Your Personal Cost of Living

We all know the cost of living has risen this year, but I have a question for you: Do you know what your personal cost of living is? Just ahead, we’ll explain how to calculate it and why that’s important. Every now and then, we devote the opening segment of the program to talking about the financial basics. Our framework for those discussions consists of the five things you can do with money. You can earn it, live on it, give it away, owe it to someone, or grow it for the future by saving and investing. Just about anything related to money will fall into one of those five categories: Earn, live, give, owe, and grow. Today, we’re focusing on using money to live on that is, the money you need for your monthly expenses, plus a few other expenses that only come due from time to time. COST OF LIVING Now, because of inflation, we’ve all paid higher prices at the gas pump and the grocery store, and in lots of other places. The federal government issues a report each month on the overall cost of living. And while that report is helpful in some ways, it doesn’t tell you anything about you and your household. What you really need to know is your personal cost of living. That is, how much does it cost each month to put food on your table, keep a roof over your head, and pay other expenses? Knowing your personal cost of living can help you construct a realistic spending plan or budget. A realistic plan is one that matches the reality of your cost of living and still has some cushion built in for other important financial obligations. You don’t need fancy software to calculate your cost of living. You can do this with a pencil and paper. CALCULATING YOUR PERSONAL COST OF LIVING First, write down your monthly giving. For a Christian, giving should be a priority, so make that first on your list. Next, put down how much you’re saving each month for general emergencies. So, carve those two areas out upfront: giving and savings. Now, start a separate column for your various living expenses Begin by listing all your fixed expenses. That would typically include things such as your mortgage or rent payment, a car payment if you have one, and any bills or debts for which you pay the same amount each month. For bills with variable amounts each month, you’ll need to calculate monthly averages. To do that, get the last 12 months’ worth of those bills. For each account, calculate the total yearly cost, then divide by 12 to get a monthly average. Then list those monthly averages in the same column with the fixed expenses that you’ve already written down. You’ll also need to figure out and write down your monthly average for transportation costs, including gas and, if applicable, subway or bus fare. Next, take into account things that occur only every so often such as car repairs and household repairs. Look back over the past year and figure out a monthly average with those items too. For example, if you had a car repair this year that was $1,200, that works out to an average of 100 dollars a month. Also, think about regular bills that come due only once or twice a year, such as property taxes and insurance payments. Calculate monthly averages for those too and add those averages to your list. And there’s one more thing to include. You need to take account of your gift-giving. Total up what you spend on gifts over a year including Christmas and divide it by 12 for a monthly average. Now, here’s the easy part. Simply add up all your fixed expenses and the various monthly averages for variable expenses. The total is an estimate of your average cost of living. Because it’s an average, the amount won’t match your actual spending in any given month, but it’ll give you a good ballpark idea of your monthly needs. Next, do one more thing: take that monthly cost of living figure and add in the giving and savings amounts you listed earlier. If that total exceeds what you’re bringing in, you know you need to cut expenses somewhere because your outgo is exceeding your income. With a new year just around the corner, this is a great time to go through this little exercise of figuring out your cost of living so that you can adjust your budget accordingly for 2023. Sure, doing the calculations will require a little effort on your part, but what you learn about your personal cost of living will help you make the most of what you have in the year ahead. On today’s program, Rob also answers listener questions: ● How do you determine whether to take Social Security benefits now or wait for a later age? ● How can you prepare yourself to buy a home after bankruptcy? ● What is the best way to search for college scholarships? ● Does Christian credit counseling affect your credit score? ● Does borrowing money from a TSP account affect your investment? RESOURCES MENTIONED: ● FastWeb.com ● Scholarships.com ● Niche.com ● Christian Credit Counselors Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected]. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29