We review the best small business and investing books
The 9 Steps To Financial Freedom
Practical and Spiritual Steps So You Can Stop Worrying
By Suze Orman
Suze Orman's The 9 Steps To Financial Freedom is a decent book about personal finance, but we like Making The Most Of Your Money better. Making The Most Of Your Money is more complete in its coverage.
The 9 Steps To Financial Freedom asks us to examine what we learned and internalized about money from our childhood. Orman is popular on the Oprah Show and on Public Television pledge drives. She's a great speaker and makes money a "touchy feelie" personal subject.
For example, we read about Andy's story. As a kid, Andy was sent to buy bread from the bakery. But on his way there he lost the money he had been given. He returned home to face his grandparents and cousins.
Suze writes, "'Where's the bread, Andy?' my mom said, and I had to say I lost the money. The room grew so quiet. Nobody said anything; they were all just looking at me. I didn't get punished or anything. I think everyone knew how bad I felt, and there wasn't anything anyone could do. We had our lunch with the bread basket on the table but without the bread."
Orman says this explains why Andy has difficulty investing aggressively. He doesn't want to be responsible for losing money (Plus, it probably explains why Andy won't go to the bakery). Orman claims that our childhood lessons affect how we view money today. She might be right, but examining our childhoods for money insights seems just a bit too much for us.
We'd rather just have good practical lessons, like Suze's recommendation to buy no-load mutual funds, rather than mutual funds with loads. We also like her recommendation of indexing your mutual fund money to keep management expenses low. However, we also like selecting our own stocks, which Suze doesn't address.
Suze Orman tells her own money story. Her dad had a fried chicken shack which was the family business. It caught on fire one day, and her dad escaped. Realizing he'd left his money behind in the cash register, he ran back into the blazing building and recovered the cash register. When he came out, his arms and hands were burned from the hot register. The young Suze said she learned that money was more important than life, and for many years she became very money focused, becoming a stock broker and, later, a personal financial advisor.
Today, Orman emphasizes that money is only one small part of life. She tells us to separate our personal feelings of worth from financial wealth. In fact, she says we shouldn't be too cheap, as that restricts us most of all. She compares people being tied to their money to parrots who, for fear, cling tightly to their perches. The bigger the parrot, the tighter its talons grab the perch. Only by releasing the perch can the bird discover that it can fly.
Suze goes on to say that "Thoughts of poverty are bonds of poverty." She writes "regardless of how much money you have, it is the natural tendency of the mind to think: I can't give money this month, I don't even have enough to pay the bills. Or, there are so many things that I need, lack, I want. This is the exact moment to give, to give an amount that is meaningful, but realistic. You must break the thoughts of poverty, for thoughts of poverty are bonds of poverty, for thoughts of poverty are the chains that keep you bound to poverty...."
We're not sure how giving money away helps us financially, but we do agree with her other observation that you must respect your money. For if you don't respect your money, who will? Suze points out that respect for our money means eliminating expenses which don't really contribute to our life or happiness. For example, she says avoid IRAs with $25 annual fees. Orman tells us that if we start an IRA at age 25 and hold it until eighty-five, at 8%, the annual fee adds up to $31,330.
The 9 Steps To Financial Freedom tells us the importance of investing early and teaches us a bit about the importance of funding a 401(k) or an IRA. This all stems from the power of financial compounding, and we strongly agree with her advice here. She points out it is not what you earn, but what you keep that matters. And, time is your friend when it comes to saving and investing (you'll get to be a fatter parrot).
Suze Orman also suggests paying off your home mortgage in 15 years rather than 30 years. Further, she tells us the difference between an 8% and a 7.75% interest rate over 15 years amounts to about $7,000. So, if you are confident you can pay the mortgage in 15 years and you plan to do so, she recommends taking out the lower interest rate 15-year mortgage.
This sounds reasonable enough, assuming your retirement accounts are fully funded, and you don't think you can do better just putting the money into stocks or mutual funds. However, we kind of like the flexibility of the 30-year mortgage. But, we agree you should pay it off early, if possible.
Depending upon which state you live in, Orman's advice on the importance of setting up a trust may or may not be useful to you. There is also a good discussion about long-term care insurance, which pays nursing home and other costs. It's something to be aware of and consider.
Overall, The 9 Steps To Financial Freedom is probably worth reading for most people. However, we'd recommend getting a copy from your local library. We don't think Suze will mind our recommendation, as we are just trying to show a little extra respect for our money! Remember, buying one more personal finance book per year at $23 per book over 30 years... well, it adds up!