What Can I Afford?
After seeing Suze's recession reality check, Kerry and Bill decided to forgo their honeymoon altogether. "After that show, we looked at each other and said: 'We're not going to go anywhere. We'll stay home and chill out,'" Kerry says. "We just decided that the $6,000 we would spend in seven days would better serve us being left in the bank as our emergency cash flow."
Suze says Kerry and Bill are making a good choice for their finances and for their relationship. The number one reason for divorce is fights about money. "So here we have a couple that's getting married and they're doing it the right way," Suze says. "Doing what matters versus doing something they can't afford. I love that."
"We made a plan to be able to get out of credit card debt completely," Michelle says. "What Suze said really hit home for me, which is: We're living a lie as long as we're using these cards to buy things we can't afford, and it stopped that day."
Get Suze's new credit card advice
Not only is Michelle doing the right thing for herself, Suze says she's setting the right example for her two children. "Kids don't listen to what you say, they do what you do. And if you're an honest person and are proud of who you are versus what you have, your children will end up the same way," she says. "Good on you, girlfriend. Good on you!"
Suze takes a look at all of Megan's finances. When she is working, Megan and her husband's monthly income after taxes is roughly $9,000. They have monthly expenses of $6,583; monthly savings of $2,417; and an emergency fund of $6,000.
But if Megan quits to stay at home, their monthly income would drop to $6,666. Their monthly expenses would be $5,783; their monthly savings would be $883; and they would keep their $6,000 in nonretirement savings.
Can Megan afford to be a stay-at-home mom?
Suze says Megan needs to keep working for two reasons. First, because her reported monthly expenses did not take into consideration all the future purchases for the new baby, like diapers.
Use this worksheet to track your monthly expenses
Second, Megan does not meet Suze's rule for eight months of emergency savings. "If she had $48,000 there and we were okay there and I knew she was being honest with her expenses, okay," Suze says.
Calculate how much interest your savings account can make
Suze says she still may approve Megan to be a stay-at-home mom if she is able to put all of her paychecks into a savings account from now until the baby is born in April. "Can she make it right now just on her husband's income alone? ... See what happens. Do your expenses decrease because you don't have as much money to spend? And by the time the baby comes, they'll know for sure if she can afford it or not," Suze says. "If she can't afford it, she'll stay working. If she can, guess what? You're going to have a number of months saved up that add to your [emergency] cushion."
Some of those expenses include $200 a month for gas; $810 a month in car payments, insurance and maintenance; $1,400 for a new bed; a $50 snowboard; and a $300 iPod.
"I do feel like I sometimes live a lie because my friends will call me and say, 'Let's go get a manicure and pedicure.' Or, 'Let's go to dinner.' And I know the bank account says, 'You can't afford to do it,'" she says. "I know I need to cut back. It's just tough when all of your friends are living this life."
Watch Suze's smackdown.
Hannah comes clean. "I spend the money on the things I know I shouldn't spend because I think I'm young and I still have time to fix it," she says.
Suze says Hannah's spending spree has real consequences now. "These are the most horrible FICO scores I have ever seen," Suze says. "Every time you decide to pay your rent versus your student loan, a bed versus your student loan, eating out versus your student loan, what you are doing to yourself is really committing financial suicide."
Then, Suze asks Hannah a big question. Why isn't she working a job in the field her degree is in? "Because I'm too lazy to look for a new job," Hannah says.
With her new lifestyle, Hannah has cut her expenses down to $2,326 a month, which gives her only a $316 per month deficit. Still, Suze says Boston is the most expensive city to live in when it comes to utilities.
Suze says Hannah is approved to stay put! "This 25-year-old has made some of the hardest decisions of her life," Suze says. "She has chosen honesty over deceit. She's chosen to do things now out of integrity versus impressing everybody and [acting] irresponsibly to herself. You need to be rewarded for that."
Suze puts Hannah on three-month probation. She says Hannah needs to look for a new job and start making more money. And if she can't pull it together in three months—Hannah's going home to mama!
Use this tool to find out how to eliminate your debt
As a second grade teacher, Joanna takes home $2,908 a month. She has $1,845 of monthly expenses, and $8,500 in her emergency fund, which gives her a monthly excess of $1,063.
The home Joanna wants to buy is $150,000, and she needs $5,000 for a down payment. She plans on taking the $5,000 out of her emergency fund, and the bank has already approved her for the mortgage.
Can Joanna afford to buy her first home?
The general rule when buying a house is that you should have at least eight months of emergency funds saved in addition to your down payment, Suze says. She also says the bank should never have approved Joanna's mortgage. "The truth of the matter is that the lending institutions should have denied you because you didn't have the money," she says. "Shame on them."
If you truly can afford to buy a house, Suze says now is the time. "I will forever believe that buying a home you can call your own in any market, if you can afford it, is a great investment. Why? Because you can't live in a stock certificate. You can't live in a mutual fund," she says. "Now is that time that you go in and you don't just get an okay deal—you get the deal of a lifetime."
Learn more about the new first-time buyer tax credit
Struggling with your current mortgage? Find out how you can get help
Marilyn's monthly income is $9,105. Her expenses are $8,191, and her retirement savings are $393,000. She has a monthly surplus of $914.
Can Marilyn afford early retirement?
First of all, Marilyn has $6,200 of credit card debt at a 14.2 percent interest rate that Suze wants her to pay off before retiring. But Suze says the real reason she thinks Marilyn cannot afford to retire is that women spend more time in retirement than they do working. "After 56, you will have another 30 to 40 years of life," Suze says. "What you did not factor in was inflation. As you get older, you take more medication, you need more help, things become more expensive."
In the current economy, Suze says Marilyn can't count on pensions or health benefits from corporations, because they could cut back or stop them altogether at any time. Marilyn will have to hold off on retirement until she's at least 60 years old, Suze says.
Use this calculator to see if you should continue to invest
Marla makes $3,400 a month. Her monthly expenses are $2,816, including a $316 payment for the car she is leasing now, and she owes $800 on a zero percent interest credit card.
Can Marla afford to buy a new car?
Suze says that Marla should buy a car that will have a monthly payment similar to the $316 she pays now. To do that, she'll need to buy a used SUV for approximately $10,000. Suze says Marla can also try to buy the car she has currently, since the lease is up in three months. "You can negotiate big time with them right now when you turn it back in," she says.
The rule of thumb, Suze says, is if you're going to finance a car, don't finance it for more than three years. "If you can't afford the monthly payments on a three-year loan, you cannot afford it," she says.
See how you could get a sales tax break on a new car
Want to know if you can afford a home, a dream vacation, even a pair of new stilettos? Use this calculator to find out!
Get Suze's 5-step recession rescue plan.