Suze Orman’s Top 3 Money Mistakes and What She Learned From Them
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Cara Danielle Brown
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Rebekah Evans
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Financial advisor, best-selling author and podcast host, Suze Orman, has made quite a name for herself on the streets as “the Money Lady.” Whether doling out advice on estate planning, retirement accounts or investments, Orman assists individuals across the globe on their journey to financial freedom.
But Suze Orman didn’t exactly start out as Suze Orman; which is to say her own financial journey was not without missteps. Here are a few of Orman’s biggest money mistakes and what she learned as a result of each.
Blindly Trusting Advisors in Place of Being Financially Educated
While working as a waitress in her twenties, Orman shared with customers that she had ambitions of opening her own restaurant in San Francisco. Those customers graciously pooled their money and gave her a $50,000 loan to do exactly that. But, while she was still working out the kinks, a restaurant patron advised her to invest the $50,000 with a broker at Merrill Lynch so her money would continue to grow. And that’s exactly what she did.
Orman communicated to the broker that she needed the money safe and sound and couldn’t afford to take any risk. He assured her everything would be fine. Unfortunately, the “unethical financial advisor got her to sign blank paperwork,” stated insurance and finance expert at Clearsurance.com, Melanie Musson. Orman, however, had no idea what she was signing.
“He was able to use her signature to invest her $50,000 into risky schemes” by later filling out the paperwork to make it look as though she could afford to take financial risk when she couldn’t, explained Musson. Orman ultimately lost all $50,000.
This painful mistake taught Orman to take responsibility for her own money and not to trust someone else to care about her money more than she does. It also ignited a fire inside her to learn about investing, become a broker herself, help others take control of their financial destinies and, ultimately, build the empire she is known for today.
Using Money To Impress Other People Rather Than Building Personal Wealth
Once Orman began to make a lot of money in her thirties, she began buying exorbitantly expensive clothes and accessories. “I, Suze Orman, took money out of my 401(k) to pay for that Cartier watch,” she regretfully told Oprah Magazine.
Eventually, she accrued $60,000 in credit card debt. She’d done the hard work to earn her money but committed the cardinal sin: using that money to impress other people rather than using it to build personal wealth and move toward financial freedom.
Once she realized the pitfalls of her destructive and superficial mentality, Orman worked hard to reassess her priorities. “[She] pivoted to preaching austerity and soon landed a $250,000 client check that erased the mess,” said Jamie Wall, personal finance strategist at Gamblizard. “Takeaway: ego spending decapitates compound growth.”
Not Taking Advantage of Roth Conversions
Retirement accounts like 401(k) plans and traditional IRAs consist of pre-tax contributions that compound over time. At the age of 73, individuals are required to withdraw a specific amount annually — but taxes must be paid on each withdrawal. Conversely, Roth IRAs offer the option to contribute after-tax funds, but you can then leave your funds in the account as long as you wish. And, if you expect to be in a higher tax bracket in the future (most people will be as they build wealth), you’ll pay less taxes in the present because you’ll have less income than future you.
“The biggest mistake I have made, in my opinion, with my money is not taking advantage of the one-time conversion that I could’ve done from my pre-tax into a Roth and just had that money grow,” said Orman in one of her podcast episodes.
Orman, therefore, missed out on the opportunity to build tax-free wealth. Moral of the story: if you expect to be in a higher tax bracket in the future, take advantage of tax-free growth in the future rather than opting for a tax break in the present.
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