Suze Orman's Action Plan (16 page)

BOOK: Suze Orman's Action Plan
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What you must do
  • Separate wants from needs.

  • Get over your guilt that you aren’t “providing” for your kids.

  • Strike the word “deserve” from the conversation. What you deserve is irrelevant; what you can truly afford is all that counts.

  • Try to negotiate better terms on a car loan you can’t keep up with.

  • Be very careful when asked to cosign any loan, no matter how much you love the person who is asking for your help.

Your Spending Action Plan

SITUATION:
You know your family needs to save more, but you have no idea where to start.

ACTION:
Get a grip on where your money is going. You can’t move forward building an honest financial life if you don’t first understand where you are today. I want you to slowly and carefully fill out the Household Cash Flow worksheet below. To do this, you need to first pull out a year’s worth of bank statements and credit card statements. The amount you put in the right-hand column should be the average cost for the past 12 months.

WEBSITE
ALERT:
A more extensive version of this worksheet is available for download on
www.suzeorman.com
.

EXPENSES
MONTHLY COST
HOME
 
MORTGAGE/RENT
 
HOME EQUITY LOAN
 
PROPERTY TAX
 
INSURANCE
 
MAINTENANCE
 
UTILITIES
 
  Gas and Electric
 
  Heating
 
  Water
 
  Home Phone
 
  Cellphone
 
  Cable/TV
 
  Internet
 
MAINTENANCE
 
  Repairs/Upgrades
 
  Gardener
 
  Snow Removal
 
TOTAL MONTHLY HOME EXPENSES:
 
FOOD
 
  Groceries
 
  Dining Out/Takeout
 
  Coffee
 
TOTAL FOOD:
 
CAR/TRANSPORTATION
 
  Car Loan #1
 
  Car Loan #2
 
  Gas
 
  
Maintenance
 
  Tolls/Paid Parking
 
  Car Insurance (total all cars)
 
  Public Transportation
 
TOTAL CAR COSTS:
 
OTHER INSURANCE
 
  Health Insurance
*
 
  Life Insurance
*
 
  Disability Insurance
*
 
  Long-Term-Care Insurance
*
 
  Dental Insurance
*
 
TOTAL OTHER COSTS:
 
MISC. SPENDING
 
  Child Care
 
  Private School Tuition
 
  Entertainment (Movies, DVD Rentals,
  Concerts, Sporting Events)
 
  Hair/Manicures/Pedicures
 
  Club Memberships
 
  Computer Equipment and Games
 
  Clothes
 
  Gifts
 
  Vacations
 
  Medical Copays and Out-of-Pocket Expenses
 
  
Pet (Food and Vet)
 
  Media Subscriptions (Newspapers,
  Magazines, Online)
 
  Charitable Contributions
 
  Other
 
  Other
 
  Other
 
TOTAL MISC. SPENDING:
 
OTHER LOANS/DEBT
 
  Credit Card 1
 
  Credit Card 2
 
  Credit Card 3
 
  Student Loan
 
  401(k) Loan
 
  Bank/Personal Loan
 
TOTAL OTHER DEBTS:
 
MONTHLY SAVINGS/TAX PAYMENTS
 
  Emergency Savings Account
 
  401(k) Contribution
*
 
  IRA Contribution
 
  College Savings Fund
 
  Self-Employment Tax Payments
 
TOTAL SAVINGS/TAX PAYMENTS:
 
TOTAL EXPENSES (A):
 

*
If these items are taken out of your paycheck, they do not need to be itemized on this worksheet, which tallies expenses against take-home pay.

INCOME
MONTHLY AMT.
  After-Tax Pay
 
  Rental Income
 
  Dividend/Interest Income
 
  Social Security
 
  Retirement Income (401(k),
  IRA, and Pension)
 
TOTAL INCOME (B):
 
TOTAL INCOME–TOTAL EXPENSES (B–A):
 

SITUATION:
Your expenses are more than your income.

ACTION:
Circle every expense in your worksheet that is a “want.” It is imperative to separate expenses that are for true needs (health insurance, the electricity bill) from those that are not crucial for your family to function (gym membership, new clothes, computer games, etc.).

If you do not have an eight-month emergency savings fund, if you have credit card debt, and if you are not saving for retirement, you have no choice but to reduce and even eliminate many of the “wants” your family is spending money on.

This is not supposed to be a comfortable or easy exercise. Cutting down from four manicures a month to three is not going to get you where you need to go. Your financial security is buried in
those expenses. The more you are willing to curtail spending on those expenses, the more money you have to protect your family. The $25 you don’t mindlessly shell out to the kids every week when they head out to spend time with friends is $100 a month you have to put toward a term life insurance policy that protects them if anything were to happen to you. The $300 a month you don’t spend on the second (or third) car your family can do without is your future retirement security; put that much in a Roth IRA for 20 years and you will have more than $157,000, assuming your money grows at an annualized 7% rate.

SITUATION:
You feel guilty cutting back on what you’ve always provided for your family.

ACTION:
Decide once and for all if you want to indulge or protect your family.

It really is that simple. If you have credit card debt and no emergency savings, I have to tell you, you do not care about your family’s safety and security. All you care about is being the hero who doesn’t say no, the bottomless ATM for every desire, expectation, and wish your family has.

That is indulgent. And destructive. Let’s walk through this together. You look at your expense and income worksheet, get frustrated, and decide to just continue down the path of overspending. You ignore the fact that your credit card balance
keeps rising. You ignore the fact that you have no emergency savings. You ignore the fact that you have very little saved up for retirement. You ignore the fact that you don’t have health insurance because it is just too expensive.

And then you get laid off. Or you get sick. You can’t pay the mortgage, and you have no savings to help you in this time of emergency. So the downward spiral begins. You might even lose your home. All because you feel as if you must always give your kids everything they want—and right now. How does that indulge your kids?

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