The Money Class (5 page)

SAFETY FIRST WITH YOUR SAVINGS

In early 2011, most basic checking accounts are not paying more than 1% or 2% interest. We may see those rates persist at least through 2012 as the Federal Reserve is determined to keep short-term rates low to help spur economic growth.

As low as the yields are on super-safe bank and credit union deposit accounts, they are indeed the best place for your emergency fund. You must keep this savings account safe and sound. You need to know that money is available to you whenever you need it—and you need to know exactly how much is there.

Don’t use a money market mutual fund for your emergency savings. It’s not just that money market mutual funds are not federally insured. The problem is that they charge an annual fee. It can be quite small, maybe one-tenth or two-tenths of a percentage point, but right now that small sum is actually huge given how low general interest rates are. You want to earn as much interest income as possible.

I also want you to stay away from putting this money into a certificate of deposit account that matures in more than 12 months. These accounts, especially ones that have longer terms (five years or more), are not where you want to be when interest rates start to rise.

SAVING FOR BIG-TICKET ITEMS

The New American Dream also requires that you have ample savings beyond your “life happens” fund in order to borrow less for major purchases. Be it the cost of a new car, a 20% down payment on a home, or the full cost of a kitchen renovation, I want you to do your very best to have that money saved up—completely—before you embark on this expenditure. That is how our grandparents did it and it is the way of the future.

I have news for you: This isn’t just about my wanting you to borrow less. As I write this in early 2011, you probably will not qualify to borrow money from banks and credit unions unless you have a sizable amount of your own savings to bring to the deal. You need a down payment to make a deal. It is that simple. (Yes, I am well aware homebuyers can make just a 3.5% down payment and qualify for an FHA-insured loan. But as I explain in the Home Class, I do not think a 3.5% down payment is in any way standing in your financial truth.)

Here are a few tips on how to save for a capital expense.

Open a separate savings account for each goal
. Your emergency fund should be its own separate account. And every additional savings goal should have its own dedicated savings account.

Set up an automatic monthly transfer from your checking account into your savings account(s)
. All banks and credit unions offer this service for free and I would encourage you to take advantage of it. It’s hard to have the discipline on your own to make sure you are setting aside money every month. By committing to an automatic transfer each month that the bank handles for you, you are making sure the money will in fact make it into your savings account every month. You can set up this service online, or by dropping into a local branch.

At my website, in the Suze Tools section you will find a free online Compound Interest Forecaster that will show you how your savings will grow over time. Play around with that calculator to get a sense of what you want to save each month to be able to make a sizable down payment for a future goal. Just promise me you will stand in your truth: If that goal is within the next 5–10 years, your money must stay in a super-safe savings account. So set your interest rate at just 1% or 2%. When rates rise, as I expect they will in the coming years, you can come back to the Forecaster and see how that will speed up your savings. But right now, we are standing in the truth that safe savings are growing at just a 1% to 2% rate. Agreed?

THE TRUTH WILL INDEED SET YOU FREE

As I said earlier in this chapter, in many ways “Stand in Your Truth” is the most important class I have to teach, for it is only when we turn inward and locate what is right and true for us that we can begin to move forward toward creating our new dreams. From learning to live below your means, to insulating your family from the unexpected major expenses that are a part of all our lives, your new dreams will begin to take shape only once you’ve begun to stand in your truth.

The challenge is to make this new way of living—this pursuit of genuine happiness—a long-term commitment. I ask you to do it from a place of sincerity and hope for the future, not just because you are afraid of what is happening to you at the moment. It is inevitable that the economy will improve at some point. That is something we are all hoping for. But as grateful as we will all be when those better times come, I hope you hold fast to the lessons in this class. Your future and that of your children and grandchildren, whether they’ve been born yet or not—all of us collectively will benefit from a commitment made to living a life of integrity, from moment to moment, of resisting the ephemeral temptations of immediate gratification, and staying steady with the dreams of your shining future squarely in your sights.

Trust me, it will not be long before the banks and financial services industry as a whole will be back offering you enticing ways to get you to stray from your path. Credit card limits will be loosened, home loans and home equity lines of credit will become easier to obtain. Get-rich-quick schemes will never die. My hope for you—for all of us—is that you will be able to stand tall in your truth and stay committed to the path that will lead you to peace, financial security, and happiness.

LESSON RECAP

• Give a fresh review to all your spending and expenses; learning to live below your means creates the opportunity to fund your long-term dreams.
  
• Make a conscious decision to derive pleasure—yes, pleasure!—from the act of saving. When you value saving as much as spending you are standing in your truth.
  
• An eight-month Life Happens fund is a nonnegotiable necessity if you are to stand in your truth.
  

CLASS

FAMILY

THE TRUTH OF THE MATTER

Family has always been at the heart of the American Dream. We work, we strive for the sake of our family. We want our children to have endless opportunity, to be free to achieve and create and flourish. We want our parents to enjoy good health, to reap the benefits of a lifetime of hard work and sacrifice on our behalf, to live out their golden years free of financial worry.
Sacrifice
—that word was so ingrained in a generation of immigrants who came to America to make a better life, not necessarily one they themselves would realize, but for future generations. That is still true to this very day. No matter the current state of the American Dream, the promise still shines and American shores still beckon: If you work hard, you can improve your life and the lives of your loved ones.

I cherish that promise, as an American and a woman whose grandparents, full of hope, emigrated from Eastern Europe at the turn of the last century. And certainly if you read my books or watch me on TV, you know how important family is in my own life. I’m blessed to have my mother with me, to have a spouse, to be surrounded by siblings and nieces and nephews at holidays, and to be able to enjoy and share the gifts life offers us and the fruits of what we have been able to create with those we love best.

So is this aspect of the American Dream intact? Well, I’d have to say in theory, in our hearts, it is still alive and well. In practice, however, too often we fall prey to good intentions. We sacrifice the wrong things for the right reasons. We put our financial security at risk to make someone we love happy. We put wants before needs because we mistakenly think it’s a way to show our love. For the past two decades so many of us have spent more than we had any right to spend, all in the name of providing for our families. We used credit cards to buy things we couldn’t really afford. We bought bigger, more expensive homes, with bigger, more expensive mortgages, and then we used the equity in those homes to finance everything we couldn’t manage to save for: a vacation, a college education, retirement. The American Dream of more and bigger and better got distorted. And in the process, we lost the truth that one of the greatest gifts we can teach our children and put into practice for ourselves is self-sufficiency.

Sadly, even families that have behaved with more financial responsibility have been buffeted by punishing economic headwinds. A layoff or a stalled career that hasn’t produced a promotion or substantial raise in recent years can mean that your standard of living has not markedly improved for quite some time; it may even feel like it’s getting harder and harder just to make ends meet. And even as you work to regain your financial bearings, you may also find that your grown children and elderly parents need financial assistance now too. Add to that poor returns on your retirement portfolio and a decrease in your home value and you have plenty of cause for worry all around.

No matter what the current state of the American Dream in your family, we have arrived at a point in time that is defined by this one incontestable truth: How your family spends and saves money, and how money flows through the generations of your family, needs to be revisited. For many of you the challenge is to rein in your family’s spending so you can achieve the long-term financial goals you have set for yourself. For others, the task is more complex and far-ranging; it may require a reassessment of your very way of life—an honest reappraisal of your immediate needs and a realistic reworking of your priorities in the decades ahead.

No matter what your starting point, the first step, the first thing I’m going to call on you to do, is the same: Start talking.

The New American Dream is rooted in honesty—and honesty must be a family affair. With honesty as your foundation you can then lay down the framework of how as a family you intend to create and achieve sustainable dreams. The lessons in this class run the gamut, from how parents can instill the right money values in young children to how adult children can help their aging parents live a comfortable and secure life. You never really graduate from the Family Class, as you shall see. It is an ongoing lesson—a practice and a privilege for those of us blessed to share our lives with the ones we love.

A silver lining to emerge from the recent economic crisis is the fact that we are finally getting it. More Americans are paying down their debt; we are, sometimes painfully, facing up to the consequences of rash financial behavior; we are starting to learn what it means to stand in the truth. I am hopeful that on a large scale and individually we are recognizing the virtues and integrity of the generations who came before us, who understood what it meant to save, to sacrifice, to set a goal and work diligently and selflessly to achieve it. I speak to so many of you—at my lectures, in the course of producing my TV show, via email and social networks—and I am encouraged to see that there seems to be a new maturity, a new sobriety taking hold. That is a sea change, the beginning of a paradigm shift, that has occurred in the span of just a few years. With that promise in our hearts, let’s head into the Family Class.

I have organized the Family Class into the following lessons:

• How to Build Honest Family Relations
  
• How to Raise Young Children to Stand in the Truth
  
• How to Create a Financially Honest College Strategy
  
• How to Help Adult Children Facing Financial Challenges
  
• The Conversation Every Adult Child Should Have with His or Her Parents
  
• Advice for Grandparents: How to Build a Lasting Legacy
  

LESSON 1.
HOW TO BUILD HONEST FAMILY RELATIONS

One of the great mysteries to me is how we have convinced ourselves that it is okay to lie to our loved ones.

When your credit card balance is full of purchases you made because your kids asked for something, you are in fact lying to yourself and your kids about what your family can honestly afford.

When you loan your sister money to cover her chronic shortfalls and that money depletes your emergency fund, you are lying to yourself and your sister that you can afford to help her—or that you are in fact helping her by enabling her irresponsible behavior.

When you tell your kids to focus on getting into the best college and not worry about the cost, even though you will have to spend your retirement savings to cover the bills, you are not being honest with them about the sacrifices you are prepared to make. What you are doing, in effect, is mortgaging their future. Who, after all, will you have to lean on in retirement if you haven’t planned well, but your children?

When your parents need financial help and your siblings assume you will take care of anything because you make the most money, and you participate in this disproportionate share of responsibility, you are encouraging a financial codependence that will surely lead to conflict and animosity. That is a shared dishonesty.

Your rationale for behavior of this sort seems so irrefutably pure and right: love. You give, and give, and give out of love. No questions asked. Because that is what family is all about.

I want you to know how sensitive I am to the good intentions behind all these choices. But there is no way to build sustainable dreams on a foundation of financial dishonesty.

OPEN THE LINES OF COMMUNICATION

Having taught you to stand in your truth in the second class, I am now going to ask that you go public with your truth. Bring everyone in your family on board, because we are always stronger and more successful in reaching our goals when we have the support and encouragement of our loved ones. But you must also open the lines of communication and share your financial truths because they will in many cases have a direct impact on your family. How you explain to a ten-year-old child why you will not be sending him to sleepaway camp this year is obviously different than how you express to your adult siblings your desire to change the gift-giving traditions in your family. But both conversations are a must. If you fail to communicate you leave it to those around you to fill in the backstory. That can be especially dangerous with children, who will think it is somehow their fault, or that they are being punished. A lack of communication also creates distance between you and your loved ones. That’s never a good outcome, but it seems especially ill timed when you are embarking on a new stage of your life and could benefit greatly from bringing your family into the process.

TAKE PRIDE IN YOUR HONESTY

I know that many of you think having truthful conversations with your family about your financial situation is embarrassing or painful. You feel so defeated by having to admit what is going on. Please listen to me: You have it all wrong. When you stand in the truth, and you are able to communicate that truth, you should feel proud and triumphant. For when you take the step forward to live your life with honesty you are at your most powerful and your most admirable. It takes strength and resolve to stand in your truth. Your family will love you all the more for your ability to embrace the changes you need to move toward your new realistic dreams.

Now, that said, if there are young children involved, a transition to a more modest lifestyle will no doubt be met with some resistance. That’s to be expected. And you must respect that they need time to absorb and adapt to the shift. But your words, your body language, and your spirit throughout will set the tone for them. Stand in your truth with pride and confidence and you will be parenting in a way that will benefit your children not just next week and next month, but for decades to come. You are imparting the invaluable lesson of living life honestly.

GIVE IT SOME THOUGHT

One of the reasons you find it so hard to act with financial honesty when it comes to your family is that you tend to act in the moment, rather than step back and contemplate before you make a decision. You say yes without ever stopping to think if you can in fact afford to say yes.

That needs to change. For you to build and reach your new dreams you must carefully weigh each and every money decision. This is not simply about what you can afford. Obviously if you do not have money to spare you cannot give it away. But even when you do have the money to share, I am asking you to take the time to think through whether you are helping that person stand in his or her truth.

When you cosign a loan for a child who can’t get a car loan because she has a lousy credit score, are you helping her stand in her truth? When you give a brother $15,000 to get out of credit card debt, is that helping him stand in his truth? I realize your intentions are good, but you need to distinguish between helping and enabling. People who are standing in the truth and need financial assistance deserve your help, if you can in fact afford to give financial help. People who are looking for your money to solve (probably temporarily) a problem of their own creation are not standing in their truth. My advice? Guide them, with love and encouragement, toward personal accountability and financial honesty. Don’t allow your money to do the talking for you; it will send the absolute wrong message.

LESSON 2.
HOW TO RAISE YOUNG CHILDREN TO STAND IN THE TRUTH

One of the saddest aspects of our national borrowing binge of the past few decades is the damage it has done to an entire generation of children. Parents who used credit cards and home equity lines to finance a lifestyle way beyond the family’s means have left their children with no experience, understanding, or appreciation for what it means to live a financially honest life.

I am not interested in assigning blame or provoking feelings of guilt. I raise this important issue in the hope that from this day forward all parents will devote themselves to instilling a strong set of values in their children and teaching them essential money management skills. Survey after survey reports that, in the wake of the financial crisis, parents worry that their children’s future will be limited. That is what we are addressing head-on in this class, so you will not live in a state of anxiety about your children, but you will in fact act to secure their future, right here, right now.

YOUR PRICELESS LEGACY

Children in their teens who are aware of what is going on in our economy—and within their own family’s finances—are less likely to repeat the same mistakes. They can feel the stress and worry and they are way too smart to want the same for themselves. But what makes me truly optimistic about the future of today’s children is the fact that so many of you, their parents, have financial regrets. In “Stand in Your Truth” we talked about changing your inner dialogue from “I wish I hadn’t” to “I am glad that I did.” Well, there is no more important proving ground for that intention than to raise children who from an early age respect the value of money and know how to make smart money choices. Much of this comes down to creating an environment where those lessons are woven into the daily rhythms of your family’s life. Raise a child in a home where money is valued, and that child is likely to be an adult who values money. It is really that simple.