Original Air Date:
Monday, March 31, 2008
Suze Orman came to the show prepared to answer viewer questions on the state of the American economy and what people can do in this situation. Suze started by saying that people should be more concerned than worried stating that expanding and contracting is a regular movement in the economy. Suze described the current situation as one of contractions and that it is a great reality check for Americans who cannot depend on anyone to save them, but must save themselves.
How did we get to where we are, and when is it going to end? :
Aimee and her husband opened a car business 8 years ago and in the beginning were struggling until the business started doing well. Aimee's family made the choice of many - make more so spend more. Now that the economy has shifted, Aimee wonders how they got to where they are now and when it is going to end.
Suze pointed out that the struggle the family is having is because of poor planning - when you make more, you should save more. Having an 8-12 month emergency fund and planning for when things could potentially go wrong is important. Suze recommended seeing the struggle as a gift and redefining needs.
Could the Bear Stearns collapse happen again?:
Suze shared that the Bear Stearns collapse is something that could happen again so people need to be prepared financially to take care of themselves.
People buying homes who would not have been able to in the past contributed to the spiral that led to the company's collapse. The spiral of home buying without enough income, banks selling to Wall Street and loans being rated poorly led to the decline. How do you protect yourself? Suze says diversify funds - income in banks is only FDIC insured for up to $100,000 per account, so Suze recommends using multiple banks and accounts.
Why shouldn't someone take money out of a 401K for a rainy day?:
Suze clarified that a 401K is not for a day, but for retirement life and taking out money in the short term can lose out in the long run. In the situation of the viewer, she had been laid off which would have made the money a withdrawal and not a loan which makes it subject to tax and a penalty. Taking out $5000 would leave just $3000 and tax and fees. Suze explained that the same $5000 would be worth $35000 after 25 years, $81000 after 35 years and $181000 after 45 years. Taking money out of a 401K is not a temporary fix according to Suze.
Should you sell a mutual fund or ride out the market?:
Suze talked to a couple who purchased a mutual fund but find that it's losing money with the shift in the market and want to know if they should sell or stay in it. If the long term is the goal, according to Suze, the short term can be scary when money starts to decline. Suze's advice is to ask yourself if you had the money in the account in cash would you buy the same fund? If yes, keep the money in, if no, sell, if you say you don't know, sell half. Suze's questions for the couple revealed that they didn't know as much about their fund - doing the research is key and really knowing the details of the account.
A New Earth Connection to Money:
Suze is taking Oprah's A New Earth class and says that there is a money connection in the book. Pages 35-46 deal with identifying with things, wanting for more and spending money on children - all of these Suze says relate to money and the need for more. Pages 95-106 cover true happiness and parenting which are also tied to money, spending and saving.
Ken Paves Gives Big with His Celebrity Friends:
Ken Paves met his friend Rachael when she was just 13 - suffering from EB, an incurable skin disease that causes blisters and skin to fall of - and wanted to make a difference in her life. Ken made an impact individually, but wanted to help in a larger way, so he contacted his many celebrity friends to have a fundraiser party at Eva Longoria Parker's new restaurant.
Tons of celebrities made an appearance to donate and bring awareness about EB and to the "butterfly children" who have the disease. Ken Paves and his friends were able to raise over $2 million dollars for the EB Medical Research Foundation!
Sheg's First TV Interview:
Sheg from the Big Give was also on the show for his first interview after being eliminated from the competition. He described how he learned that giving truly transcends race, gender, religion and all of the things that can separate people. When asked if he would have still done the party for the Murphy family, Sheg replied that he wanted a one time experience for the kids to remember and that if he changed anything, it may have been to a BBQ instead, but that he was happy with what he was able to do.