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Personal finance expert Suze Orman knows a thing or two about building wealth from the ground up. After graduating from college, she started a humble life as a server, and through her financial knowledge and hard work in the financial field, she has amassed a personal fortune estimated at $75 million. Here are her five unique pieces of advice to help you take a step forward in following in her footsteps.
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Differentiate between savings and investments
According to Orman, there is a big difference between money that is recognized as savings and money that is recognized as investment. And the two should never meet. Savings are money you plan to use in the near future or set aside for emergencies.
“And all savings are in low-risk bank savings accounts or money market accounts,” she wrote on Facebook. “The goal is to keep your money safe and have it ready when you go to spend it.”
Investment funds are money that you do not plan to spend but want to invest for long-term returns. Knowing the difference is essential to building sustainable wealth.
Know: Grant Cardone: Passive income is the key to building wealth — here are my top tips
Retirement savings first, college second
Aumont wrote on her blog that she believes one of the biggest mistakes parents make is sacrificing their own retirement to save for their children’s college tuition. This hurts not only the parents but also the children, she argued.
“Your teens today will one day become adults in their 30s, 40s, and 50s raising their own families,” she wrote. “The last thing you want is to end up in a precarious financial situation where, at best, you have to worry about them and, at worst, have to feed yourself in old age.” So pretend it’s an aviation disaster. Avoid double tragedies by masking yourself first and then your children.
Don’t let interest rate cuts tempt you into debt
With the Federal Reserve recently cutting interest rates and many expecting more cuts next year, it might seem like a great time to buy a new car or other big-ticket item. But Orman said in a blog post that this could be a big mistake.
“The question you should always ask when making decisions involving debt is: Do I buy what I need or what I want?” she writes. Borrowing money for things you don’t need but just want can jeopardize your long-term wealth and what you really need, like your retirement savings.
Forget the 4% rule for retirement
A common wisdom among retirees and financial experts is that retirees can withdraw 4% of their retirement savings per year of retirement and enjoy a comfortable, worry-free golden age.
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Mr. Orman disagrees. She believes the world has changed, with markets and economies becoming too unpredictable to apply such simple formulas. She advises retirees to adopt a scarcity mindset instead. And if you need a target number, Aumont suggests 3% at most.
eliminate guilt
Making a fresh start and starting to build wealth doesn’t start with smart financial moves or breakthrough investment strategies. It starts with your self-esteem. Specifically, it starts with letting go of the shame you feel about your past bad financial decisions and your current financial situation.
“The first and most difficult step is to exonerate yourself and your spouse or partner,” Orman wrote on Oprah.com. Fundamentally, investing is about the future, so try to look to the future rather than looking back.
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This article originally appeared on GOBankingRates.com: Suze Orman: This Uncommon Approach To Building Wealth Could Change Everything If You’re Socked with Low Returns
