How To Figure Out What Your Life Actually Costs (And If You Can Afford It)


budget, Uncategorized / Tuesday, June 21st, 2022

I frequently talk to moms who are frustrated that they work hard and feel like they hardly see a return on their investment (ie. their time investment because the money they make disappears quickly). Unwatched, money can just slip through your fingers like sand (and time when we look back at baby photos of our kids *cue tears*). That unwatched and unplanned-for money can disappear as fast as Jeannie can nod her head.

And all too often moms watch that money disappear and stress about how they don’t know if they will have enough left after paying the cable bill for little Susie’s new track shoes, save for their upcoming vacation, pay for summer camp, and still put gas in the car.

The issue is not that the money is spent quickly, its that when money isn’t allocated to cover your life’s expenses it can disappear without making sure those expenses are met. Alternatively, you may find that you have enough money to cover all your expenses each month and no bills are being skimped on but your stress level is still through the roof because although you cross the finish line each month you aren’t sure how you got there and each month brings a new race to worry about.

It sounds like two different problems right? I mean, one mom has her bills covered and the other doesn’t. Well, no. It’s actually the same problem. The problem at this point isn’t whether the family makes enough money to pay their bills, the problem is that they don’t know if they make enough money to pay their bills. This is why people say that making a budget can sometimes feel like you got a raise because you can see the difference between your income and actual expenses.

So where to start?

Well, let’s start at your money coming in. Do you know how much your family/household income is? If you have a partner, do you know how much money they make? Do you even know how much money you take home monthly?

If you don’t know the answer to those questions, you are not alone. I balance my checkbook for fun (nerd alert!) and I have still gotten stumped about what my monthly take home pay amount is.

  1. Identify all your sources of monthly income.

Look at your bank statements and calculate how much your household take home pay is. Make sure you have checked all the accounts your paychecks are deposited into in case you are like me and split off some money into separate savings and checking accounts. Add those numbers up from all the accounts for all the sources of income: you, your partner, side hustles, alimony, FSA reimbursements for daycare and health care (yeah its still your income, just diverted), anything you’ve got coming in.

If you have a variable income that includes commissions, bonuses, tips, and the like, then make these calculations off either a) your base monthly income that you always bring in no matter what or b) calculate your annual income from last year or a really good estimation of this year (be conservative and only include things you are highly likely to get) and divide it by 12. If one partner has a set income and the other a variable, then run calculations for each partner’s incomes and add them together to get your household monthly income.

Additionally, make a note (yes, om paper please) of any money taken out of your paycheck for investing, health insurance, life insurance, and anything else that is taken out directly. It’s still your income and kudos to you for earning it but we are gonna set it aside in our calculations of your monthly spendable money for now. It will come into play later when we make some decisions about what changes to make in our spending/saving/investing but leave it where it is now.

*Feelings check!* Calculating all your income sources may make you feel a) astonished that you make that much because you assumed it was much less, b) appalled that you make that much money each month yet have not tracked it and/or haven’t made progress towards your financial goals that you had hoped for, or c) sad that it’s not as much money as you thought it was. Either way, your feelings are valid. If you need to stop and make a cup of tea or go for a run, so be it. Money evokes a lot of feelings, both good and bad, and that’s okay. But don’t let negative feelings get in the way of continuing to press on to learn about your money and how to get a handle on it.

Next, let’s calculate what your life actually costs.

I say what it actually costs because you may say that you spend $200 a month eating out but unless you’ve been tracking your spending I’m willing to bet you don’t really know. It’s really easy to guess but often those guesses contribute to our spending or money mis-allocation problem, if you will. So, start with where you are and let’s take a look at the hard numbers. Remember that whatever you find, acceptance is the key. How you spend your money is not a value judgement about you, it is actually just a list of what you value (or valued last month) and you are free to re-allocate your money to better suit your current values.

*yeah, that’s a real quote that Biden’s dad used to say. I looked it up*

2. Calculate your static monthly bills. This is everything that someone sends you a monthly bill or drafts your account for, often for the same or similar amount every month. Common static bills are:

-Mortgage/Rent (including pet rent fees)

-Utilities (water, gas, electric, trash, recycling)

-Entertainment & Connectivity (cable, streaming services, internet, cell phone, landline phone, newspaper)

-Daycare/Childcare/Tuition/Kid Lessons or Sports (this includes if you have a babysitter that comes on a regular schedule)

-Insurance (car, health, renters/homeowner’s, pet, life)

-Loans (car/motorcycle, student, personal, money you owe your mom, any loan you pay on monthly)

-Credit Card Debt- if you carry a balance include the monthly balance you pay toward that debt (not what you pay to cover that month’s spending) and also note how much you pay monthly in interest since you still owe the interest even if you just pay off your monthly spending and don’t touch the debt each month

-Regular monthly home maintenance (pest control, lawncare, pool cleaning, home maintenance fees/memberships)

-Any monthly subscription service or membership (like Hello Fresh, Birchbox, Stitch Fix, Carwash, apps etc)

-Medical- regular monthly costs for recurring prescriptions/medications/appointment co-pays

-Pet Food/Prescriptions

-Gym Dues/Streaming Exercise Subscription Fees

-Fixed, monthly transfers to savings or investment accounts

3. Next, calculate your annual bills. Annual bills, aka sneaky bills, can be easily overlooked since they often get forgotten about until Amazon shows up in a random week in November to charge you $129 for Prime. Ouch! Or, they are things that you will definitely need to pay a set amount for later in the year but you just aren’t charged monthly for it. Common annual bills are:

-Insurance (if you don’t pay it monthly, see categories above)

-Amazon Prime

-Satellite Radio

-Summer Camp (gotta save all year for this!)

-Subscriptions not on a monthly fee model

4) Calculate your monthly variable spending. If you have a joint account with your partner and use little to no cash, its easiest to look through credit card and bank statements for the past three months to look at your variable, non-bill attributed spending. If you do not share an account or use a lot of cash, you can also get receipts for every purchase and put them in a box, then tally them weekly. This spending encompasses every single other thing you spend money on in the month including:

-Groceries/Home/Personal care products- including toilet paper, cleaning supplies, feminine supplies, etc

-Eating Out/Coffee/Snacks at the gas station

-Gas/Oil changes/Car maintenance and repair

-Sports/team expenses- including lessons/activities expenses for your kids if not already a monthly expense, equipment, travel, snacks

-Medical expenses- co-pays, prescriptions, co-insurance, medication at the drugstore

-Diapers/wipes/diapering supplies

-Clothing for all family members

-Entertainment- including date night entertainment, movies, kid activities, etc

-Vacation travel/lodging/entertainment/food/souvenir costs

-Gifts- including adult and kid birthday gifts, gifts for your kid’s friends, teacher gifts, mother’s/father’s day gifts, etc.

-Holiday/Birthday celebrations/d├ęcor/activities/food

-Pet care- vet bills, boarding, grooming, treats, toys

-School supplies

-Personal care/beauty treatments for everyone- haircuts (incl. kids), hair coloring, nails, shaving, makeup, skin care, waxing, etc. Even if you DIY, include the cost of supplies.

-Home miscellaneous expenditures/supplies- new drawer pulls, air conditioning repair, air filters, furniture, printer, paper and ink, gardening supplies, doormat, paint, light bulbs, water filters, etc.

-Ad-hoc transfers to savings or investment accounts

-Any other miscellaneous spending not included in any of these categories

Some of these costs are seasonal, some only occur on occasion, but at some point in your three month account review you are likely to see purchases that fall into these categories.

4. Lastly, identify your variable annual bills. Purchases that are really more of an annual variable expenditures (like holiday gifts and vacations, maybe summer camp too depending on if that amount changes year to year) should be noted and the full amount extrapolated and calculated. For example, if you spent $100 in November and $500 in December on Christmas gifts, that spending is not going to be replicated in January and February, so note it as an annual Christmas gift expenditure of $600, or $50/month. If your three month review period does not include any of these annual variable expenditures, still make a note of them and look up how much you spent last year for those activities/events.

As you are tallying up your expenditures for that three month period, you get intimately familiar with where your money goes. Sure, you can find a budgeting software that links to your bank account and categorizes your purchases for you to save time, but hand-reviewing your purchases one by one actually confronts you with each individual purchase and reminds you of when and why you made that purchase. This emotional connection to the logical review of your spending can help you identify your spending habits. Now is not the time for judgement or trying to set an budget target amount for how much you want to spend on these categories in the future. We will get to that later. Just tally the amounts you spent in each category for each month and calculate an average monthly spending amount. If you had a large car repair one month, that’s gonna throw off your numbers so list it separately and and look at your average gas and car maintenance costs.

You will likely be surprised to see how much you spend in certain categories. You may think you spend more money on gas than you actually do, or you find that you spend more on clothing than you thought. If your numbers turn your stomach, don’t beat yourself up. We are all human and this is simply an exercise in identifying how much you spend on your life month to month. Not a value judgement or an identification on if you are bad or good with money, simply a calculation.

You may also see that opportunities exist. For example, you see that you spent $300 a month in dining out at frequent stops for fast food but really you would rather spend that same amount on a few nicer date night dinners and cook more weeknight meals at home rather than get burgers so often.

With those larger one-off or semi-annual expenditures, calculate the monthly average cost and that will become your sinking fund monthly amounts. Sinking funds are the key to making your budget work!

There’s nothing wrong with spending money on things that you value and make you happy, as long as you can afford it. Your Starbucks runs are not inherently bad! They are only a problem if they get in the way of you paying all your bills and reaching your financial goals.

So, let’s run the numbers and see where you are at. Tally all the categories you have collected your spending information for:

  1. Income from all sources
  2. Fixed monthly bills
  3. Fixed annual bills
  4. Variable monthly bills
  5. Variable annual bills

When running the numbers, you may choose to calculate your average income monthly or annually. I would suggest calculating your monthly income and allocate to each month 1/12th of the amount you need for your fixed and variable annual bills. I know, it’s tedious. But including those annual costs is way to know if you can truly afford your living expenses. And including them help you to make future decisions about what to keep and what to cut when a monthly cost (like dining out) gets in the way of an annual cost (like a vacation).

Now, compare your spending to your cash flow. Are you net positive or negative? Do you have money left over or do you have all your income each month allocated? Do you have too much spending and not enough income? No judgement here!

This is not an exercise to make decisions about what spending you will keep or cut. Those decisions are best made later when you are making your budget. Instead, this exercise gives you a bird’s eye view of your income and spending and includes all categories, even the sneaky annual bills, so you can truly see if you can afford your life.

If your monthly and annual spending breaks even or leaves you some income left over each month, then congratulations! You can afford your life as you are currently spending. If not, then you need to make some tweaks to not end up in debt or unable to pay your bills. Don’t worry, most people doing this exercise will find that even if they have money left over they want to make some major changes in how they direct their spending to align it with their true money goals.

If you find that your income doesn’t support your monthly + annual spending, then you have likely pinpointed the spending that is putting you into debt.

Now that you have an idea of whether you can afford your life based on our current income and spending, how do you feel about it? Maybe you feel elated to see that your numbers match up and you aren’t in the red, phew! Maybe you feel worried because you see a lot of red and your spending is higher than your income.

Either way, you will see room for improvement, big or small, and the next step is to align your spending with your financial priorities: setting up a budget!