Suze Orman’s Golden Rule of Money: Peace of Mind
Financial guru Suze Orman has been giving tough love advice for decades. He has stuck to some of his key themes throughout this time, such as avoiding impulse purchases and staying out of debt.
However, recently Orman has been emphasizing the importance of peace of mind when it comes to your finances. Here’s what he wants to know.
Keep a savings account
Orman is an advocate for emergency funds, or funds to help you handle emergencies. Having an adequate emergency fund will keep you from stressing about market topics, knowing that you have enough money to ride out volatility. Financial advisors often recommend keeping enough cash to cover at least three to six months of your expenses.
For retirees, having access to cash is critical to paying for an expense that Orman says may surprise retirees: health care.
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Don’t let emotions cloud your investment
Orman says controlling your emotions and not letting them influence your investment plan is an important part of a strong financial plan. That includes not rushing returns for fear of missing out (FOMO).
Some people pursue speculative stocks because they feel they are behind other investors. This sense of FOMO can lead to poor investment decisions. Orman believes that investors should have enough cash on the side to stay calm during market downturns instead of feeling like they have to take big gambles to reach their goals.
Orman also emphasizes the importance of diversification, or having a mix of assets in your portfolio.
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As investors approach retirement, they often want to take risk off the table by reducing their exposure to assets such as stocks and gaining more exposure to lower-risk assets such as bonds. That’s because big losses before retirement can have a big impact on your retirement, and time horizons at this point in life may not be long enough to recover from market downturns. This balanced approach reduces the high return but also makes it easier to sleep at night. If your net worth can fluctuate significantly after a week of negative headlines, it’s not worth chasing a lot of returns. Diversification also reduces the risk of capital withdrawals during stock market corrections.
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Create peace of mind
Orman said financial freedom isn’t just about how much money you have, it’s about peace of mind and not worrying about “what-ifs.” She recommends reviewing your insurance policy and checking that your beneficiaries are listed on your various accounts to help create peace of mind.
Before making any big money decisions, you should ask yourself whether a big purchase will increase or decrease your peace of mind.
