The Debbie Downer Strategy

It's normal to think about the future by focusing on what's just happened rather than what took place in the past. But this tendency, called recency bias, could put your financial well-being at risk. During the 2008 recession, for instance, spooked investors quickly pulled billions of dollars out of stocks as the economy tanked; many of them didn't reinvest their money in time to enjoy the market gain that followed—more than 150 percent since early 2009. When current events tempt you to make a hasty decision, remind yourself that market shifts, however unnerving, are temporary; the potential for growth is long-term.

The Delayed Reaction

Time is key to building your financial security. Let's say you start saving $200 a month at age 30. You could amass more than $398,000 (assuming an annual return of 6 percent) by age 70. Wait until 31 to start, though, and you'll have about $25,000 less. That's the power of compounding. This concept works in reverse with loans. Spend 30 years paying off a $300,000 mortgage at a 5 percent rate, and you'll owe nearly $280,000 in interest charges. Send one extra payment a year, and you'll shorten the life of the loan by more than four years while saving nearly $50,000 in interest. When it comes to tackling your financial goals, whatever they might be, there's no time like the present.

Suze Orman's latest book is The Money Class: How to Stand in Your Truth and Create the Future You Deserve. Submit your most-pressing money questions to Suze here.

More Financial Advice


Next Story