Normally, I have the criticizing personal financial gurus business all to myself. I like to think this is because I am the only one who sees the faults in their advice, or alternatively, that I am the only one bold enough to say the emperor has no clothes on. But it is also possible I am the only one who takes them seriously enough to bother writing about what they say.
This is not the case with Suze Orman’s recent advice on credit cards and emergency funds. It took a while, but quite a few people thought it was important enough to comment on critically. Welcome to my world.
It started with Orman’s March 1 Suze Scoop. There’s been some disagreement as to what exactly she told her readers to do, so if you are as obsessed about this stuff as I am, click on that link and come back when you are done. In the event that you have more balance in your life, I’ll quote the first two paragraphs.
If you have an unpaid credit card balance and not much saved up in emergency savings I need you to listen up. My advice has changed.
I want you to only pay the minimum due on your credit card balance and instead make it your top priority to build as much of an emergency cash fund as you can.
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It was a rather light month in the frugalosphere. I am certain this does not mean that the trendsetters of the frugal lifestyle have run out of ideas. Could it be an early indication of strengthening economy? Did Tax and/or Earth Day distract bloggers from the frugal cause? I hope not.
I got my hopes up when I saw that there was a post entitled Suggesting Frugal Alternatives to Friends at Art of the Coupon. I was expecting something on how things like Second Life, and, uh, blogging, are cheaper than having actual friends. Sadly, it’s about how to suggest doing less expensive things with your friends, not getting rid of them entirely.
Bargaineering had a detailed post on how to make your own breadcrumbs. More than just a recipe, the post has great tips, for example, that breadcrumbs make good gifts.
Speaking of useful tips, How I Save Money introduced me to the concept of reusable cloth wipes to replace toilet paper. Now I concede that this is the obvious next step from using cloth diapers, but I see an obvious objection. If a frugalist does this they will have no toilet paper tubes to reuse in frugal ways.
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This is the last in my five part discussion of Dave Ramsey’s Seven Baby Steps. (I kicked it off here, and then discussed Step 2, Step 4, and Step 6.) In this post I will tackle Ramsey’s final step, number 7, in which you are instructed to continue to build wealth using equity mutual funds and real estate and to share your bounty with others.
In some ways this is the least substantive of Ramsey’s steps. It is the “and they lived happily ever after” step, as much a carrot to inspire those working their way through the earlier parts of the program as it is a practical set of instructions. But it does provide an excuse to revisit Ramsey’s investment philosophy.
Ramsey is consistent in his aversion to debt. You might call him Shakespearian. “Neither a borrower nor a lender be.” Once you’ve got your debt paid off, invest your savings in growth stock mutual funds and possibly unlevered real estate. Do not lend it to others and do not invest in bonds or bond funds. I think that foolishly limits your investment options, but there is something appealingly old-school about it.
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Last weekend The New York Times, no doubt in response to criticism that the media reports nothing but grim news about the economy, did its best to cheer us up with an article about how a stock market debacle from 75 years ago wasn’t really all that bad after all.
It started out squarely addressing the problem.
Historical stock charts seem to show that it took more than 25 years for the market to recover from the 1929 crash — a dismal statistic that has been brought to investors’ attention many times in the current downturn.
I’m not that easily cheered up, partly because I understand the nature of the optical illusion that makes those charts “seem to show that it took more than 25 years” to recover from the ‘29 crash. The charts tend to make the uninformed observer think it took 25 years to recover because it’s actually true. It was not until 1954 that the Dow got back to its 1929 high.
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Given all the attention generally paid to mortgages, and especially recently, you might think that the basic principles might be widely understood. Alas, no. See, for example, and I cite it only as a typical example, Suze Orman’s 2009 Action Plan, in which she addresses the advisability of borrowing using a 
HELOC (Home Equity Line of Credit, essentially a second mortgage on your house) to pay off credit card debt.
Do not do this. Even if you have enough equity to keep your HELOC open, this is a dangerous mistake. You are putting your house at risk. When you borrow from your HELOC, your home is the collateral. [page 30.]
That has a strong, almost visceral, intuitive appeal. And as strident as Orman is, she is fairly typical in her warnings against “putting your house at risk.” (See this from the Times a while back.) But it is pretty poor advice for many, probably most, people.
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Credit Cards, Gurus, Media, Suze Orman | Frank Curmudgeon | 
May 4, 2009 10:00 am | 
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