"It was a shock to me to see that her assets were as small as they were, just given the way that she always was so unstinting with everyone."
So said a former law clerk of Supreme Court nominee Sonia Sotomayor's routine financial statement disclosure. One of the dubious joys of public office is how much of your life becomes, well, public. This includes the state of your personal finances. As recent filings show, Judge Sotomayor's net worth is $740,000. Sounds impressive... until you look under the financial robe of the woman who is the second most talked about female in Washington after Michelle Obama. Before we go any further, let us say that Judge Sotomayor is a role model for Americans in so many ways. The discipline and rigor with which she applied herself to her studies and to her career are to be admired deeply. So too is her long-track record of giving back to the community in ways big and small. Her well-deserved success is proof positive that the American Dream truly is alive and well.
What does Judge Sotomayor's net worth have to do with your life?
Well, lurking in the fine print of recent news stories are several financial red flags that no doubt many readers can relate to.
- The first is the Judge's housing situation. Virtually all of her net worth is tied up in her home. It is valued at $1 million, a figure that remains fuzzy unless there is an actual sale to make it real. Additionally, as a result of multiple refinancings, she currently owes more on that apartment she bought over 10 years ago than she originally paid ($360,000 purchase price versus $380,000 current outstanding mortgage). This indicates that virtually all of her net worth came from the appreciation of this one asset.
- The second is her use of credit cards. It appears that Judge Sotomayor has four credit cards on which she is carrying balances. Carrying balances on one's credit cards is often a sign of living beyond one's means. To add insult to injury, if these are typical credit cards with a mid-teens interest rate and 3% minimum monthly payment, she'd be effectively doubling the purchase price of whatever she put on her cards if she makes only the minimum monthly payment.
- The third is her lack of an "emergency fund." According to the filings, she owns no stocks or bonds... and her savings account of $31,000 is only just slightly bigger than her outstanding debt on those credit cards. That means she doesn't have much of a financial safety cushion if something were to go wrong.
But for the fact that as a federal judge she will at retirement age be eligible for a generous pension equal to her annual salary... with these financial stats she could find herself out shivering in the financial cold. Our intent is not to pick on Judge Sotomayor (in fact, similar arguments can easily be made about Clarence Thomas' financial disclosures and no doubt many other public figures). Rather our point is to highlight that when it comes to money things aren't always what they seem.
Millions of Americans wish they knew more about how to effectively manage their personal finances, even those with the best and the brightest minds in the land.
So if you are feeling stressed, frustrated, scared, or just drained by your finances... you are not alone. Personal finance is one of those skills we are all just supposed to pick up "along the way." One big silver lining of the current economic turmoil is the collective realization of our need to self-educate on this vital topic. Over time, one goal of our posts is to help you do just that.
Manisha Thakor and Sharon Kedar are the co-authors of On my Own Two Feet: a Modern Girl's Guide to Personal Finance. Their next book, Get Financially Naked: How to Talk Money With Your Honey is due out in January 2010.