The 9 Steps to Financial Freedom (9 page)
Read The 9 Steps to Financial Freedom Online
Authors: Suze Orman
Here’s another surprise. If you figure your expenses on a monthly basis, it’s easy to forget that certain expenses occur each week. Some months have four Fridays (or Mondays, Tuesdays, and so on), for example, while others have five. If you make some sort of payment every week—child care, a cleaning woman, a mortgage payment withdrawn automatically every two weeks—the extra weekly payments will take place in four months of the year. These are exactly the sort of expenses that stay “hidden” and make you wonder why your figures aren’t adding up right.
Plus, the smallest expenses add up fast—the ones too small, you might think, to be worth figuring into your budget at all.
For instance, do you go to the movies once a week? When you do, do you buy the tickets for yourself and your partner, have popcorn and sodas, go for a simple dinner afterward, as simple as pizza or a burger and fries? That’s not so much, is it? No, it isn’t, not on any given Friday night. Maybe $20 for the tickets, $8 for the popcorn and sodas, and $30 for a simple meal. But once a week over a year, that’s $3,016. And too many of us forget to include expenses so “small.”
Other “small” expenses might come up less often—but add up just as much. Magazine subscriptions, cosmetics, supplies for the yard, oil changes for the car, batteries for the flashlight, charcoal for the grill: Do you know what it really costs you to keep your life running smoothly over a year’s time?
How about special occasions? Do you take your partner to an expensive anniversary dinner each year? How many birthday parties, housewarmings, and baby showers did you attend last year? Didn’t you bring a present to each one? When you go to a friend’s house for dinner, do you routinely bring a bouquet of flowers or a
bottle of wine that costs, on average, $15 each time? Might you have done that twenty times or more last year? Do you know what the Christmas holiday season costs every month? Over time, and added to those other hidden expenses, these here-and-there expenses must also be considered truthfully each month.
Finally you need to allocate $100 to $200 each month for miscellaneous unpredictable expenses. You might need some dental work that’s not covered in your insurance. You might have to travel to your brother’s wedding. There’s no way to avoid some surprise costs, so you need to figure them into your cash flow.
Most people were shocked to discover by how much they had underestimated—and that’s when they had guessed as honestly as they could.
It’s a scary realization, but there’s a wonderful flip side to that fear. Once you take this step, you will feel better for knowing the truth. And you will begin to gain power over the money that’s controlled you for so long.
I am asking you now to think about your money. Who cares more about your money than you? Shouldn’t you know where it goes? It’s one thing to say that you want to be financially powerful and responsible. To do that, you must face the truth honestly and know exactly where you stand today. This is essential.
Please get out your bank statements, ATM statements, credit card bills, whatever will tell you how you spent your money over the past two years. These papers are more revealing than a diary; they contain the key to how you live your life.
Yes, it will take you some time to do this, but think how much time it will give back to you in the future. You work forty hours a week or more to earn your money. I am asking you to take a few hours to take your money out of the darkness,
to see it in the light of reality, to see where you stand. Don’t just read these pages—pick up a pen and take action.
Go through your checkbook, checking account statements, computerized statements, all your records for the past two years. Not one year, but two years. Maybe this year was an extraordinary time—you remodeled the house, bought a new car—but looking at a two-year period, you’ll get a good idea of what it costs you to live the way you are living. All your checks, cash withdrawals, money spent every month, money spent once a year, money spent once a season, holiday expenses, everything.
Make categories for each month—such as telephone, gasoline, food, utilities, vet bills, golf fees, baby-sitting.
After all the categories are complete, total each category. Divide each category by 24. This will give you how much you spend per month on average for each category. At my website,
suzeorman.com
, you can use my free Expense Tracker to complete this exercise.
Now add together all the averages in each category. This will tell you what it costs you to live each month. Remember, these are
averages
. If your average is $3,000, most months you’ll spend less—say, $1,800 or $2,000. But in some months you’ll spend $5,000 or $6,000. To meet your expenses, you need to bring in that average number each month.
Now we have to match exactly what we have coming in after taxes with the figure we have just learned is going out. Please write down now all the income from every source that you have coming in. Only calculate an amount you are fairly certain will continue coming in for at least one more year. If you loaned someone money, for example, and she has been paying you back regularly
but owes only three more payments, don’t include this figure. Or if you’re working and about to retire or be laid off, don’t count that paycheck, either. Be as realistic as possible as to how much you can really count on month in, month out. Possible sources of income:
Monthly paychecks after taxes
Predictable bonuses
Social Security income
Disability income
Bond income
Rental income, if you have any
Gifts from your parents or children, if you can really count on them year in, year out
Loan repayments, if they will continue for more than a year
Income you are taking or about to take from retirement accounts
Pension income
Income from Individual Retirement Accounts (IRAs) and 401(K)s
Miscellaneous
