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Gain Control Over Money

Financial freedom means understanding not just what comes in, but also what goes out; more importantly where the money goes. The third step to financial freedom according to Suze Orman is to take back charge of your money, to get back in touch with your money, just the way you did when you were a kid. It is time for you to face the truth honestly and know exactly where you stand today.

What you need to do ASAP:

Grab a piece of paper or a notepad

Assemble all documentation showing all your expenses from 2 years ago. Yes this might take a while, but it’s worth it since it will be saving you so much more time and money in the future (for example for me, my bank sends me each month a computerized statement showing all my spendings and earnings/income. I am able to see where the money went, what I spent it on… almost like an x-ray!). These documents could include ATM statements, credit card bills, cancelled cheques, etc.

Examine each dollar spent and divide the spendings into sections or categories (food, rent, utilities, gas, phone, cable, etc.)

For each category, calculate the sum of how much, in the past two years, you have spent (the total of each area)

Divide each category total by 24 (2 years). This will give you how much you spend on average per month.

Now add up all the averages of each category together. This will tell you what costs you to live each month. Please keep in mind that these are averages. If your average total is $2,000, this means most months you’ll spend less (maybe $800 or $1,200), but it also means that in some months you’ll spend $4,000 or even $5,000. To get the more accurate average or to meet your monthly expenses, you need to calculate the average of each category each month.

P.S. I suggest you add at least 15% more to your total monthly expenses average, as there are always other unplanned for expenses (miscellaneous) or hidden payments we don’t seem to take into account simply because they occur twice or thrice a year. E.g if your total came up to $10,000, the actual figure would be closer to $11,500.

When you’re done, calculate the total of the amount you have coming in (monthly paychecks after taxes, rental income if you own any real estate, pension income, social security income,etc.). Only calculate the amount of which you are sure will keep coming in. If you have loaned money to a friend and they haven’t paid you back, do not count this. Write it all down. This is almost like the Robert Kiyosaki’s CashFlow board game (understanding liabilities and assets). If you’re familiar with it, you’ll understand.