FINANCIALconnection
Balance dreams
with reality
Also:
Diversifying
Getting credit
Ask Suze
Orman
Send your personal-
finance questions to:
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088,
or fax to (425) 313-6718
or e-mail to
suze@costco.com.
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Suze will answer
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She regrets that
unpublished questions
cannot be answered
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Suze Orman’s latest
book is Women &
Money: Owning the
Power to Control Your
Destiny. Her TV
show airs Saturday
nights on CNBC. Suze
can be contacted at:
www.suzeorman.com.
By Suze Orman
KEI TH LATHROP
My husband and I bring in $1,100 a
week, our home is worth $450,000, and we
have two and a half years before it’s paid off.
We are parents of three children, 10, 8 and 6.
Our dream is to own a McDonald’s restaurant. Our plan is to sell the house for a down
payment. Do you think this is a good idea?
—Aurora P.
The Bronx, New York
I LOVE DREAMERS, but your dream could become
a financial nightmare. You are going to give up all
that security for something that is risky. Sure, it’s
McDonald’s, but no franchise is a slam-dunk. What
if it doesn’t work out as well as you thought? What
will you live on? Where will you live?
It’s one thing if you plan to move somewhere
where you could buy a home for, say, $150,000 so
you would have security, and then use the rest for the
down payment on your Golden Arches dream. But
that’s not going to work if you stay in the Bronx. And
will you both still be working and bringing in income,
or will your livelihood be tied to the restaurant, too?
Focus on an equally fabulous dream: raising
your three kids in a financially secure environment.
So move slowly here.
I am 85 and just lost my husband. I have $1.2
million, all in CDs. I do not have any debt.
My apartment, a rental, is $3,300 per month,
which is my big expense. Am I safe in having
all CDs? Do you think I can manage for the
rest of my life?
—Florence W.
New York, New York
I AM SORRY FOR your loss. I know $1.2 million is
a lot of money, but given the low-interest-rate environment we are in and the fact that you live in New
York City, which is not only expensive but has high
state income taxes as well, I have to say you may be
cutting it too tight.
Assuming that currently you can earn only
about 3. 5 percent or so on one-year CDs, you would
earn about $42,000 a year in interest. The problem
is that you need to pay tax on that income. That’s
not going to leave you with enough to cover your
rent ($39,600 each year) and other living expenses.
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Consider investing a portion of your money in
treasury notes and general obligation municipal
bonds from New York with maturities up to five
years. The income you earn on the treasuries will
not be taxed at the state level, and the muni bonds
are free of federal and state tax.
With the money in bank CDs, make sure that
you have your money spread among different FDIC-insured banks. The basic rule is that each individual
can have $250,000 at any single bank and have 100
percent assurance that the FDIC will repay every
penny if the bank runs into financial trouble.
I have been a homemaker for 20 years with
no outside employment history. A year ago
I opened a store charge card in my name
to have a personal financial history. In case
something should happen to my husband,
do you recommend having any other credit
under my name?
—Julie M.
Redding, California
I AM GLAD you are thinking about life’s “what-ifs.”
Having a credit history in your own name (in addition to your shared credit history with a spouse) is
vitally important.
Check that the department-store card reports
your payment history to at least one of the credit
bureaus. Not all do. You can find out by going to
www.annualcreditreport.com and requesting a copy
of your credit report from each of the three credit
bureaus (Experian, Equifax and TransUnion).
Then, get another non-store credit card such as
American Express, Visa or MasterCard. If you find
you can’t get one in your name only—because you
have yet to build enough of a credit record—you
can start with a secured credit card. (For information on this, go to
www.cardtrak.com and search for
“secured cards.”) Make sure the card you apply for
also reports to the credit bureaus.
You will have to make a deposit (that’s the
“secured” part), but it’s a great way to start building
a real credit history. Then, when you do go back to
work and have income of your own, you should be
in great shape to qualify for a regular credit card in
your name. C
The Costco Connection
Costco offers high-yield savings accounts and CDs
through Capital One, and credit reporting services
through Identity Guard. For information, go to
costco.com and select “Services.”
