There are no stupid questions just inquisitive idiots
This post might get a little long but I think it will be worth it. There are a lot of people out there who don't like Suze Orman but when someone makes sense, when their advice is sound, there simply is no debate. At the end of a recent show Suze said she was amazed by some of the questions people ask her. She said, and I've experienced this too, that people seem to make the same mistakes over and over again. Why? And why do people not learn from other people's mistakes?
Suze's right, for most people personal finance shouldn't be difficult but yet we see the same mistakes all the time; credit card debt, dangerous mortgages with negative amortization, risky business deals, or any number of things.
On her show Suze has a segment that I think is a bit theatrical but that, nonetheless, shows how stupid (sorry for the bluntness) some people can be. The segment in question is "Can I Afford It" and as the saying goes if you have to ask then the answer is no. Of course some people are going to call Suze and the answer is going to be yes. You can learn from these calls by seeing that there are people with their financial lives in order, that they think through a decision and seek out advice before making a choice.
You can also learn from the calls from people who should know better. One such call was from a woman who wanted to put a $100,000 addition on her house. I personally like this idea better than trading up to a bigger house especially with the way home prices have risen over the past few years (in spite of the recent downturn). But if you can't afford it or it will lead to a dangerous amount of debt then it simply isn't the right choice.
The caller who wanted to put the 100k addition on her house had three mortgages. Two of which were rental properties. That's great! As an owner of a rental property myself I think that's a great investment but only if it's done properly. Suze asked the right question which was what would happen if one of the tenants left and the house was vacant for a little while? The woman responded that they wouldn't be able to afford the payments and would have to dip into savings. Not a good situation.
My advice would have been a bit different from Suze's. Just saying no isn't good enough. Why not defer this goal for a while and set some targets to reach? Why not save for this major expense over the next five years? That's not a long time in the grand scheme of things and will give this person time to see how the rental properties are doing and get a more substantial emergency fund in place. Deferred gratification is still gratifying it just takes a little longer.
The other call I want to point out demonstrates a situation I think more and more people are finding themselves in. A woman called who wanted to help her mother out of a bad situation. Her mother's house was being foreclosed on and the caller wanted to buy it and rent it back to her.
Parents are people too and they can make financial mistakes just like us. The problem is that successful children often feel obligated to help their parents, after all they gave you at least 18 years of support. But a bad investment is a bad investment no matter who you're helping and, as difficult as it may be, sometimes the best way to help is by doing nothing. This is especially true when you simply aren't able to help.
The caller who wanted to help her mother out of foreclosure had no income in 2006, had cashed out her retirement savings, and was down to her last $5,000. Who in their right mind would tell this woman that buying a house and expecting her mother, who couldn't pay the mortgage, to pay rent would be a good idea?
All I can say is that there seems to be a lot of people out there who aren't using common sense. The title of this post comes from a very funny website and business (no I'm not making any money from this) called Despair.com. You know those inspirational posters you see in some offices? Well Despair.com calls their posters "demotivators" and the title of this post comes from one of their posters.
So no there are no stupid questions because we can all learn from other people's mistakes. Lord knows we're going to make plenty of our own. Thankfully there are enough inquisitive idiots out there to help us out.
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