Have you ever wondered how much money you spend on a monthly basis? This is a number that alludes many people, but today I’ll show you an easy way to figure it out and why it’s so important.
When we prepare financial plans for people, we use monthly expenses to determine if a person is expected to run out of money (i.e. investments) over their lifetime. Essentially the money that a person spends each month is their standard of living. People are used to living life a certain way and when we help them plan, we carry this standard of living throughout their lifetime.
Many financial experts say that in retirement you can live off of 80% of what you were making prior to retirement. But we don’t find this to be true. People want to maintain the same standard of living in retirement as they were during their working years. This is why it’s so important to know how much you’re spending each month.
The calculation for determining how much you spend on a monthly basis is easy. All you need to do is:
Add up how much money you’re putting in savings each month plus whatever your checking account balance is growing by each month on average. Then subtract this figure from your monthly take home pay.
The result will be your total monthly expenses. If you’re not saving your take home pay then you’re spending it!
While it is important to know your total monthly expenses, it’s equally important to know where you’re spending that money. But that comes with challenges as it’s very difficult to know where every dollar goes. If you missed last week’s blog post I encourage you to read An Easy Way to Budget. This article will show you how to figure out where you’re spending money and how to increase your wealth as a result.
Please comment below and let me know if you’ve found this content helpful. I’m also curious to know why you think knowing your monthly expenses is important.
Founder, B.E.S.T. Wealth Management
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