16
Book I: Taking Charge of Your Finances
If you're like the vast majority of people, you get paid money much less often
than you spend it. You probably get paid every week, every two weeks, or
every month -- but you spend money every day, don't you? This leads to a
distortion in how you think about money and makes frittering all too easy.
To help you get a handle on how much you fritter away, for one month we want
you to write down everything you purchase with cash, a debit card, or a credit
card. Your spouse or partner should do the same. Carry a small notebook with
you whenever you leave the house so you can record every expenditure right
away instead of trying to remember it later. When the month is up, add up
everything you spent on nonessential items. We bet you'll be shocked to see
how much it amounts to. Multiply this number by 12, and put that number in
your worksheet under "Other" in the "Variable Spending" section.
Totaling spending and earnings
Add up the numbers in each of the three spending categories in Table 1-1 to
get a subtotal for each category. Then add up the subtotals. The final number
represents the amount you are currently spending each year.
Next, add up all the income you received during the same 12-month period.
Take into account not just your net household income (your take-home pay,
which is gross income minus all deductions including taxes), but also any
other income you or your spouse or partner may receive: government ben-
efits, investments, royalties, child support or spousal support, income from a
family business, and so on. Record that total on your worksheet.
If you are entitled to child support and/or spousal support but the payments
rarely come, don't include those amounts when you calculate total annual
income for your household. If it's unreliable income, you can't count on it to
help cover your spending.
Calculating your financial bottom line
When you have a total annual income amount and a total annual spending
amount, subtract your spending total from your income total.
If the final number you calculate is negative, you can probably guess what
that means: The amount you are spending is more than your annual house-
hold income. You may be financing your lifestyle by using credit cards and
cash advances, and/or you may be falling behind on some of your obliga-
tions. Furthermore, you may not be paying some of your bills at all, which
means that if you add the amount of those bills into your calculations, you
have an even bigger deficit.
