How Much Does It Cost You to Survive?
Posted by Christi | Filed under Christi
Have you ever looked at what it costs you to survive? I’m talking your very basic living expenses. When we try to create a balanced budget or plan to repay our debt, we often look at reducing variable expenses like eating out and entertainment before considering our survival costs. We struggle, we fight, and we often blame our partner when the plan doesn’t work, but do we really know why the plan isn’t working? For many people, it’s because it is costing them too much simply to survive.
Survival costs consist of three budget categories; housing, food, and transportation. We need housing to keep a roof over our heads, we need food to stay alive, and we need transportation to get to and from our jobs so we can keep earning an income. An incredibly caring colleague of mine, Fernanda Capela, taught me this exercise, which I’ve coined “The Survival Method”. Now I will teach you. Here are some general budgeting guidelines for each of these budget categories:
What are Survival Costs?
- Housing should be no more than 40% of your net income each month. In fact, Gail recommends no more than 35%. Housing includes not only your mortgage or rent payment, but also your property taxes, condo/strata fee, home/content insurance, electricity, gas, and water bills, as well as phone, cell phone, cable, internet, and home alarm bills. Basically, everything that you need to keep your house up and running.
- Food should generally not exceed 10-20% of your monthly net income. However, this will depend on your situation. Statistics Canada states that the average adult eats on average $200-250 of food per month. Some 12 year olds eat like adults, and some adults eat like birds, so this will vary from household to household. Food, when looking at survival, consists of everything you need to keep your body running. This will include all personal care items and baby needs. I would suggest lumping medication into this category as well.
- Transportation should not exceed 15-20% of your monthly net income. Transportation will get your kids to and from school as well as transport you to and from work to earn an income. Transportation includes vehicle payments, insurance, maintenance, as well as parking costs, bus, and taxi fares.
*Remember that this guideline is just that. Based on your income and family circumstances, your allocations may be very different.
How to Calculate your Survival Costs
- Housing: Total amount / monthly net income = % of income (move the decimal 2 places to the right)
- Food: Total amount / monthly net income = % of income
- Transportation: Total amount / monthly net income = % of income
Add up the three percentages to find out what portion of your monthly income is going to survival. Doing this may be the key to your financial freedom. I often work through this exercise with people and the outcome is sometimes reassuring, but other times quite alarming. Some people realize that their transportation costs more than their housing. Others realize that their housing, food, and transportation eats up 95% of their income. This is such a simple calculation. We all should do it.
What Does This Mean?
In the most basic form, we need housing, food, and transportation to stay alive. But here is where we get to differentiate “needs” from “wants”. If we cannot fit all of our expenses, savings, and debt repayment into 100% of our income, then we must do one of two things; increase income, or decrease expenses.
If you choose to decrease your expenses, look at the category that sticks out the most. Should you trade in your vehicle for a less costly option? Do you need two vehicles or could you try being a one car family? If there is absolutely no way to decrease your transportation costs, or if your transportation costs or reasonable, perhaps you want to focus on your housing costs. Are all utilities as low as they can be? Can you reduce channel packages or downgrade your internet speed? Can you as a family work to reduce the use of water and electricity? Or, (you knew it was coming), do you simply need to downsize your home?
Calculating your survival costs will take you 5-10 minutes, and could be the answer you’ve been looking for. Why struggle to spend less on eating out or clothing when that’s not really the problem? This exercise will immediately show you if one area is completely out of whack and tell you where to focus your efforts and attention. It will prevent you from wasting your time, and help you get right to the root of the problem.
Do you dare post below what percentage of your income is being used to cover housing, food, and transportation? Keep in mind that your comment can be anonymous, and you’re not sharing any income or expense costs – simply percentages. Let’s help each other understand where we are. I’ll go first:
- Housing: 38%
- Food: 10%
- Transportation: 27%
Yep, 75% of our income is going to survival alone. However, because we don’t have debt payments, leaving 25% of our income for “everything else” is working. So how much does it cost you to survive?