FINANCIAL FREEDOM

Suze Orman: Twelve Steps to Wealth

Step One: Face Your Fears

Beginning this month and continuing through December 2003, I'm going to use
this space to take you on a financial journey, showing you the truest ways to
protect the money you have and create the money that you deserve.

I'm going to ask you to face your fears—starting now. Money is frightening to
most of us, and this is an especially scary time. Stocks have fallen from their
dizzying highs, and some of your retirement accounts may be way down. Credit
card debt is a national epidemic. Job layoffs continue, yet the costs of housing,
medical care and education do not seem to reflect that reality. Meanwhile, we all
still feel vulnerable after 9/11.

The first step toward a new sense of your own power is to know what you're
afraid of. Take out a piece of paper and spend the time you need to write down
your financial fears. Think about them.

List them all. Are you afraid that you'll lose your job? Write down how you'd pay
your monthly expenses if you did. If you don't know how you'd manage, that's
okay; later in the year, I'll help you make a plan so you'll feel safe. Are you
paralyzed because you can't face your debt? I want you to collect every current
credit card and loan statement and list what you owe and at what interest rate
you owe it; I promise there's a way to pay it off. Are you concerned you'll never
have enough to buy a house, send your kids to college, take time off from work,
or retire? Do a few simple calculations, and write down the amount of money you
think you need to live the way you want. Unexamined fears turn you away from
your money; facing your fears will bring you toward it.

Step Two: Make a Commitment to Yourself

In the previous step I asked you to face your financial fears. Now, I want you to
set your intention and make a commitment to yourself not to go backward. Here
are three simple strategies to give you courage as you go forward.

1. Talk to someone you trust about your finances.
Speaking openly about your fears is one of the best ways to make your intentions
real. Tell your best friend how much credit card debt you have; she may surprise
you by admitting she has more. Open a conversation about money with your
spouse—but only if you can do so without any blame or guilt. The idea is to
create a safe environment in which to face your fears and get beyond them.

2. Write an affirmation.
Take out a piece of paper and write down a statement of the reality that you want
to create for yourself. My favorite affirmation is "I have more money than I will
ever need." Others I've heard: "I will be out of debt within a year." "I am capable
of earning more than I need." "I will always be taken care of."

Record it in your

online journal.

3. Take one small step to correct a situation that's causing you fear.
If you are in card debt, call one of your creditors and ask for a lower interest rate;
if the answer is no, go to bankrate.com and research a lower-rate card that
accepts balance transfers. (We'll talk more about this last suggestion next
month.)

If you worry about not having enough to pay for your kids' college education or to
retire, see how it feels to put away an extra $25 or $50 or $100 in a money
market fund this month—whatever you think you can afford.

If you dread a job layoff and own a home with some equity in it, I want you to call
a mortgage broker or a bank and open up an equity line of credit that could help
you if this fear becomes a reality.

Step Three: Getting Out of Debt

In the first step, I asked you to face your fears. In this and next step, I want you to
use the notes you made then to create a plan that will help you put your fears
behind you and get out of debt. One of the worst kinds of debt most people face
is credit card debt. If you can't pay the full amount you owe right now, here are
the steps I want you to take.

1. Call your credit card companies. Tell each one that if it doesn't lower your
interest rate, you'll be transferring the balance to another credit card company.

2. Ask to have your credit limit lowered. If you continue to overspend, you can
have the limit lowered to just the amount you would need in an emergency.

3. Pay more than the minimum amount due each month by as much as is
possible to the highest interest rate card you have. When the balance is paid off,
apply the entire monthly payment you were making on this card to the payments
you are already making to the card with the second highest interest rate. And
keep on rolling down like this until all your debt is gone.

Step Four: Saving for the Future

Last month, you launched into a program to pay off your debts. Once your debts
are paid, you can start saving for the future. It's crucial to expand your vision of
who you are today to include who you want to be tomorrow. Also, if you're
worried about losing your job and being unable to pay your bills while you look for
a new one, saving eight months' worth of expenses in an emergency fund will
give you the security you need. The best way to save is to put money away on
the same day every month, as regularly as clockwork. Where do you find the
money? A few places:

1. Take the money you had previously been applying each month toward your
debt and put exactly the same amount into an account earmarked for savings.

2. Keep careful track of your expenses for one month by going through all your
checks, credit card charges and ATM receipts. Make a list of categories in which
you spend: rent or mortgage, utilities, transportation, healthcare, groceries, meals
out, entertainment, clothes. Where can you cut back by $50 or $100 a month and
save this money instead? Some ideas: Go to the movies two times a month
instead of three. Get your hair cut every six weeks rather than every five. Bring
your lunch to work one day a week instead of eating out all five. And cut out just
two gourmet coffees a week.

3. Work overtime if you can, or find freelance work while you save for your
emergency fund; it may be worth your while.

As you build your Financial Freedom savings account, keep this money safe and
sound and liquid in a money market account or a savings account with the
highest possible interest. After you have your eight months' emergency fund, if
you want to save additional money in a secure place rather than investing in the
stock market, look into a bank or brokerage-house CD. Saving for the future is
how you stay secure and pave the road to your dreams. Please start saving now.

Step Five: Getting What You Deserve

When the economy is rocky and job security seems like a thing of the past, how
do you go about asking for a raise? With tremendous pride and conviction. But
before asking for a pay increase, you need to ask yourself an important question:
Do you merely want a raise, or do you truly believe that you deserve one?

This hit home for me recently when I had dinner with a friend and heard his story.
He'd been working at the same software company for about eight years. Though
software companies aren't having a great time, my friend had been successful at
helping his company increase productivity, so he made an appointment with his
boss to ask for a raise. In the meeting, he laid out his reasoning with absolute
conviction, but she very politely said, "Sorry, there's no money for that right now."
Instead of feeling defeated, he went home and drafted a letter—not from a place
of anger, but from a place of power. He described in detail all that he had done in
the past year to help his company make money and explained why, if he was
going to continue doing this, he deserved a raise. This time his boss said yes.

The key to this story lies in a major law of money: Truth creates money and lies
destroy it. To put this law into effect when asking for a raise, follow these
guidelines:

1. Make a list of the reasons you believe you deserve one.

2. Meet with your boss from a position of truth and power; you deserve a

raise, and you know why you deserve it.

3. Don't be attached to the results. Your job is to give it your best shot, not to

control what happens.

4. Take an inventory of your feelings, if you don't get what you asked for. If

you feel undervalued or not respected, then you may want to start
searching for another job—that way you'll have a head start when the
economy turns around. If you are truly at your wit's end and have your
eight months' emergency fund saved, you could consider resigning now
and looking for a position with a company that will respect and honor
you—which (raise or no raise) is what every one of us deserves.

Step Six: Being Responsible to Others

Now that you're on your way to wealth, it's time to think about your financial
responsibilities to those you love. A big part of financial freedom is having your
heart and mind free from worry about the what-ifs of life. Please take the
following simple actions for your own peace of mind and for the security of your
loved ones.

Steps to help you take financial responsibility of the future:

1. Create a will. Without one, a state court will decide who gets which part of

your individual assets, and your loved ones may not get what you want
them to have. For a few hundred dollars or less, an attorney will draw up
your will; you can also buy a form will at a stationery store or order a will-
writing kit.

2. Create a revocable living trust. In addition to a will, many of you need

this statement of who will control your assets while you're alive (typically,
you) and who will receive them once you die. It will help your heirs avoid
the expensive probate-court procedure necessary with a will alone. An
attorney can draw up a living trust and fund it with your assets for about
$1,000 to $3,000, or you can get a computer program and do it yourself.

3. Draw up an advance directive and durable power of attorney for

healthcare. These documents sound complicated, but they're not. The
advance directive states what medical intervention you want—and don't
want—in case you're incapacitated, and a durable power of attorney for
healthcare appoints someone to make medical decisions for you in case
you can't. You can find ready-made forms in stationery stores, or, again,
get a computer program.

4. Create a durable power of attorney for finances. This appoints

someone to act on your behalf in financial matters—writing checks, paying
bills—should you become unable to act for yourself. Consult an attorney
about this document since the language needs to be carefully crafted to
avoid any possibility of abuse should it become active.

If you have at least these documents in place, you'll have taken some very
important steps to make your loved ones safe.

Step Seven: Buying a Home

Owning a home is a keystone of wealth—both financial affluence and
emotional security. With mortgage interest rates still at or near historic lows,
this remains an optimum time to consider buying a home. Here are five things
you should know right now:

One: Look for good value at a price you know you can manage. Don't worry
overly much about buying into a "housing bubble," says Barry Habib, a
national sales trainer for GMAC Mortgage and the mortgage consultant for
CNBC. "And be sure not to get into a bidding war," he says.

Two: Opt for a fixed-rate rather than an adjustable-rate mortgage. When
mortgage interest rates are low (below 7 percent), as they are now, you will
lock in a good rate for the life of the loan. Experts predict that mortgage rates
may begin to rise slightly at the end of the year, so try to apply for a mortgage
sooner rather than later.

Three: If you're buying a new-construction home, consider locking in a
favorable interest rate before you close on it, especially if you'll have to wait
months before construction is finished. An extended rate lock costs a little
extra but will protect you against climbing rates.

Four: Ignore the annual percentage rate when shopping for a mortgage. It's
probably better to choose a slightly higher fixed rate with no points and low
fees than an advertised lower rate with points and higher fees or higher
closing costs that are not tax-deductible. Always do the math yourself, or ask
your broker to explain all the costs and fees involved.

Five: Consider a 15- or 20-year fixed-rate mortgage instead of a 30-year, if
you can afford the monthly payments—they may not be as high as you think.
The benefits: You'll get a lower mortgage interest rate, build home equity
faster, pay less in total interest over the life of your mortgage loan, and be
debt-free 10 to 15 years earlier.

Step Eight: Insuring Your Well-Being

"People first, then money, then things." That's how you should tackle your
insurance. There are three broad types of insurance: life, health, and
protection for possessions. Find out what you need as a baseline:

Life Insurance
if a child, a spouse, a life partner, or a parent depends on you and your
income, you need life insurance. Keep it simple and buy term life insurance;
it's good only for a specific number of years and then expires. That's okay—
life insurance wasn't meant to be permanent; it's there to protect your family
before you've had a chance to accumulate enough funds (through
investments and savings) to do so. Most people should get a 20-year level
term policy that has a value equal to 20 times the amount of annual income
your family needs to live securely. For example, if your loved ones need
$40,000 a year, then you should purchase $800,000 of term life insurance on
the person—or persons—whose absence will affect those left behind. It's not
that expensive: A 20-year $800,000 term policy for healthy, nonsmoking men
and women who are about 35 years old is around $45 a month. Check out
www.selectquote.com to shop for term policies.

Health Insurance
Those who have been laid off or are worried about losing their job and health
insurance coverage should shop around. Ehealthinsurance.com offers the
largest individual and small-business health plan selection across more states
than any other online or offline source. While many employers must extend
health insurance coverage to all laid-off employees for 18 months—thanks to
a federal law known as COBRA—you must pay 100 percent of the policy
premium. Chances are good you can get a less expensive policy by doing
your own shopping.

Policies that Protect Possessions
Whether for your house or your car, buy a policy with the highest possible
deductible to get a more affordable premium (the annual cost of the policy).
Deductibles are what you pay first, before your insurer kicks in any money
when you make a claim. These days, insurers will jack up your premium or
deny future coverage if you make a lot of claims. So go with a high-deductible
policy that you intend to use only for catastrophes. You can shop for
homeowner's insurance at www.insweb.com. And for renters: Your landlord's
insurance protects only the physical structure of the home. You need to
purchase renter's insurance to protect your possessions. Renters-insurance-
quotes-online.com has good information and free quotes on policy prices.

Step Nine: Saving for College

I know this is where I'm expected to explain the best saving options for your
children's college education, but I have something far more important to discuss
with you.

I don't want you to think about financing college if:

1. You're drowning in credit card debt.
2. You have hefty car loans.
3. You have tapped into a home equity loan just to keep up with your living

costs.

4. You don't have an emergency cash fund to cover eight months of living

expenses

5. You don't have life insurance.
6. Your retirement account isn't built up.

It may sound blasphemous, but you must take care of yourself before the kids.
This is a very important lesson for them. If you're financially responsible, your
children have a much better chance to grow up financially responsible. You owe
it to them to be a role model. But you can't hide any of this—your kids deserve to
know what financial choices you are making and why. The sooner you sit down
and tell them, the better they'll be able to help themselves. If you wait until your
children are high school seniors to spring it on them that there's not a whole lot of
money for school, they won't have too many options. But if you involve them by
junior high, you can help them see their own power to help themselves: Good
grades can lead to scholarships, grants or financial aid. Your kids can get a job
now. Most important, they can have realistic expectations. That's a tremendous
lesson for parents to impart to their children.

Step Ten: Preparing for Old Age

Though aging isn't easy, you can make it easier by knowing you're financially
secure. Here's what I want all, regardless of age, to think about, talk over, and
act on today.

Be active.

Don't fall into the trap of listening to your spouse or partner if he or she tells you
everything's taken care of and not to worry. I don't want you to worry, but I want
you to be informed. For those of you who are married, the odds are that you'll
outlive your spouse, so why wait until you're faced with widowhood to learn about
your finances? And for those who are single, please don't think you can put off
retirement planning for a later date—now's the time to get involved and informed.

Maximize retirement accounts.

We can't rely on Social Security to meet our retirement needs, so it's crucial to
save as much as you can now. This pertains to single, life partner and married
retirees: Those who are single won't share living expenses. If you're married and
you're both planning on drawing Social Security income, when your spouse dies,
you'll go from two checks to one. Maximize your contributions to 401(k) or 403(b)
accounts, and if you qualify, take advantage of funding a Roth IRA.

Secure your home.

To ensure that you can live in your home for as long as you want, try to get your
mortgage paid off before you retire. Even one extra payment a year could take
eight years off a 30-year mortgage—and save you big bucks in interest
payments.

Be realistic.

There's a theory that people spend less in retirement. That may be true as long
as you have a partner, but when you're alone, spending tends to increase. Make
allowances for the fact that you may need to have more income so you can
remain socially vibrant and happy if you're solo in your later years.

Take your Time.

In the event you lose the one you love, please don't make any big changes with
your money for six months to a year; that initial grieving period is no time to worry
about finances. Plan now so there will be no need to panic later.

Step Eleven: Investing in the Market

I thought it would be helpful to share my rules of thumb for who should invest and
who should not.

Why Invest?

First: let's review the basic reason any of us might consider investing: Over the
long term (and, my friends, I mean 10, 20, or 30 years) stocks have, on average,
produced strong returns of about 10 percent. That means stocks may be down
10 percent one year, up 20 percent the next, and the down 5 percent the next.
There are no smooth rides or guarantees, but there is the historical pattern.
That's why we all should consider investing in stocks. But notice I said "consider."

Why Not?

Here's my list of when it does not make sense to invest in the stock market. If
you...

1. don't have an eight-month emergency cash fund.

2. are paying off a car loan or credit card debt at an interest rate of 6 percent

or more

3. will need the money in less than ten years

4. don't have a stomach of steel

Keeping Ahead of the Market

To help you avoid experiencing those huge losses let me share another favorite
rule of thumb: If you make a lump-sum investment and it falls 8 percent, sell and
reinvest the money in another (hopefully better!) stock or mutual fund.

If the trend of the market is down, keep the money in cash until it begins to rally.
Rather than investing $12,000 on January 1, you invest, say, $1,000 each month.
That means sometimes the $1,000 will buy more shares—if the market has
fallen—and sometimes it will buy fewer shares.

Step Twelve: Giving

When most people think about wealth, they think about money. But what I mean
by wealth is something that doesn't change according to the economy.

True Wealth

True wealth is generosity and openness of spirit; it's something that will never
diminish. That, my friends, is not true when it comes to money. While your
financial wealth may go up and down over the course of your lifetime, the beauty
of true wealth is that it doesn't fluctuate; it remains stable regardless of what goes
on in the world of money. So this month I want to talk to you about the most
important step that can lead to a life of true wealth: giving.

Many of us go through life thinking we will never have enough; it's at the core of
so many of the questions I answer in this column. Our logical tendency is to hold
on tightly to the little we think we have by clasping our hands in a suffocating grip
around our money. The result of our tightfisted ways is that our lives aren't open
to receive what's meant to come to us.

Show Your Gratitude

December is the perfect time to talk about this because the holiday season tends
to be when we give to those we love. But why do we give only on special
occasions or when it's expected of us? Giving needs to come from an inspired
place within us, to be dictated not by the calendar but rather by our desire to give
back in order to say thank you. Giving isn't just about buying gifts to make others
feel good; it's about making ourselves feel good. I repeat: Giving is not just about
buying gifts to make others feel good; it's about making ourselves feel good.
Gratitude is something that needs to be shown every single month.

To Whom. and How Much?

One way I know to keep our hearts and hands open is to give money away on a
regular basis. How much does one give? A respectable amount. For someone
who is in severe credit card debt, that amount may be $5 a month; for others it
may be a lot more. Only you will know the answer to that question. Whom do you
give to on a monthly basis? Choose a nonprofit or a place of worship—or you
could give to your parents if they need it. You give to make an offering; when you
make an offering you feel generous, and when you feel generous you feel
powerful, be the first check you write, or dollar you spend, at the beginning of
each month; that way you start each month from a place of generosity and
openness, which is the stance of a truly wealthy person.

May you have the happiest of holidays and the opportunity to experience true

wealth sooner rather than later.