The Money Book for the Young, Fabulous & Broke

by Suze Orman

Troy Shu
Troy Shu
Updated at: May 15, 2024
The Money Book for the Young, Fabulous & Broke
The Money Book for the Young, Fabulous & Broke

Actionable financial guidance for young, broke readers - learn credit management, debt reduction, and retirement planning strategies tailored to your unique situation. Improve your financial standing quickly with this comprehensive book summary.

What are the big ideas?

Action-Oriented Financial Guidance

This book excels in offering young and financially troubled readers clear, actionable steps tailored to their unique situations. Unlike generic advice, it provides a series of specific recommendations and processes designed for immediate implementation, helping readers improve their financial standing quickly and effectively.

Realistic Financial Strategies

Acknowledging the impracticality of commonly dispensed personal finance advice, the author presents more realistic and achievable financial strategies. This includes advice on managing debts and expenses in a way that is both sustainable and suited to the limited financial resources of young individuals.

Introduction to Credit Management

The book provides a comprehensive introduction to managing credit, emphasizing the importance of understanding and improving one's FICO score. It covers detailed strategies for dealing with credit reports, credit card balances, and how to leverage credit scores for better financial terms.

Career Advancement Tactics

Moving beyond mere job hunting tips, the book delves into strategies for long-term career advancement like making strategic decisions that prioritize career fulfillment over immediate financial gain, and the tactical use of credit to bridge income gaps during career transitions.

Holistic Approach to Debt and Savings

Rather than focusing solely on debt repayment or saving, the book advocates a balanced approach. It guides readers on how to effectively manage their debts while simultaneously building a robust saving plan, acknowledging the interconnectedness of these financial aspects.

Comprehensive Retirement Planning

The book lays out a detailed road map for retirement planning that includes leveraging employer-matched 401(k) contributions, understanding the benefits of Roth IRAs, and the strategic use of rollovers and conversions. This approach helps young individuals start their retirement planning early, utilizing the benefits of compound interest over a longer term.

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Action-Oriented Financial Guidance

This book provides action-oriented financial guidance tailored to the unique situations of young, financially-troubled readers. Unlike generic personal finance advice, it offers a series of specific recommendations and processes that readers can immediately implement to improve their financial standing quickly and effectively.

The book recognizes that young people dealing with financial difficulties have different needs and priorities than older, more financially stable individuals. Rather than lecturing about cutting back on lattes or building up emergency savings, the advice in this book is customized to address the real-world problems young, broke readers are facing, such as managing student loans, building credit, and affording big purchases like a car.

The author provides clear, step-by-step instructions on what actions to take and why. This makes the guidance easy to understand and apply, without requiring any prior financial knowledge. The focus is on helping readers make tangible progress, not just offering abstract concepts.

Key Insight: Action-Oriented Financial Guidance

This book excels in offering young and financially troubled readers clear, actionable steps tailored to their unique situations. Unlike generic advice, it provides a series of specific recommendations and processes designed for immediate implementation, helping readers improve their financial standing quickly and effectively.


  • The book acknowledges that readers want "advice that deals with your reality—a set of solutions for the problems you have" and promises to provide "clear advice on how to get the job done" without requiring "an iota of prior knowledge."
  • It avoids generic advice like "cut back on the lattes and 'simply' save $10 a day," recognizing that such suggestions are not "realistic or reasonable" for the book's target audience.
  • Instead, the book directly addresses common financial struggles of the "young, fabulous & broke," such as:
    • Relying on credit card cash advances to pay rent
    • Having a "ton of student loans" that are difficult to pay off
    • Not opening credit card bills due to fear of debt
    • Lacking a down payment to buy a home
    • Scrounging for change to cover bounced checks and fees
    • Struggling to save for retirement and children's college
  • The book promises to put readers "on a straighter line out of broke" based on the author's experiences, rather than generic personal finance advice.

Realistic Financial Strategies

The author recognizes that typical personal finance advice often fails to address the real-world challenges faced by young, broke individuals. Instead, the author offers realistic financial strategies tailored to your situation.

Rather than lecturing about cutting back on lattes or building massive emergency funds, the author focuses on practical steps. The priority is managing debts, like credit cards and student loans, in a way that works with your limited resources. The goal is to find sustainable solutions, not impose unrealistic burdens.

The author also advises on managing expenses intelligently. For example, the author cautions against overspending on depreciating assets like cars, which can drain your finances. Instead, the focus should be on making every dollar count towards your long-term goals, not short-term gratification.

Overall, the author provides actionable advice to help you navigate your financial challenges. The guidance is designed to empower you to take control of your money, not add to the stress of being young and broke.

Key Insight: Realistic Financial Strategies

The author presents more realistic and achievable financial strategies, acknowledging the impracticality of commonly dispensed personal finance advice:

  • Recognizes that saving $10 a day when you are broke is not simple: "As if saving $3,650 a year when you are broke could ever be simple."

  • Advises against the common recommendation to have 8 months of living expenses saved as an emergency fund, as this is "not realistic or reasonable for the majority of you at this point in your lives."

  • Cautions against the auto industry's seductive leasing offers, noting that "a car is flat-out the worst investment you will ever make" and that "the moment you drive a new car off the lot, it loses about 20 percent of its value."

  • Suggests focusing on reducing debt and building savings, rather than splurging on expensive cars, as "doesn't it make more sense to drive a less flashy car and use the money you save to fund a Roth IRA, reduce your credit card balance, or work on whittling down your student loans?"

  • Advises against strict budgeting, as "Budgets are about as successful as fad diets where you lose a ton of weight at first and then gain even more back" and instead recommends "looking for some reasonable changes you can make in order to 'find' money to put toward your savings goals."

The author draws on personal experiences to illustrate the challenges young, financially-strapped individuals face, and provides practical, achievable strategies to improve their financial situations.

Introduction to Credit Management

The book emphasizes the critical importance of understanding and managing your FICO score. Your FICO score is a three-digit number that determines the interest rates you'll pay on loans, credit cards, and mortgages. It can even impact your ability to get a cell phone plan or rent an apartment.

Knowing how FICO scores are calculated and taking steps to improve your score is essential for getting the best financial deals. The book provides a detailed breakdown of the FICO formula, explaining the five key factors that determine your score. Armed with this knowledge, you can take targeted actions to boost your creditworthiness.

The book also covers smart strategies for using credit cards, paying off debt, and building an emergency savings fund. It cautions against common financial missteps and provides practical guidance on navigating the complex world of personal finance as a young, broke individual. By mastering credit management, you can set yourself up for long-term financial success.

Here are the key examples from the context that support the introduction to credit management:

  • FICO Score Fundamentals: The context explains that a FICO score is a 3-digit number that determines interest rates and financial opportunities. It is calculated based on spending and bill-paying habits, and is used by lenders, employers, and others to assess financial responsibility.

  • Importance of FICO Score: The context states that "Just about every financial move you will make for the rest of your life will be somehow linked to your FICO score." It impacts credit card rates, car loans, mortgages, renting an apartment, and even getting a cell phone or job.

  • Good vs. Bad Credit Card Use: The context provides guidance on using credit cards responsibly, distinguishing between "good uses" like buying groceries versus "bad uses" like discretionary spending. It advises calculating the true cost of purchases when factoring in high interest rates.

  • Strategies for Paying Down Debt: The context recommends focusing on paying off high-interest credit card debt before saving, and using credit cards strategically for emergencies rather than taking out cash advances. It cautions against using home equity or 401(k) loans to pay off credit cards.

  • Dealing with Student Loans: The context acknowledges the burden of student loan debt, but emphasizes that it is a worthwhile investment that can significantly increase lifetime earnings potential. It provides guidance on managing and consolidating student loans.

Career Advancement Tactics

The book outlines a strategic approach to career advancement that prioritizes long-term fulfillment over immediate financial gain. The key tactics include:

Prioritize Career Growth Over Salary: Early in your career, focus on gaining responsibility and exceeding expectations rather than chasing higher pay. Prove your value to your employer, and the money will follow. Avoid the temptation to demand a raise before you've demonstrated your worth.

Leverage Credit Strategically: Use credit cards judiciously to bridge income gaps during career transitions. This allows you to pursue roles that align with your long-term goals, even if the starting salary is low. But be disciplined - don't use credit for discretionary spending.

Become Indispensable: Go above and beyond your job description. Anticipate needs and take initiative. Make yourself a valued, irreplaceable asset. This will give you leverage to negotiate better compensation or explore new opportunities when the time is right.

The book emphasizes that career advancement is a marathon, not a sprint. By making strategic choices and demonstrating your value, you can build a fulfilling career path, even if the initial financial rewards are modest. The key is to focus on becoming indispensable rather than just chasing a bigger paycheck.

Here are the key examples from the context that support the insight about career advancement tactics:

  • Lauren, a YF&Ber who went to the Rhode Island School of Design to become a shoe designer: After graduation, Lauren turned down a $65,000-a-year job as a toy designer to take an entry-level job at less than half that salary at a company that had a shoe-design division. She was fine with the dues-paying work, even though the salary was low, because her goal was to gain experience and traction in her desired career as a shoe designer.

  • Lauren's strategy: She moved to an apartment closer to work to save on transportation costs and spent more time at the office, always looking to do more than was expected of her. Within a year, her hard work and dedication paid off - she was promoted to shoe designer and received a great raise, without having to lobby for it. The author advised her not to focus on the money early on, but rather on proving her value and becoming indispensable.

  • The author's advice: He tells readers to "focus on the long view and build a career" rather than just taking a job that pays the bills. He encourages them to be willing to take an entry-level position and "pay some dues" in order to establish themselves in a career they are truly interested in, even if the starting salary is low. The key is to become a "valued asset" at the company through hard work and initiative.

The key concepts illustrated here are:

  • Prioritizing career fulfillment over immediate financial gain
  • Using strategic career moves (like taking a lower-paying job) to gain experience and traction in a desired field
  • Becoming indispensable to the employer through hard work and initiative, rather than just demanding higher pay

Holistic Approach to Debt and Savings

The book promotes a holistic approach to managing your finances. It recognizes that simply focusing on either debt repayment or saving is not enough. Instead, it guides you on how to effectively balance these two critical aspects.

On one hand, the book advises paying off high-interest debts, like credit cards, before aggressively saving. This makes mathematical sense, as the interest you pay on debts often exceeds the returns you can earn on savings. However, the book acknowledges the psychological benefits of having some savings, even while tackling debts.

On the other hand, the book cautions against neglecting savings entirely, even when in debt. It recommends building up an emergency fund to cover unexpected expenses, so you don't have to rely on costly credit card debt. The book also emphasizes the importance of long-term savings, like for retirement, which can compound over time.

The key is to find the right balance between debt repayment and saving, based on your unique financial situation and goals. By taking this holistic approach, you can make steady progress on multiple fronts, rather than focusing on one area at the expense of the other.

Here are the key examples from the context that support the holistic approach to debt and savings:

  • The author shares her own experience of earning a high income but still accumulating significant credit card debt, rather than saving. This illustrates the need to manage both debt and savings, not just focus on one or the other.

  • The author advises readers to "let the interest rates on your credit cards be your guide" when deciding whether to focus on paying off debt or building savings first. This shows the interconnectedness of debt and savings.

  • The author recommends using credit cards responsibly for "good uses" like necessary expenses, rather than "bad uses" like indulgences. This balanced approach allows readers to use credit cards when needed while still working to pay down debt.

  • The author suggests tapping retirement accounts like a Roth IRA or traditional IRA as a last resort for emergency expenses, but cautions readers to "make every effort to replenish your retirement kitty as quickly as possible." This demonstrates the need to balance short-term emergency savings with long-term retirement savings.

  • Throughout the context, the author provides specific guidance on managing both debt (credit cards, student loans) and savings (emergency fund, retirement accounts), rather than treating them as separate financial priorities. This holistic approach is the key insight.

Comprehensive Retirement Planning

The book outlines a comprehensive retirement planning strategy for young individuals. The key components are:

Employer-Matched 401(k) Contributions: Contribute enough to your 401(k) to get the maximum employer match. This is free money that can supercharge your retirement savings.

Roth IRA: Open a Roth IRA and contribute to it regularly. Roth IRAs provide tax-free growth and withdrawals in retirement, making them a powerful complement to a 401(k).

Rollovers and Conversions: When changing jobs, roll over your 401(k) into a new employer's plan or an IRA. You can also convert a traditional IRA to a Roth IRA to benefit from tax-free growth.

By leveraging these retirement accounts early on, young individuals can harness the power of compound interest over decades to build a substantial nest egg. This comprehensive approach sets them up for financial security in retirement.

Key Insight: Comprehensive Retirement Planning

The book lays out a detailed road map for retirement planning that includes:

  • Leveraging employer-matched 401(k) contributions: The book explains that contributing to a 401(k) with an employer match is the "job one" priority, as the employer match is "free money" that can help accelerate retirement savings.

  • Understanding the benefits of Roth IRAs: The book highlights the Roth IRA as a complementary investment account to the 401(k), noting that Roth contributions can be withdrawn penalty-free in emergencies, making it a useful "emergency cash fund" in addition to a retirement account.

  • Strategic use of rollovers and conversions: The book advises readers on how to handle 401(k) accounts when changing jobs, emphasizing the importance of rolling over old 401(k)s into new accounts to maintain the tax-advantaged status of those retirement savings.

The book's comprehensive approach helps young individuals start their retirement planning early, utilizing the benefits of compound interest over a longer term.


Let's take a look at some key quotes from "The Money Book for the Young, Fabulous & Broke" that resonated with readers.

You need face time, not computer time. When you’re in a tough job market, it’s the personal touch that gets you the job.

In a competitive job market, it's essential to make personal connections and establish relationships with people who can help you achieve your career goals. Simply relying on digital means, such as sending resumes online, may not be enough to stand out from the crowd. Instead, focus on building face-to-face interactions and networking with others in your industry to increase your chances of landing a job. This personal touch can make all the difference in getting hired.

Saving is for a short-term goal that you hope to reach within five years or so. Investing is for the long term.

When you're working towards a goal that's close on the horizon, it's essential to set aside a specific amount of money to achieve it. This is known as saving, and it's typically used for short-term objectives that can be reached within a few years. On the other hand, investing is a long-term strategy that involves growing your wealth over an extended period, often with a time horizon of five years or more.

You want your diversified stock portfolio to include stocks from different industries, large companies, small companies, companies here in the United States, foreign companies, new companies, and old companies.

A well-diversified investment portfolio should include a mix of stocks from various sectors, company sizes, and geographic locations. This means combining established companies with newer ones, and those based in the US with international firms. By doing so, investors can spread risk and increase potential returns over the long term.

Comprehension Questions

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How well do you understand the key insights in "The Money Book for the Young, Fabulous & Broke"? Find out by answering the questions below. Try to answer the question yourself before revealing the answer! Mark the questions as done once you've answered them.

1. What is the primary focus of the financial guidance offered in the book?
2. How does the book's financial advice differ from traditional personal finance advice?
3. Why is the advice in the book easy to apply for readers with no prior financial knowledge?
4. What are some of the specific financial problems addressed by the book?
5. What is the author's perspective on setting aside large emergency funds for financially struggling individuals?
6. Why does the author caution against spending heavily on depreciating assets like cars?
7. What practical steps does the author suggest for managing debts?
8. How does the author view traditional budgeting methods?
9. What is a FICO score and why is it important for financial transactions?
10. What are the five key factors that determine a FICO score?
11. Why might someone prioritize paying off high-interest credit card debt before starting or contributing to savings?
12. How can responsible use of credit cards positively impact your financial management?
13. What strategies can be used to manage student loans effectively?
14. Why should you prioritize career growth over salary early in your career?
15. How can credit cards be used strategically during career transitions?
16. What are some ways to become indispensable at your workplace?
17. Why is it crucial to balance debt repayment and saving instead of focusing on just one?
18. What are the mathematical and psychological reasons for prioritizing high-interest debt repayment over aggressive saving?
19. How does building an emergency fund help in managing finances, even when in debt?
20. What long-term financial goals should not be neglected even when focusing on immediate financial issues like debt?
21. How should credits cards be used responsibly to aid in maintaining a balance between debt repayment and saving?
22. What is the primary benefit of contributing enough to your 401(k) to receive the full employer match?
23. Why is a Roth IRA considered a powerful retirement savings tool?
24. What should you do with your 401(k) when changing jobs to maintain its tax-advantaged status?
25. How does converting a traditional IRA to a Roth IRA benefit your retirement savings?

Action Questions

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"Knowledge without application is useless," Bruce Lee said. Answer the questions below to practice applying the key insights from "The Money Book for the Young, Fabulous & Broke". Mark the questions as done once you've answered them.

1. How can you apply specific recommendations from financial guidance to effectively manage your student loans?
2. What steps can you take to build your credit as a financially struggling young individual?
3. How can you reorganize your monthly spending to prioritize debt reduction over non-essential purchases?
4. What are some strategies you can adopt to avoid financial pitfalls when considering major purchases like a car?
5. How could you modify your current financial behaviors to optimize your FICO score?
6. What strategic decisions can you make today to prioritize career growth over immediate financial gain in your professional journey?
7. How can you assess and adjust your financial strategies to ensure both debt repayment and savings growth are balanced in your life?
8. What steps can you take to create an emergency fund while managing existing debts?
9. How can you optimize your contributions to a 401(k) and a Roth IRA to maximize your retirement savings?

Chapter Notes

Introduction: For the Young, Fabulous & Broke

Here are the key takeaways from the chapter:

  • You are not alone: The author has talked to thousands of young people like the reader who are dealing with financial challenges, and the reader has "plenty of company" in this situation.

  • You have time on your side: Being young, the reader has time to right any missteps and build a solid financial life. The author believes the reader has the "bandwidth to take the advice in this book and put it into action."

  • This book is tailored to your reality: The author understands the reader's situation and has customized the advice in the book to fit the reader's life today, rather than providing generic personal finance advice.

  • The book will provide clear, actionable steps: The reader wants to be told what to tackle first and how to get the job done, and the author promises to deliver this in a concise manner, only diving into crucial details.

  • The book avoids unrealistic advice: The author acknowledges that common personal finance advice, such as cutting back on lattes or saving $10 per day, is not realistic or reasonable for the reader's current financial situation.

  • The book defines "broke": The author provides a detailed description of what it means to be "broke," including relying on credit card advances, having overwhelming student loans, avoiding opening bills, and lacking any savings.

  • The goal is to fix the reader's situation and ensure they never revisit "broke": The book aims to not only get the reader past their current "broke" status, but to ensure they never return to that state again by teaching them how to properly manage their finances.

1. KNOW THE SCORE • What your credit report says about you • How your credit score runs your financial life • Smart moves for boosting your score

  • Understand the FICO Score: The FICO score is a three-digit number that determines the interest rates you pay on credit cards, loans, and mortgages, as well as your ability to get approved for various financial products. It is calculated based on your credit history, debt levels, and payment patterns.

  • Check and Correct Credit Reports: Regularly check your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) to ensure there are no errors or fraudulent activity. Dispute any inaccuracies with the credit bureaus and the businesses involved.

  • Focus on the Five Key Factors: The five key factors that determine your FICO score are: payment history (35%), credit utilization (30%), length of credit history (15%), new credit applications (10%), and credit mix (10%). Prioritize improving these areas to boost your score.

  • Manage Debt-to-Credit-Limit Ratio: Keep your credit card balances low relative to your credit limits. Aim for a debt-to-credit-limit ratio of 30% or less, as this can significantly improve your FICO score.

  • Protect Your Credit History: Avoid canceling old credit cards, as this can shorten your credit history and negatively impact your score. If you must cancel a card, do so strategically by closing the newest cards first.

  • Limit New Credit Applications: Applying for multiple new credit cards or loans in a short period can temporarily lower your FICO score. Limit new credit applications to a two-week period when shopping for a mortgage or other major loan.

  • Leverage Authorized User Status: If you have a high FICO score, you can add your children as authorized users on your credit cards to help them build credit history and a strong credit profile.

  • Avoid Bankruptcy if Possible: Declaring bankruptcy can severely damage your FICO score, making it difficult to obtain credit, loans, or even housing and employment opportunities in the future.

  • Prioritize On-Time Payments: Making at least the minimum payment on all your accounts on time is the single most important factor in maintaining a good FICO score.

  • Understand the Impact of Student Loans: Delinquent student loan payments can negatively impact your FICO score, so it's crucial to stay current on these obligations.

2. CAREER MOVES • Surviving on a too-small paycheck • Paying your dues •Dealing with office politics • Effective job hunting

  • Focus on the Right Career, Not Just a Job: The chapter emphasizes the importance of pursuing a career that aligns with your passions and interests, rather than settling for a job that merely pays the bills. It encourages readers to avoid the trap of complacency and to actively work towards building a fulfilling career, even if it means taking a short-term financial hit.

  • Aim for the Best Opportunity, Not the Highest Salary: The chapter advises readers to prioritize finding the right job at the right company in the right field, rather than solely focusing on the highest salary. It suggests that the right job, even if it pays less initially, can lead to greater long-term success and satisfaction.

  • Use Credit Cards to Bridge the Income Gap: If following your dreams means accepting a lower-paying job or going back to school, the chapter suggests using credit cards to cover the income gap, as long as you can manage the debt responsibly. This approach allows readers to pursue their passions without being hindered by immediate financial concerns.

  • Make Yourself Indispensable: The chapter emphasizes the importance of working hard, exceeding expectations, and making yourself an invaluable asset to your employer. By doing so, you can gain leverage and power in the workplace, which can lead to better opportunities for advancement and higher compensation.

  • Focus on Making Your Boss Look Good: The chapter advises readers to prioritize making their boss look good, even if it means that they don't receive the full credit for their work. It suggests that this approach can ultimately benefit the reader's career, as it can lead to promotions and new opportunities within the organization.

  • Negotiate Raises Strategically: The chapter provides guidance on how to negotiate raises effectively, emphasizing the importance of focusing on your achievements and contributions, rather than personal financial needs. It suggests that a confident and professional approach can lead to successful negotiations.

  • Carefully Consider Going Back to School: The chapter cautions readers against using going back to school as an "escape hatch" from an unsatisfactory job. It suggests that a well-planned and thoughtful career change that involves further education is more likely to lead to long-term success and satisfaction.

3. GIVE YOURSELF CREDIT • Qualifying for the best credit card deals • Balance transfers • Fee traps • Protecting a low interest rate •The best way to pay down your balances

Here are the key takeaways from the chapter:

  • Credit Cards as a Lifeline: Credit cards can be a great lifeline when you don't yet make enough money to live on, but only if you are truly committed to using the card solely for necessary expenses, not indulgences.

  • True Cost of Purchases: The true cost of a purchase can be double or triple its price tag if the charge goes onto a card where you pay only the minimum amount due and have a high interest rate.

  • Avoid Cash Advances: Cash advances are a big-time rip-off. The interest rate is typically above 20% and you'll start paying interest the minute the money is spit out of the ATM.

  • Importance of Timely Payments: Credit card companies can use a late payment on another loan or credit card as an excuse to boost the rate they charge on their card. Always pay at least the minimum amount due on time for all your cards.

  • Monitoring Due Dates: The due date for your credit card payment can change; check each statement to make sure you know when the bill needs to arrive at the card company.

  • Leveraging FICO Score: The higher your FICO score, the more bargaining power you have to push for a lower interest rate on your credit card.

  • Balance Transfers: Transferring your balance to a card with a low interest rate is a smart way to reduce your debt costs. Before you transfer, ask about the "real" rate after the introductory tease rate expires and any fees for the transfer.

  • Cosigning Risks: Cosigning a credit card application for a friend is a disaster waiting to happen. You will be on the hook if your friend can't (or won't) pay their bill.

  • Avoid Secured Debt: Don't use a home equity line of credit or a loan from your 401(k) to pay off credit card debt.

  • Bankruptcy as a Last Resort: Do everything you can to dig out of a big debt hole; declaring bankruptcy is a lousy solution that can end up costing you more than your current debt would.

4. MAKING THE GRADE ON STUDENT DEBT • Consolidation strategies • Payback options

Here are the key takeaways from the chapter:

  • Interest Rates on Federal Student Loans: Federal student loans issued before July 1, 2006 have variable interest rates that are reset annually on July 1, with a maximum rate of 8.25%. Loans issued after July 1, 2006 have a fixed 6.8% interest rate.

  • Bankruptcy and Student Loans: Student loans cannot be discharged through personal bankruptcy, except in cases of extreme hardship. Defaulting on student loans can have severe consequences, including wage garnishment, loss of eligibility for federal aid, and damage to your credit score.

  • Repayment Options: There are several repayment options available for federal student loans, including standard, extended, graduated, income-sensitive, and income-contingent plans. Borrowers can also request deferment or forbearance in certain circumstances.

  • Consolidation: Borrowers can consolidate multiple federal student loans into a single loan with a fixed interest rate, which can provide more flexibility and potentially lower monthly payments. However, consolidation may affect eligibility for deferment and loan forgiveness programs.

  • Interest Rate Reduction: Borrowers can get a 0.25% reduction in their interest rate by setting up automatic monthly payments from their bank account. Additional reductions may be available for making on-time payments for an extended period.

  • Tax Deduction: Borrowers with federal student loan interest payments may be eligible for a tax deduction of up to $2,500 per year, depending on their income level.

  • Combining Spousal Loans: It is generally not recommended to consolidate student loans with a spouse, as this can complicate the repayment process and create potential issues in the event of a divorce or death.

  • Using Home Equity: Borrowers with home equity may be able to use a home equity loan or line of credit (HELOC) to pay off high-interest student loans, but this strategy carries the risk of potentially losing one's home if payments cannot be made.

  • Deferment and Forbearance: Borrowers who are unemployed, returning to school, or facing other financial hardships may be eligible for deferment or forbearance, which can temporarily pause or reduce their student loan payments.

  • Prioritizing Debt Repayment: When deciding how to allocate extra funds, borrowers should prioritize paying off the highest-interest debt first, such as credit cards, before focusing on lower-interest student loans.

5. SAVE UP • Squeezing more out of what you make • Paying off debt vs. saving • CDs, money markets, money funds

Here are the key takeaways from the chapter:

  • Saving vs. Investing: Saving is for short-term goals (within 5 years), while investing is for long-term goals (10+ years). Savings should be kept in low-risk accounts like CDs, money market accounts, or money market funds.

  • Pay Off High-Interest Debt First: If you are paying high interest rates (e.g. 18%) on credit card debt, it makes more sense to pay that off before saving, as the interest you save by paying off the debt will outweigh the interest you earn on savings.

  • Build an Emergency Fund: Aim to save 6-8 months' worth of living expenses in an emergency fund to cover unexpected expenses without having to go into debt. You can build this up gradually over time.

  • Maximize Employer 401(k) Match: If your employer offers a 401(k) match, contribute at least enough to get the full match, as this is free money that you don't want to pass up.

  • Reduce Unnecessary Expenses: Look for small ways to save, like cutting back on dining out, dry cleaning, haircuts, etc. These small savings can add up quickly.

  • Avoid Overdraft/Bounced Check Fees: Review your bank statements carefully and opt out of any "overdraft protection" that charges fees. Switch to a bank with more convenient ATMs to avoid fees.

  • Declutter and Sell Unused Items: Go through your closets and home and sell or donate any unused items - the money you make can go towards your savings goals.

  • Consider Lifestyle Changes: For bigger savings, consider getting a roommate, driving your car longer, or moving to a less expensive neighborhood.

  • Redeem Savings Bonds Carefully: Understand the terms and penalties for redeeming any old savings bonds you may have, and use the Treasury's calculator to determine their current value.

  • Success is About Spending Wisely, Not Just Earning More: It's not just about increasing your income, but also being intentional about where that money goes.

6. RETIREMENT RULES • Why you can’t afford to pass up a 401(k) company match • How a Roth IRA trumps your 401(k) •The right way to do an IRA rollover

Here are the key takeaways from the chapter:

  • 401(k) Company Match is Free Money: A company match on a 401(k) is free money that you should not pass up. Contribute enough to your 401(k) each year to qualify for the maximum company match, as this is an immediate 50-100% return on your investment.

  • 401(k) Tax Deferral: When you invest in a 401(k), you get a tax break upfront as your contributions are made with pre-tax dollars. However, you must pay income tax on all withdrawals from the 401(k) in retirement.

  • 401(k) vs. Roth IRA Strategy: Contribute to your 401(k) only up to the maximum company match, then focus on contributing to a Roth IRA. The Roth IRA does not provide an upfront tax break, but withdrawals in retirement are tax-free.

  • Roth IRA Eligibility: You are eligible to contribute to a Roth IRA if your adjusted gross income is less than $95,000 for single filers or $150,000 for joint filers. The Roth IRA is an excellent investment tool for young investors as it allows tax-free growth and withdrawals in retirement.

  • Power of Compounding: Small investments made early in your career have time to grow significantly through the power of compounding returns over decades. Starting to invest for retirement in your 20s or 30s can lead to much larger balances by the time you retire compared to waiting until your 40s.

  • Diversification: Avoid having too much of your retirement savings invested in your employer's stock, as this concentrates your investment risk. Diversify your portfolio to protect against the risk of your employer's financial troubles.

  • 401(k) Rollovers: When changing jobs, always do a direct 401(k) rollover to an IRA rather than cashing out the account. This allows your retirement savings to continue growing tax-deferred.

  • Roth Conversions: After rolling over a 401(k) to an IRA, you can convert the IRA to a Roth IRA if your income is below $100,000. This allows you to pay taxes on the conversion now in exchange for tax-free withdrawals in retirement.

7. INVESTING MADE EASY • The best funds for your 401(k) and Roth IRA • Diversifying your risk • Dollar cost averaging

Here are the key takeaways from the chapter:

  • Diversification is crucial: The most important investing rule is to diversify your money by holding stocks from a variety of companies, rather than just a few. This helps minimize risk if any single investment performs poorly.

  • Stocks are for long-term investments: Stocks and stock mutual funds should only be used for long-term investments (at least 5 years) as they carry more risk in the short-term compared to other assets like savings accounts or bonds.

  • Mutual funds provide instant diversification: For those with limited budgets, mutual funds are a better option than individual stocks as they allow you to own shares in dozens of companies, providing instant diversification.

  • Dollar cost averaging is a powerful strategy: Regularly investing small amounts over time through a strategy called "dollar cost averaging" can lead to long-term success, as it allows you to buy more shares when prices are low.

  • Minimize expenses: Aim to invest in mutual funds with low annual expense ratios (below 1%) and avoid any funds with front-end or back-end loads (sales commissions).

  • Index funds often outperform actively managed funds: Low-cost index funds that track the overall market often outperform actively managed mutual funds over the long-term.

  • Bonds are less important when young: When you are young (under 40), there is little need to invest in bond funds as your investment horizon is long enough to weather the ups and downs of the stock market.

  • Exercise stock options carefully: When exercising non-qualified stock options (NQSOs), you should sell the shares immediately and reinvest the proceeds to diversify your holdings.

8. BIG-TICKET PURCHASE: CAR • The lease trap • Financing tips • Cash back v. zero-percent loan • Auto insurance

Here are the key takeaways from the chapter:

  • Avoid Leasing Cars: Leasing a car is a dangerous financial trap that keeps you in a cycle of perpetual car payments. Instead, buy a car and pay off the loan - this way, you will eventually own the car outright and avoid making monthly payments.

  • Buy Used, Not New: Buying a new car is a terrible investment, as it loses 20% of its value the moment you drive it off the lot. Instead, consider buying a "new used" car that is 1-2 years old, as it will be in great condition but cost significantly less than a brand new car.

  • Negotiate the Best Price: When buying a new car, don't just accept the Manufacturer's Suggested Retail Price (MSRP). Research the invoice price and any dealer incentives, and negotiate to get the best possible price, closer to the invoice price.

  • Understand Financing Options: If your credit score is high (720+), you may qualify for a 0% financing deal from the dealer. Otherwise, shop around for the best interest rate from banks, credit unions, or online lenders.

  • Get Comprehensive Car Insurance: Don't skimp on car insurance coverage. Opt for higher liability limits (100/300/50) to protect your assets in case of an accident. Also, consider a higher deductible (e.g. $1,000) to lower your premiums.

  • Avoid Cosigning Loans: Never cosign a car loan for a friend or family member. If they default, you will be on the hook for the entire loan, which can severely damage your credit.

  • Keep Cars Longer: Once you pay off a car loan, continue driving the car for several more years. This allows you to avoid the constant cycle of car payments and get the most value out of your vehicle.

9. BIG-TICKET PURCHASE: HOME • Making the move from renter to homeowner • Running the mortgage maze • Private mortgage insurance • Protecting your home

Here are the key takeaways from the chapter:

  • Total Cost of Homeownership: The basic mortgage cost for a home is deceptive. You must add at least 40% to a basic monthly mortgage to account for all the extra costs that come with ownership, such as property tax, higher home insurance costs, maintenance, and possibly private mortgage insurance (PMI).

  • Down Payment Sources: Family gifts can be a great down payment source, but it must be a gift, not a loan, to make the lender happy. Closing costs can run to 2-3% of your mortgage costs and must be paid in cash or rolled into the mortgage.

  • Private Mortgage Insurance (PMI): When you make a down payment of less than 20%, ask for the PMI to be rolled into the mortgage to save money. This will increase your monthly payment slightly but avoid the separate PMI charge.

  • Mortgage Brokers: A mortgage broker will shop around for the best loan deals for you. Get prequalified before you house hunt to make sure you will be able to get a loan in your price range.

  • Mortgage Types: A hybrid mortgage (fixed for 3-10 years, then adjustable) is smarter than a 30-year fixed-rate mortgage if you intend to move within the next ten years.

  • Market Conditions: In a seller's market, houses sell fast and at prices that can be higher than the asking price. In a buyer's market, homes are staying on the market longer and are selling at prices below their asking price. Track sales info in your local newspaper to get a sense of your market.

  • Bidding Strategy: Set a price limit before you make an initial bid on a home. If a bidding war develops, walk away once the price exceeds your limit.

  • Home Inspection: A home purchase must be contingent on the property passing a home inspection.

  • Home Insurance: Replacement cost coverage is better than actual cost coverage for your home insurance. Check with your agent annually to make sure your policy is updated to cover rising construction and material costs in your area.

10. LOVE & MONEY • Merging finances when you merge lives • Life insurance • Wills • Trusts • Power of attorney • Borrowing from friends and family

Here are the key takeaways from the chapter:

  • Financial Intimacy is Essential: A solid relationship requires financial intimacy, which means having complete openness and a shared approach to spending, saving, and investing. Couples need to be in sync financially, not just emotionally.

  • Maintain Personal Financial Identity: While merging finances, it's important to maintain some personal financial independence by keeping a checking account and credit card in your own name. This protects you if the relationship ends.

  • Fair Expense Sharing: Living expenses should be paid from a joint checking account, with each partner contributing a fair share based on their individual take-home pay, not a 50/50 split.

  • Importance of Term Life Insurance: If you have dependents, you need term life insurance coverage that is 20 times your current salary to protect your loved ones financially in case of your premature death.

  • Advantages of a Living Revocable Trust: A living revocable trust is better than a will for protecting your heirs, as it avoids the time and cost of probate and includes provisions for incapacity.

  • Caution with Lending to Family/Friends: Before lending money to family or friends, carefully consider the emotional and financial risks, and only lend what you can afford to not be repaid.


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