Monday, February 27, 2012
Are you correctly counting ALL your costs?
When calculating your expenses you have to be careful not to disregard bills and spending that doesn't necessarily happen on a monthly basis. It's easy to write down all the bills that you have to pay every month and say "Ok, I'm spending 1800 a month". But what about expenses that don't happen every month? If you spend $600 every Christmas on gifts for your family, you basically have an extra $50 bill that month. So you can't really maintain your current lifestyle on $1800 a month (you'll also need an extra $12,000 before you retire!).
This is something that I am very bad about. My base monthly expenses are very low, but I have a habit of not thinking about expenses that are recurring but not necessarily every month. That is one of the reasons I have this blog, to keep a running tally of everything I am spending, by month, and later by year. This will give me a much more accurate picture of my spending, saving, and retirement needs.
keeping track of every expense for at least a year is the best way to do this. But even then there are some expenses you should consider. A typical house roof needs to be re-shingled about once every 15 years or so. If that is going to cost $5,000, then you really have an extra $30 a month you should be putting away for a 'roof fund'. This replacement cost can be amortized for other things too, like vehicles, appliances, etc. The costs are infrequent, but they are real and they are guaranteed to hit you at some point. So best be prepared. I personally use a general maintenance fund, and don't save for each of these things individually.
Some various expenses you may want to try to keep track of that happen less than once a month include:
- Car maintenance: oil changes, new tires, repairs.
- Gifts and holiday spending
- Vehicle registration
So remember to keep track of ALL your expenses. It's the only way to make sure nothing slips through the cracks and to get an accurate picture of your income/spending/saving balance. I am not trying to amortize each of these costs into a monthly amount, choosing to instead just keep track of every expense for a year, then get the totals. THEN I can calculate an accurate monthly cost of living, with less chance for error.
My Spending for the month of February will be posted within the next week. Stay tuned.
-The Money Monk