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Written by Trent Anderson and Seppy Basili, two contributors for various Kaplan guides, Broke!: A College Student’s Guide to Getting By On Less dishes out some common sense approaches to managing your finances in college. The bulk of the book is advice real college students have on topics that affect just about every coed. Credit cards, budgeting, food, traveling, and entertainment are just a sampling of what is covered. I have mixed feelings about Broke!, but my overall impression is a positive one.

But first, let me tackle the negatives:

Because the majority of the text is quotes from college students, you get a mixed bag of advice, some of which contradicts itself. If I were a financially confused college student, this approach would cause me more confusion, not clear up my worries.

The book is quite short and only offers a few quick tips on each topic before moving on to the next. While some things can be summed up quickly, I feel that other points should have been fleshed out more in order to really seem plausible for a college student. For example, when discussing budgets, Anderson and Basili just scratch the surface and kind of throw up their hands when it comes to the details. What if a college student doesn’t have any money left over after he draws up a budget? How does he adjust his budget to make it work? “Well, kid, just figure it out,” seems to be their answer. If they’re taking such a flippant approach to explaining budgets, how do they expect their readers to take budgeting seriously?

And now the positives:

The quotes from college students keep the book light and readable. You get the sense that you’re not the only one going through a money crunch and that you can survive because others have survived before you. That in itself can alleviate some of your worries. Anderson and Basili have advice of their own mixed in, adding some authority to the book, as well as lists of helpful websites at the end of each chapter.

All the topics covered are relevant to college students and are presented in such a way that keeps your attention without taking up all of your time. College students are busy people and the last thing they want to do is spend a nice chunk of their time reading a personal finance book instead of doing their homework or partying. Even though the advice that is given isn’t life altering, it will do in a pinch and offers a helpful nudge in the right direction for students.

Broke! was a bit fluffy for me, but I can still see it’s merit for Anderson and Basili’s target audience. I would recommend this book to college students who don’t have much experience managing their money and haven’t read up on personal finance already. If you’ve previously read PF books and have a good handle on your money (not to mention if you’re post-college), I would choose a book that’s more detailed about specific areas of money management.

Over the course of reading and posting about The Money Book for the Young, Fabulous & Broke, I learned quite a bit about the basics of personal finance and how they affect my life as a 20something. Even though I did not have prior experience with some of the topics (investing, buying a home), I now have the foundation to take on those situations with more confidence. I hope that you have found Suze Orman’s advice has helpful as I did.

Here is a list of all of my posts on the Money Book for YF&B:
Chapter 1: Know the Score
Chapter 2: Career Moves
Chapter 3: Give Yourself Credit
Chapter 4: Making the Grade on Student Debt
Chapter 5: Save Up
Chapter 6: Retirement Rules
Chapter 7: Investing Made Easy
Chapter 8: Big Ticket Purchase: Car
Chapter 9: Big Ticket Purchase: Home
Chapter 10: Love & Money

I would also like to point out that Orman has a section of her website, www.suzeorman.com, dedicated to this book. You will need the code and password found on page 17 to access the information (I don’t feel comfortable posting them here as it might violate some laws or rules, but if you need to, grab a copy from the bookstore or library and jot down the info before putting it back on the shelf). She includes an Action Planner on her site where you enter in information about your finances and she sets up a personalized financial action plan for you in order of urgency. There are also calculators that compute compound interest, how many years you can shave off your debts if you make extra payments, etc as well as helpful links and updated information. Definitely a worthwhile look if you liked Orman’s book.

I think I will take a short break before deciding on and digging into the next book. I’m considering a few titles that are geared toward college students. I might take on a documentary before a book though. I’ll keep you posted. In the meantime, I’m going to finish up the eleventh book in Lemony Snicket’s Series of Unfortunate Events and possibly take on the twelfth. I’ve got to let my brain rest after such serious reading, haha.

This is the tenth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Big Ticket Purchase: Home, covered the basics of buying a home.

Lasting relationships require financial intimacy. The key to this intimacy is not only understanding that the two of you have different financial personalities, but also striving to work together to come up with a shared approach to spending, saving, and investing. This requires complete openness with one another in regards to how much money you make, how much money you have in your accounts, and how much debt you owe.

Orman recommends merging some, but not all of your finances. Your shared living expenses should be paid out of a joint checking account, but be sure to keep your separate checking accounts for your personal expenses. Always keep your own individual credit cards that are only in your name so that you will still have an individual credit history in case something happens and the two of you split up.

When paying your living expenses, the two of you should pay equal shares, not equal dollar amounts:
-Figure out your combined monthly living costs and add 10% (because everyone underestimates)
-Add up your combined monthly take home pay
-Divide your expenses by your combined take home pay to figure out the percentage of expenses you each have to pay 

(Example- $3000 expenses/$4000 combined income= 75%
75% of $1500 [your monthly income]= $1125
75% of $2500 [your partner's monthly income]= $1875)

Pay your bills together every month. Both of you need to be up to speed on your joint income and spending. Once you have paying bills together down, your next natural step is to start saving together. Use the same equal shares method that you use for expenses to create a plan for your savings contributions.

Orman makes the important point that while you do not take on any debt that your spouse amassed before you got married, all of the debt accrued during your marriage is a joint responsibility. It doesn’t matter if only one of your names is on the account, loan, or credit card- you are both responsible for it.

Once you have dependents, you need to get a life insurance policy. Never get a policy before you have dependents, as it will be a waste of money. Orman suggests only buying a term life insurance policy, not a whole life, universal, or variable/cash value policy. Term provides insurance for 5, 15, 20, or 30 years. You choose the term based on how long you expect your dependents will need to rely on you financially. You want a plan that has a guaranteed level premium where your annual cost will not change for the entire policy term. Your dependents will only get money if you die during the term, not after. Orman states that life insurance was never meant to be a permanent need; it’s only meant to be a temporary solution until you build up enough assets to take care of your dependents. A term policy gives you coverage for the amount of time needed and that’s it.

If your partner has no respect for money, they won’t have any respect for you either. Orman suggests talking to your significant other about financial issues, but be careful not to attack them. Figure out areas where change needs to occur and conduct ongoing conversations to encourage and support them while they take on new habits. If your partner truly loves you, it will not be hard for them to make financial changes.

Jake and I have had countless conversations regarding his spending and saving habits, as well as my own. It was been an uphill battle, but he has made significant changes over the years because he knows how important it is to our relationship to get our finances in order. We’re still not on the same page all of the time, but it feels like we’re at least in the same book now! Jake and I share an ING checking account for our utility bills and a HSBC savings account. I’m thinking about having us use the checking account to merge our grocery spending as well. I have to admit, we split our bills 50/50 instead of by a percentage, as Orman recommends. I think we may have to change this soon though as I make significantly less than Jake does and boy, do I feel it when it comes time to pay the bills.

The next and last installment of my Money Book for YF&B review will be a wrap up of all of my installments.

This is the ninth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Big Ticket Purchase: Car, covered money saving strategies for buying a car.

Please note: I’m not sure if all of the information in this chapter is still relevant since Orman’s book was written in 2005 and the real estate market has undergone some major changes since then. Take the following with a grain of salt. 

A home is the best big ticket purchase you will ever make. Orman affirms that mortgage debt is good debt, just like student loans. You need to understand mortgages, how to get the best deal, and real estate booby traps before you even start looking at any houses in order to ensure that your home buying is a financially smart move.

Right off the bat, Orman urges you to make sure your credit score is as high as possible. Pay off as much credit card debt as you can before applying for mortgages so you can get the best interest rate.

You need cash for not only your down payment (typically 3-20% of the home’s selling price), but for private mortgage insurance (PMI) and closing costs as well. A 20% down payment makes lenders happiest. When your down payment is less than 20%, your lender will make you pay PMI, which is basically insurance lenders take out to ensure that they’ll get their money if you wind up defaulting on your mortgage. Closing costs are typically 2-3% of the price of your mortgage.

Mortgages are set up for a finite period of time called a term. You are required to pay back your entire mortgage by the end of the term. Mortgage terms are usually 15, 20, or 30 years. You can save a lot in interest by going with a 15 year term, but your monthly payments will be significantly higher. Orman points out that paying off your loan faster only makes sense if you expect to live in the house for a long time. Don’t rush to pay off your mortgage if you are only going to buy another house in a few years. Your mortgage’s amortization schedule shows you how much your monthly payment goes towards paying off your principal and how much goes towards interest. In the early years of your mortgage, the vast majority of your payments goes towards interest so that lenders can collect their profit early on in the term.

There are several different kinds of mortgage interest rates:
Fixed- the rate will never change
Adjustable rate mortgage (ARM)- the initial rate is lower than a fixed rate, but can change once a year, up to a maximum change of 2 percentage points each time
Hybrid- the rate is fixed for 3, 5, 7, or 10 years, then converts to an ARM. The initial rate is lower than a 30 year fixed rate, but is more than an ARM. Orman points out that a hybrid is great for 20somethings since you will likely only stay in your home for 5-7 years.

Orman recommends getting a mortgage broker when you start searching for the best mortgage deal. They can get a lower interest rate than you could get by yourself with a bank loan officer. Ask the broker for a prequalification. A prequalification is a professional assessment of how big of a mortgage you can get based on your income, credit score, and debt to income ratio. Your monthly mortgage payment shouldn’t be more than 28% of your gross monthly income and the total of all your monthly debt payments should be less than 36% of your gross monthly income.

Another person Orman recommends you have when house hunting is a real estate agent. They will be making 6% commission on whatever you wind up buying, so they obviously want you to pay more. Set your own budget and don’t let others tell you you can afford a bigger house. To get an idea of the true monthly cost of home ownership, add 40% to your mortgage payment to account for property taxes, home owner’s insurance, repairs, etc. While you will get a tax break on the interest you pay on your mortgage (mortgage interest deduction), do not rely on that break to make it affordable to own a home.

Don’t know if you can afford to own a home? Orman offers up a “play house test” so you can better gauge where you stand:
-Figure out the cost of homes in your area and estimate what the monthly mortgage payment would be
-Add 40%
-Subtract your current monthly rent
-Deposit the difference into your bank account for six months
If you can “pay” on time and in full every month, you’re in good shape to buy a house. By doing this exercise, you will also have added significantly to your down payment fund. It’s a win-win.

When house hunting, Orman recommends the following:
-Do not look at houses above your target purchase price
-Stay rational when you fall in love with a house
-Figure out what kind of housing market you’ll be shopping in before you actually shop. If homes are selling faster in your area and for more than the asking price, you’re in a seller’s market. If homes are selling slower and for less than the asking price, you’re in a buyer’s market.

Once you’ve found a home you’re interested in, ask the following questions:
-How much have similar homes sold for recently? -How long has the house been on the market?
-When did the seller buy the house?
-Has the seller already bought a new home?
-Has the seller been relocated by his/her employer?
-Is it an estate sale?

When it comes to bidding on a home that you want to buy, do not get into a bidding war. Use the answers to the above questions as a guide to figuring out what your bid should be. Have in mind a set amount of how high you will go. If the price goes beyond that figure, walk away. Orman suggests looking for less expensive houses so that you will have more room to bid.

When you make a bid, hire a professional home inspector to conduct a thorough check up of the house. If you find any problems, you can either walk away or negotiate with the seller to get the cost of the repairs deducted from the sales price. You should definitely go along on the home inspection. The inspector can point out areas that pass, but will need repair soon, giving you the opportunity to do some preventive maintenance in the near future instead of emergency repairs down the road.

Once your bid is accepted, the closing date will be negotiated with the seller and lender. You will need to pay the closing costs and provide proof of home owner’s insurance at this time. Before closing, arrange a final walk-through with your real estate agent and make sure everything checks out.

As far as home owner’s insurance goes, Orman cautions to not rely on your lender to tell you how much to insure the house for. You will need coverage for the house itself and everything inside of it. Only go for a policy that offers replacement cost coverage. Replacement cost coverage reimburses you the full amount of how much it will cost to replace a damaged item that is covered in our policy. By comparison, actual cash value coverage only reimburses you the depreciated value of items. Save money by paying the premium in full every year. If you break up your payments, service charges are added.

One last bit of Orman wisdom: if you pay just one extra mortgage payment a year towards your principal, it will take years off of your mortgage. You can split up the extra payment so that you only pay a little extra every month. Just make sure there is no prepay penalty on your mortgage.

Jake and I don’t own a home and we are not planning to for a long time. We definitely do not have the money to do so and we are unsure as to where exactly we’re going to settle down. While the falling price of homes is tempting, renting is definitely the way to go for us right now.

Next up for my Money Book for YF&B review is relationships.

This is the eighth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Investing Made Easy, covered investment basics.

Buying a car is the worst investment you could possibly make. Orman recommends you don’t even consider it to be an investment as it is a depreciating asset and will only lose value over time.

When considering getting a car, you have the option of leasing or buying. When you lease a car, you essentially borrow a brand new car for three years, then at the end of those three years, you’re faced with 3 options:
-Buy the car at a prenegotiated price (which is usually higher than the actual value)
-Walk away and look into buying another car
-Lease another car (most people choose this option)

Leasing car after car causes you to always have to cough up the money for a monthly payment. Break this cycle, or don’t even start it, by taking out a loan to buy a car instead. When you pay off your loan, you will own the car outright. No more payments to make. An even better idea is to keep the car longer and don’t go out and buy another one as soon as you pay off your loan. This way, you won’t have any payments to make for a good couple of years.

As far as loans go, the car dealer won’t necessarily give you the best deal on a car loan. Research and know your options before going to the dealership.

Orman is adamant about saying no to new cars (they lose 20% of their value the minute they get driven off the lot!), and instead going for certified preowned cars. Certified preowned are younger cars with limited mileage and are backed with a manufacturer warranty. If you’re leery about buying used, take these suggestions from Orman to feel better about it:
-Have an independent mechanic inspect the used car (this will run about $100)
-Ask for the car’s inspection history (if they say no, this is a huge red flag)
-Run the VIN through a national database like carfax.com to get a report of the car’s history (this will run around $20)
-Read the certified preowned warranty to see what is and isn’t covered

If you absolutely want a new car, you better learn how to negotiate. “The more confused you are, the better chance the auto salesperson has at making a fat profit off of you.” Be aware of the difference between the MSRP and the invoice price (the price the dealer paid for the car), both of which are listed on the sticker in the window. The invoice price can be even lower than what is listed if the dealer got the car with manufacturer incentives. Carsdirect.com and edmunds.com provide information on dealer incentives. Do not talk financing options with the salesperson until after you agreed on a price and ask for the out the door price- the dealer will know you don’t want to be surprised with any hidden fees or costs. Compare the financing options that they offer you with what you already researched and decide how to proceed according to which one’s the better deal.

When it comes to car insurance, do not go for the cheapest policy if you’re not adequately covered. Orman offers up some ways to reduce your premium:
-The higher your credit score is, the better insurance rate you’ll have
-Check that your record with the DMV is in good shape. Look for any errors and make sure that any points that were supposed to be taken off your record were actually removed.
-Opt for a high deductible. Your deductible is what you agree to pay out of pocket for any repairs that need to be made from accidents before your insurance kicks in and covers the rest. If you have a low deductible ($250 or $500), your insurer will wind up charging you more or canceling your policy if you make a lot of claims. Raise your deductible to $1,000. Use your emergency cash fund or credit card to cover the deductible if you need to make a claim and can’t pay the $1,000.
-Drop your collision coverage if you have an old car. If the book value of your car (check Kelley Blue Book’s website at kbb.com) is only a few thousand dollars and you have to pay a thousand dollars before your coverage kicks in (not to mention spending hundreds of dollars a year for the coverage), it doesn’t make sense to have collision coverage.
-Get a car that isn’t popular with auto thieves. Check the Insurance Institute for Highway Safety’s website at iihs.org to see how your car or perspective car ranks.

If you’re given the choice between $3,000 cash back or 0% financing on a car loan, go for the cash back if the car costs less than $20,000. If the car is more than $20,000, go for the 0% financing.

I got my current car used from Carmax this past summer. I absolutely love my Volkswagen Golf and am so happy that I snatched it up when I did. My grandmother graciously lent me the vast majority of the money needed to pay for it since I couldn’t afford to get a car loan. I am slowly paying her back and am extremely grateful that I do not have to worry about interest rates and due dates for my car payments. I plan on looking over my insurance to see if I can save any money by raising my deductible. Jake bought his car new a little over two years ago and has been dililgently paying back his car loan ever since. His Scion better last him a good while to make up for the fact that he bought it new. I plan on asking him to go over his insurance policy to see what his current deductible is. Cars are a necessary evil for us right now. I hope, one day, we’ll be able to get by with only one vehicle or maybe none at all if we’re really lucky.

Next up for my Money Book for YF&B review is how to get the best deal when buying a house.

This is the seventh installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Retirement Rules, covered the basics of 401(k)s and Roth IRAs.

“You will never truly be powerful in life until you are powerful with your own money” (page 220). What better way to be powerful with your money than to learn how to invest it! Orman is adamant about the fact that, in most cases, you don’t need a financial adviser to invest. Besides, most advisers get paid by commission so they have a selfish motive behind pitching certain plans and options. Let’s buckle down and become acquainted with the basics of investing.

First of all, Orman reminds us that saving is for short term goals while investing is for long term goals. You can’t risk the possible loss of value if you put your money in investments for short term goals. You won’t have time for the value to rebound before you need to withdraw your money. Investments are perfect for funding your retirement accounts; however, since you can let the money ride out the peaks and valleys and be in great shape when you finally need the money in 40 years.

Your options for funding your 401(k) and Roth IRA include mutual funds, stocks, and bonds. Mutual funds are premade packages of diverse stocks. Stocks are shares of a company. You usually only have the option to choose stocks of your own company for a 401(k), but you can choose any stocks for a Roth if it’s set up with a brokerage firm. Bondsare essentially loans you give to corporations or the government. They agree to pay you interest on your money until the bond matures and the principal is returned to you. Bonds are one of the most conservative investing choices available. Orman recommends waiting until you’re much closer to retirement to contribute any money towards them since bond returns aren’t very high. The key to investing is diversifying your money so that you’re taking the least amount of risk. Orman loves and highly recommends mutual funds for this reason.

There are different kinds of mutual funds:
Growth funds: earnings/profits are fast growing
Value funds: the share price is lower than the true value. Investors are waiting for the value to be recognized so they can increase their earnings.
Blend funds: both growth and value stocks are in the same fund
Small cap funds: smaller company stocks where big gains are possible
Mid cap funds: middle sized, faster growing companies that are more stable
Large cap funds: big, established companies that are the least risky
Actively managed funds: a money manager figures out the best investments for the fund
Unmanaged funds: also known as index funds, there is no manager, but instead investments are based on the existing market index (the market index is a number of stocks that represent a slice of the market, such as the Dow Jones)

Unmanaged or index funds have consistently outperformed actively managed funds. A big reason for this is that they have less fees, offering a larger net return for the investor. Orman believes that index funds are the best bet for 20somethings as they are simple and well diversified.

A few things to look for in a fund:
Expense ratio: the annual fees to cover the operating costs. Look for a low ratio in order to get the best returns. The average ratio for an actively managed fund is much higher than an index fund.
Long term performance of fund: how well it has done over the past 3, 5, or 10 years
Fund category: how the fund rates compared to its peers (large cap value, small cap growth, etc.)
Load: the sales commission used to pay the financial adviser. Orman urges never to buy a mutual fund with a load. To find out if a fund is loaded, call up the fund’s customer service and ask.

If you’re confused about which options are available within your 401(k), give HR a call. That’s what they are there for.

Orman explains that consistently contributing small amounts to a fund over time is key to investing success due to the wonders of dollar cost averaging. The price of funds changes over time: when a fund price is lower per share, you buy more funds with the money you contribute; when a fund price is higher per share, you buy less funds with the money you contribute. Buying more shares at a lower cost with steady, small amounts is better than putting all of your money into the market in a one time lump sum because you are taking advantaging of dollar cost averaging, allowing you to buy more shares in the long run. More shares mean higher profits when the price per share rebounds.

Orman offers one last piece of advice: the easiest one stop shopping for funds is a total stock market index fund. It’s the simplest and most diversified option available.

I have absolutely zero experience with investing as I’m yet to have a 401(k) or Roth. One day, and hopefully soon, I will be able to get some experience with mutual funds. I’m planning on sitting down with Jake to see about changing his 401(k) to better match what Orman recommends. Right now, he has a cookie cutter plan that isn’t offering the best returns. I’m really glad that I read this chapter as I knew very little about investing. Now I’m ready to jump in with both feet whenever I can get my hands on a retirement plan.

Next up for my Money Book for YF&B review is how to get the best deal when buying a car.

This is the sixth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Save Up, covered ways you can save money.

The whole reason behind Orman writing chapter 6, “Retirement Rules,” is that 20somethings cannot safely rely on social security to take care of us when we retire. There is very little chance that the system will still be running when we reach that point in our lives and, even if it is, the amount we will get from it will not be enough to live off of. In short, we must fund our own retirement. Luckily, we have the power of compound interest on our side because of the sheer amount of time we have until we retire.

There are two basic flavors of retirement accounts: 401(k)s and Roth IRAs.

Here’s a nice trivia fact: the name 401(k) comes from the part of the federal tax code that deals with these plans. The contributions you make into your account are taken out of your paycheck and invested into mutual funds, stocks, and or bonds. There are limits to the amount of money you can put into your 401(k) every year. For 2008, the federally imposed limit is $15,500, but your employer could have a lower limit. Give HR a call and check it out.

The neat thing about 401(k)s is that your employer probably offers a company match where they match a certain percentage of your contributions up to a specific amount. This is free money! Do not pass up this opportunity! Any plan where you get a company match is top priority. Orman is very clear on this point: you must enroll and invest enough in your 401(k) to get the maximum company match each and every year.

There is such a thing as a vesting schedule that applies to your company match (not your contributions). Each year, a little more of the company match becomes yours- typically 20-25% a year until it is all yours- in order to ensure that your employer is not wasting their money on an employee who won’t be sticking around with the company for very long. Therefore, skip contributing to a 401(k) if you are not planning on staying long enough with the company to collect the match.

The money put into your 401(k) is taken out of your paycheck pretax. Another term for this is tax deferred. You pay the taxes when you take the money out of your account when you are at least 59 1/2. The amount you pay in taxes is based on your income tax bracket at the time you withdraw the money. If you make a withdrawal before you turn 59 1/2, you not only owe tax, but must also pay a 10% early withdrawal penalty.

Unlike a 401(k), a Roth IRA is completely separate from any employer. You must set up an account yourself. In a Roth IRA, the money you put in has already been taxed and will not be taxed again when you take it out (unless your account is less that 5 years old or you’re under 59 1/2 when you withdraw your earnings). Orman highly recommends concentrating on a Roth if you can’t get a company match or if you’ve already gotten the maximum company match.

Orman is absolutely wild about Roth IRAs because, when you make withdrawals in 40 years, your tax rate will be higher since you will more than likely be making more money than you do right now. So it makes much more sense to be taxed now with a Roth IRA then later with a 401(k).

Just like a 401(k), the money you contribute to a Roth is invested in mutual funds, stocks, and or bonds and there is a limit to the amount you can contribute to your Roth IRA every year. For 2008, it’s $5,000. You must also make less than $101,000 if single or $159,000 if married. You can withdraw your contributions anytime without penalty or taxes from a Roth, but your earnings can only be taken out tax- and penalty-free once you hit 59 1/2. In this way, a Roth can double as an emergency cash fund. Orman recommends opening up a Roth account with either a discount brokerage or a no load mutual fund company because of their lower fees.

Another advantage to having a Roth IRA is that you can withdraw your earnings penalty-free, up to $10,000, to use for the down payment on your first house. Again, your account must be more than 5 years old in order to cash in the waived taxes and fees. For a 401(k), you can also use your earnings for a down payment, but you must pay the taxes even though the 10% fee will be waived. 

Since I don’t have a full time job, I do not have any sort of 401(k) account. I would absolutely love to have a Roth IRA and plan to open up an account once I can afford to set aside the minimum balance and monthly transfer requirements, not to mention any fees I’ll need to pay on the account. Once I do get a full time job, I plan on maxing out the company match. Jake has a 401(k) through his employer, but they do not offer a match, instead they just give a plain percentage regardless of if you personally contribute any money or not. He’s currently contributing 3%, but I’m hoping that he’ll be able to set up a Roth soon and contribute that money to the Roth instead.

Next up for my Money Book for YF&B review is investing principles.

This is the fifth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Making the Grade on Student Debt, covered paying back student loans.

One of the strongest statements Orman makes in her fifth chapter, “Save Up” is the following: “Success is not solely about making more money. It is about knowing where the money you make is going.” But Orman doesn’t go the traditional budget route, she instead suggests some reasonable changes her readers can make in order to free up some cash to deposit into an emergency savings fund, build up a Roth IRA, or pay off debts. Here are her suggestions:

Stop getting an income tax refund. It’s great to get a big, fat refund back every year, except for the fact that the government was holding that money for a whole year interest free! Change your withholding so less money is taken out of your paycheck, thus increasing your take home pay. The key here is not to have so little taken out that you owe money. Find the right balance by calling up your human resources department.

Do not have a life insurance plan if you don’t have any dependents.

Raise your car insurance deductible, thus lowering your annual premium. If you go for a low deductible and make multiple claims, your insurer will raise your premium anyway or outright cancel your policy. If need be, Orman recommends charging any deductibles on a low interest credit card.

Get rid of your land line if you have a cell phone.

Take a gander at your bank statements. Look for any errors, ATM fees, or bounced checks. Switch banks if there are too many fees.

Balance your checkbook. Do not guesstimate about having enough money for the checks your write or the withdrawals you make. Know that you have the money, everytime.

Check your credit card statements for errors. If anything doesn’t look right, give your credit card company and or the business you patronized a call and get the scoop.

The following are small changes that affect your lifestyle more, but are still completely doable:

-Wait an extra week or two to get your next haircut/manicure
-Use the dry cleaner less often
-Drink more economically- go for a glass of beer or wine instead of the $10 martinis. You can also change to a different bar that offers cheaper drinks.
-Pack lunches at least a few times a week
-Use public transportation if you live in a metropolitan area
-Cut down on expensive sport equipment by buying used or off season
-Go out to the movies less
-Get a roommate to help pay for rent and utilities
-Don’t live in a trendy neighborhood where rent is sky high
-Keep your car for a couple of extra years instead of getting a new one as soon as you pay off your current car

Orman recommends paying off your credit card before focusing on saving if the interest rate on your credit card is more than the interest rate on your savings account.

Be sure to either set up an emergency savings fund that will cover six to eight months of expenses or to have a credit card with a credit limit that will cover the same (if you’re too strapped for the emergency fund).

When debating over contributing to your 401(k) or your savings account, Orman says go for the 401(k) before the savings account if your company matches your contributions.

One last bit of wisdom Orman shares: savings is for short term goals (up to about 5 years), investing is for long term savings goals (beyond 5 years). Sock your money away accordingly.

I already do a good many of Orman’s savings suggestions, plus a bunch of my own. After reading this chapter, I plan on looking into my tax withholding to see if I can find the right balance so Uncle Sam isn’t holding so much of my money and changing my car insurance deductibles so my rate isn’t as high. I also want to go over these points with Jake to see if there’s anything that he’s willing to change in order to save some money- fingers crossed! 

Next up for my Money Book for YF&B review is planning for retirement.

This is the fourth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Give Yourself Credit, covered credit cards.

Despite the money and time involved in seeking a higher education, Orman affirms that education is an amazing investment in the long run. The increase in lifetime earnings you’ll make because of your degree(s) will go above and beyond the amount of student loan debt you carried or the price you paid upfront to go to school.

Stafford loans are the focus of chapter four, “Making the Grade on Student Debt.” Orman’s first piece of advice is to read up on the different repayment options that are available to you. Lenders will work with you to find a repayment plan that fits your needs and income. The very last thing you want to do is avoid paying the loans back. Even bankruptcy will not grant you loan forgiveness on student loans. The lenders will eventually catch up with you and you will wind up paying even more in interest than you would have if you had started to pay your loans back on time.

If you have no idea which loans you took out or need a clear record of how much you will owe, the National Student Clearinghouse is the first place you want to go. Also try the National Student Loan Data System.

It is possible to delay paying your loans if you apply for a deferment or forbearance. A disability, joining Teach for America, joining the Peace Corps, unemployment, or going back to school will grant you a deferment and you will not have to pay on your loans or the interest during that time period. A forbearance is easier to get than a deferment, but you must pay interest during your granted time.

The interest rate you pay on your student loans changes every July 1st; however, if you apply for a student loan consolidation (in which all of your loans get balled into one larger loan with one lender), your rate will remain the same year after year. Orman highly recommends consolidating in order to lock in a low interest rateif the interest rates are expected to rise. Be warned- you will no longer be eligible for a deferment or forbearance once you consolidate your loans (I’ve find some conflicting evidence on this point- perhaps it depends on your individual lender. Also, Orman’s book is a few years old, so maybe the policies have changed since then).

Many lenders offer lower interest rates if you set up automatic payments and or you consecutively pay your loans back on time. If you do get these nice breaks, you will pay the same monthly amount as before, but you will be paying more back on the principal and, therefore, cutting down the life of the loan. The government also overs a tax deduction, up to $2500, for interest paid on student loans.

I know all too well about student loan debt. I have over $20,000 in loans with Sallie Mae (Jake has about $5,000). I consolidated some of my loans while I was still in school (back when you were allowed to consolidate when you were still an active student; this is no longer) because the interest rates were expected to skyrocket. I did forfeit my grace period, but I think it was a good trade off. Two of my loans (the biggest ones) are at 4.875% and the rest are at 6.8%. If the interest rates drop back down to 4.xx%, I will probably reconsolidate to save a good amount on interest. My payments are a bit steep, but I’m plugging along. I’m considering changing my payment plan to reduce my monthly payments, but I know that if I do that, I will only wind up paying more interest in the long run. Sallie Mae does offer an interest rate reduction if you pay every payment on time for 2 or 3 years, so I’m slowly working towards that rate cut. I’m also a member of Upromise. I earn money towards my student loans by going out to eat, buying certain items at grocery and drug stores, and shopping online. Even though I don’t get huge amounts back (since I don’t spend crazy amounts of money), I really enjoy the program and highly recommend it. 

Next up for my Money Book for YF&B review is how to save money.

This is the third installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Career Moves, discussed the importance of following your passion in life.

Orman is a big proponent of using credit cards as a financial Band Aid for when you’re busy focusing on building a career and not your savings account. She wants you to gain as much experience as possible without fretting about paying your bills. For that reason, she considers smart credit card usage to be a ”ticket to living out your career dreams.”

Before she goes hog wild on encouraging her young readers to use their credit cards as financial crutches, Orman stresses the need for responsible spending. The credit cards are for necessities only- bills that cannot be paid for with your paychecks. Use the 3 second rule if you’re not sure if your purchase is a real need or a simple want. A good thing to keep in mind when you’re whipping out the plastic is that, if you charge it, you will wind up paying double or triple the original cost of the item because of interest.

If you’re going to be using your credit cards, be sure you know the following things about them. If you don’t, give your credit card company a ring and ask!:

What is your rate? You want to pay the lowest interest rate possible. If it’s not as low as it could be, ask for a rate decrease. If they don’t budge, transfer your balance to a card with a better rate.

What fees are you being charged? If they can be avoided, then don’t continue to do what is causing the fees to pop up. If they are unfair or unavoidable, ask your card company if they will wave them. If not, see about getting another card with less fees.

What is your grace period? If you have a grace period, that is. It’s usually between the statement end date and the due date.

What is your billing cycle? Does your company calculate interest according to the average daily balance or a two cycle average daily balance? If they do the later, you pay interest on the balance of the two previous statements, not just the most recent. Get a new card that uses an average daily balance if your current card has a two cycle average daily balance.

Are you paying an annual fee? If so, get a new card that doesn’t hit you with this ridiculous fee. 

Two other important things Orman points out:

Always look for mistakes on your statements. Make sure you weren’t double charged for purchases and all of your credits have gone through.

Even if it’s only the minimum payment, pay every card you have on time. Any of your credit card companies can raise your interest rate if you’re late on any of your cards.

If you need to build up your credit and can’t get a regular credit card, get a secured credit card. A secured card works much like a debit card in that you are tapping a set amount of money that you already have, but your activity is reported to the credit agencies. Orman also suggests getting a retail card, since they are easier to get, but only get one if you need to work on building your credit. The high interest rates on retail cards are killer.

If your focus is on paying off your credit card debt, Orman recommends a debt snowball approach. A debt snowball is when you pay the minimum balance on all your cards, but pay a little extra on the card that has the highest interest rate. Continue to pay the same overall amount on your cards as the cards get paid off one by one.

I currently only have one credit card through my primary bank, Bank of America. I have a zero balance ,  but I’m considering using my card more to take advantage of the rewards program. I’m not planning on getting any more cards in the near future because I don’t really trust myself enough to juggle more than one credit card right now. Jake has multiple cards and after carrying balances for years, he has had them all paid off in full for quite awhile now. Hopefully he won’t fall back into the charging habit anytime soon!

Next up in my Money Book for YF&B review is student loans.