank account.  I heard a story about someone who took the homebuyers’ credit last year, and bought some things that they needed in full anticipation that their tax refund would come in on time.  Well, the refund didn’t come in on time, and they were in a bit of financial trouble until it did, quite a bit later.  (I think there was a hiccup in the documentation.)

Things can happen that delay a windfall’s arrival, so try to avoid going into the hole.  Credit card interest and late fees will take some of the fun out of the windfall.

2. Plan for what you’d do with the windfall, regardless of whether you know it’s coming, or not.

Getting back to the homebuyers’ tax credit, we are expecting that to arrive within a few weeks, and we already know how we’ll use a big chunk of the return of our interest-free loan to Uncle Sam, otherwise known as our tax refund.  Just by going through the process of deciding how we’ll use the money, we’re more likely to spend and save it as we’ve planned.  An extra $10,000 in the bank account is downright hypnotizing without a plan in place.

This is a wise exercise to go through, even if there are no windfalls on the horizon.  Do you play the lottery?  If you do, then please decide now how you’ll spend your winnings, how you’ll give it away, and how you’ll protect the rest of it from all of the long-lost “friends” that crawl out of the woodwork with all sorts of sad financial problems when they hear of your good fortune.

Tyrone Curry, a high school coach in Washington state, did just that.  Ten years ago, he decided that if he ever won some money, he’d help the high school to put a track in.  Five years ago, he won over $3 million in the lottery.   A few weeks ago, he presented the school with a check for $40,000 to put in a new track.

Mr. Curry beat the odds twice:  first by winning the lottery, and second by having something to show for his winnings five years later.

So, in short:

1. Make sure the check has cleared.
2. Make sure to check that you’re clear on how to use it!

Happy windfalling!

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I mentioned a couple of weeks ago that we scored some great Mr. Rebates savings with our purchases at The Disney Store for our daughter’s Christmas (and birthday) presents.  Well, after taking inventory of her doll collection, she’s gotten to the point where some of the dolls she used to play with aren’t being played with much anymore.  There’s nothing wrong with that, but it happens nonetheless.

So, with some very mild encouragement from her mother — it didn’t take much at all — our daughter shared some of her collection with her friends.  (Our friends have two daughters around our daughter’s age; one is only nine days older.)

Looking back, there had been a number of times that we’ve shared things that were of limited use to us, but much greater use to them.

Sharing saves. It saves in a couple of ways:

• Sharing saves money. If the sharing works both ways, then it saves both parties money.  Both parties get use out of the same item, and it doesn’t have to be bought twice.  Spending less is one of the basics you can fall back on to get your finances under control.
• Sharing saves landfill space for a while longer. Most things eventually end up in the trash, but passing stuff on to other people — especially plastic things like dolls — pushes that day into the future.  Giving it to someone that you know can use it is even better than giving it to a thrift shop, because they might already have twenty of what you’re giving them, and they don’t need twenty-one.  It’s the green thing to do, if nothing else.  (Personally, I think we’ll run out of cheap oil far more quickly than we’ll run out of space to throw away the plastics, but no reason to trash the planet just because we can, right?)
• Sharing saves a measure of sanity. Getting rid of stuff has its own advantages: some of the visual noise goes away, and some of the stuff that’s weighing you down gets lifted off of your shoulders.  My parents-in-law are far better at this than I am at the moment, and it creates its own peace in their home and in their lives not to have boxes and boxes of things.

I wouldn’t be mercenary and eye all of your friends’ possessions to see if they want to part with them but looking for mutual opportunities to trade stuff on occasion is a good way to save in a number of important ways.

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• $225,000 is owed against a house that is currently worth $200,000 to $208,000.
• The current mortgage is at 6.75%, a couple of percent higher than current rates for equivalent mortgages.
• The savings per month would be about $350, which they plan to use to maintain and improve the house.
• The refinance process would wipe out their savings cushion almost entirely.
• They characterize their jobs as “very stable” and do not know how long they’ll be in the house.

Not easy, is it?

Two percent is a big enough difference that it is usually a good idea to look into mortgage refinancing, but is it worth wiping out $25,000+ from their high-interest savings account?  There were a number of different takes, as you might imagine.  Financial Samurai recommended going full steam ahead with the refinance:

$350 divided by $30,000 = a 11% yearly return on your investment. Pay down your mortgage and refi, it’s a NO BRAINER. Where else can you get a 11% yearly return guaranteed?

His calculations, admittedly, assume pretty liberal definitions of principal and return, but that’s not the main issue.  He sees no emergency fund as being no problem. Saving that much per month is cushion in itself, perhaps.  The readers’ jobs could be really, really stable, in which case they could go on without an emergency fund without any issue at all, or build it up slowly.

Money Crush takes the other side of the fence:

Based on what you’re said here, I wouldn’t refinance. Mainly because you’re going to be wiping out your savings and emergency fund, with no plans to replace it. If it were just wiping out savings (and not the emergency fund too, I might consider it.) Lots of people lose their “stable jobs”.

The last sentence is key.  Lots of people do lose their stable jobs. I tend to side with Money Crush on this one (if there are no other options for handling the situation available — there might be).  There are times to pay down debt aggressively, and there are times to build up emergency funds aggressively.  Now is a time to build up, and maintain, emergency funds and cash savings.  Why?  Because cash buys you time if something bad happens, and a lot of bad things can happen.  No cash, no time.  Time to carry balances on the credit cards!

An underwater mortgage isn’t a problem unless it’s made to be a problem.  Refinancing an underwater mortgage makes it a problem.  The bank won’t take the house back just because it’s underwater.  The bank will take the house back (eventually) if you can’t make the payments.  Voluntarily wiping out your emergency fund increases the risk that this bad outcome will happen.

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Well, J. Money does, for one.  Not only does he have his own millionaire club with a swanky gold leafy discus logo … but he’s crunched the numbers and he thinks that it can happen on just five bucks a day.  Granted, that’s $5 a day for 40 years, earning 10% interest, in a tax-deferred account, but I’ll give him a hat tip for not defying the laws of gravity quite as badly as Dave Ramsey.

Let’s suppose that Mr. J is right, and that $5/day will really grow to a million bucks just like he said.  Here, then, is the million-dollar question:

Will $1 million in the bank be enough to retire on?

Free Money Finance passed on a link from Yahoo! Finance which says that $1 million will be enough, but only for current senior citizens.  For younger folk, it will likely fall short.  As GenXers we’ll need around three times that amount, according to the article.

Let’s do a really rough calculation using the “4% Rule” which involves withdrawing 4% of the total retirement savings the first year, and indexing this amount to inflation.  In essence, the annual amount will, in principle, have the value of 4% of the nest egg at the time of that first withdrawal.  So, if my nest egg is $1 million at retirement, my annual withdrawal would be $40,000.  That’s likely going to be not nearly enough to live on in thirty years. Even $120,000 (4% of $3 million) will be pretty meager.  $10 million?  Maybe now we’re talking.

Now, of course, $1 million is far, far better than nothing.  Considering the maximum Social Security benefit for current retirees is under $30,000 per year, $1 million in the bank would more than match what Social Security tops out at now.

I think where the real money is, though, isn’t with passive investments, but with building up some kind of side business in what was previously “spare time.” Something that can be done in “retirement.”  Getting $10 million which may or may not be worth anything at some point in the future seems more risky than building up expertise, steadily, in something enjoyable, that someone will pay for.

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Which brings me to my secret snacking weapon:  oatmeal. Plain, old-fashioned Quaker Oats.  Not the “instant” oats, but the big, giant container of oats.  I get ten pounds of oatmeal for under $8.  That breaks down to less than a dime per serving, and a serving is a full cup of oatmeal.  That’s a heck of a lot cheaper than a candy bar, and much more nutritious.

Here’s what I do.  Adapt to your tastes:

• Keep the oats dry in some kind of closed container. I use a plastic coffee container.
• Bring a 1/4-cup scoop to measure out a serving. Or a 1/2-cup.  Doesn’t matter too much.
• Scoop half of the oats into a mug, then put any flavorings you might want in. I use cinnamon ($4 for 11 ounces at Costco) and honey.
• Scoop the other half on top of the flavorings. I do this because pouring the hot water on in the next step makes the cinnamon clump if it’s on top.
• Pour hot water in to whatever level of consistency desired.

I tend not to get bored with the same foods over and over again, so this works well as a snack for me.  Even if you don’t want to go all-out with buying oatmeal 10 pounds at a time, the smaller container in the grocery store is still pretty cost-effective.

One of those little money saving things for your budgeting arsenal.

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I went grocery shopping with my wife last night, and in the condiment section, shockingly, I found various brands of ketchup.  The store brand came in a number of sizes.  Here are two of them:

• 20 ounces for $1.79
• 24 ounces on sale for 10/$10.00, otherwise known as $1.00

Sure, the 24-ounce size was on sale, but it was still cheaper to buy the 24-ounce size even without the sale.  The more expensive 20-ounce bottle was an “easy-squeeze” bottle: the opening is on the bottom rather than the top, and has an extra valve that supposedly makes getting the ketchup out easier.  (I haven’t found it to be any easier than the non-easy-squeeze version, but that’s me.)

The fancy packaging raises the cost of the food. It’s the same deal with all of the 100-calorie serving packages:  crackers, cookies, trail mix, even soda.

That’s why I have big containers of food at work.  I buy oatmeal by the six pounds at Costco for $1 per pound.  Dried soybeans in the 39-ounce size.  Dried cranberries and raisins in the big bags.  You name it.  I can control the portions either by putting them in plastic bags, or by just having the big container at work and scooping out a serving (it’s 1/4 cup or some multiple fairly often).

Paying more for food and less for packaging is a good idea. Tell your friends!

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If this US Debt Clock is accurate, we’re getting a new person on the unemployment roster every 17 seconds now.

What can you count on in this economy?  I think the only thing that you can absolutely count on in this economy is that you can’t count on anything in this economy. Retirements have been upended by plummeting 401(k)s and IRAs.  Nest eggs have been cracked by crashing home values.  Many people, all of a sudden, won’t be able to retire.

It’s foolish to take anything for granted.  There’s far less within our control than we probably realize, and proposed solutions that aim to make things better will almost certainly just make them worse.

When you think about “preparing for the future,” think instead of “hedging against the future.”  How?

• Cushions, cushions. Bolster that emergency fund to buy time in the face of job loss.  Bolster your food supply in case price controls cause shortages.  (Price controls are another solution that will backfire.  Think gas station lines in the 1970s.)
• Diversify your investments. If you’re heavy in anything (or only have a couple of asset classes) look around some more.  And don’t forget to invest in yourself.
• Diversify your income streams. Only have one income stream?  Start working on another!  And then another.  Your one income stream can go bye-bye at any time.
• Retire into something rather than just retire. It would be great if one of your new income streams involves something you really enjoy, and can do well into the traditional retirement age.
• Take care of your health. I’ve recommitted to this. The less you need health care, the better, because it will be more expensive, and you’ll wait longer to get it.
• Pray.

Thanks to The Censible Life for including this post in the Carnival of Personal Finance.

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