The 9 Steps to Financial Freedom (10 page)

Take this total and divide it by 12, so you can see what you have coming in after taxes on a monthly basis.

Now compare your outgoing to your incoming. Now you know exactly where you stand.

If you began this exercise knowing exactly where you stand financially, you’ll have confirmed that you do spend each
month what you thought you did, and that you also earn at least as much as, if not more than, you spend. Bravo!

The chances are better, though, that if you’re like many of us, you’ve just confirmed that you spend more than you thought. Quite possibly you also spend more than you earn.

What can you do? You can do one or both of two things. Make more money and/or decide to spend less. Look at each of your categories again, and decide how much in each category you want to spend.

Notice my wording. I didn’t say how much you are
allowed
to spend. I did not say to spend less. I said, decide how much you want to spend in each category. If you’re spending more than you’re earning, this solution is not about creating limitations. It’s about making decisions—determining what you most want to spend your money on. If you can make more money realistically, without undue stress, in the immediate future (by changing jobs, say, or adding a second job), then you’re in a position where you may be able to earn what you spend and go on living the way you do right now, if you choose to. If you take this route, make sure that the numbers balance out.

If you’re like most of us, however, more likely you need to decide to spend your money differently. This does not mean that you have to take one drastic action that crimps your pleasures and quality of life, such as getting by with one car when your family needs two. Unrealistic budget cuts, like unrealistic diets, never work. Consider, instead, making the decision to spend $25 to $30 less per month from fifteen or twenty of your spending categories.

There will be some categories where the amounts are fixed—rent, mortgage, taxes, and so on. There will be other categories—in
fact, the majority of categories—where you can actually decide what the total spent per year will be. You can almost make a game out of it with yourself. If you cut and color your hair every eight weeks, see if you can schedule it for every nine weeks. You’ll save the cost of one whole haircut each year and probably won’t notice. Is there one magazine subscription you can do without? Can you have three Friday movie nights a month instead of four (or five, in the months with five Fridays)? Can you have your windows cleaned every eight months instead of every six months? Keep deciding to trim, a little here, a little there, until what comes in matches what goes out. Keep your new truth with you as you begin to consider how you want to spend your money. With each decision you make, you are gaining power over your money.

After you’ve done your mental trimming, put down in writing the yearly total you decided on for each category. Now keep track of what you spend in each category, month by month. The best way to keep track is to create a chart or system that will work for you. Each month when you pay your bills, check your spending by category. If you use up any allocation early, and want to spend more in that category, you’ll have to make new decisions about what, if anything, you want to do by seeing where you stand with the other categories. Robbing Peter to pay Paul, so to speak, except that you’re Peter—and you’re also Paul.

For instance, say you decided you wanted to spend $2,000 this year on clothes but found a $200 coat you wanted in September, after the $2,000 was already spent. Check your other categories. Maybe you had to cut your vacation short and saved $200. Take the $200 and buy the coat. As long as the numbers always balance, you’re in the driver’s seat.

As a reminder, post the categories you’re trimming on the fridge, or on your bulletin board, or on a yellow stickie in your
checkbook. Mark your three Friday movie nights in your calendar, so you’ll remember. Write down when you’re due to make your hair appointments for every nine weeks in your calendar. Note in your calendar when you’re due to have your windows washed again—in eight months instead of six. If the date is into next year, jot it down at the end of this year and transfer the dates.

You may find that you can come up with wonderfully creative ways to trim your spending so that you hardly notice. One family (both parents work and their teenage kids aren’t home much) had the garbage picked up every two weeks instead of every week, trimming a painless $200 a year. A single mother went to the grocery store every eight days instead of every single Saturday, simply paying more attention to the food she already had in the house. By doing so, she trimmed nearly $400 from what she allocated for food. Another woman learned to do her own manicures and doesn’t mind a bit. Savings: close to $500 a year. Another client did his taxes himself with a computer program, rather than going to his accountant. Savings: $600. But only when you see in front of you how you spend your money now will you be able to decide how you would rather be spending your money. (If you look at everything and see no possible way you can decide to spend less anywhere, just keep reading. Later on we deal with ways of freeing up your money.)

How does this differ from being on a budget? With a budget you limit what you can spend each month, and that’s that. Here, you are not limiting what you can spend each month but simply deciding how you want to spend the money you already know you have to spend. Rather than being dictated by a restriction, your actions are dictated by the choices you make. As you read further into this book, and over the years as what
you choose to spend your money on changes, your allocations will change.

You have just taken the hardest step toward financial freedom. With this step you have been honest with yourself. Now you know exactly where you stand.

The next steps will take you to where you want to be.

You have taken the first steps to financial freedom by facing the memories and fears that have kept you from dealing with your money. You have also started to recover the power and strength that enable you to be in control of your money—the money you have now and the money that will come to you.

But going back to the past is in itself not enough to create the future you want. Financial freedom requires not just insights but also actions, and to carry out these actions you must learn about money and how it needs to be treated. True financial freedom is not only having money, but having power over that money as well.

In these next chapters, you will learn how to manage your money and create more. In these chapters I will talk about the numbers that follow the dollar sign—facts, figures, how it all works. Don’t let the numbers scare you. There is no financial computation you’ll need to make that can’t be done on a calculator. You will soon be able to trust yourself with numbers more than you ever thought you could. You will soon see, too, that you have more than what it takes to manage your money on your own (a message, by the way, that the commissions-oriented financial industry would rather you never learn).

These three steps, as you’ll see, are “must-do’s” to ensure that the money you have now will grow, that the money you want to create will indeed come your way, and that your money will help take care of you and the people you love when you need it to.

Remember the goal you wrote down for yourself when you first picked up this book? Please pull it out now and look at it again. You are about to take the step-by-step actions to make that goal a reality.

H
AVE YOU EVER
arrived at the scene of an accident on the highway and thought, Uh-oh, I’ve really got to get around to doing my will? Has a friend or colleague ever had a cancer scare that made you think, I have to make arrangements for my children in case anything happens to me? Does turbulence when you’re flying remind you of all the affairs you don’t have in order? But a few minutes later the traffic starts moving, your friend’s scare turns out to be nothing, the turbulence dies down, your thoughts move on to something else, and everything is back to normal.

The fourth step to financial freedom is being responsible, which starts with being responsible to those you love.

It is not okay when you get sick, or when you die, to leave financial chaos behind you for everyone else to clean up. It will be hard enough for those around you to bear the grief of your terrible illness or death; imagine, for a minute, their pain. Please don’t also force them to deal with all the matters you could have taken care of while you were alive and healthy.

A big part of financial freedom is having your heart and mind free from worry about the what-if’s of life. Each of us—from those who wish creditors would stop calling to those with millions—has to face the what-if’s. It is not enough to say you’ll “get to it” or to think vaguely that, because you have employee life insurance or a will you wrote years ago, you already “have” gotten to it. It is essential to know you have planned and prepared everything in the best way possible. In Step 3 you faced the reality of your present financial life. In Step 4 you face the reality of your death.

What I discovered with my clients was that their state of mind had a direct effect on their finances. Simply knowing that you have taken care of the people you love always, in my experience, frees up major blocks on this path to financial freedom. If you take this step, you will feel freer already—in mind, body, and soul.

If you really love your spouse, your children, your life partner, you must
say
you love them,
think
you love them, and
act
as if you love them—which means doing, really doing, the things listed in this chapter. I cannot tell you how many people
I have met through my work who have thought they had taken care of everything, only to have their loved ones discover that they had not. Please take these actions for yourself, for your peace of mind—and most of all for the ones you love.

Can a good stock portfolio comfort you when your heart is broken? No. But a life rich in people you love can. The emotional foundation of your life is no less important than the financial structure you create. That is why, in building your financial future, you must begin with the people you care about. Each of the following topics is equally important to your future, and all are essential for you to know about in order to be responsible to yourself and those you love.

Wills and Trusts
. What are they? How are they different? Do you need one? Do you need both? How old should you be when you get one? How much should they cost? What if you change your mind about what you want to happen to your estate? What happens if something happens to you and you don’t have one? Can a trust benefit you while you’re alive? Can you rely on your attorney for guidance in this matter?

Durable Power of Attorney for Health Care
. What is it? Why should you have one? When should you have one? Is it complicated to create? Is it expensive?

Life Insurance
. Do you really need it? If so, what kind? How much coverage should you have? What are the cheapest ways to buy it?

Long-Term-Care Insurance
. Why is this the most important kind of insurance you can own? What does it insure? Who should and should not buy it? When should you buy it? How much will it cost? How can you tell if the policy is a good one? What if you don’t qualify for it or can’t afford it?

Estate Planning
. Isn’t a will or a trust enough? What more do I need?

Jeff thought he had lost just about everything when his wife, Nancy, died of breast cancer at age forty-four, leaving him with their two young children to raise. As it turned out, his losses were just beginning.