The money and investing guru takes a hard line on spending and isn't all-in on home ownership or going to college
Suze Orman: "Real freedom isn't about how much money you have. It's about understanding and managing the money you do have."
Suze Orman wants you to have more money - but not at any price. Orman, a well-known figure in personal finance and investing, and widely recognized for her work in financial education, believes that true financial independence comes from discipline, not desire.
"If you live below your means but within your needs, financial independence becomes far easier to achieve," Orman says.
Part 1: Suze Orman reveals her favorite stock right now and the investing mistake that shaped her strategy
In this second part of a two-part interview, which has been edited for length and clarity, Orman covers a wide range of personal finance topics. She details steps to financial independence and how to improve your relationship with money, savings and spending. And she crunches the dream of homeownership and a college education, takes aim at popular target-date retirement funds, and answers the question: Who is the next Suze Orman?
MarketWatch: How do you define true financial freedom, and how has your definition changed?
Orman: Over the years, my perspective has changed. I started with my book, "The Nine Steps to Financial Freedom," and at first, I thought having a lot of money meant being financially free. But I came to realize that real freedom isn't about how much money you have. It's about understanding and managing the money you do have. In fact, I think "financial independence" is a better term. When you're financially independent, you're no longer dependent on financial advisers who may give you self-serving advice.
Second, true financial independence means that if you couldn't work, whether because of illness, an accident, or any other reason, you would still be secure. You'd have enough money, either generating income or available as principal, to cover your expenses for the rest of your life.
MarketWatch: Is financial independence all about making more money?
Orman: The real key isn't just making more money - it's cutting your expenses. I have a new motto for my podcast: "Make your money make more money." How? By not wasting it on interest, debt payments or car loans.
Often, when people build wealth, they end up spending more, buying a bigger house, a nicer car, fancier clothes and luxury watches, and all the accoutrements that show the world how much money they're making. In the meantime, their bills have gone up while their savings and investment contributions have decreased. That makes absolutely no sense.
"Don't do 'retail therapy.' Don't fill the emptiness with stuff. Fill your bank account instead."
Stop spending money you don't have to impress people you don't even like. That's the trap. Don't do "retail therapy." Don't fill the emptiness with stuff. Fill your bank account instead.
This is how people get into credit-card debt trouble. They are spending money they don't have to impress people they don't know or like. Credit-card debt isn't just about money. It's about "I want it and I want it now," or trying to to fill a void, so you buy something. Unless you understand why you're in debt, you'll never get out of it. That's why people who declare bankruptcy once declare it twice - because they fix the numbers without fixing themselves. You can pay off the balance, even get a windfall or inheritance. Bottom line: You have to go within to see why you are doing without.
If you live below your means but within your needs, financial independence becomes far easier to achieve. One of the biggest mistakes people make is retiring with a mortgage. If you plan to stay in your home forever, pay it off before you retire. Using retirement savings to cover interest and mortgage payments is such a waste of money in the long run. Pay it off.
MarketWatch: What about younger people just starting to build wealth? What's the biggest money mistake that Gen Z (ages 15 to 27) is making now?
Orman: Gen Z is excited about investing, and that's amazing. However, too many are skipping the foundation. They know every TikTok trend but not enough about the basics such as compound interest, Roth accounts, or the power of starting early. On TikTok, you may be watching someone who is handing out advice without considering the ramifications of giving wrong information.
By their late 20s, those gaps start to show: paying too much for rent, ignoring free money from workplace retirement matches, not having an emergency fund and choosing the wrong accounts. Instead, they lean into "buy now, pay later," impulse spending, or investing without a safety net.
And here's a big one: When Gen Z finally saves for retirement, many choose a traditional 401(k) instead of a Roth. That's trading a small tax break today for a lifetime of bigger taxes later. Think about it. You're basically signing up to let Uncle Sam be your permanent business partner.
The bottom line is that Gen Z wants to build wealth, and they can, but skipping the safety nets makes everything shaky. A Roth, an emergency fund and smart use of workplace benefits aren't boring. They're the launchpad for financial independence.
One of the biggest mistakes you can make is handing your retirement savings to a target-date mutual fund.
MarketWatch: Speaking of lifetime savings, what mistake are investors making with money they'll need in retirement?
Orman: One of the biggest mistakes you can make is handing your retirement savings to a target-date mutual fund, the kind that invests automatically based on your retirement year, such as 2030, 2040, or 2050. Target-date funds? They're for people who don't want to think, and that's never a good strategy. You never invest based on age or a specific date on a calendar. You invest based on your own circumstances: how much money you have, your income streams, your risk tolerance, your health and what's happening in the economy. Think about it: If you'd been about to retire in 2021 or 2022 and your target-date fund was loaded with bonds, you'd get crushed when interest rates skyrocketed. That's the danger.
MarketWatch: What big mistakes do people make with insurance and retirement planning?
Orman: Never, ever use life insurance as an investment. Whole life, universal life and variable life are some of the biggest rip-offs out there. Insurance was never meant to be a permanent need. It was intended to cover you in case of a premature death until you've built enough assets to take care of your family. If you need life insurance, buy term. Period.
And while we're at it, never put a tax-deferred product inside a tax-deferred account. I can't tell you how many people roll over $500,000 into an IRA only to have some broker stick it in a variable annuity. Why would you double up on tax deferral? That makes no sense. And those variable annuities with guarantees? You only get your money back if you die. Meanwhile, you're paying surrender charges and fat commissions to the adviser who sold it to you. Don't fall for it. You could've just bought a no-load mutual fund or ETF.
A home is no longer the guaranteed foundation of financial independence.
MarketWatch: What's your view on home ownership? It used to be that buying a home was a path to wealth. Is that still true?
Orman: No. It may actually be a path to poverty. A home is no longer the guaranteed foundation of financial independence, and there are two big reasons: weather and insurance. I know people in Florida who owned their homes outright but had to walk away because insurance skyrocketed to $2,000 a month. Others in California lost everything to wildfires when insurers denied coverage. Even condos aren't safe. Owners faced double- or triple-digit assessments, wiping out any chance of appreciation.
On top of that, property taxes, repairs and catastrophic events such as fires, floods, hurricanes and tornadoes are more common than ever. Now, if you have money to absorb those shocks, buying a home can be financially rewarding. Because climate and insurance have become factors, you need to think twice before buying.
You are not a bad parent if you can't send your child to a $65,000-per-year school.
MarketWatch: Like homeownership, the American Dream has included a a college education. Is it worth the expense?
Orman: Maybe, but at what cost? Student loans aren't what they used to be. Subsidized loans are gone, repayment terms are tougher and graduate loans can easily reach $200,000. Interest starts accruing immediately, and the old six-month grace period no longer applies.
Here's the truth: If you can't comfortably afford tuition without jeopardizing your own financial stability, you need to stand in your truth and have an honest conversation with your kids. You are not a bad parent if you can't send your child to a $65,000-per-year school. There's nothing wrong with starting at a community college for two years, especially if scholarships aren't available. We must also face the reality of AI's effect on the future of the job market. Maybe it's time we start looking at blue-collar careers as a great alternative. Electricians, plumbers, mechanics, carpenters, boat captains - it's something to think about.
MarketWatch: Is it challenging to give financial advice to the masses?