How to Know What It Actually Costs You to Live

Updated on December 22, 2017
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Dreamworker has a lifetime of business, career and financial experience she shares with her readers here.

One of the biggest mistakes people make is to avoid including all of their day to day expenses when figuring their costs of living.

In fact, many people don’t even bother to find out what they spend in any given year because they either don’t want to know or don’t know how find the information they need to make a cost of living chart.

People who don't pay attention to their expenses never know what they have, how much they owe or even how much money they may have gained or lost in a given year.

These issues make it important for people to take the time to find out how much they actually earn and spend.

How to find out what your real cost of living is.
How to find out what your real cost of living is. | Source

How Much Do You Earn?

Few people can tell you how much money they earn.

Most will look at their pay stubs and assume that the figures they see there represent their earnings.

This is not the case.

What you see is what is left over after deductions such as those for Social Security, Medicare and other items that have been subtracted from the gross amount of your check.

The point here is that what you earn and what you actually receive are two different amounts!

This is important for you to know because if you plan a budget based on your gross earnings rather than on your net income, you could easily overspend and create financial problems for yourself!

How Much Do You Spend?

Finding out how much you earn is much easier than learning what you spend because there are so many small variables that people don’t track.

For instance:

  • How much do you spend annually for gum?
  • What do you pay for haircuts (including tips)?
  • What are you paying for a cup of coffee each time you eat in a restaurant?

There are also one time expenses that you tend to pay and forget about until the next time they come due such as

  • drivers license renewal costs,
  • dental cleanings or
  • magazine subscriptions.

In themselves, none of these items may seem to cost much, but the truth is that they are the very things you spend money on that make you wonder where it all went!

Do you know how much you spend each year?
Do you know how much you spend each year? | Source

Does Making a Budget Help?

There is no question that making a budget and sticking to it is one of the best ways to maintain control of your finances.

However, if you do not include items like those mentioned above, your budget won’t work!

People tend to budget for big ticket items like housing, food, medical care, clothing and transportation, but often forget that the interest on the money they owe is also an expense.

  • I can remember talking to a fellow about his cost of living. He told me he was completely debt free.
  • However, after probing him a bit, I found out that he had a mortgage on his home and had a loan on his car.
  • He was kidding himself about his circumstances and, as a result, really did not know what it was costing him to live because he was excluding the interest he was paying on his debts, which came to thousands of dollars every year!

The bottom line is that if you are going to make a budget, you have to do as Dave Ramsey advises and include everything that you spend money on, not just the things you consider to be the most important.

To help yourself do this, you really should read one of my all time favorite books on this topic, "How to Budget" by M.H. Kahn.

I've read a number of similar books over the years, but this one really tells it like it is and shows you, step by step, what you need to do to make and stick with a budget. You can get it free on Kindle or buy the paperback.

Small Expenses Add Up

My husband and I used to be in the trucking business. Every time we stopped to eat at a truck stop, we could hear drivers complaining about how little money they were making and how much their travel expenses were costing them.

At that time, a cup of coffee cost a dollar. The average driver would stop at least four times daily for coffee. This means he was paying $4 per day, $28 per week or $112 per month just to drink some coffee.

Since most men drove at least 10 months out of each year, many were paying $1230 per year to drink coffee!

We did not do that. Instead, we carried a large thermos and asked the waitress at the truck stop to fill it with hot water for us. We kept a supply of paper cups, instant coffee, creamer, sweetener, tea and hot chocolate in our Peterbilt.

We’d share a cup of coffee for breakfast, get the hot water for free and while everybody else was paying $4 per person per day for coffee, we were paying $1 for the two of us (refills were free). This meant we were saving $1860 per year simply because we understood that being careful about small expenses could save us a fortune!

Costs of Living Vary Greatly

Because everybody lives differently, it is up to you to do the work involved in finding out your own annual cost of living.

It's also important to understand that your geographical location can make a huge difference in what you pay to live. San Francisco, for example, is one of the most expensive places in the US to live, while Mississippi costs much less.

What this means is that you might be able to afford to buy a house in one place that you otherwise could not afford if you lived somewhere else!

Furthermore, finding out what it costs you to live is a job you need to do every year simply because what it costs you to live from one year to the next will change due to issues such as

  • marriage,
  • divorce,
  • illness,
  • buying a house and
  • changing jobs.

Thus, you will have to make an educated guess about some expenses.

For example, I know how much I pay to get a haircut and what I give for a tip. I may not get one every four weeks, but I assume that I will. This way, I can estimate my annual cost for that item.

How to Create A Chart

To make a cost of living chart, you will have to look at credit card receipts, your checkbook, insurance papers, utilities bills and other similar items.

From these sources, you create the basic information that you will need to build a cost of living chart.

To help you, I’m including my own so that you can see what I’m talking about.

Notice that I include something called “miscellaneous”. I always put more in this column than I expect to pay out to cover any expenses I may have forgotten or

That may come up as the year progresses.

Once my items are placed on the chart, I write in the annual and monthly estimated or real costs.

Finally, I add these up at the bottom.

Now I have a pretty good idea as to how much I am going to have to pay for the current year in order to live.

A simple example of a cost of living chart as done on a spreadsheet.
A simple example of a cost of living chart as done on a spreadsheet. | Source

Income Vs Expenses

To the right of my estimated expenses, I place what I expect to earn from all sources.

For example, I might include items such as gross income, part time employment or CD interest.

I then total the figures.

  1. If my expenses are more than my income, I’ve got a problem.
  2. If the reverse is true, this means I will have money left over that I can use for savings, investments or entertainment.

Before you get too happy with the results, bear in mind that you will have to pay income tax on your gross earnings.

By looking at your tax forms from last year, you can get a fair idea about what that figure will be. Subtract it from your total gross earnings.

Now you know how much your net income is and can compare it with your cot of living!

Knowing the Actual Cost Of Living Has Many Benefits

You may be thinking that seeking out all of this information and placing it on a chart is a waste of time, but the truth is that you cannot really know where you stand financially in life if you don’t do this.

If you create a new chart each year that reflects your current income and expenses, you’ll be able to tell whether you are progressing or falling behind.

This is important information because it can help to guide you to better decisions and can protect you financially.

I've included an interesting video that shows what things cost. This may help you to understand a little more about how much you have and what you can afford to buy!

Your Chart will allow you to see if you’re paying too much for internet service, for example, and perhaps look around for a deal that will cost less.

You can do the same with big ticket items such as car and homeowners insurance.

You will be amazed to see how much money you can save and how much better your life will be if you take the time to find out what you really are spending to live in any given year.

Give it a try. You’ve got nothing to lose but some time and effort and everything to gain.

What Things Cost

Do you think you should take the time to create a cost of living chart for yourself?

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© 2017 Sondra Rochelle

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  • Dreamworker profile image
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    Sondra Rochelle 4 weeks ago from USA

    Michael Duncan: I obviously agree with you. It's too bad that so many people fall for the hype and let their emotions take over when it comes to spending. Maybe this article will wake a few people up...life is becoming increasingly expensive!

  • Michael-Duncan profile image

    Michael-Duncan 4 weeks ago from Spain

    It is essential to exercise sound financial judgement and practice living within our means especially in these times of avarice and overindulgence. Moreso as we engage in another festive season where the typical mindset, regrettably, is to spend more and handle the financial consequences later. In order to do so, there is need to increase our awareness and exercise discretion. So thanks for highlighting these fundamentals. Cheers!