When it comes to personal finance, Suze Orman is a household name. Her pragmatic and no-nonsense approach has helped countless people achieve financial stability. Here are some of her top tips for savvy spending, restructured to offer a comprehensive guide to managing your finances wisely.
Create a Robust Emergency Fund
One of Orman’s cardinal rules is to save an emergency fund equivalent to at least eight months of living expenses. This financial cushion ensures you can weather unexpected life events, such as job loss or medical emergencies, without derailing your finances. This fund can prevent you from resorting to high-interest debt during tough times, providing peace of mind and security.
Opt for Used Cars
Buying a new car might be tempting, but Orman advises purchasing reliable used cars instead. New vehicles depreciate rapidly, losing value the moment they leave the lot. Choosing well-maintained used cars and keeping them for several years can save significantly on transportation costs.
Embrace Preventative Home Maintenance
Address minor home repairs promptly to avoid costly problems in the future. Simple tasks like fixing leaks and maintaining appliances can prevent major expenses down the line. Think of preventative maintenance as an investment in your home’s longevity and your financial health.
Avoid Daily Latte Purchases
Daily expenditures, like buying coffee, can add up over time. Orman suggests that you should redirect those funds into savings or investments instead of spending money on daily lattes. Even small daily savings can grow substantially over time, thanks to the power of compound interest.
Calculate the True Cost of Purchases
Before making a purchase, consider how many hours of work it represents. This perspective can help curb impulse buying and encourage more thoughtful spending. For instance, if you earn $30 per hour and an item costs $180, that’s six hours of your life. This method can make you more mindful of your spending habits.
Choose Debit Over Credit
To avoid the pitfalls of high-interest debt, Orman recommends using a debit card linked to a checking account without overdraft protection. This approach ensures you only spend money you already have, helping you steer clear of accumulating credit card debt.
Don’t Be Afraid to Negotiate
Orman believes everything is negotiable, from interest rates to service bills. Don’t hesitate to ask for discounts or better terms, especially if you have been a loyal customer. Negotiating can lead to significant savings over time.
Ditch Unused Subscriptions
Regularly review your subscriptions and memberships to ensure they are still providing value. Cancel those that aren’t being used. This practice can free up funds for more essential expenses or savings.
Invest in Your Health
Maintaining a healthy lifestyle can save you money on medical bills in the long run. Healthy habits can prevent chronic illnesses and reduce healthcare costs. Orman highlights the importance of investing in health as a financial strategy.
Don’t Sell Stocks in a Panic
During market downturns, it’s crucial to stay calm and continue investing. Orman advises against selling stocks when the market is down. Instead, keep investing consistently, as bad market periods can be excellent opportunities to buy stocks at lower prices, setting you up for long-term gains.
Avoid Blind Faith in Financial Advisors
When selecting a financial advisor, ensure they are a fiduciary, meaning they are legally obligated to act in your best interest. Understand how they are compensated and what services they offer to ensure their advice aligns with your financial goals.
Don’t Rush into Homeownership
While owning a home is often seen as part of the American dream, it’s not always the best financial decision. In expensive cities, renting might be more economical than buying. Consider investing in the stock market instead to grow your savings, potentially providing a down payment for your dream home in the future.
Avoid Expensive Weddings
The average wedding cost is now more than $30,000. Orman advises against splurging on weddings if it means going into debt or neglecting other financial priorities. Spending within your means on such events can ensure long-term financial stability.
Utilize Strategic Couponing
Using coupons can reduce your grocery bills, but Orman warns against buying items just because they are on sale. Focus on using coupons for non-perishable items you regularly need, and plan your meals around these deals to maximize savings.
Maximize Retirement Savings
Ensure you are contributing the maximum amount to your retirement accounts, such as a 401(k) or IRA. Taking full advantage of employer match programs can significantly boost your retirement savings. Early and consistent contributions benefit from compound growth, leading to a more secure retirement.
Prioritize High-Interest Debt
If you have multiple debts, prioritize paying off those with the highest interest rates first. This strategy minimizes the amount of interest you pay over time, helping you become debt-free faster. Orman advises creating a debt repayment plan that focuses on high-interest debt while making minimum payments on lower-interest debts.
Save for Major Purchases
Instead of financing major purchases with credit, save up for them in advance. Whether it’s a new appliance, vacation, or home renovation, paying with cash ensures you avoid interest charges and debt. Plan your purchases and save incrementally to reach your goal without financial strain.
Stay Educated About Finances
Continuously educate yourself about personal finance. Read books, listen to podcasts, and follow reputable financial experts to stay informed. Financial literacy is key to making informed decisions and achieving long-term financial success.
Plan for Healthcare Costs
Healthcare can be a significant expense, especially in retirement. Consider setting up a Health Savings Account (HSA) if you are eligible, as it offers tax advantages for medical expenses. Planning for healthcare costs ensures you are prepared for future medical needs without financial hardship.
Review and Adjust Your Budget
Regularly review your budget to ensure it aligns with your financial goals. Adjust your spending and saving habits as needed to stay on track. A flexible budget helps you adapt to changes in your financial situation while maintaining control over your finances.
Use Windfalls Wisely
When you receive unexpected money, such as a tax refund or bonus, use it wisely. Rather than splurging, consider paying off debt, boosting your emergency fund, or investing it. Strategic use of windfalls can enhance your financial stability and growth.
Automate Savings
Set up automatic transfers to your savings accounts to ensure you consistently save money. Automating savings removes spending temptation and helps you build wealth over time. It’s a simple yet effective way to prioritize saving in your financial plan.
Understand Your Spending Triggers
Identify what triggers your spending, whether stress, boredom, or social pressure. Understanding these triggers can help you develop strategies to manage them, such as finding alternative activities or setting spending limits. Awareness of your spending habits is crucial for maintaining financial discipline.
Seek Out Financial Advice
Don’t hesitate to seek professional financial advice when needed. A financial advisor can provide personalized guidance and help you create a comprehensive financial plan. Ensure you choose an advisor who is a fiduciary to receive advice that is in your best interest.
