This week, The Simple Dollar is conducting a detailed review of Suze Orman’s The 9 Steps to Financial Freedom. This title has appeared on countless personal finance shelves over the past decade; does the content inside hold up? We aim to answer that very question.
Yesterday, we looked at The 9 Steps to Financial Freedom as a whole and observed that this book focuses on laying a psychological foundation for healthy personal finance. Each step in the book seeks to strengthen this foundation so that, by the time one works through the concepts in the book, a much healthier concept of finances can grow. Today, let’s look at the first three steps in a bit closer detail.
Step 1: Seeing how your past holds the key to your financial future
The focus of this section of the book is straightforward – for almost everyone, there is some key memory related to money in their past that is particularly vibrant. The chapter gives several very strong anecdotes and gives ideas for teasing out that key memory.
Why would you want to tease out that memory? Childhood memories, particularly strong ones, are layered in feelings of all kinds. Those memories are of the moments that defined who you are as a person, and true understanding of those memories can bring about significant insight into your adult life, which is what the second step deals with.
For me, I remembered the time when I worked on a project to raise money for a year, only to have the proceeds stolen from me. It is truly a painful memory to recall.
Step 2: Facing your fears and creating new truths
This second step is really just an extension of the first one. Once you’ve teased out that memory in detail, you can dig through it to see what exactly it says about your current views on personal finance.
The mechanism that the book uses for teasing out these meanings is to make a list of your current fears. What are you afraid of? Once you’re able to actually be honest with yourself and list them, comparing these insights to your memory can be very insightful. Quite often, the memory explains the root cause of your fear. Once you understand what exactly the fear is, you can begin to tackle it in various ways; Suze suggests the “traditional” idea of a mantra that you repeat for comfort and confidence.
To me, the first two steps felt very much like typical “self help” concepts, but they did work; I was able to find a key money memory and it did reflect clearly on my behavior with money today. I don’t particularly find a mantra to be useful for me, but I do agree with the need to conquer fear. The Simple Dollar itself is part of my method of conquering my fear of personal finance.
Step 3: Being honest with yourself
This is definitely the meatiest step of the first part of the book, and it provides the first non-psychological steps you can take to get your financial house in order, though this one is also a psychological trick at its core.
The basic idea is that most people don’t have a real grasp on what they’re spending or what they’re bringing in, and quite often people are spending more than they’re bringing in without really realizing it, thus creating severe financial problems over time. This is pretty typical given the consumerist lifestyle that so many of us live.
Suze’s solution is to take two years worth of records and make a list of everything you spent by category, then make a monthly average for each category. Then, do the same thing for your income and compare the two. Basically, this provides the background for a truly realistic budget; you can see from this data whether you’re overspending or not and you have actual feasible numbers to work with when determining where to cut fat to improve your finances.
Suze provides a lot of ideas on how to use this information in order to subtly trim fat away from your budget, but the real key here is psychological; this step can really make you see where that money is going.
Tomorrow, in the next part of this five part series reviewing The 9 Steps to Financial Freedom, we’ll tackle the next three steps that Suze offers. These three steps make up much of the meat of the book; you won’t want to miss The Simple Dollar’s take on it!
The 9 Steps to Financial Freedom is the second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.