Suze Orman's Action Plan (26 page)

A career change can be the best move you will ever make, but it requires careful planning. I say focus on getting another job right now, even if it’s just for a year or so, while you carefully plan your new career and build up your savings so you can afford to go back to school.

ACTION:
Be realistic. What you made at your last job is somewhat irrelevant. What employers are willing to pay today for the job they have today is what really matters. For people who have spent a lot of time at one company, this is a tough concept to accept. But it is vitally important.

People who have been with the same company for many years may have developed special skills particular to that company or industry, and they may have been well compensated for that expertise.
But there is no guarantee your next employer needs those very skills or values them as much as your former employer did. If you have the financial flexibility to wait for a perfect offer, that’s your call. But I want you to be realistic. How you value yourself and how the market values you may well be different. Don’t hold out for an offer that may never materialize. I am all for valuing yourself and what you do, but not at the cost of jeopardizing your family’s financial security. Realize that the longer you are out of work the harder it may be to sell yourself and your résumé to prospective employers. A good job, perhaps not the perfect job, may be the best move for you, if only for now. If you end up needing to take a job that pays less than your prior job, that’s just another challenge to meet. In “Action Plan: Spending,” I have advice on how families can make more out of less.

ACTION:
I wouldn’t do it. Sure, take a few weeks to decompress and refresh. But you need to start the job hunt sooner rather than later. It could very well take a lot longer than you expect.

ACTION:
Whether you’re laid off or not, I want you to get your own coverage. I have never recommended relying on employer-provided life insurance. If your employer provides coverage for free, chances are you are woefully uninsured; employer-provided life insurance is typically equal to one or two times your annual salary. I recommend 10 to 25 times to fully protect your family. Even if you buy extra insurance through your employer, it can often be more expensive than what you can get on your own; that’s because you are paying a group rate based on all employees—young, old, healthy, not so healthy.

Another problem is that when you are laid off you eventually (within 18 months) need to convert to your own policy. And there is no guarantee the insurer who offered you group coverage will offer you an individual policy or one that is the least costly.

ACTION:
If there are people in your life who are dependent in any way on the income you earn, then you can’t afford not to have life insurance. Seriously, what will happen to them if you die prematurely? Be it young kids, older parents who require financial assistance, or a sibling you help out—if you do not have sufficient assets your dependents can live off of, you need life insurance.

I think you will also be surprised by how remarkably affordable term life insurance is. A $1 million 20-year term policy for a healthy 45-year-old woman can cost less than $125 a month.

ACTION:
For the vast majority of us, term insurance is all that is needed.

As its name implies, term insurance is a policy for a specific period of time, the term. If you die during the term, your beneficiaries receive the death benefit (payout) from the insurer. And here’s what you need to know: Chances are you have only a temporary need for life insurance. You need insurance while your kids are young and dependent on you; once they are adults, they will be financially independent. You need life insurance if you have yet to build up other assets (home equity, retirement investments) that will support your dependents when you die. Once you have those assets in place, it is less likely your surviving spouse or partner would need income from a life insurance policy in the event you pass away first.

Many insurance agents will tell you term is not enough. They will tell you that you want a permanent policy that never expires. Permanent policies
come in a few different flavors: whole life, universal life, and variable life. I want to repeat: If your need for insurance is temporary—say, just until your youngest is through college—you absolutely do not need a permanent policy. And you will needlessly spend tens of thousands of dollars more for a permanent policy than a term policy.

ACTION:
You can shop online;
selectquote.com
and
accuquote.com
specialize in working with individuals who need term insurance. You will be asked to fill out a comprehensive worksheet of your income and assets as well as your expenses and debt. How much life insurance you need depends on those factors. If you want to be absolutely sure your family will be financially well off if you die prematurely, I would consider buying a policy with a death benefit equal to 25 times your family’s annual income needs. Full disclosure: That is more than double what many insurance agents may recommend. You can indeed help your family tremendously with a smaller amount of coverage, but I am asking you to consider 25x for absolute peace of mind. If your death benefit is 25x your family’s annual needs, they can take the payout and invest in conservative bonds (such as municipal bonds) and live off the principal amount. If
your death benefit is smaller, they will eventually need to dip into the principal and it could sharply reduce how long the money lasts.

ACTION:
Know that your state insurance department will be looking out for you. The insurance department oversees a state guaranty association that provides coverage (up to the limits spelled out by state law) for policyholders of insurers licensed to do business in their state. In the case of life insurance, the guaranty association and state insurance commissioner will aim to have a healthy company take over the policies, so you will not see a change. You can find out how the guaranty system safety net operates in your state by visiting the National Organization of Life & Health Insurance Guaranty Associations’ website:
www.nolhga.com
.

ACTION:
You need a revocable living trust with an incapacity clause, as well as a will. Read that again. A will is not enough. I want you to also have a revocable living trust. And you need two durable
powers of attorney—one for health care and one for finances. A power of attorney designates someone you trust to carry out your affairs in the event you become unable to handle matters on your own. Your health care power of attorney will be your “voice” in medical decisions if you are unable to speak for yourself, and the financial power of attorney can handle your bills and financial affairs. You also need an advance directive that spells out your wishes for the level of medical care you want should you become too ill to speak for yourself.

F
or all the uncertainty we face in the world, there is one unwavering, unquestionable, and irrefutable fact of life: You would do anything for your children. It is both your job and your honor as a parent to care for your kids. And so it should be.

But the recent financial crisis has raised a new challenge for many parents. For a variety of reasons you now find yourself needing to change the way your family spends money. A layoff. A diminished 401(k). Lost home equity. The sobering realization that a lifestyle fueled by credit card debt is no longer sustainable.

In your heart you know that the way forward requires a new approach to spending and saving. You also know that it is all for the best; once and
for all, you are going to take control of your financial life with a focus on building lasting security. Yet you are on edge about how to sell this new way of life to your children. You don’t want to disappoint them, you don’t want to say no, you simply won’t ask them to pay any price for changes in your circumstances.

I need you to step back and consider the unintended damage you are inflicting on your children. I want to be clear that I am not challenging or questioning your motivation; there is nothing more primal than nurturing a child. My sense, though, is that many parents are falling short on doing just that. Actions that you believe are loving and supportive—actions that are rooted in the best of intentions—can still, ultimately, be so wrong.

When you fail to instill sound money principles in your children while they are under your roof, you increase the chance that they will flounder when they have to make their way in the world. I could fill a year’s worth of my CNBC show with young adults who are so frustrated that they didn’t better understand credit card debt, what it takes to build a strong credit score, and how to budget. They come to me for help because their parents dropped the ball. Look, I am not suggesting that teaching your kids about money is the most important lesson. Please. You and I are in absolute agreement that raising children to have a solid
moral and ethical center is paramount. But don’t you want them to also be happy and secure? Well, that moves money front and center in your parenting duties. The quality of your children’s lives will in large part be a function of the quality of their money choices. But they need to learn right from wrong; preferably before they learn from painful experience.

I ask that you step back and seriously consider every lesson and message you are imparting. Do you—or did you—ever say to your young kids, “I wish I could stay at home and be with you instead of going off to work, but I have to make money.” Sound like basic parental love? You could not be more wrong. You have just telegraphed that work and money are bad! As if work is the enemy that keeps you from your children, instead of the means by which you provide your family with a comfortable, secure life. Of course you wish you had more time to spend with your family, but why demonize work as a way of expressing a loving feeling? It’s not exactly a great start to teaching them great money (and work) habits.

The good news for you is that your kids want money lessons! A 2009 survey by Charles Schwab & Co. asked more than 1,200 young adults between the ages of 23 and 28 how prepared they felt to make good financial choices. Fewer than 20% reported they felt well prepared to invest and save, just one in five said they were confident they
knew how to manage debt wisely, and only one third reported they had a handle on how to live within their means. Those results weren’t surprising, coming on the heels of an earlier Schwab survey of teens between the ages of 13 and 18. In that, just one in three teens believed “their parents/guardians are concerned with making sure they are learning the basics of smart money management,” and just one-third of children said they understood why their parents make the financial decisions they do. Only 20% of the teens surveyed said their parents had “taught me how to invest money wisely to make it grow.”

Don’t look to schools to impart this lesson; the sad fact is our educational system has no established protocols or plans to prepare today’s children to manage their financial lives. It’s all on you, parents! Your kids are literally looking to you for help.

Now, I realize for some of you this may entail simultaneously learning while teaching; your kids may not yet have great money habits because you haven’t exactly had a handle on matters yourself. And as with many habits—good and bad—your kids learn by example: the example you set. So teaching your kids about money presents an opportunity to embark on a concerted family project: You will tackle your new financial planning as a team.

More good news is that the financial crisis is
one big, very real moment, ready to be explained. No need for hypotheticals and “just trust me” talks. The turmoil in the world outside your door, and perhaps inside your own family’s finances, provides plenty of real-life examples. There is no shortage of entry points to talk about all facets of personal finance, from borrowing to budgeting to investing. Do not shy away from the hard topics, or think your kids don’t need to know that you are dealing with a financial challenge. I find it so frustrating that parents think they should shield their children from what is going on. I can’t tell you how disrespectful that is of your kids. As if they can’t see, hear, and sense for themselves what is going on in the world, and in their very own homes. Just because you don’t talk about it openly doesn’t mean they aren’t aware of it; they may even be afraid of what’s going on, but don’t know how to ask the right questions to seek reassurance. Silence here is so dangerous. They need to talk about it;
you
need to talk about it. Of course the conversation you have with a 6-year-old is far different than the one you have with a 16-year-old, but at every age there is an appropriate conversation to be had.

Your message and tone should inspire confidence and calm, not fear. That your family may decide to spend less in order to save more is not about “making do with less,” it is about making your lives more secure. In the process of making
smart choices for your family today, you are imparting the lessons your kids are craving.