How much do you ACTUALLY spend on living expenses?
Whenever I talk with clients, I ask them this dreaded question
— “How much do you think you spend on your life every year?”.
They then go ahead and try to calculate what they ‘think’ they spend and reply with a figure. I can assure you this figure is never, ever, actually right!
Now, go ahead and answer this question yourself and write it down. To help I’ll make it even easier and list some common expenses, to fill in and add up. You may need to do a little guess work or a rough estimate, but let’s see how you go…
Now that you have your figure, let’s take a look and compare it to YOUR REALITY.
The easiest way to calculate your yearly expenses is by using the below formula:
(TOTAL GROSS WAGES + COMMISSIONS + INVESTMENT RETURNS)
– (TOTAL TAXES PAID + TOTAL MORTGAGES PAID + TOTAL SAVINGS)
= TOTAL SPENDING
Take a look at the below example:
So please go ahead and compare your guessed spending versus your actual spending… I’m certain it would be at least 30% off. Am I right? If so, you now need to dig a little deeper and pull out 12 months of bank statements, and check where the discrepancies lie.
Most of us think we could save much more than what we are saving at the moment if we really wanted to. You may also think this way?
I realise this will sound harsh, BUT, no you CAN NOT. Because what you are saving is the actual amount you can save. The reality is, over a 12-month period it is very difficult to stick to a very strict budget. You will tire from it, it will definitely cause arguments in the household etc. and if you are a homeowner, and have a mortgage, you’d probably want to pay that off sooner, wouldn’t you? If you can actually save a little bit and use that towards extra repayments on the mortgage, no matter how small the amount is, this should reduce your mortgage term and the amount of interest you pay significantly.
Also, many people think they can save their way into retiring comfortably, and let me tell you, this one is a myth too. Why you may ask? If you are saving $4,000 per year and are 25 years off retirement, you will end up saving a total of $100,000 plus the interest it will earn, so let’s say $130,000. Do you think this would be a comfortable retirement? I don’t believe so and neither should you.
And again, don’t cheat yourself, and say I can save that. That is just you telling yourself a lie. Like sometimes when I tell myself it is only a couple of slices of pizza, and I can burn those calories off at the gym in the morning — I then get busy and don’t go and have the consequences of the pizza. You get what I am saying…
So please, I urge you to examine your ACTUAL real-life spending, and see if you can make major adjustments, because we all do waste our money here and there. If you can save more, this is great, but it will never be significant enough to give you a comfortable future. Once you figure this out, we’d love for you to get in touch so we can help you put a retirement plan together. This plan will not require you to spend less money in your life, we can fund this plan through your taxes and wasted interest on your mortgage.