>>PATRICK: Good morning, everybody. Yes.
I want to talk about the backpack today. My guest needs no introduction. New York Time
Best Seller, Emmy Winner, I was just going through and she’s syndicated in 18 different
countries now. Her award-winning show on CNBC and she’s on a crusade to make America save
and do the right thing. People listen to her because obviously her ideas are profound.
They make so much common sense and yet so many people fail at these basic principles
of common sense. It’s a real pleasure to have her to take about 40-45 minutes with you,
answer as many questions as you have, and then finally, she’ll have a book signing opportunity.
So if you–if you want to, obviously you can jump into that opportunity as well. Without
further ado, please welcome warmly, Suze Orman.>>ORMAN: Thank you, Patrick. Oh, thank, good
morning, good afternoon, whatever it is. How are you, Google? So, let’s talk money, yeah?
Let’s talk money. You know, what I find fascinating is that I am sure, look at you all with your
little things in front of you, right? All you little tech heads out there that are changing
the world, you’re spending all your time doing whatever you can to make this company be the
greatest company in the world, which it is. You’ve done a very good job in doing that.
But what have you done for your selves? What have you done for your selves with the money
that you are making? If I were to ask you how many of you have credit card debt, in
fact maybe I should do that. Maybe I should ask you all to stand if you have credit card
debt, car loan debts, student loan debt, mortgage debt, stand. If you do, stand, let’s see,
stand. Uh-huh, you can sit. So here’s the problem. I came to talk to you about money,
but I can’t talk to you about money because you don’t have any. So, let’s start from the
beginning and why maybe you should listen to me rather than anybody else and what we
can do about your financial situation. Now as I look out there, it occurs to me that
a lot of you may be wondering why should we’d be listening to Suze? She’s up there. She’s
seriously rich. What does she know? And by the way, I’m so glad I am. I’m so glad I am.
It’s like, what does she know about my situation? Well, just because I happened to be in California,
I just briefly, briefly want to tell you where I got my start. It was here in California,
Berkeley, California. On the corner of College in Alcatraz in a little restaurant called
the Buttercup Bakery. After spending four years at the University of Illinois, in 1973,
I came out to Berkeley, California where I lived in my van on the streets, on the corner–on
Hearst Avenue there because I did not have the money back in 1973 to be able to afford
a first and last month deposit on an apartment and rent was only $200 a month back then.
So I was living in my van on the streets for three months until I landed my dream job at
the Buttercup Bakery, all right, for $400 a month. Now I wasn’t just a waitress for
$400 a month from 1973 to 1974, oh no, no. I was a waitress making $400 a month from
1973 to 1974 to 1975 to 1976 to 1977, ’78, ’79, ’80 when now I’m essential 29 years of
age. All right, are you doing the math? Are you trying to figure out how I am right now?
I’m about to be 59. Mm-hmm… I look good, don’t I? So anyway, here I am, all those years
being a waitress and I get this idea that I can open up my own restaurant. And all I
need is $20,000 to do so. So I call up my mother. I asked for $20,000. And she says,
“Suze, honey, that’s more money than we have to our name. We can’t give you that kind of
money.” I go into work the next day. A man by the name of Fred Hasbrook comes in. He
said, “What’s wrong, sunshine?” I tell him the story, how I want to open up my own restaurant.
Before I know it, I’d leave there with $50,000 in checks and commitments that all the customers
had gathered together and gave me because Fred went throughout the restaurant that day
and told them how I was upset because I didn’t have enough money to open up my own restaurant
and they backed me. Now, I didn’t know what to do with that money. And so I am told to
take it down to Merrill Lynch in Oakland and open up an account till I can be helped to
open up my own restaurant. I go into the account at Merrill Lynch and, again, to make a very
long story short, all $50,000 was lost within three months. And it was lost because I had
a crooked financial advisor. And I was just listening to what this financial advisor was
telling me. Now, I didn’t know what to do. So, now I thought, “I know, I can be a broker.
They just make you broker.” So, I went and I got a job at Merrill Lynch. They hired me
simply to fill their women’s quota. I walked in with pinstripe pants, red and white, tucked
into my white cowboy boots with a blue silk shirt. I thought that would be a good dress
because that was my fanciest outfit I had and they looked at me and they had never hired
a woman before, this was 1980. And the manager said, “You know, Suze, I’m going to hire you.
I’m going to hire you but I’m here to tell you, you will be out of there in six months
because I personally believe women belong barefoot and pregnant.” His name was Peter
Sansevero. Anyway, so, I’m hired there and as I’m working for Merrill Lynch, I’m reading
the codes, studying to be a financial adviser that what my broker did was illegal. He couldn’t
invest my money in such a way that I could lose it when that money was there to be safe
and sound so I can open up my restaurant. So, I went in to tell Peter that he had to
quit that work for him and Peter said to me, “Suze, that crook makes us a lot of money.
You go down and you sit in your chair and don’t you say anything.” I went and I sat
down in my little cubicle, on my little chair and I thought to myself, “Well, Peter told
me that I would be out of here in six months and this was four months into it. He told
me that I didn’t belong here. Now, I could sit there and I could do nothing but what
happened with Randy who was the Financial Advisor and what he did to me wasn’t right.”
Now, I was young and I had time to make back that money to pay everybody back, but what
if it were your parents, or grandparents, or somebody who didn’t have the time to make
it back. It wasn’t right. So right then and there, I decided to do what was right versus
what was easy and I sued Merrill Lynch while I was working for them. Now, what was great–what
was great about that is because I sued them they couldn’t fire me. They couldn’t fire
me. And two years later, I was their number six producing broker. They had fired Randy.
They gave me back all of my money plus 18% interest because that is what money markets
were paying back then. And here we are everybody, the story begins. So from that, what I took
was that it is always better to do what is right versus doing what is easy. When one
door closes, another door opens up. And if you were going down one road, and you find
you are going in the wrong direction, just remember God permits U-turns. What I found
from that is that it’s important to understand your goal in life and do what you feel really
fulfills you, but what’s equally as important is that every single one of you in this room
is making money. And by evidence, by the fact that you all stood up when I asked you or
almost all of you, “Do you have debt?” What does that say about what you were doing with
the money that you are making? So, you are going to have to make a decision and I hope
you make that decision right here and right now. To start giving to your selves, financially
speaking, as much as you give of your selves. You work for a corporation that is one of
the–if not, the most generous corporation I have ever seen bar none. Now, I’m not just
saying that because I’m standing here at Google. Trust me, if I did not like their benefits
program, I would be saying it right here because I don’t care. I only care about one thing.
I care about you and what you’re doing with your money. My career has been made not by
telling millionaires what to invest in, not by going after those that are really affluent,
but by helping America who doesn’t have a pot to pee in, to create something for themselves
and their family and therefore the world. So, you are my audience. You are the ones
that I care about. Because of you, I am that wealthy woman, got that? So, we have to start
with what do you have here that you’re not taking advantage of? All I can tell you is
that every single one of you in this room have the opportunity to be investing in your
401(k) plan. Your 401(k) plan, as you know, matches dollar for dollar up to $3,000 of
what you put in, 50 cents up to $8,250 of what you put in. I don’t care if you have
credit card debt. I don’t care if you don’t have an emergency fund. I don’t care if you
don’t have any money whatsoever. If you are not taking advantage of your 401(k), you are
making one of the biggest mistakes out there. The most important ingredient in any financial
freedom recipe is time. When you have time on your side, then, you have the ability to
mass incredible amounts of wealth. Let me give you and example. You’re 25 years of age.
You start putting $100 a month away right now into this account. And you do so every
single month until you are 65 years of age. For 40 years with normal market returns when
everything turns back to normal again. Do you know what the age of 65? You would have
$1 million. But let’s say you say to yourself, “It’s fine. I’m still young. I don’t want
to put my money away right now. I want to wait. What difference can it make if I make
until I wait, until I’m 35.” If you wait to your 35, $100 a month, there’s only $1,200
a year. $1,200 a year for 10 years is only $12,000, what difference can it make? Well,
let me tell you, if you start at 35 rather than 25, when you are 65 years of age, you
will have only $300,000. Those 10 years cost you $700,000 and that is at a $100 a month.
Do it at $200 a month, $300 a month and we are talking about serious sums of money, everybody.
Are you with me here? So, if you are not contributing to your 401(k) plan, you are making a serious
mistake. The sooner you begin, the better. However, however, now listen to me closely,
Google, like most corporations, only contribute up to that point of your match that I told
you, the 3,000 or the 8,250. The next question then becomes, after the point of the match,
where Google no longer matches your contribution, what should you be doing? Here is your plan
of action. After the point of the match, if you have credit card debt or you do not have
at least an eight-month emergency fund, you should stop contributing to your 401(k) after
the point of the match and first establish an eight-month emergency fund for yourself.
Why? What have we just gone through, everybody? What have you just seen in the years 2008,
2009, and if you think it’s going to get a whole lot better 2010, 2011 and 2012, I’m
here to tell you I don’t think so. I think you will see that the economy is starting
to recover. We obviously did not go off the deep end. But that came at an incredible price
that came at deficits that are beyond our wildest imagination. And while everybody can
say that these deficits, “It’s all right. They don’t have to be paid back.” You all
stood when I asked you if you had debt. Who is going to pay your debt back for you? Is
a magical entity going to drop down from the skies and say, “Here, I’ll take care of your
mortgage. Here, I’ll take care of your credit card debt. Here, I’ll take care of your student
loan debt.” You are going to have to do it. And what happens to you when you don’t make
those payments? Ring, ring, ring, ring, ring, ring, creditors coming after you, everybody
wanting your money, the credit card company shutting you down, everybody foreclosing on
your homes, everybody taking your cars away from you. You have got to stay responsible.
Do you not to the money that you owe. You are the ones who will have to keep your budgets
in balance. The same is true with the United States Government. And somehow, this is going
to come to play for all of us. The way it’s going to come to play will be in increased
taxes. Everybody has been told that and it’s going to happen. Therefore, how do you, how
do you make a plan so that you can make more out of less money? First plan has to be–listen,
this is a great company. This is a company that I hope continues to expand and we never
experienced layoffs. But it’s not just about this company. What if you get sick? What if
you become ill? What if you can’t work? You need at least an eight-month emergency fund,
eight months of expenses that you know you have to pay if you don’t have a paycheck coming
in so that you will be okay. After the eight-month emergency fund, you now need to start paying
down your credit card debt. Why does Suze Orman wants you to have an emergency fund
before you’re paying off credit card debt? I’ll tell you why. The banks, especially the
large banks, if you happen to have an account with Chase, Citi, Bank of America, you may
love that you’re banking with them. I don’t like those banks. I don’t like those banks
at all, because when it comes to credit cards, even if you have been on time, even if you
have never gone over your credit limits, even if you have an incredible FICO score or a
credit score. Do you know that they have increased your interest rates almost across the board
to 29.99%. They have increased the minimum payments that you’re able to make from two
percent to five percent. And in many cases, when you payoff your credit card debt, they
are shutting down your credit all together. So, here’s the question, you’re being good
citizens, you pay down your credit card debt and now these companies close your credit
cards because they no longer want to give anybody credit. At the same time, you no longer
have a paycheck coming in because maybe you’ve gotten ill or whatever has happened to you.
How are you going to eat? How are you going to function? You don’t have any credit cards
anymore to be able to do cash advances because today the credit industry has changed. So,
here’s my advice to you. If you happen to have a credit card at one of those big banks,
you need to start taking your power back, people. You need to start saying to the financial
institutions in the United States of America that you deserve to be respected. You deserve
to get more out of the money than you are getting. One way you can do that is you should
open up a credit card at a credit union. By law, federally chartered credit unions cannot
charge you more than 18% interest on your credit cards. If you want to find a good credit
union credit card, you should all go to creditcardconnection.org. It is the only legitimate site out there that
if you put in your zip code, up will come the credit unions close to your zip code that
you can join to possibly do a balance transfer to. Many of these other sites that list credit
unions. The credit unions pay to be on those sites. So there’s a lot of hocus pocus behind
those sites. So be very careful as to where you get your information. By the way, as I’m
talking, if you have any questions whatsoever, go up to those microphones and ask them as
I’m speaking, because the truth is good luck finding another Suze Orman that’s going to
stand up there and talk to you that doesn’t want anything from you. I don’t have an account
to sell you. I don’t have, you know, I don’t want you as my clients. I only want you to
be the financially-free people that you deserve to be. So, let’s summarize here. If you have
a credit card at one of those major banks and you’re going to keep it there then you
are far better off having an eight-month emergency fund before you payoff that credit card debt.
If however, you are smart and you do a balance transfer to a good credit union, and not all
credit unions are good, then after the match in your 401(k) then pay down your credit card
debt if it’s at a credit union and then your eight-month emergency fund. If you’re going
to stay at a major bank, eight-month emergency fund then pay down your credit cards. Yes.
>>How do you feel about a home equity line of credit versus that cash cushion of eight-month
emergency?>>ORMAN: Yeah, you have got to be so seriously
careful right now. With a home equity line of credit, I cannot tell you. And the reason
is this. Home equity lines of credit are secured by the equity in your home if you even have
any equity left in your home. The interest rate on your home equity line of credit is
attached to the one or two percent above the prime rate. The prime rate is always three
percent above the fed funds rate. Now currently, the fed funds rate is at zero. So home equity
lines of credit are great. I can tell you there will come a time when the fed funds
rate starts to go from zero to one, to two, to three. We saw that happened a few years
ago. When the fed funds rate was at, like, one percent and all of a sudden it goes up
to five and a half. And now, home equity lines of credit are 9, 10, 11% interest. And that
happened and people freaked. So, I would not, at this point in time, have a home equity
line of credit that I am using. I would’ve want to find another way. If you need money
or whatever, I would rather see you at this point because as of yesterday, the feds have
decided that they are no longer going to be buying mortgage-backed securities. What that
means to all of you is that you are going to probably see interest rates for real estate
increase by about one percent. So, the low interest rates that you have been enjoying
on mortgages, if you are about to buy, you did buy, that’s about to go from five, five
and a half to six. So that will affect home equity lines of credit as well. So, I would
rather see you refinance your house if you have to. Lock in the low interest rates today.
Take the money out, lock in, lock that in, do you see? And then not be subjected if you
need that money, right? Yes.>>Hi. First I want to say, hey, girlfriend.
>>ORMAN: Hey, girlfriend. She obviously watches The Suze Orman Show.
>>I wanted to ask about mortgage. So, my husband and I have a pretty large mortgage.
It kind of makes us nervous. But our Smith Barney advisor and our accountant say, “Don’t
pay down the mortgage because you’re making more on investments. So you should keep the
money there.”>>ORMAN: Stop.
>>That’s why I’m asking.>>ORMAN: Did he make you–in the year 2008,
did he make you money on your investments?>>No.
>>ORMAN: Or did he–like, most people. Now, if he did, then let’s tell every single person
in this room his name, including me, and let’s go open an account with him. But he is a Smith
Barney broker, are you kidding me? Are you kidding me? There is no way that he made you
money unless he had you in cash. And he couldn’t have you in cash because if he had to in cash,
he couldn’t make a living. And he couldn’t pay his mortgage. Do you understand? So, you
have a financial advisor telling you, “Oh no, you could make it far more in the market.”
You’re down 40%.>>Right.
>>ORMAN: Remember, when something goes from 100 to 50, that’s a 50% decline. For something
to go from 50 back to a 100, that’s a 100 increase. So, even though the markets went
up since March about 62% and now it’s pulled back a little, you’re still down. Because
were you continuing to dollar cost average? Were you doing those things? Maybe yes, maybe
no. And I can tell you, he has you in loaded mutual funds. Does he have you on mutual funds?
>>Yeah.>>ORMAN: So–but here’s the bottom line,
you stood up and you said to me your mortgage makes you nervous.
>>Yes.>>ORMAN: It makes you nervous. A good financial
advisor would say, “It makes her nervous.” What’s the goal of money, everybody? It’s
not to make you nervous. It’s so that you can sleep well at night. So, you can be the
powerful people that you’re meant to be, so that you can work here with all the power.
And when your, you know, supervisors or your bosses see that you’re coming to work with
all this power, guess what happens? You get a job promotion. You get a pay raise. If you’re
somebody who’s constantly nervous and you’re freaked out because you don’t have enough
money to pay your bills, do you think your bosses can’t feel that? Of course, they do.
And that keeps you from making the money that you want to make. So I would tell you that,
listen, if you are going to own this home for the rest of your life, are you?
>>Probably for the next 20 years.>>ORMAN: All right. If you want to pay down
your mortgage and you want to get rid of that mortgage payment, you should absolutely do
so. I do not know one wealthy person who has a mortgage on their home. I have five homes
and if I can’t write a check for one, I do not buy it. And I’ve all of these accountants
that say, “But, Suze, you’re not getting the tax rate off.” You spend a dollar to save
30 cents. You’re still spending 70 cents to save that 30 cents. I want to know in my life
that if you all stop buying my books, you all stop watching The Suze Orman Show, you
all stop wanting to even look at my little face anymore, I personally don’t care, people.
I just don’t care, because my life won’t change and that makes me more powerful, which attracts
more people to me. I would think twice. I would think twice about you having this particular
financial advisor as your financial advisor.>>Thanks, Suze.
>>ORMAN: Anytime, girlfriend. Yes, over there.>>Hi, Suze. My question is regarding a property
that I bought four years ago. So, it’s in Washington State and I live here. I’m losing
about $9,000 a year on it. And…>>ORMAN: Is it underwater?
>>Yes.>>ORMAN: So, you owe more money on it than
>>ORMAN: Meaning if you were to sell it, right, you would actually owe the mortgage
company more money than what you could get for it?
>>No.>>ORMAN: Then why are you keeping it?
>>I don’t know.>>ORMAN: Here’s my advice. Get rid of it.
>>But I’m going to–if I get rid of it, I’m going to lose about anywhere between 100 to
140,000 I have a problem with that.>>ORMAN: You right now, all right, are losing
$9,000 a year, right? Do you think that really in 10 years it’s going to come up to the value
of what you think you’re going to lose?>>No.
>>ORMAN: It’s an investment property at this point in time. If you sell it and you could
somehow do it right with tax wise, maybe you have a tax loss there whatever, but is it
really worth it for you to spend $9,000 a year on a property that probably isn’t going
to increase in value for a long, long time. Why is real estate not probably going to go
up? That’s a question you should all be wondering? Listen, everybody. A year ago, real estate
looked like it was doing great. In essence, real estate had stopped going up or stop going
down. A lot of people were buying real estate. Do you know when asked, 50% of the people
who purchased real estate last year, purchased it only to take advantage of the $8,000 tax
credit that the government was offering. That tax credit was supposed to expire November
31st of last year. Why do you think they expanded it till April 30th of this year you have to
be under-contract closed by June 30th? And why do you think they expanded it not only
to that, but they expanded the amount of income you can make so more people could take advantage
of that. Because they knew that the only thing holding up the purchases of these properties
and real estate throughout the United States was the tax credit. Once the tax credit goes
away at the same time we’re no longer backing and buying mortgage-backed securities and
interest rates and real estates start to go up. Do you really think that is an environment
for people to buy real estate and to continue to purchase real estate? The only thing that
makes Google stock go up is what? People are buying it. And they’re buying it because they
see your earnings are good. Everything’s good for the company. They like the management.
They have faith in it. And they’re investing their money in it. And the more money they
invest in it, the more the stock goes up. The same is true with real estate. The reason
real estate prices skyrocket, especially here in California, was that everybody was allowed
to purchase real estate with no money down. They didn’t have to qualify for any loans.
They didn’t have to have any income. Everybody was rushing in to buy real estate, which cause
the prices to go up and then everything collapsed. It’s going to take a long time for these prices
to go anywhere other than flat or possibly down again. So, you just have to decide, right,
what makes financial sense? Wishing, praying, and hoping is not a financial plan. Now on
the other hand, if you can afford the $9,000 and you–and every–you have that $9,000 deficit
and you’ll own the house outright just–let’s say in 15 years. And that, therefore, would
then make up the $150,000 that you put down or whatever, then keep it. And then you’re
even at that point in time. Figure out the numbers and do what the numbers telling you.
And don’t be emotionally involved with it.>>Thanks, girlfriend.
>>ORMAN: Yes.>>Hi, Suze. Thanks for coming to Google.
My question’s about credit cards.>>ORMAN: Yes.
>>I’ve had a bunch of credit cards since college? And they’re all the banks that you
hate, Chase, Citi, et cetera offered me no benefits, there’s no points, there’s no airline
miles, there’s nothing. Interest rate is terrible, so.
>>ORMAN: Yeah.>>I don’t even carry a balance on them. But
I keep hearing from different financial people that says, “You have to keep your credit cards
for 10, 15, 20 years.”>>ORMAN: All right, so let me tell you exactly
how FICO works. Do all of you know what a FICO score is? Does anybody not?
>>I don’t.>>ORMAN: You don’t. All right, that’s–oh
we have one honest person in here. Two. Now we have two honest people. All right, let’s
try this again. Who doesn’t know what a FICO score is, really? Two, three, four, I love
it, great. You see how it is when it comes to money. You know, we’re all such financial
fakers. Right, but here’s a thing, every single one of you, whether you know it or not, if
you have a credit card, you have something known as a FICO score. A FICO score is a 3-digit
number that determines the interest rates that you will pay on credit cards, car loans,
home mortgages in many states not here in California. It also determines what your car
insurance premium is whether an employer will hire you and a landlord will rent to you.
It is like your financial SAT score. The higher your FICO score, the lower your interest rates.
The lower your FICO score, the higher your interest rates. FICO scores run from 300 to
850, anything below 500, you are just seriously FICO’d, got that, okay. From 500 to 850, there
are different ranges. Every single one of you because of the credit crisis, you want
to find yourself in the range of 760 to 850. If you are not in that range, good luck qualifying
for a mortgage. Good luck, doing anything today that has–that’s involved with credit.
What keeps your FICO score up and what brings it down. Thirty-five percent of your FICO
score is made up of your credit utilization ratio, or your debt to credit limit. If you
have five credit cards, each with a $2,000 credit limit on it, even if it’s from Citi,
Chase, Bank, and all those others. And by the way, Wells Fargo, we can add that in there
right now. Sorry everybody. They so hate me, I can’t tell you. But you know what? I personally
again don’t care, right? So, you have five of these credit cards, each with a $2,000
credit limit, that’s $10,000 of a credit limit. If you owe $2,000 in each one of these cards,
you have a $10,000 debt to a $10,000 credit limit, that’s 100% debt to credit limit ratio,
down the tubes will go your FICO score. But as you’re getting smart and you’re paying
off your credit cards, you paid off $2,000 here, $2,000 here, $2,000 here, $2,000 here.
And all you have is one credit card with $2,000 left, you now owe $2,000 to a $10,000 credit
limit, that’s a 20% debt to credit limit ratio. If you could–and that’s good. If you close
down these four credit cards, you now owe $2,000 and a $2,000 credit limit, that’s 100%
debt to credit limit ratio, down goes your FICO score again. Here’s what you need to
do. Your FICO score–and I know this very well because I have a partnership with Fair
Isaac Corporation. So listen to me, do not listen to other people who talk about this.
This is how it works. Your cards, as you have them, start to get divided into cards that
are active and cards that are inactive. The cards that are inactive eventually, even if
you have them and you’re never using them, tend to stop being in the FICO formula. So,
you want to keep those cards active. And the way that you keep them active is maybe every
six months, go out there and charge $5 on each one, pay it off at the end of the month.
Six months later, charge $5 again, pay it off at the end of–you know, when you get
the bill. And that now puts those cards in the active category. Therefore, your credit
limit is huge. Your credit limit to the debt that you may owe on the cards that you really
use then will be better, which improves your FICO score. So, I would keep them if I were
you. Also, like for those of you who have only an American Express card. And you have
an American Express card that does not–it make you, you know, pay it off every month,
but that makes you. Sorry, you have an American Express card that makes you pay it off every
month, that’s known as a charge card. Those are not figured in your FICO score, just so
you know. Oh, really? Aha. All right? So, if you want a better FICO score, you need
credit cards that give you a credit limit and that allow you to pay them off every single,
you know, as you want them. Either every single month if you want, but you can carry your
balance over time unlike American Express that makes you pay it off in full. So just
know, an American Express card does not add to your FICO score if it’s a charge card.
Next, for those of you who maybe really screwed up, maybe you’re really screwed up when you
were younger. Although you can’t be much younger than many of you are, all right. But anyway,
is that if you’ve been behind on payments. And those payments now have gone over 120
days, or you have things that you’ve never paid for, if you think you’re going to help
your FICO score by going back and cleaning up your record, you won’t. Because after 120
days, the longer something that’s on your credit report, the less it affects your FICO
score. It’s already been calculated in your score and they continue to discontinue looking
at it. So if you have a choice of paying off a credit card that you’re 30 days late on
versus a credit card that has not been paid in a year, pay the one off that you’re 30
days late on. Because anything from 120 days or sooner are the ones that are calculated.
Did that make sense? All right. Yes.>>So given that the real estate market is
going down, is this a good time–do you think it is a good time to buy a house right now?
>>ORMAN: Right. This is a good time to buy a piece of real estate if and only if you
get a steal of a deal. And I mean a serious steal of a deal. So that if we’re wrong–and
it does, because I think we bottomed here. But if we’re wrong, and it goes down another
5, 10, 15%, you won’t be underwater. If and only if, you have at least 20% to put down.
If the only way that you can buy a house is to an FHA loan where you’re putting three,
three and a half, four percent down, are you kidding me? They’re going to go bankrupt.
They are out of their minds right now. So, you want to make sure you have at least 20%
to put down and, this is mandatory, not only do you have to be able to afford the mortgage
payment, the property taxes, the insurance, and the maintenance on the house but you want
to make sure that you have that eight-month emergency fund as well. Why? Listen, everybody.
The government has been very lenient on everybody. Currently, if you own a home and it’s your
primary residency, let’s say, you owe $200,000 on it. All right, I get one in California.
But just play with me here for a second, all right? And you could only sell the house for
a $100,000. The banks now will let you sell that house in many cases, not all, for the
$100,000, that’s called a Short Sale. Because when you sell it, you’re $100,000 short of
what you owe to the banks. And they’re fine with that. They called it even. Currently
though, you do not have to pay taxes on the difference between what you sold before and
what you owe to the banks. Starting in 2013, oh, you will owe the banks, taxes–sorry,
you will owe the IRS, taxes on that money. It used to be that way and then a few years
ago because of this crisis, they got rid of it. So if you find yourself where you’ve purchased
a home, you put 20% down and that’s a lot here. That is a lot. You’re paying the mortgage,
something happens to you, now you can’t afford to pay the mortgage anymore. Now, the price
of real estate has gone down, you don’t have an emergency fund to fall back on. Now, you
want to sell the house, you’re going to be stuck paying taxes to the government if you
have to sell that house for less than what you owe. So be very, very careful if you do
it. Listen, everybody. I wish I could say to you. We are so out of trouble. We are so
okay. I think again what you’re going to see is you’re going to see, “All right, 2010,
relatively okay, 2011, maybe okay, 2012, I think we hit right back to where we were.
And 2012-2013, we are in trouble again. Finally, 2014-2015 we’re maybe on solid ground for
the first time.” Just–that’s my own personal opinion. I so hope that I am wrong. I cannot
even tell you. Yes.>>Hi, Suze. It’s a pleasure and an honor
to be here, so thank you so much for coming…>>ORMAN: Thank you.
>>…really appreciate it. Actually, I have two questions.
>>ORMAN: Yes.>>If that’s okay. First one, we have–we
have a mortgage for which the five-year interest rate is being reevaluated right now. And my
husband says, “Not to worry about it.” And we cannot refinance. And I’m actually really
worried about it, so.>>ORMAN: See, here’s the thing. When your
husband says, “Don’t worry your pretty little head about it.” I’m sure you have a husband
who won’t even ask for directions either, will he.
>>That’s right, yeah.>>ORMAN: Right. And so–and then here you
are and you’re sitting in a car, and you know you should turn left and he turns right. And
you don’t say anything.>>I do, yeah.
>>ORMAN: Oh, you do. But, he still doesn’t listen. Here is the key indicator. When you
are worried about something, you need to do something about it.
>>Okay.>>ORMAN: That’s all I can tell you at that
point. And it’s not just. He says, “Don’t worry, I’m worried,” which every spouse is
worried about something. That is the spouse that needs–or life partner. That is the person
that needs to be honored because your worry, or your fear is going to get in between the
two of your sex life.>>Okay.
>>ORMAN: Whatever.>>[INDISTINCT] over there and just express
yourself.>>ORMAN: Does he work here?
>>No, no.>>ORMAN: All right, okay. Okay, you’ll never
know what I’m going to do–but. But I would be worried.
>>Okay. Question number two.>>ORMAN: You only get one, goodbye. Just
one, we have people here, one question is all I’m taking per person. I just want to
say a few more things here. And then, I’ll go back to questions in a second because we
have 15 minutes left. Because I have been told at 12 o’clock, you are out of here. It’s
over, Suze. God forbid they should spend another second of you off the clock, all right. But,
I guess, you all come in here and eat. I think that’s really what happens, but here’s the
thing. Your plan of actions, because I just want to make that we get everybody in this
room. Your plan of action needs to be after credit card is gone for, you know, and 401(k)
plan up to the point of the match, eight-month emergency fund. I am telling you after that
point if you want to buy a home, you need to start saving 20% for a down-payment. After
that point, if you then want to also start funding your retirement accounts besides your
401(k), rather than going back to your 401(k) after the point of the match, if you qualify
for a Roth IRA. A Roth IRA in my opinion is the best way for you to be investing for your
retirement bar none. Does Google offer a Roth 401(k)? All right, I got news for you. You
might want to think about while tax brackets are still relatively low. You would be far
better off contributing in a Roth 401(k). After the point at the match then an individual
Roth. Then a 401(k) where you are getting a tax deduction, and then a traditional IRA.
Let me tell you why. Currently, as I stand here in front of you, we are at the lowest
income tax brackets of your life. Many of you in this room do not remember the time
when tax brackets were 90%. You made a dollar, 90 cents of every dollar you made went to
the government. Then it went to 70%, 70 cents of every dollar you made went to the government.
In the 80s, it was 50 cents of every dollar you made went to the government. Then we went
down to 35%. And now here we are at relatively the lowest tax brackets in your lifetime.
Does it make any sense for you to put money away in a pre-tax account getting a 35% tax
right off today, when in the future, tax brackets for everybody most likely will have to go
up, up, up, and up for you to eventually withdraw that money at possibly the highest tax brackets
of your life. I don’t think it makes any sense to do that. Now, if there comes a time when
tax brackets on you in your particular situations skyrocket and you find that you are in the
50 or 60% tax bracket, then you are far better off putting your money in a regular 401(k)
plan in a traditional IRA, because your tax breaks are so much larger at that time, am
I making sense? But currently, with tax brackets as low as they are, you are far better off
putting your money in a Roth IRA. A Roth IRA where you could withdraw any amount of money
that you originally put in without any taxes or penalties, whatsoever regardless of age.
If you are 35 years of age, and you put $5,000 this year into a Roth, $5,000 next year, $5,000
the year after, you put $15,000 into a Roth IRA. And now, that has grown to $16,000. And
you get in trouble and you need money, you are 38 years of age, you can withdraw anything
up to the original $15,000 that you put in without any taxes or penalties, whatsoever.
That’s a big deal, people. That’s a big deal. It’s only the thousand dollars that you earned
that has got to stay in there for at least 5 years until you’re 59 1/2. After 59 1/2,
you can take all of it out without any taxes or penalties, whatsoever. You have $500,000
in a Roth IRA. You have $500,000 in your 401(k). You need to–for whatever reasons, you want
to withdraw $500,000 from your Roth after the age of 59, $500,000 stays in your pocket.
If you have $500,000 in a 401(k) and for whatever reason, you withdraw it all at once, you will
pay income tax on that, good luck with California and Federal, if you keep $250,000 in your
pocket. Give up little amounts of money today, so that in the future, you take the “what
ifs” out of your life. So, if you’re quality for a Roth RIA. Who qualifies for a Roth IRA?
If you are a single, so you’re not married, you’re not with partner. You’re single, you’re
finally single, you can contribute a full $5,000 to a Roth IRA if you make under a $105,000
a year of adjusted gross income. Once you make over $120,000 a year, you’re no longer
qualified for a Roth. If you are married, finally jointly $166,000, you can put in a
full $5,000. If you’re under 50–$6,000 by the way if you’re 50 or older, once you have–are
at a $176,000, you’re no longer qualified for a Roth IRA, got that? So, if you qualify
something for you to think about. By the way, since I’m talking about it, on your seats
happens to be a gift to all of you where if you want to open up a Roth IRA, I have my
own account at a brokerage firm. It’s not going to cost you anything, it’s a way for
you to be able to invest small amounts of money commissioned-free and get professional
guidance as to what exchange traded funds you should buy in all kinds of things. However
the truth of the matter is if all you’re doing is investing in your 401(k) plan here, you’re
just fine. This is only for people after you’re at the point of the match here, after you’re
out of credit card debt, after you have an eight-month emergency fund, and after you
bought a home. And if you haven’t done all of those, just throw this thing away. Or give
it to somebody who’s in that situation, got that? All right, next question. Oh, Jeff (ph).
Yes?>>JEFF (ph): Hi, Suze. We got a question
that was sent in from our Santa Monica office from Marty Bryant (ph). And Marty (ph) asks,
“I’m 30 and I’ve been very good about contributing to my 401(k) and not wracking up debt, but
I’m scraping by. I own a townhouse that’s underwater and can’t refinance since it’s
an investment property. What advise can you share to get in better financials? My mortgage
is $2,200 and market rent is $1,500.”>>ORMAN: All right. So, what was his name?
>>JEFF (ph): Marty Bryant (ph).>>ORMAN: Marty, we got problems. No, we got
big problems. Because did you noticed how he said it was investment property. If you
are underwater on investment property which means you owe more than what the property
can be sold for, which is this situation. If you sell it, now the government wants their
income tax on the difference because it was an investment piece of property versus a primary
residency. So he is going to owe taxes on that unless he is technically insolvent. So,
it’s just–and if he’s working here, he’s probably isn’t necessary technically insolvent.
Marty (ph) should contact a CPA who really knows what he’s doing in this situation to
see how can they set things up for Marty (ph) to sell it and not get screwed by the IRS?
One other thing that I just want to say because we have six minutes left, so I think, I’m
just going to end without anymore questions. I’m so sorry, right? Is this–every single
one of you in this room, you are living in a State of California. Number one, the State
of California is a community property state. If in fact you are married, you have got to
be out of your mind if you do not own your property or stock portfolios outside of your–you
know, your retirement accounts. If you do not own them in community property, you are
nuts. In a State of California, you can own them community property with right of survivorship,
that’s number one. Number two, every single one of you in this room should not only have
a will, but you should have a Revocable Living Trust. I don’t care how young you are. I don’t
care how much credit card debt you have. Anything can happen at any time. A Living Revocable
Trust is a great way obviously to pass your assets to those who you maybe leaving your
money to. But it does more than just that. If you become incapacitated, you’re in a car
accident, something happens to you. Who’s going to pay your bills for you? Who’s going
to take care of your money for you? If you do not have a Living Revocable Trust with
an incapacity clause in it, I’m here to tell you, you are making one of the biggest mistakes
out there. It’s not what you put in your retirement account. It’s not what Google stock is. It’s
not how much your pay check is. What your piece of property is. It’s what are you doing
to protect yourself, people. Now, there are so many things that I could have talked to
you about. For instance, all of you should only have term insurance. There is no reason
any of you in this room, unless you have some estate tax planning problem, which some of
you may have. But the majority of you don’t. None of you should have whole life universal
or variable life insurance. The only type of life insurance you should have is term
insurance. And you have a great term insurance program, an insurance program here right at
Google. But if you need more than what they offer you here, term insurance is the way
to go. For those of you who want to save for your children’s college education, the best
way to do so is through a 529 savings plan, savingforcollege.com, the site by Joseph Hurley
is the place to go to get that information. So, in a very short period of time, we kind
of gave you a plan of action. Investing your 401(k) plan up to the point of the match.
After the point of the match then either pay down your credit card debt, if you have credit
cards at a credit union, creditcardconnection.org, or if you’re going to stay at these banks,
eight-month emergency fund. After either one, you need an eight-month emergency fund, get
yourself out of debt. Again, 401(k) plan up to the point of the match, 20% savings to
buy a home if that is what you want to do. If not, a Roth IRA fabulous in term life insurance
and all of those things are your plan of action. Do not be afraid for these markets to continue
to go down. You should be hoping that the stock market goes down, down, down. You are
all young, why would you want to be buying Google stock at $600 to share when you could
be buying it at $500, right? The lower it goes, the more shares you buy. The more shares
you buy, the more money that you make. Got it everybody? So do not be afraid. The only
mistake that you will make is if you stop investing month-in and month-out. The only
way to be investing right now is through dollar cost averaging. Now, I only have one minute
left. So, I’m going to end on time. But I had written 10 things for you, because you
know how you have these 10–what are they called? Yeah, 10 things we found to be true
for Google. Now, how you all have that. You all know what those are? Have you memorized
all those, if you haven’t, you are fired. Sergey told me to tell you that, right? So,
I just want to say money is a lot like the ethics and the things that are true in Google.
So, I wrote my own 10 things that I know to be true, according to Google standards when
it comes to money. Number one, focus on people, and money will follow. Number two, it is better
to do nothing than something you do not understand. When it comes to money, if somebody is talking
above your head and you don’t get it, just do nothing. Never talk to yourself and to
trusting anybody when it comes to money, do you hear me people? Trust yourself more than
you trust others. Number three, being rich is better than being poor. Four, democracy
and the deficit, let’s pray it works. Five, you don’t need to be on Wall Street to make
money. Number six, you can make money without doing evil. That one, we are right in sync
with. Number seven, there’s always more money to be made out there. And that is true even
during times like this. Eight, the need for money crosses all borders. Just like your
information does, so does money. Nine, and I have to tell you this is my favorite, you
can be the world’s personal finance expert without ever wearing a suit or being a man.
Yes. And number 10, being wealthy is just not good enough, it is what you do with that
wealth that counts. I hope you found this useful. I hope you watch the Suze Orman Show
every Saturday night on CNBC. And Google, you stay safe. Thank you.