Here’s something to think about…

In 2004, Alan Greenspan – who everybody just loved – decided it was in the best interest of the economy and the American taxpayers to have lenders provide greater mortgage product alternatives to the traditional fixed-rate mortgage. And so, he enacted his plans to do just that and between 2004 and 2006, home values soared 35%.

I wonder what he thinks about his plans now?

But, the truth is, we can’t solely blame Greenspan just as we can’t solely blame the lenders for this ridiculous mess that we’re in. Ultimately, consumers walked into loans – knowing they couldn’t afford them – and opted to do riskier loans in hopes that their houses would appreciate quickly enough to refinance and make it more affordable. Consumers are just as guilty of working the system as the lenders in this mess.

As Suze Orman says – and yes, I happen to like her quite a bit – “financial security comes from acting responsibly, even when everyone around you is behaving irresponsibly.” That statement could mean something different to you, but to me, the point is that we have an obligation to ourselves to understand what we are getting into. So, with that I thought we could talk about Suze’s four rules of financial responsibility.

Rule # 1 – Don’t take my word for it.

There are people in this world who are considered experts at what they do. In terms of what I do, I’m considered an expert, but I freely admit that I don’t know everything. However, when it comes to you making a financial decision, it HAS to be one that you want to make for yourself and your financial well-being. It can’t be because someone told you it might be a good idea. There is no excuse not to understand every investment and financial decision you make. There are plenty of resources out there to learn from. Ask questions and learn about the market around you. Why is this so important? Because, at the end of the day, YOU are the one that made the investment or decision, not the person that gave you the advice. YOU are the one that has the most to lose by not understanding your options.

Rule # 2 – Wishful thinking can lead to financial ruin.

Let’s go back to the example above where I talked about people hoping their homes would appreciate quickly so they could refinance. They got into a sticky situation based on what they “hoped” would happen. Well, when you start making financial decisions based on things you hope will happen, you start to get into trouble. The same is true of investing. If you start chasing a risky investment because it’s hot and you hope to cash in on the goods, even though it doesn’t make the most financial sense for YOUR situation, you risk losing in the end. You gotta stick with what makes the most sense based on facts, not on emotion or hopes.

Rule # 3 – Stuff happens.

We all know this, and what’s worse is that when it rains, it pours. There are just those times in our lives when something inevitably goes wrong. The fridge goes out, the dishwasher needs repairing, we need new tires, the kids need this or that, whatever the case may be. Yet, it still amazes me the number of people who don’t have an emergency fund with at least three-six months expenses tucked away. Having an emergency fund is like the bottle of tequila to life’s lemons. Hey, it’s five o’clock somewhere!

Rule # 4 – If you can’t afford it today, don’t buy it!

Putting something on your credit card that you know you won’t be able to pay off at the end of the month is consciously making the decision that you’ll pay for it later. If you’re lucky, you’re sitting at around 7%. If not, you may be upwards of 10%. But, if you’re a financial mess you may be looking at the 20% range. None of these rates make financial sense in the long run for something you didn’t need in the first place, you just wanted to have it right then and there. This is why a 24-hour cooling off period is important. After thinking about it overnight, nine times out of ten, you can wait until you save the cash for the item. I really like how Suze puts it, “buy what you can afford today and your tomorrows will be that much more financially secure. I like secure.

Suze Orman’s rules of financial responsibility are about doing what’s right, not what’s easy. She talks a lot about this on her shows and she gets really heated in some of her discussions. Finances tend to rile people up…can’t imagine why that is. At any rate, the point that she ultimately wants to make here is that we have to take responsibility for our choices and educate ourselves in order to be secure in our future. At least, that’s what I take away from her rules.

So, let’s talk about Suze Orman for a moment here. What are your thoughts on her rules? Do you think she offers good advice that makes sound, financial sense? Or is she just another guru out to make money herself?

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4. My Top 8 Financial Resources Just Starting Out
5. Law Professor Says Financial Education Should Stop