WOMEN AND MONEY
If you want to be rich, be honest
If I asked you whether you lied about your finances, you would say no. But maybe you’re not being completely honest? Let’s see how you do with this quick quiz. Do you:
• Lease a car (not for business) simply so you can trade it in every three years for a new car?
• Pass up participating in your company 401(k), even though it comes with a company-matching contribution?
• Ever miss paying the minimum amount due on your credit card on time?
• Carry a credit-card balance because you can’t pay off all your shopping, dining and entertainment costs each month?
• Have a credit score that’s below 720?
• Have a $3,000 plasma TV, but haven’t funded a Roth IRA?
If you’ve done any of the above but answered no, then you aren’t being honest about what you need to do to build a financially secure life. In many cases your motivation is to keep up with your friends and neighbors.
• Don’t avoid the truth. No one needs a new car every three years. Many car owners are tempted to trade in and trade up every three years, so you can have a fancy new one to turn heads at the stop light. But you’re throwing away thousands of dollars on a depreciating asset for the absurd thrill of impressing strangers.
Anyone who doesn’t participate in a 401(k) plan that offers a company match, pleading that they can’t afford it, isn’t being honest with themselves. You can’t afford not to participate. The matching contribution is the same as a bonus. And in many plans it’s not hard to qualify for a $1,500 match each year.
Late bill payment hurts your credit score, and with a FICO score below 720, you can’t qualify for the best loans and financial deals. That means a higher interest rate on your mortgage or car loan, or even higher car insurance premiums — costing you thousands of dollars. There’s no reason you can’t get the payment — especially the minimum amount due — in on time.
And don’t get me started on running up high credit-card balances for purchases such as dinners out, expensive clothes and getaway weekends. Much of the $9,000 average credit-card balance in the U. S. is probably the result of unnecessary and indulgent purchases.
• Roth payoff. Financial security is all about your ability to be honest with yourself. Instead of saying you don’t have any money to make a smart move like investing in a Roth IRA, you make a commitment to see where you can nip and tuck your spending to come up with the money for investing.
Yes, it may mean curtailing your nights out or not buying a new outfit every month. But you’re facing the facts: You know you need to save for a down payment, or for retirement, or so you’ll have the safety of an emergency cash fund.
If you do invest just $250 a month in a Roth IRA for the next 10 years, you will have more than $46,000 saved up, assuming you earn an average annual return of 8 percent annually. Then, even if you never invested another penny — though I would encourage you to always keep saving — that sum would grow to $315,000 in 25 years, assuming that same 8 percent average return. Clearly, honesty pays, and financing a social life we can’t afford, but think we deserve, merely avoids the hard facts about your money situation.
• The security of self-worth. You need to dig deep and develop a strong sense of self-worth. Without a solid dose of self-worth, you can’t have lasting net worth.
And honesty is at the core of self-worth. An honest person is respectful of what’s truly important, looking at every financial decision with an eye to longterm security. As a result, you don’t feel the pressure to “keep up.” You know the only important person to impress is yourself — with sound financial decisions. Commitment to an honest life will build a more financially secure future — and that’s the truth.
Suze Orman is a best-selling author and Emmy award-winning TV host whose latest book, “Women and Money,” was published in March 2007. For details, please visit www.suzeorman.com .
