Do you know how much money you need to survive for one month?
If you don’t, you are not alone. Many individuals don’t know the approximate or exact amount that they need for their basic cost of living.
Your cost of living is how much you need each month for your basic needs in life. Knowing this number will allow you to save up enough money for an emergency fund, budget the right amount, and prepare for a worst-case scenario.
A cost of living number is the monthly or yearly amount that you need to survive.
This number is the minimum you need to earn each month in order to live. It does not include any wants in life, such as subscriptions, dining out, clothes, and so on.
To find out your cost of living number, the first thing you need to do is track your spending.
Track your spending for one to three months and break down every purchase into categories.
Once you’ve tracked your spending and know how much you spend in every category on average for a month, you need to place each category into a “needs” or “wants” category. Everything that is in the “needs” category will be added up. This is your cost of living number.
Determining “needs” versus “wants” can be very difficult.
Our lifestyle is part of our personality. We may think that going to dinner and movies every week with your friends is a need, but this is a want. Everyone’s needs in life will be different and their cost of number will be different.
If you don’t have a car, then a car payment will not be in your needs category. If you do have a car and you need to go work with that car, then your car payment will be in your needs category. Most people will have housing, electricity, water, food, and transportation as their needs.
The purpose of a cost of living number is to be prepared for the worst-case scenario.
If you ever lose your job, you can cut back on your “wants” and just focus on paying for the “needs”. You will know exactly how much you will need to earn to cover your housing, transportation, food, and utilities.
That is all you will need to earn to keep the lights on at home and ensure your family has shelter and food on the table.
It’s important to only include your needs in your life for your cost of living to be able to use this number to its potential. Including wants that may seem like needs will increases how much you need each month. This will make it more difficult to save up how much you need in the case of an emergency.
Knowing your cost of living number is not just for extreme scenarios like losing your job.
It can also be helpful for budgeting, starting an emergency fund, and changing careers.
If you check your checking account every day, you will easily be able to see if you have enough money in your account to cover your bills.
Your cost of living number can also be used to help you calculate how much your emergency fund should be.
Typically an emergency fund is three to six months of expenses. Your emergency fund could be three to six months of your cost of living number. This will give you more security if you do lose your job to be able to find another job without having to worry about the necessities in life.
If you lose your job, you can use your cost of living number to calculate how much you need to earn each day. You can find a part-time job while looking for a full-time job to replace your lost income.
A cost of living number is the amount of money you need to survive for a month.
It is calculated by tracking your spending. It should only include the necessities in your life such as housing, transportation, utilities, and food. Everyone’s cost of living number will be different and will change as you enter different stages of your life.
It’s important to know how much you need to survive with the bare necessities each month if you lose your job. It also helps with budgeting and calculating an emergency fund.
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