A major step toward financial freedom is about getting back in touch with your money and understanding that you have the power to decide how to use it. And it’s about being honest with yourself. Have you ever taken a big wad of bills from an ATM machine, then found yourself, a day or two later, nearly out of cash and unable to reconstruct exactly where you spent it? And even when you retrace all your steps, you still come up $20, $40 or $60 short? It’s upsetting, but most of us feel that way most of the time: a little short, a little panicky, wondering exactly where our money is going.

Where Do You Think You Stand Today?

What does it cost you to live each month? If you are married or living with someone with whom you share expenses, please ask him or her to write down the answer to the same question. Most of us believe we need about $1,000 to $1,500 a month less than we actually do need to go on living the exact same way we live right now. Surprisingly, this figure seems to vary only a little bit regardless of income levels. Where does this month-to-month self-deception lead us? Into financial chaos. Often, our planned spending doesn’t cover expenses that don’t occur every month or expenses that just crop up.

For example:

  • Do you consider the cost of your gym membership per month even if you pay to renew just once a year?
  • Do you pay your insurance premiums twice or four times a year? Do you calculate the cost of insurance in your monthly bills?
  • Where did you go on vacation last year? What did that one-time expense cost average over twelve months?

These big expenses hit once or twice a year, probably surprising you every time. And then there are seasonal expenses:

  • Come summer, do you forget about how much higher the gas bills run in the fall?
  • Do you have your windows washed once or twice a year?
  • Did you send your children to summer camp last summer
  • Do you get your hair cut and maybe colored every couple of months? How much, then, does it cost every single month?