Control Your Financial Destiny – Book Review

Control Your Financial Destiny

Owning the Power to Control Your Destiny by Suze Orman is one of my favorite books about getting your financial life organized. Suze Orman gives a great overview of all the financial elements, from what to invest in for your Roth IRA and what to have in your home insurance, it’s a great all-inclusive book. It’s directed toward women, but most of it is applicable for guys too. I pulled out some great financial tips for you.

Suze Orman – Women & Money: Owning The Power to Control your Destiny

She sets it up so you can focus on one item per month – a great way to break it up so you don’t feel overwhelmed trying to figure out all your finance elements at once.

(1) Review your checking and savings accounts.

  • Balance your checkbook. Do you know how much money you actually have (not the balance showing in your checking)? The way to do that is to balance your checkbook.
  • Have an automated investment amount directly deposited. It helps you make sure it actually gets done.
  • Keep your savings in the highest interest rate account you can find. My recommendation here.
  • Use a checking account strictly for paying expenses. Keep a minimum balance so you don’t use your line of credit.
  • Pay all your bills once a month so you don’t miss anything. Schedule a time to do this each month.
  • Balance your accounts once a month then do an annual balance. My recommendation on how to budget here.
  • Have 8 months worth of salary in savings.
  • Have a savings that’s your very own. You can still have a shared account, but keep one for yourself.
  • Check the fed rate to make sure your savings acct rate is not lower than .75 of it.

(2) Credit cards.

  • Have at least one credit card in your own name.
  • Always pay your balance in full each month. No need to pay high interest on credit cards.
  • Check your credit annually.

(3) Invest in a Roth 401k and a Roth IRA. (Vanguard.com is my choice for setting up a Roth IRA.)

  • SIDE NOTE: Mutual funds ticker symbols always have 5 letters & end in X.
  • Make it a goal to find the funds with the lowest expense ratios.
  • Invest 10% in an international index fund (can look at emerging international as well).
  • If you don’t want to do a lifecycle 401k then look for index funds with ‘total market’ or ‘index’ or ‘500’ or ‘extended market’ in the name with at least 500 to 4,000 stocks in them. Most popular is S&P 500. An index fund that tracks an even broader index than S&P 500 would be better – like 4,500. Invest 90% in this. Low-cost index funds are a reliable option.
  • If you never want to look at the 401k again – invest in a lifecycle fund. (These are target date funds that mature at a certain year, so you pick the date that’s closest to your retirement date.)
  • If your employer offers a match on their 401k plan, make sure you’re investing at least that amount. It’s free money.
  • Make mutual funds the largest portion of your 401k, not in bond funds. There is no set maturity date for a bond fund; you are never guaranteed you will get your principal back. It’s very dangerous to have money in long-term bond funds and stable-value funds.
  • Invest in mutual funds and ETFs.
  • When investing in a Roth IRA:
    • If you are going to make a lump sum investment, then invest in ETFs. ETFs trade like stocks (you can sell & buy during the day). ETFs will cost you less in annual fees (have to pay a commission fee each time you sell or buy). ETFs have lower expense ratios (annual fee, shaved off fund’s performance) than a mutual fund. (Expense ratio is something that everyone is charged, not an extra line item, but it’s shaved off the fund’s performance yearly.) You pay a commission each time you buy or sell them.
    • Use a discount broker. You don’t need a financial advisor to do this. (I use Vanguard for my Roth IRA which works great. You don’t pay a trade fee when buying Vanguard options, so if you like Vanguard funds, using Vanguard reduces your fees.)
    • If you make monthly or quarterly payments use mutual funds (it’s a no commission fund). Choose mutual funds that have no load and the smallest possible annual expense ratio. Loads are charged up front or when you sell. (DO NOT BUY B share funds, period. Look for an A or B at the end of the fund name to spot load funds.)
  • Same investment strategy for 401k’s: 90% in a no-load mutual fund that tracks a broad market benchmark. 10% in a no load mutual fund that invests in international stocks from developed countries.

(4) Essential documents.

  • Set up a revocable living trust with an incapacity clause (that’s funded).
    • (Can get all 3 from a real estate lawyer for about $2000 or do it on her site for $90 – Called the Will & Trust Kit – it’s a software download to create the financial documents.)
    • You can be the sole trustee (or if you’re married, you and your spouse can be joint trustees)
    • Successor trustee – takes over management of the trust when the trustee dies or is incapacitated (ALSO include a backup trustee)
    • Beneficiary – you
    • Remainder Beneficiary – person who inherits assets (can have certain people get certain stuff)
    • Change below accounts to the name of the trust
      • Real Estate
      • Nonretirement investments
      • Savings (bank & credit union)
      • Outstanding loans
    • Do not change
      • 401k & IRA accounts, if you are married make your spouse the beneficiary, if you’re single then the trust is the beneficiary
      • Cars
  • Check these documents annually (and make sure the beneficiary is correct):
    • Life insurance policies
    • Regular investment accounts
    • Savings account/bank account
    • 401k retirement account
    • IRA
  • Backup Will: includes smaller assets like jewelry, sewing machine, etc.
  • An advance directive & durable power of attorney for health care. AKA, living will, specify what care you want (pain meds, oxygen, etc.) and choose someone to represent the wishes detailed.

(5) Life insurance.

  • How much should you buy? Buy enough to live off the income alone and not use the principal.
  • Aim for a one that is twenty times beneficiaries’ income needs. Add up annual living costs then multiply by 20.
  • Get term life insurance – it’s only for those that would be dependent upon you (think of when you should have your assets paid off, so your spouse wouldn’t have a hardship)
  • Get one called “annual guaranteed renewable term.” Your premium will not rise & the company can’t cancel it.
  • Only buy form a high ‘financial strength rating.’ Ask to see ‘safety ratings.’
  • Make the beneficiary your trust, not your spouse.
  • Estate tax alert – if your estates value more than 2 million, including your life insurance, then the inheritors may end up paying federal tax (your spouse will not though), so you’ll need to set up an ‘irrevocable life insurance trust.’

(6) Home insurance.

  • How much your policy will pay if house is destroyed.
  • Check ‘dwelling limit coverage’: you want what would it cost to rebuild (not how much it would sell for)
  • In the same section, check what type of dwelling limit coverage you have:
    • Guaranteed replacement cost coverage (pay whatever it costs to rebuild)
    • Extended (goes over a % of dwelling limit coverage)
    • Replacement (just the value of your home)
    • Actual cash value (based on depreciated value of what needs to be repaired – NEVER get this)
    • *You want replacement or extended replacement
  • You want your coverage to automatically increase to keep up with rising home-construction costs.
  • Coverage you have if you can’t live in your house if it’s destroyed or damaged.
  • No dollar, no limit is best. It’ll pay for rent, etc if you can’t live in your house while it’s being fixed.
  • If you’ll be fully compensated for loss of possessions make sure you have Replacement Value and not actual cash value.
  • Can use her free Home Inventory Tracker on her site – list of all valuables and photos (sales receipts are also a great start).
  • If you have jewelry, etc. you can get a rider/floater to your policy.
  • Include personal protection in the event your sued.
  • Usually it’s $500,000 max, but if your assets total more than that, you’ll need to get a separate umbrella liability policy.

BONUS: Working with financial advisors.

  • Only work with financial advisors if they tell you what they charge. They should charge:
    • an hourly rate to give you advice OR
    • a % of assets they have under mgmt OR
    • combination of both
    • you should not pay more than a 1% fee
  • If they only work on commissions – do NOT work with them!

There’s lots of great information in Suze Orman’s book, Owning the Power to Control Your Destiny. I pulled out what I thought was helpful for your financial destiny, but to get a deeper view I’d definitely recommend reading the book, which you can get here. Which tip was most helpful to you? Anymore tips you’d like to offer, comment below.

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