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How Much Is Coming In?
Now 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.
- Monthly paychecks after taxes
- Predictable bonuses
- Social Security income
- Disability, rental and retirement income
- 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
Take this total and divide it by 12, so you can see what you have coming in after taxes on a monthly basis. 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. 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, 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'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 you family needs two. Consider, instead, making the decision to spend $25 to $30 less per month from 15 or 20 of your spending categories. Some categories are fixed.
There will be other categories—in fact, the majority of categories—where you can actually decide what the total spent per year will be. Is there one magazine subscription you can do without? Can you have three Friday movie nights a month instead of four? Keep deciding to trim a little here, a little there, until what comes in matches what goes out. With each decision you make, you are gaining power over your money. 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. 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.
As a reminder, post the categories you're trimming in your planner or on the fridge. You may find—as have many of my clients—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) now has the garbage picked up every two weeks instead of every week, trimming a painless $200 a year. A single mother now goes to the grocery store every eight days instead of every single Saturday, simply paying more attention to the food she already has in the house. Last year she trimmed nearly $400 from what she allocated for food. Another client, who described himself as a "compulsive spender on CDs," now weeds out the CDs he doesn't listen to much anymore and trades them with friends. Last year he trimmed $600 and had just as many fresh CDs to listen to. That same client also now does his taxes himself with a computer program, rather than going to his accountant. Savings: $600. Bur 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. This is the hardest step toward financial freedom. With this step you have been honest with yourself. Now you know exactly where you stand. Rather than being dictated by a restriction, your actions—and your money—are dictated by the choices you make.
Suze Orman is a best-selling finance author. She has appeared on Oprah, two PBS specials, QVC, CNN, CNNfn, CNBC, Good Morning America and is a columnist for Self magazine and a regular contributor on NBC's Today show.
© 1999 Priorities: The Journal of Personal and Professional Success and Franklin Covey. All rights reserved
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