Take Control of Your Finances
Suze Orman
Job layoffs, plunging retirement accounts, home foreclosures...the ripples of the recession are affecting us all—which is why money expert Suze Orman says there is no better time to take control of your financial life. "This is the year that will either make you or break you, I'm sorry to say, financially speaking," she says. "This is the year that we are going to have to be dealing with what happened last year in the economy."

If you have questions about debt, savings, real estate or retirement, Suze has put the answers in her new book, Suze Orman's 2009 Action Plan: Keeping Your Money Safe and Sound. "It's going to give you the foundation to deal with everything that has happened last year and set you up so you can deal with it in the future years because it's not over quite yet," Suze says.

Read an excerpt of Suze's book.
To start strong in 2009, Suze says you have to get honest about what you have—and what you don't. "You cannot have a plan where you build it on a foundation of lies," Suze says. "We're starting a new year. We're going to start it in honesty."

Donnarae says she's drowning in credit card debt and needs to come clean about how much she really owes. "I'm working three jobs, I'm juggling my life with my kids and I'm paying more than the minimum. I'm doing things that I'm supposed to be doing, but it's not going down," she says. "The worst part of this whole thing is that I probably have twice the debt that my husband thinks that I have."

Suze says the reason Donnarae's debt continues to increase is because she has created a dishonest financial relationship with her husband. "When you are hiding something, you feel guilty about it—that is an emotion. That emotion rises up that causes you to spend money to make yourself temporarily feel better," Suze says. "When you tell him the truth—today, after the show—your credit card debt will start to go down."
Pamela, a 39-year-old wife and mother of two, got her own reality check when she sat down to total her credit card debt. Pamela originally thought she owed $60,000 and was shocked to find she really owed $79,000. "I wasn't honest to myself or my husband," she says.

Pamela says her debt is taking an emotional toll on her. "It's very embarrassing for me because I'm an accountant," she says.

So how did Pamela and her family get so deep into debt? "We started living a lifestyle that we were accustomed to and we could afford, and then we had children and we never changed our lifestyle," she says. "We kept living beyond our means, so here we are today."
Pay off your credit card debt.
Step 1: Pay Off Your Credit Card Debt
The first step to taking control of your financial life is paying off your credit cards. To get started, Suze uses Pamela as an example.

1. Line up your credit cards from the highest interest rates to the lowest. In all, Pamela has 23 credit cards, and Suze places the card with the highest interest rates up top and those with the lowest rates at the bottom.

2. Pay the minimum on every single card to stay current. "Then you have got to find—I don't care if it's $10, $50, $100—you have got to find extra money somewhere to pay on the highest interest rate card. You're paying the minimum on every one. Plus on this one, you are going to pay an extra $50 or $100 a month. I don't even care if it's $10 a month."

3. When the card with the highest interest rate is paid off, put the old payment toward the next card in line. "When this card is paid off, you're gonna pay everything that you had been paying on these two cards to [the third] card," Suze says. Keep repeating this process until each credit card has been paid off.

Use Suze Orman's Debt Eliminator calculator to get started! 

Once your cards are paid off, Suze says you'll be on your way to start saving once again. "Your number one goal is to get out of credit card debt before you [start saving]," she says.
Suze Orman explains the biggest credit card debt mistake people make.
What's the biggest mistake you can make with your credit card debt? Suze says it's borrowing from other assets—like your retirement fund or your home equity—to pay off your credit cards. 

When you take a loan from your 401(k), you are taxed on the money you withdraw, Suze says. "When you go to pay it back, you are paying it back with money you have already paid taxes on," Suze says. "So when you go later on in life to withdraw that money again, you're being doubly taxed."

If your 401(k) is through work, Suze says you will be required to pay back any money you've borrowed immediately if you lose your job. If you don't have the money, Suze says that loan becomes taxable income—and you'll pay a 10 percent penalty if you're younger than retirement age.
Raise your FICO score.
Step 2: Raise Your FICO Score
In today's economy, your financial character is being determined by one thing—your FICO score. "You are your FICO score," Suze says.

"FICO happens to stand for Fair Isaac Corporation, the company that created the credit score years ago. FICO scores go from 300 to 850," Suze says. "The lower your FICO score, the higher your interest rate. The higher your FICO score, the lower your interest rate."

Download this chart to see how your FICO score is determined. PDF

Suze says any score below 700 is considered low, so it's more important than ever to give your credit a boost. Landlords—and even employers—are starting to look at that number very closely. "[A low FICO score implies] you're not paying your bills on time, and if you're not paying your bills on time, why should a landlord think you're going to be able to pay his her rent?" Suze says. "Employers are starting to check FICO scores. Because if you're not good with your own money maybe you won't be good with the company's money either."
How to raise your FICO score
Suze says there are three ways you can start improving your FICO score today: 

1. If possible, pay more than the minimum every month on your credit cards. "If you're charging on your credit cards and all you're doing is paying the minimum, the credit cards are afraid now that you're not really being very smart with your money," Suze says. "And since you can't, it's not the FICO score that they're looking at to choose to close down your credit cards. It's the fact that you're paying just the minimum, and those are the cards that they're closing down."

2. Pay your bills on time. "Paying your credit card bills on time, essentially counts for 35 percent of your FICO score," Suze says.

3. Never go over your credit limit. "That's when they start to raise your interest rates, close you down," Suze says.

Another thing to keep in mind: Never close down a credit card. "It will hurt your credit score," Suze says.
Carol and Scott
Carol and her husband, Scott, have a nice home and a 14-month-old daughter. Although Carol, a stay-at-home mom, says they live a comfortable life, she starts to worry whenever money crosses her mind. "I feel like we have nothing. We don't have a 401(k) or IRA. We don't have any savings. We don't have wills or even a college fund for our daughter," she says.

While Carol says she eats peanut butter and jelly sandwiches to save money, she says Scott goes out for lunch every day. "We have spent $35,000 in the last 10 months on things we didn't need," she says. "I cannot convince my husband for all the world that he needs to stop spending like a lunatic."

Carol says the stress is starting to take a toll on her—and her marriage. "I don't want to be a statistic. I love my husband, but I can't keep living this way," she says.
After analyzing their data, Suze wants to find out what Scott actually knows about his family's finances.

Scott says he thinks it costs around $2,500 a month to run their household and they have about $200 in savings. If he were to lose his job, Scott thinks they could pay their bills for about three months.

"Let me tell you now the truth about your situation. It doesn't cost you $2,500 a month to live. It costs you $8,000 a month," Suze says. "In fact, you are approximately $95,000 in debt—not including the house."

Suze tells Carol and Scott they aren't three months from losing their home. "You are one day away," she says. "You do not have one day of savings to live."
Suze Orman's advice for Carol and Scott
Step 3: Create a Spending Action Plan
Suze's financial prescription for Scott and Carol begins with him admitting his spendthrift ways. "I'm impulsive," he says. "I've made those purchases when I've felt like I needed to make those purchases, and it made me feel good."

Suze says Scott and Carol can curb their spending habits by following a three-step process:   
1. Sit down with your expenses and separate wants and needs.   

2. Circle all expenses that are wants.   

3. If you have debt or no savings, eliminate the wants. "Scott thought he needed to play fantasy football," Suze says. "Guess what? He does not. That is a want."

Do you know how much is coming in—and going out—of your bank account every month? Use Suze Orman's Expense Sheet to get a real look at your budget.
Suze Orman explains the key to saving money.
Step 4: Create a Savings Action Plan
Suze says Scott and Carol must commit to paying off their credit cards. After Scott and Carol pay off their credit card debt, Suze says the next step is to follow a savings action plan. 

1. Save enough to cover eight months of expenses. "I know that sounds like a lot. I know that sounds like an impossibility. I know that you think you'll never get there," Suze says.

2. Decide how much you can save each month and add 20 percent. The key to saving, Suze says, is challenging yourself. "Decide that you can save so much every single month. Whatever that figure is that you decide you can save, I want you to stretch it. I want you to add 20 percent to it," she says. "As much as you think you can do, I'm here to tell you, you can do more. You are all more than you really know you are. And if you just stretched your abilities, you would grow into your abilities."

3. Search for the savings account with the highest interest rate. When you start saving money, Suze says to be a good shopper. Look for an FDIC-insured savings account with the highest-earning interest rates you can find. "Little by little, if you take little actions, your plans will become a reality," she says. "Don't get overwhelmed by it. Just do it. ... When you have $1,600—$1,600, honest to God, feels eight times better than $200."

Use this calculator to see how much your money can grow in a savings account.

When the reality of America's economic struggles became apparent in September 2008, Kathleen says she was devastated. Like millions of parents, she thought she was doing everything right—working hard, sacrificing and saving and investing money.

Kathleen says about half the money she and her husband, Tony, had saved for their two sons' educations is lost—even as one son, Joe, is a freshman in college and the other son, Max, is a high school sophomore.

"I've lost control, and I've been a control freak my whole life," she says. "That's the scariest part because I've always had a plan, and I don't even have a plan."
Suze Orman speaks to Kathleen and Troy.
After investigating their finances, Suze says Kathleen and Tony still have options to reach their ultimate goal—allowing both Joe and Max to graduate from college without having any student loan debt.

First, Suze recommends Kathleen and Tony take the money they have put away for Max and use it to pay for Joe's college because he is currently in school and presents a more immediate need.

That will give them some time to prepare for Max. Suze says Max should see if he qualifies for a subsidized or unsubsidized Stafford Loan. If that doesn't cover all the costs, Suze says Kathleen and Tony can get a Plus Loan—which parents are responsible to pay. 

No matter the final loan situation, Suze says Kathleen and Tony easily can fulfill their commitment to Max. "You can pay [his loan] back for him," she says. "No matter what action we take, the end result will be your two children are going to graduate from college without any debt whatsoever."

Learn more about paying for college at
Step 5: Create a Retirement Action Plan  
As the markets tumbled, 29-year-old Kristen says she watched the value of her own 401(k) drop through the floor and says her mother's 401(k) lost about half its value. Now, Kristen says she's decided to stop making contributions to her retirement fund because she doesn't want to risk losing anything else. "I'm looking for how to get my retirement back on track and then also how to plan for the future for [my mother]," Kristen says.

Suze has three rules for retirement: 

1. Don't panic when the market goes down. Suze says the most important thing you can do in a bad economy is to stay calm—especially if you have at least 10 years until retirement. "There's a big difference between 29 and being 56," Suze says. "Now is not the time to stop investing in your retirement account."

2. Keep investing monthly in your 401(k) or IRA.  Suze recommends making regular payments to your 401(k) or IRA retirement account. "Guess what? Your money buys more shares. The more shares you have, the more money you're going to make by the time you are your mother's age," she says.

3. If you need the money within 5 years, take it out of the stock market. Another important idea Suze emphasizes is that any money you will need to spend—on a house, on college tuition—within the next five years must be invested conservatively. "That is not money that belongs in the stock market," she says. "It never has. It never will. The money that's in the stock market is money that you don't need. ... Because [to be in the stock market] you need time on your side, so that when something like this has happened and the market goes all the way down, it [has] time to recover."

Should you continue investing? Use this calculator to find out!
Suze Orman and Oprah
Are you ready to take control of your finances, but find such a big shift intimidating? Start with a pledge to make three small changes.

  • For just one day, do not spend any money on anything.
  • For just one week, do not use a credit card.
  • For just one month, do not eat out at a restaurant.
As you start taking control of your finances, record your thoughts, strategies and questions in this workbook. 

Despite being a best-selling author, Suze says she regularly does these exercises. "Not because I can't afford to do all of that, but because it's a great way to live your life," she says. "You are your wealth. Your money isn't. What you do isn't. How you feel is. That's the pledge—for you to feel wealthy, more than to show other people that you are."

See how viewers have already started their own action plans! 

Do you need help creating your own action plan? Watch Suze's action plan webcast on demand—or download it and take it with you!

More expert advice from Suze