Suze Orman is a true rags to riches phenomenon who has put her financial learnings over the years to great use. She focuses on empowering people to make savvy money moves and set themselves up for success in all stages of their lives.
Orman, like most other pioneering money minds, can also be highly opinionated when it comes to personal finance. Consider her views on how to become financially independent, for example — she isn’t budging on them.
So, according to Orman, which are the necessary moves one must make to become financially independent, and what do fellow financial experts think about it? Let’s explore some of her popular takes on financial independence.
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Start Investing Young
Orman, like many financial experts, champions getting started with investing ASAP, ideally by the time you’re in your twenties. “The key to your financial freedom in the future is investing when you are young,” Orman has stated.
Again, most money minds would agree with her, but that doesn’t necessarily mean they perceive this advice as totally practical or realistic. One possible problem here is that people in their twenties are usually making very little money, and there’s only so much they can do with it.
“For 20-year-olds in particular, they are often just starting to establish their career, and as such, tend to earn entry level wages,” said Glenn Sanger-Hodgson of Shonan Gold Financial LLC. “That in and of itself isn’t a bad thing, but when you think of all the financial wants for people in this age group, like buying a house, getting married, getting a nicer car, traveling etc., on top of paying rent and other costs of living, there are a lot of competing desires for a few dollars.”
Invest Even a Very Small Amount of Money
Orman doesn’t expect people in their twenties to be rolling in dough, which is why she emphasizes the importance of putting even a small amount of money toward investments early on. This is a really good idea and a great piece of advice, but do young people have literally any extra money to spare?
Possibly not, especially when you consider the omnipresent onus of student loan debt.
“In particular, student loan payments represent a common inflection point for young people using their money, and they often feel they are forced to choose between saving for retirement or paying their student loans,” Sanger-Hodgson said.
Seize the Power of Compounding Interest
One of the primary reasons why Orman champions investing any amount of money as early as possible is because of the power of compounding interest over time.
“She has two examples,” said Sanger-Hodgson. “The first one — that if you invest $1,000 and get a 5% in one year to turn it into $1,050 — is kind of a cumbersome way of saying that the returns you get on your investments, in turn, earn returns, year after year. It’s the engine that makes compounding work.”
He continued, “The second example, of a 25-year-old investing a lump sum of $10,000, compared to a 35-year-old who does the same thing, shows what a huge difference just 10 years of compounding can make.”
There’s really no arguing with Orman on this one. The power of compounding interest is simply jaw dropping to behold and it never fails.
“Compounding really does work, and someone who manages to save and invest a modest amount in their 20s will find that those amounts will make a meaningful contribution to their retirement investments, even if they are able to save and invest more on a recurring basis as they progress through their career,” said Sanger-Hodgson.
Take Some Smart Risks
If you really want to excel in financial independence, the Orman way calls for taking on some calculated risks.
“I never condone recklessness when it comes to personal finances,” Orman said in a piece for Oprah.com. “But it’s important to remember that too much caution can be bad news for your bank account, now and in the years to come.”
In the article, Orman detailed the following risks worth taking: Asking for a higher salary, invest no matter what the market is doing, and don’t get too cautious in retirement.
This is all arguably excellent advice, but is it completely bulletproof? It just might be. Provided you put huge emphasis on the “calculated” part. Unfortunately, some people seeking financial independence and success may not pay much attention to that aspect.
“Most people just throw their money at the highest risk investments out there,” said Steve Davis, CEO of Total Wealth Academy. “This would be stocks, metals and crypto. They avoid income producing assets like real estate because they believe it is too risky when in fact, real estate is much less risky. Why? Because real estate investors make money in both the up and down markets.”
At the end of the day, Orman has excellent insights on how to become financially independent, and how to make that independence pay off, literally, in the long run. However, depending on your situation, you may want to tweak it ever so slightly to make it work for you.
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