A Suze Orman exclusive

So often I see people run to a financial planner because they are psyched-out by the seeming complexity of their finances. That's because there is so much information floating around out there you think you can't possibly know what the right thing to do is. The truth is that most financial decisions can be stripped down to a fairly simple essence, and can thus be tackled by anyone. No professional help needed.

Let's run through some basic stress points and what you need to focus on. Here are some Simple Financial Truths to help you be your own financial planner:

• What's the right life insurance policy? The minute anyone is dependent on your income-be it your partner, a child, or an ailing parent-you need life insurance. And all you need to buy is Term Insurance. Plain and simple. Don't listen to anyone who tries to talk you into any of the more expensive forms of life insurance that go by the names Whole Life, Universal Life, and Variable Life. These are known as "Cash Value" policies, and they are totally unnecessary. Head on over to Yahoo! Finance's Life Insurance Center to learn more about term life insurance. And here's a tip on figuring out how big a death benefit you should get. For a super-safe approach, get a policy that will replace 20 times your dependent's annual income needs. I know that sounds steep, but term insurance is really cheap right now, and if you buy 20x, your beneficiaries can invest the proceeds in lower-risk bonds and live off the income without touching the principal.
  
  
• How do I invest for my retirement? Easy: 401(k), Roth, Regular. Let me explain. If you have a 401(k) at work and your boss kicks in a matching contribution, then you better be signed up, and contributing enough to get the maximum company match. Once you've gotten the maximum employer match for the year, it's fine to opt out of the 401(k) until the start of the next year. Just try to redirect as much of this extra money in your paycheck as you can to a Roth IRA. To contribute the full $4,000 to a Roth in 2005 ($4,500 if you are over 50) you need to be single with income below $95,000, or married and filing a joint tax return with income below $150,000. And of course if you have enough income to keep contributing to the 401(k) and fund the Roth, go for it. Finally, just pile any extra money into a regular taxable account at a discount brokerage or mutual fund company. Yeah, there's no upfront tax break, but all your gains will be taxed at the long-term capital gains rate, assuming you own the asset for at least one year. The current max cap gains rate is 15 percent. That's a lot cheaper than the top income tax rate of 35 percent-and every penny you withdraw from a 401(k) or Traditional IRA gets taxed as income, not as a capital gain. So you see, a regular taxable account can make a lot of sense. To keep your tax bill low, just don't trade too often, and stick with an index fund or ETF (exchange traded fund), to minimize your tax bill while the money is invested. (See below.)
  
  If you work for a large company, chances are the fund company that handles your 401(k) has a retirement planner that can help you figure out what you should be saving now to meet your goals. The folks at SmartMoney have some good online tools.
  
  
• I can't possibly figure out what to invest in. Sure you can. Just go with an index fund, or an exchange traded fund, which is basically an index fund that trades like a stock. Fidelity and Vanguard offer the cheapest index funds. If you want something simple, sock your money away in a broad-based index fund such as a "total market" or "extended market" index. In one investment you get the kitchen-sink of stocks: just about every size and style. If you are in your 50s or older, you might also want to keep a portion of your assets in a "bond" index fund. And to learn more about ETFs, check out my previous column all about them.
  
  
• I have no idea what are the right funds to have in my 401(k). If index funds are offered, focus on them. And if there is a life-strategy or life-cycle option, take a look. These "life" funds are designed to take the stress out of investing by packaging into one fund all the different types of stocks and bonds that are appropriate for your age.
  
  
• I spend too much and need help budgeting. A planner can draw up the most detailed budget in the world for you, but it's going to be worthless if you don't have the initiative and determination to take control of your spending. So why even get the planner involved? Come on, this is one area where you can't bellyache about it being too confusing, or claim you need some supposed expert to tell you what to do. Sit down with the past three months of your checking account and credit card statements, and separate the necessities from the desires. Then stare at those "desires" and start making some responsible choices about what to pare back, or cut out completely.
  
  
• I can't figure out how to save for retirement and the kid's college education at the same time. Focus on your retirement, period. Only once you are on target with your retirement investing can you start to think about college funds. That's just being really responsible. You don't want to be a financial burden to your kids when you retire, right? Besides, you and the kids can take out loans for college, if necessary. There are no loans for retirement. If you do indeed have the income to set aside some money for college, head on over to www.savingforcollege.com to learn more about your investing options.

Okay, that's a pretty good cheat sheet for starting your own financial planning firm and servicing the most important client you could ever have: yourself.