Last Updated: May 12, 2023
Anything you spend money on that is necessary for you to live, like housing or food, is part of your cost of living.
Unfortunately, these expenses can easily get out of hand, and many of these things are rising in price.
Here is how you can navigate your cost of living expenses by evaluating your cost of living and reducing your expenses.
Your daily expenses that are also needed (not to be confused with wants) make up your cost of living.
You should have a general idea of your cost of living number, but it is easy to calculate if you don't.
Find out your monthly costs for common factors:
The factors that make up your cost of living can vary between regions and cities. Some people may have additional expenses like parking, public transportation, childcare, and debt payments. Make sure to take into account any special situation you may have that can be part of your cost of living.
You should have a good idea of your monthly expenses in these areas. Add them up, and that is your cost of living number. This is the minimum you need to earn to live.
Knowing this number can help you better understand your overall financial situation.
Ideally, your cost of living number should be less than what you make.
Then, whatever you have left over from your income can be used towards whatever you want or to save.
If you don't have any money left over for other expenses after your cost of living expenses, you need to reduce your living expenses. Being able to afford your cost of living without feeling like you have a restricted budget will give you more financial peace of mind.
Some things you can do to help reduce your living expenses are:
By reducing your expenses, you will be able to afford your cost of living. In addition, this will allow you to eventually plan for your future and save money.
If you aren't able to reduce your expenses but need more money for your living expenses, find ways to increase your income.
A few ways to maximize your earnings are to:
By increasing your income, you'll be able to afford your cost of living along with other spending or saving.
By controlling your cost of living, you can plan for your future.
In addition, having your expenses set up in a way where you can save for the future will give you more financial security.
With your extra savings, you can save for emergencies or unexpected expenses. These can be anything from car repairs to medical bills. Avoiding debt will be the best option.
Ensuring you are investing and saving for retirement is also a great way to plan for the future. The extra money you are not spending towards the additional cost of living can be used towards employer-sponsored plans or individual retirement accounts.
Thinking of other long-term financial goals can help you properly save for them. Purchases like buying a house or starting a business take proper planning.
When evaluating your cost of living, an important aspect to consider is your balance between your lifestyle and making the right financial choices.
Find ways to enjoy the things you value in life without overspending. There are ways to do your favorite things cheaply or freely.
If you do have to spend money, prioritize the expenses that are most important to you. These can be from travel to hobbies. Choosing the most important things will allow you to save up for these things and truly enjoy them.
Understand lifestyle inflation and try to avoid this. This is oftentimes a huge driver of an increased cost of living expense.
Learning how to navigate your cost of living can be a helpful tool for building wealth.
Keeping these expenses low and making more income will allow you to save more for the things you love. So start making small changes now towards your cost of living to improve your financial situation.