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  1. #1
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    Default Dusting Off the Rules of Financial Responsibility

    by Suze Orman


    The Basics All Over Again

    Tough times indeed, but not insurmountable. As I've emphasized throughout my Money Matters columns, financial security comes from acting responsibly, even when everyone around you -- friends, family, mortgage lenders -- are behaving irresponsibly.

    As a final send-off, I want to mention, just one more time, the basic rules of financial security that will keep you out of trouble:

    Don't take anyone else's word

    What you do with your money affects you, not the folks handing out the advice. I'm not saying you shouldn't listen to outside advice, but you need to put it in context.

    First, who's giving the advice? Someone who wants to sell you something, like a mortgage lender hungry to reap his fees? That should make you circumspect. And even when you have the best financial adviser, you should still be learning and asking questions. There's simply no excuse, or way around, the need to understand every investment and financial decision you make. Because at the end of the day, what you don't understand can end up costing you a ton.

    Wishful thinking leads to financial ruin

    Making a financial decision based on what you "hope" will happen is where the trouble begins. Everyone who took out a mortgage with a big initial rate discount -- or even worse, an interest-only option loan -- was hoping that the crazy times would continue. They needed huge home value gains to be able to eventually refinance their loan before the rate reset.

    But it was purely wishful thinking to assume that the 35 percent rise in home values in just 2 years was sustainable. If they took the time to ask "is this normal?" they would've seen that the long-term average rise in home values is more in the vicinity of 3 percent or so a year.

    The same wishful thinking can get you in plenty of trouble with investing; chasing hot performers just because they're hot is how people end up losing lots of money. Base your financial decisions on what's rational and reasonable, not some beyond-the-norm hope (or prayer.)

    Bad things happen

    Plan on it. From higher energy costs to an increase in your health plan's out-of-pocket costs, it seems like everything is a lot more expensive these days -- and your paycheck isn't much bigger at all.


    Those rising bills are pushing a lot of families into financial ruin as they fall behind in payments or resort to running up expensive credit card bills. That's where an emergency cash fund would have saved the day. By having six to eight months of living expenses tucked away, you can deal with life's curveballs a lot easier.

    If you can't afford it today, it's just going to be worse tomorrow

    When you use your credit card knowing you'll be unable to pay off the bill at the end of the month, you're making a decision that you can afford to pay the bill later. You can't. If you're lucky, the interest rate will be 7 percent; if you're just an average credit risk, you'll pay north of 10 percent. But if you're a financial mess, the rate is going to be more than 20 percent.

    None of those make financial sense. If you won't be able to pay for the purchase when the credit card bill arrives, that's a sign you shouldn't be making the purchase. It really is that simple -- buy what you can afford today and your tomorrows will be that much more financially secure.

    Source: yahoo finance
    Last edited by mdowdy; 02-02-2009 at 08:44 PM. Reason: fixed source to not include link

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  3. #2
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    Default Re: Dusting Off the Rules of Financial Responsibility

    Lots of good advice... thank you for posting this.
    Terra , Wife to Kevin, Mom to Cassidy (12) and Ciara (2)

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    Default Re: Dusting Off the Rules of Financial Responsibility

    You're welcome!


    April

  5. #4
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    Default Re: Dusting Off the Rules of Financial Responsibility

    I think a lot of folks are learning lessons about being financially responsible these days.

  6. #5
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    Default Re: Dusting Off the Rules of Financial Responsibility

    Quote Originally Posted by longtimegeek View Post
    I think a lot of folks are learning lessons about being financially responsible these days.
    Yep, they are learning their lesson...the hard way!

 

 

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