Excerpt: Suze Orman's 2009 Action Plan

Chapter 1—2009: The New Reality

I bet you are scared. Angry, too. And confused. These are absolutely rational and appropriate responses to the global credit crisis that erupted in 2008 and continues to send tremors through every household in America. And I do mean every household. No matter how conscientious you have been with managing your money, the events of 2008 have battered us all.

The one in 10 homeowners who are at risk of facing foreclosure on their homes are obviously scared, but so too are the 9 out of 10 homeowners who can afford their mortgage but are watching plummeting home values jeopardize their financial security.

It’s not just the overreaching Wall Street firms who are paying the price for those risky investments. Every U.S. taxpayer is now on the hook for a massive bailout—a bailout engineered by the same players in the federal government that had turned their back on regulating the very practices at the root of today’s financial crisis. Angry? You should be.

But wait—it gets worse: The colossal miscalculations on Wall Street have contributed to a massive decline in the value of your 401(k) and IRA. Years of diligent saving have been wiped out, and you are afraid that your retirement accounts will never fully recover.

Early predictions that the fallout in the consumer credit markets would be limited to subprime lending to borrowers with low credit scores proved terribly wrong. The truth is that credit lines are being reeled in and home equity lines of credit are being rescinded across the board as banks worry that their clients—even those with solid payment histories—won’t be able to keep up with the bills if the current crisis turns into a deep recession. A sparkling FICO credit score is no longer a guarantee that you will land a mortgage or car loan with decent terms. Right now lenders are more interested in keeping any available cash on their books, rather than out on loan.

There is also a growing sense that repercussions from the credit crisis will turn what might have been a moderate economic slowdown in 2009 into an especially deep recession. If that scenario plays out, businesses will likely announce more and bigger layoffs than we saw in 2008, when unemployment rose from 4.9 % to 6.5 % at the end of October. In 2009, your job may be on the line as your employer, or your own business, struggles with the fallout from the credit crisis.

That’s a daunting platter of problems to contend with. Did I say daunting? What I meant was overwhelming.

As the economic outlook grew more troubling, I came to the realization that I had to write this book and get it published quickly. You want to do what’s right, but it’s no longer clear what right is anymore. Or perhaps you are someone who always figured you had time to deal with the money issues in your life later. The credit crisis has woken you up; later is now—but where do you start?

This book’s title is a promise. This is my Action Plan for every important financial move you need to make in 2009. Follow the advice here and you will know exactly what you nee d to do to adapt to the new post-meltdown reality. Just as important, you will know what not to do. In times of great stress, it is natural to react by making decisions and taking actions that bring instant relief. When it comes to financial matters, oft en the decisions that calm us amid tumult are actions that can imperil our long-term security. In the pages that follow, I will tell you when to act and when to leave it be—which will, in some cases, require a little bit of faith and nerves of steel, but I promise I will never steer you wrong or put your dreams of a secure future in peril. You can count on me.

I want to be very clear about something that is central to my Action Plan: You must commit to actually taking action. This is not a book to be read and pondered. Or filed away under "Nice to know; I’ll get to it." If you care about financial security for yourself and your family, if you want to do everything in your power to protect yourself and your future, you will not get there with wishful thinking or procrastination. You cannot sit this one out, hoping that the storm will pass and everything will be just fine. If you do nothing, I am sorry to say you may be in even deeper trouble in 2010. The fact is, the new reality requires new strategies. They will not necessarily be wholesale changes in every aspect of your financial life, but tactical actions to make sure you do not let the credit crisis knock you off course.

Some of the most crucial actions require pushing yourself to stay committed to all the smart moves you have already made but may now be questioning. I know many of you are thinking there is no point in continuing to invest for retirement as long as the markets are down. Big, big mistake. Now is an incredibly smart time to invest for retirement, because the markets are down—assuming, of course, you have at least 10 years until you will nee d that money. Same goes for your 529 college savings plan for a young child.

There is to be no curling up in a fetal position on the couch in 2009 hoping that when you emerge the crisis will have passed. No assuming that there is a government bailout or Wall Street rally right around the corner that will fix everything for you without any effort on your part. You will have to get off the couch and take control of your financial life in 2009. Make that commitment this year and you will build a solid financial foundation that you can stand on when everything around you is crumbling and that you can build on when the good times return.

As we continue to claw our way out of the credit crisis while contending with an economic recession, I need you to be able to see the big picture: Though these are rocky times, our economy will be fine. Our markets will recover. We will all survive. That said, I want to be very clear: The recovery is not going to be quick or easy.

Our economy is like a patient who was rushed to the hospital in critical condition. After months of aggressive intervention (by the Federal Reserve, the Department of Treasury, and Congress), the patient is still in the Intensive Care Unit, but the prognosis is that eventually there will be a full recovery. In time, the patient will move into a rehabilitation facility and start to get back on his or her feet. Before too long, the patient will be stable enough to go home, though it might be years before he or she is back to full health.

When exactly will that be? That’s impossible to say with any certainty. My sense is that we could be in for a long, slow period of recovery and it will be 2014 or 2015 before the economy is back in robust good health. Between now and then, we could see parts of our economy get better faster than others, and certainly some regions will start their housing rebound before others. I also expect there could be large market rallies throughout a rocky recovery. It is also important to understand that the stock market is very different than the economy. Just because the market rallies, it doesn’t mean the economy is healthy. But in terms of when we will see a lasting and consistent return to growth, well, I wouldn’t be surprised if that takes five years or more.

So if we’re not going to see a quick turnaround of the economy in 2009, why am I insisting that you take action? Precisely because we are in for tough times. You need to protect what you have. Protect your family. And protect your chances of still reaching your long-term goals. Let’s face it, in the past you didn’t really have to work too hard at building financial security. You plowed money into your 401(k) and IRA in the 1990s and you watched the market post an annualized gain of 18 %. At that rate, you figured early retirement was a distinct possibility. Then, in 2000, the real estate bubble began and you got used to annual price gains of 10 % or more. It was easy to feel like you had it made.

And yet here we are. The major stock market benchmark indexes have fallen back to where they were in 1998. Home values, on average, have already slid back to their 2004 levels, and I expect we have more downside to get through before real estate stabilizes. My point is, you just can’t show up and expect easy market gains to get you where you want to go. The days of easy money are long gone.

But, my friends, haven’t I always said that when it comes to your money, it’s not about doing what’s easy—it’s about doing what’s right? The plan in this book is going to help you do what’s right. You can read this book cover to cover, go directly to the topic that worries you the most, or skip around as you see fit. No matter how you approach it, the goal is for you to make the right moves in 2009 to alleviate the stress, fear, and anger you’re fee ling and replace it with the secure sense that you have done what it takes to protect yourself, the money you have worked so hard for, and the ones you love.