Today is a big chunk of the money pie… Daily life. I simply call this my Living expenses, because… well it’s for living! If you want you can call it Needs or Daily Life.
Give it a name that represents what this money is actually for which is:
Living Your Life
This is where most of your money will go to.
How Much Should I Put Into My Living Account? 50%
As a rule, I aim to have 50% of my income in Living Expenses. Remember this is a goal, not a starting point. As we make our way through the system you will find that when you move certain amounts of what you consider to be normal living (like dining out, movies and entertainment) out to other accounts that this 50% gets closer to reality.
What Makes up the Living account?
A great way to know if an item belongs in the living account is to ask yourself the question “Do I need this to live?”
Notice I didn’t say “Do I want this to live”. We need food to live. We don’t need popcorn every time we go to the movie theatre (there’s another account for that, don’t worry).
Among the items that can go into your living expenses:
- Mortgage or Rent
- Property Taxes
- Insurances (Car, Home, Life, Disability, Critical Illness)
- Car Payments
- Cell Phones
- Home Phones
- Make-up and Hair
- Children’s stuff (I’m calling it stuff because there are so many things that can go in this)
- Hair and Grooming
- And any other expenses that cost your life
Seems like a lot of stuff to fit into 50% of your income, doesn’t it?
That’s what I thought too! But I worked at it. Bit by bit it came down.
Before you can start getting your expenses under control you need to know what your expenses are.
Here is a spreadsheet to help you track your monthly expenses. I find it best to figure out the recurring monthly expenses (i.e. fixed expenses) that way I know how much I have to work with. Then move on to the non-fixed costs like food and transportation.
You Improve What You Track
There are numerous studies that show what you track you improve upon. It’s no wonder everyone is wearing a fitness tracker these days.
Start Tracking Your Spending Today
If you aren’t already tracking your expenses and spending, you need to start today. You can either go back through your old bank and credit card statements (if you are a finance geek then you are drooling over this idea) and enter them into a spreadsheet. Or decide that going forward you will be tracking your expenses.
A Better Way To Track Your Spending
If you are going to start tracking digitally most blogger swear by Personal Capital. It allows you to combine all of your accounts and credit cards, so you can see a total overview of your finances. Best of all it’s Free! If you are outside of the U.S. your options are a little more limited, the other one is Mint.com.
Start tracking your expenses and see where your money is going.
Homework for today
Today’s homework is straight forward. Come up with a list of all your monthly fixed expenses and enter them into the spreadsheet. If you aren’t familiar with spreadsheets I made a quick video to go along with it here.
If you aren’t tracking your expenses yet you can use a spreadsheet or a free service like Personal Capital. Not only do they track your spending, but also your net worth. (which we will cover in another mini course)
We will see you tomorrow. If you have any questions hit reply and send me an email.