“Money Book for the Young, Broke & Fabulous”

Thursday, October 16, 2008 19:23 - By The David

Posted in category books

I always have a bag of mixed emotions towards the big name financial gurus – like Suze Orman, Dave Ramsay, Robert Kiyosaki, etc….

I think that they all have some valid and insightful points to make, but at the same time you have keep in mind that they are trying to sell a brand – themselves.

This is true for Suze Orman’s “The Money Book for the Young, Fabulous & Broke”. It’s her book targeting young adults.

The name is terrible, but the book itself is decent. The formatting and writing are interesting and pleasant to read, and it’s easy to breeze through chunks of the book in one sitting (the mark of a well written book). Chapters begin with a general overview, then drill down into details on the subject. After that is a series of important and commonly asked questions. It’s easy to read, and highlights the important stuff.

Content

More important than the style is the content. The topics are all relevant, but the message and level of detail deliver mixed results.

She comes up big in areas such as explaining and improving credit scores, a general retirement approach, and balancing love and money. However, she comes up short or career changes, investing, and real estate.

In the credit score chapter, she explains how credit scores are calculated and how to improve them with a tone that is accessible to beginners but still helpful to people with more of a financial background.

In the general retirement chapter, she explains all the options for retirement – 401K, Roth 401K, regular IRA, Roth IRA. She then dives deeper and explains the tax implications of them, as well as the consequences of pulling out early.

In her chapter on love, she goes over some tricky topics for couples to manage, and gives advice on how to toe the line without starting World War III. Also helpful are suggestions for often overlooked vehicles instruments like life insurance, wills versus trusts, and power of attorney.

For the most part, Suze does a good job managing depth and tone. However, she fails completely other times. She has a tendency to overcomplicate simple things, and over simplify things that need more depth and consideration.

The career change chapter is a perfect example of this. She tries to instill a can-do attitude for quitting and finding jobs which is great, but just not really practical, especially given the current economic landscape.

The investing chapter is perhaps the biggest failure in the book. Nowhere in the chapter does it talk about balancing risks and returns – a potentially fatal error. She preaches diversity and recommends how to balance indices and mutual funds, but doesn’t explain why or the benefits and drawbacks of each option.

The home buying chapter is another area that she tried to oversimplify. She never suggests comparing renting to buying (which could make more sense depending on the situation). Another big oversight is her unbridled support for 5/1 adjustable rate mortages – which she deceivingly refers to as “hybrid mortgages” before calling them the “Goldilocks” option.

She doesn’t stop there…later in the same chapter, she says how crucial it is to use a mortgage broker, and suggests that brokers can often get you a better deal than if you worked with banks directly. I cannot disagree with this more strongly…I went to banks myself and got better deals through them than I could’ve through any broker.

I feel like irresponsible mortgage brokers are one of the main causes of the real estate bubble and the subsequent crash and credit crunch. Suze’s support for these snake-oil salesmen show that she can be out of touch with her audience at times. After all, this is her first foray into young audiences.

Another area of frustration for me is her approach to budgeting…she doesn’t believe in it. Her exact words are “screw budgets”. She compares them to fad diets, but this is a bad metaphor. Budgets – like your diet – should be sustainable and flexible. Not something that is done temporary, but maintained and adjusted as your goals and motivations change.

To suggest that young people – who need budgets more than anyone – should ignore them altogether is irresponsible at best. Making a budget and tracking finances can be hard work, but it’s absolutely necessary. If being rich was easy, everyone would do it.

Another failure is her assumption is that young people are living within their means, they just don’t have enough money to cover their needs. Chances are that most young people aren’t living within their means. If someone doesn’t have enough money to cover the essentials, then they need to change.

Again, I think this was a big miss for Suze. For the most part, it’s easy to look at the math of finance and wealth. What’s harder is to convince people to change their mindset, and Suze abandons the topic altogether.

Online Tools

The book comes with a password for a corresponding website, which might be more useful than the book itself. It contains calculators for everything from debt reduction to mortgage amortization to life insurance. The book gives you the background info, and the site tells you what to do with it. The calculators really hit home how much of a difference small factors can make in your finances.

Another great tool is a personalized plan for financial improvement. You enter information about yourself, such as your debts, mortgages, savings, bills, etc… and it creates a detailed, step-by-step plan that can be updated as you complete each step, or your life changes.

Summary

If you can take what Suze says with a grain of salt, there is valuable information and advice in here. The trick is to read everything with a critical mindset.

In spite of some of her failures, this book is an asset for financial beginners and intermediates…as long as it’s not the only thing you’re reading. The price of the book is worth it just for the website alone.