F I S C A L LY F I T!

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1 Pres ents... T H E O P R A H M A G A Z I N E F I S C A L LY F I T! Financial Advice and Money-saving Tips from Suze Orman

2 The Ultimate Workout for a Healthy Financial Future Are you ready to whip your finances in shape, shed unwanted debt, and boost your earnings potential to new heights? Now, it s simpler than ever with great ideas from Suze Orman. In this brochure, you ll get some of Suze s best advice as published in O, The Oprah Magazine. Get ready to learn the easiest and fastest ways to: Mesh love and money. Discover 4 burning questions everyone should ask before lending a penny to loved ones. Live well in retirement. This 5-step, easy-to-do action plan lets you enjoy life without worry. Whip your spending into tip-top shape. A surprising technique curbs unnecessary purchases and keeps money in your pocket. And much more! So let s get started

3 How to Mesh Love & Money Q: My parents, both retired, loaned a friend $60,000 six years ago to start a business. They all signed a promissory note, which was never notarized, stating that the loan would be paid back within 90 days, plus interest. Well, my parents never saw a cent. This woman comes up with story after story about when she s going to return the money. Last year my mother was diagnosed with smallcell carcinoma and underwent chemotherapy and radiation. My father explained their situation in hopes that their former friend would make a greater effort to repay them, but no luck. A lawyer said all they can do is put a lien on her house; they will get paid if she sells it (minus the lawyer s 33 percent, of course). Are there any other options? Suze: As your parents have so painfully discovered, lending money often leads to a loss of both the cash and the friendship. That s why I advise people to give only to friends in need. Notice said give, not loan. Then you have no expectation of being repaid, which implies two things: You re offering what you can afford to let go of, and you have no reason for resentment.

4 At this point, your parents best hope is to put the lien on the house. Then if she tries to refinance or sell, they have a shot at getting their money. Their lawyer should go to court right away to get a judgment in their favor. The one alternative to consider is writing off the loss. Your parents may be able to claim the $60,000 as a nonbusiness bad-debt deduction on their federal tax return. The IRS is going to insist on documentation to prove the money was a loan, not a gift. The original promissory note will come in handy. They ll also need to show that they have tried to collect. Assuming they ve got proof to back up their claim, your mother and father can file for the deduction on Schedule D of their The money owed is treated as a short-term capital loss and must first be offset by any shortterm capital gains. In the event your parents don t have any such gains (or none equal to the $60,000 debt), they ll be able to claim $3,000 a year against their income and can keep claiming $3,000 every subsequent year until they write off the whole amount.

5 I want you to learn from your parents mistake. When people ask for loans, stop and think about why they re coming to you (see Look Before You Lend, page 6). They probably have been turned down by conventional lenders. If someone in the business of loaning money says no, that should be a signal for you to do the same. The Simplest Way to Retire Q: I m a 46-year-old single woman earning $34,000 a year. Sometimes I feel so anxious about having enough to retire on that it takes away from my enjoyment of life. I have $30,000 in mutual funds and IRAs (but no pension), and no debt apart from my mortgage, which will be paid off in about eight years. I ve been unemployed twice due to layoffs, so I d like to have access to my money. Assuming I can work for quite some time, roughly how much do I need to save? I live simply but don t want to end up eating cat food. Suze: While I understand your concern, I have to say that you re doing an impressive job considering your relatively modest salary. Many women making twice as much as you are continued on page 7

6 Look Before You Lend We would all love to be able to help a friend or relative in a financial fix, but there s a lot to consider before handing over a check. Remember, you should give only money you don t need, because there s a good chance it will never be returned. But if you do decide to take that risk, here s what to ask yourself before lending a single penny: Why me? Is this person coming to your for a bailout because every credit card, financing company, and bank turned her down? If you re the last resort, be wary. What for? Are you helping out your daughter who s raising kids on her own and was recently blindsided by medical bills or are your bankrolling your daughter who s having trouble making payments on her BMW? Think twice before supporting an indulgence. What if I never see this money again? Don t you dare tap your own emergency savings to pay for someone else s crisis. If something happens to you and you haven t been repaid, then you ll be the one having to ask for help. What terms am I being offered? When someone asks for money but doesn t mention how she intends to repay you, that s a problem. If she respects you, her initial request should come with the proposal of signing a written document, called a promissory note, in which she outlines the agreement. She must commit to a schedule for when repayment begins, the interest rate, how often she ll make installments, and the penalty for lateness. (It s also a good idea to get the document notarized. If you wind up in a dispute, you would have an easier time proving the claim is valid.) Sound a bit businesslike? It should. You re loaning money, not a cup of sugar. To keep things as sweet as possible, put everything in writing.

7 saddled with debt and a huge mortgage they ll be paying down well into retirement. Give yourself credit for being so good with your money. The best news here is that you ll finish off your mortgage in your early 50s. That means you don t need to save nearly as much as someone who anticipates having to keep making mortgage payments after she stops working. In Making Retirement a Reality (see page 8), I give advice on how to save enough money to live comfortably as you get older. Once you pay off the house, I want you to keep making monthly payments to yourself. Invest that same amount in a Roth IRA. If you follow a few simple rules, you ll be able to withdraw all the money in retirement without paying a penny of tax. When you reach the annual maximum contribution for the Roth, build up an emergency cash reserve. The more you put away, the better. Because you ve been so house smart, once you turn 62 you will be eligible for a reverse mortgage: continued on page 9

8 Making Retirement a Reality A recent Wachovia survey reported that more than half of female respondents feel worried when they think about being prepared for retirement. Below is a list of a few things you can do to ensure that your retirement years are the best and least stressful they can be. Aim to Own Your Home Outright. If you pay off your mortgage before retirement, you take a huge financial load off your shoulders. You also become eligible to take out a reverse mortgage once you turn 62. Visit ftc.gov to learn more (type reverse mortgage into the search field). Say Yes to Your Company s Retirement Bonus. If your employer offers a 401(k) or 403(b) with a matching contribution, invest enough to collect the maximum annual match. Save on Insurance. Increase the deductible on your auto insurance to at least $1,000. That can save you 30 percent or more on your premium, and using the same insurer for your house and car can take up to 15 percent off. Once your kids are grown and you know that you re completely healthy, consider canceling your life insurance policy. (If the sole purpose of your policy was to provide for the kids if something happened to you while they were young, you no longer need the coverage when they ve finished school and are self-supporting.) You get the idea: Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum. RetireWithout Credit Card Debt. The less money you owe, the less income you ll need and the less you ll have to save for tomorrow. Take Social Security. The age at which you re eligible for full benefits ranges from 65 to 67, depending on the year you were born. But everyone can begin collecting a reduced benefit at age 62. That can help with any cash flow problems early in retirement. Find out more at ssa.gov by searching for age reduction.

9 If you find your own retirement savings aren t enough, a reverse mortgage allows a lender to pay you income (in a lump sum, a monthly advance, a line of credit, or a combination of all three) based on the value of your home. There s no risk of losing the property. I hope that hearing all this will help you enjoy your life more fully today. Whip Your Spending Into Tip-Top Shape! Q: After college my fiancé and I lived abroad and worked as much as possible. We started sinking into debt, and it took a while to get reestablished Stateside. Finally, we found a house, and though it wasn t expensive, my husband wasn t earning much. His salary has steadily increased to $120,000, but we are nearly $100,000 in debt in addition to our mortgage. The cost of living in our neighborhood is high, and my own contributions have been sporadic because I care for our two children and two ill relatives. We have a 401(k) and life insurance but no savings, and we often bounce checks at the end of the month.

10 We have already borrowed against our house as much as we can. My husband gets frantic and doesn t want to spend at all, even for the kids. I feel bitter and shop anyway because it seems as if we ll always be broke no matter what. I m afraid to open our bills. The panic is starting to affect our marriage. Is there any way to achieve financial equilibrium? Suze: There s no reason you can t get by on your husband s salary. The problem is that you re sabotaging your family. I know that sounds harsh, but you need a serious financial wake-up call, and I m sounding the alarm. Part of the reason you re doing this is that you re overwhelmed from taking care of everybody else. Subconsciously or not, you believe nobody is taking care of you. So you fill that hole by spending money, and then you feel terribly guilty. You deserve to treat yourself better than that. Use your fear of opening those monthly statements as motivation to change. Whenever you re about to whip out your credit card for another unnecessary purchase, ask yourself: Is 10

11 this worth the horrible feeling I m going to have when the bill arrives? Keep a photo of your family next to the credit cards in your wallet; as you reach for one, think about whether the item is worth the possibility of losing their respect or, in the case of your husband, losing your spouse completely. That s where this is headed if you don t change. I know you have it in you to make the right choice. Going Forward You ve just seen how these folks can conquer some of their biggest financial worries. Now it s time to put this advice to use in your own financial life. If you re thinking about lending money Stop and think about why you re being asked to lend. Have they been turned down by conventional lenders? If you re the last resort, be wary! And don t forget it s all too easy to lose both the cash and the friendship over a vague loan 11

12 agreement. So, be sure to put the terms of the loan in writing as protection for both of you. If retirement is your biggest worry Look everywhere you can think of to cut a little bit from your expenses. Aim to pay off your mortgage build up your 401(k) use the same insurer for your house and car pay off credit cards and consider collecting social security at age 62 instead of 65. You get the idea it all adds up to a significant amount of cash flow. And, if you re having trouble curbing unnecessary purchases Try keeping a picture of your family next to your credit cards. They ll help keep things in perspective when money s tight. You ve got the tools you need right in your hand to get fiscally fit. Don t waste another minute get started today! 12