The Laws of Money,

The Lessons of Life

Keep What You Have and Create What You Deserve

by Suze Orman
Copyright © 2003 by Suze Orman
The Free Press / Simon & Schuster, Inc., N.Y.
Used by permission.
336 pages

Focus Take-Aways
Leadership
• Telling the truth about your finances is the first step on the road to financial freedom.
Strategy
Sales & Marketing • Lying to others or to yourself about your money always leads to trouble.
Corporate Finance • To create a financial plan, you must first honestly assess your current financial status.
Human Resources
Technology
• Dwelling on lost opportunities or past decisions is counterproductive.
Production & Logistics • People are more important than money.
Small Business
• You must learn what your risk tolerance is to make financial decisions you can live
Economics & Politics
with comfortably.
Industries & Regions
Career Development • Before investing extra funds in anything risky, make sure your financial house is
Personal Finance in order.
Self Improvement
• Basic money rules that apply to everyone include: 1) get out of credit card debt; and
Ideas & Trends
2) set up an emergency fund with eight months’ worth of living expenses.
• Money has no intrinsic power; its only hold over you is the power you give it.
• Realizing your power over your money is pivotal in creating the financial future
you deserve.

Rating (10 is best)

Overall Applicability Innovation Style

9 10 8 9

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Relevance
What You Will Learn
In this Abstract, you will learn: 1) The five laws of money; and 2) How to apply these
laws to your life no matter what the state of your finances.
Recommendation
Amid the slew of personal finance books on the market, Suze Orman’s unique approach
stands out. Although she has more than 20 years of financial experience and expertise,
her books don’t merely dispense advice from on high. Her monetary rules may be
universal and timeless, but she describes them with the sympathetic voice of a best
friend. Written in the aftermath of the collapse of the Internet bubble, her latest advice
book aims to comfort shell-shocked investors who are facing huge losses. Orman’s
primary tactic is to remind readers that money is a means to an end, not an end in
itself, and that decisions about money take place in a larger personal and spiritual
context. To that end, a helpful workbook is included. getAbstract.com recommends this
book to anyone who is wary of making financial decisions in today’s unsettling market
environment, as well as to those looking to sort out their financial priorities

Abstract
Why the Laws of Money Are Important
In the late 1990s, the Internet stock-market boom made millionaires out of many
ordinary investors. When that bubble burst, some of them were back to square one,
and many more had lost much of their savings. If you are stunned by present financial
difficulties or just want to avoid financial trauma, you are not alone. Using the laws of
“Isn’t it odd that money, you can recover or protect yourself. Build a solid financial future by using these
we treat money as laws to guide your choices.
an enemy, yet we
always want more The five laws can be simply stated, so memorize them and repeat them to yourself
of it?” when you are faced with any financial decision (even one that does not seem difficult).
As you add these laws to your financial life, set clear financial goals for the next six
months, the next year and the next two years. The laws can help you see if your current
goals are achievable, set new ones as you meet the current ones and stay on track to
accomplishing your future dreams.

Law #1: Tell the Truth

The first law states that telling the truth creates wealth, while lies erode it. The most
dramatic, obvious examples of this law can be seen in corporate scandals, in which lies
told by unscrupulous executives caused companies to go bankrupt, making thousands of
employees and investors suffer. Each of those enormous problems began, somewhere in
“If you don’t know the past, with a lie. Beware of small lies that lead you down the wrong path. It is very
who you are, noth-
ing you do with
easy to create the impression that you have more money than you actually do. Buying
your money will expensive items on credit and leasing a fancy car can make an average person look rich.
ever feel right.” That appearance, however, is a lie, told to impress others (or to inflate one’s feeling of
self-worth). The result can be crippling debt that lasts long after the false impression of
affluence has faded.
If you examine a financial situation that makes you unhappy, you will always be able to
trace it to a single point in the past when you had a choice between telling the truth or
The Laws of Money, The Lessons of Life © Copyright 2003 getAbstract 2 of 5
lying. Something as simple as not paying the full credit card balance when it is due is a
small lie that grows each month. You must own up to your own financial lies so you can
“Each decision you begin to tell the truth — to yourself and to those you love.
make with your
money puts you Law #2: Don’t Live in the Past
at a crossroads The point of examining your fi nancial life is not to assign blame or guilt, but to create
between truth and
lies.”
a better future starting with your situation right now, today. Once you start to examine
past decisions to uncover your financial lies, it is tempting to dwell on the past, telling
yourself over and over again that if you had just made a better decision, things would
be different now. Thinking longingly of the money you had is easy — even if it was
only paper gains realized when the stock market peaked. Even if you are better off
today than in the past, you may still dwell on your financial history. This behavior is
natural but counterproductive.
You cannot plan your financial future if you dwell on past mistakes or fear facing your
“The road to financial present. This situation is similar to an overweight person keeping a closet full
wealth isn’t paved of clothes that no longer fit, hoping to wear them someday while taking no action to lose
with what you once weight. It would be better to get rid of the old clothes and accept the current state of affairs,
had. It’s created
out of what you do
which is the first step to making a plan to change.
have and how you
use it.” Use the following exercise to take stock of the current value of your investments, instead
of dwelling on what they were once worth. For each investment (individual stock, mutual
fund, etc.), write down the price you paid for it (including commissions) and its value
today. Then calculate the difference between these two figures to learn your gain (or loss)
on the investment. For each investment, ask yourself a simple question: Would you buy it
at today’s price? If the answer is “no,” you may want to consider selling it. Don’t let your
fear of loss create further losses, as you wait for a stock to regain lost value.

Law #3: People are More Important than Money

“People who sail This is the most personal law. To follow it, you must decide what is right for you before
through difficulties you can do what is right for your money. For each person, doing what is right may be
with relatively little
financial harm do
different. People have varying goals, risk tolerances, timetables and financial priorities.
so because they You must know who you are — both financially and non-financially — to make this
have prepared for law work for you, because you need to see yourself as the most important person in
them.”
your financial world. Put simply, you must take care of your own emotional and spiritual
concerns before your financial ones.

This law has a special relevance for parents, who may think that no financial sacrifice
is too great to send their children to college. However, it makes no sense to put yourself
in debt and ruin your chances of financial health so your children can go to college.
Instead, talk honestly with your children about your finances, preparing them for the
possibility that they will need to get student loans or that they might be limited in their
choice of school. Of course you want to help them if you can, but you need to put your
“If you want to find financial health first.
the best financial
advisor, just look Buying things on credit you cannot afford is also wrong for your money. It puts your
in the mirror. No
one will ever care short-term desires before your long-term financial health. Credit card debt is easy to fall
about your money into and difficult to get out of, yet most modern consumers think nothing of charging
more than you.” expensive items they intend to pay for later. With interest charges and low minimum
payments, they will be paying for those items for many years to come. To begin to figure
out what is right and wrong for you, use the Fear Factor scale to assess your current and
The Laws of Money, The Lessons of Life © Copyright 2003 getAbstract 3 of 5
potential investments. First, write down every investment you own. Next, assign each
one a number from 1 to 5 according to the following scale:
“In your relation-
ship with money,
1. I feel fine about this investment.
you are the living 2. I feel mostly fine, but slightly unsure, about this investment.
being and money
is your tool. Money 3. I am confused about how I feel about this investment.
does not define 4. Most of the time this investment scares me, but sometimes I feel okay.
you or make you
more valuable as a 5. This investment frightens me and I lose sleep over it.
human being.”
Now you have a guideline for what to do with each investment, based on how safe or
unsafe it feels to you. Consider keeping investments you labeled “1;” selling 25% of
investments you labeled “2;” selling 50% of investments you labeled “3;” selling 75%
of those you labeled “4,” and selling all of the investments you labeled “5.” Use the
Fear Factor scale to evaluate potential investments the same way. This exercise contains
another important guideline: Do not be an all-or-nothing investor.

“You can’t drive Law #4: Get Your Financial Priorities Straight
your financial life To secure your financial future, first devote your resources to your needs and obligations
to where you want — food, shelter, debt payments, etc. — before considering investments. If you invest in
it to go if you take
your hands off the
the unknown before taking care of your known needs, you are taking dangerous risks
steering wheel and with your future before securing your present.
your foot off the
accelerator.” The first step in following this law is to come up with an accurate picture of your
expenses and income, which requires accurate records of what you spend and what you
make for at least one year. Use these figures to calculate your average monthly expenses
and income. If you make more than you spend, on average, congratulations! Apply your
“extra” income to your new financial goals.
If you struggle to pay your monthly bills, there are only two ways to ameliorate the
“Credit card debt
situation: 1) make more money or 2) lower your expenses (or some combination of
is bondage, and both). It is usually easier to plan for and accomplish the latter. For example, you can
you will never be count on having certain expenses, such as utilities, food and taxes, for the rest of
able to keep what
your life. Other expenses, such as dining out, maid service or dry cleaning, can be
you have or create
what you deserve voluntarily reduced. Still other expenses, such as mortgage or car payments, student
if you are in bond- loan payments and other debt payments, may seem never-ending, but with careful
age.” planning, they will eventually disappear.

Your first two goals should be: 1) get out of debt and 2) set up an emergency fund with
eight months’ worth of living expenses. Then, if something unforeseen happens, such
as a layoff, divorce or accident, you will be better able to cope. If you have money in
a savings account but you also owe money on installment or revolving debt, you are
probably losing money to high interest rates while maintaining a false sense of security.
“Just as you Better to pay off those high-rate credit cards and then start saving for a real emergency
wouldn’t hide
stolen goods for a
fund. If an emergency happens before your fund is fully stocked, take a cash advance on
crook in the street, your now-unused credit card. Other keys to eliminating credit-card debt and remaining
you cannot be an creditworthy include:
accomplice to the
financial lawbreak- • Pay more than the minimum payment each month.
ers in your life.”
• Don’t use your credit cards as often (or at all).
• Make sure you have the lowest interest rate possible on revolving balances.
The Laws of Money, The Lessons of Life © Copyright 2003 getAbstract 4 of 5
• Learn your FICO score (a credit score created by Fair, Isaac & Co., used by lenders to
assign your interest rate or decide whether to lend to you) and take steps to improve it.
• Request a credit report at least once a year to check for errors.
“One of the pri-
mary ways you
learn who you are Given this accurate picture of your income and expenses, you are now able to figure
is through your out important long-term questions such as how much mortgage you can afford and how
money: how you
make it, spend it,
much to save for retirement. One useful exercise is called “playing house.” If you are
share it, save it, considering purchasing a house, car or other major item, figure out how much you will
open your hands spend on it monthly. Calculate the difference between the potential expense and your
to it, or block its
current expense (potential mortgage payment vs. current rent, or new car payment vs.
flow.”
current car payment). For six months, deposit that amount in a savings account. If you
can do that with no financial difficulty, you’re ready to make the purchase (and you have
six months’ worth of savings to put toward your down payment). If not, you may want to
reconsider the purchase.

Law #5: You Control Your Money, Not Vice Versa

Many people feel powerless over their finances, and mistakenly think that if they just
had more money, they would be more empowered. The fifth law states that money does
not determine personal worth. Only you can do that. You may have a limited supply of
“Doing what is
right for you
money, but you are the one with the authority to decide what you do with it.
means never just
living off of fantasy To follow this law, change your mindset. Realize that power comes from inner strength, not
instead of finance.”
from outer wealth. When you understand this — and it may be difficult at first — you will
be more at ease with all your financial decisions. This law encompasses the previous five
laws because it deals with the true source of financial empowerment: trusting yourself.

This law has special ramifications in your relationships. If you are committed to following
the five laws of money, you must be honest with your friends, family and significant others
about your finances and your goals. Furthermore, you must be honest with them about
the ways they may be hurting themselves — and you — by breaking the financial laws.
Try to talk about your feelings and attitudes toward money, instead of accusing them of
anything. If they truly care about you, they will listen and respect your choices.

About The Author

Suze Orman is the author of several best-selling books, the personal finance editor on
CNBC, the host of The Suze Orman Show and a contributing editor to O The Oprah
Magazine. Worth magazine listed her among those who have “revolutionized the way
America thinks about money.”

Buzz-Words
Credit card debt / Emergency fund / Fear factor scale / FICO score / Laws of money /
Playing house

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