I don’t care if you are in business for yourself or not, if you are a human being, you need to know your bare minimum operational costs. The “If all those bad things hit the fan, what is what I need to survive?” number.
Not just for financial well-being. It actually sets up and can contribute greatly to the “whole human” well-being. When you know your numbers, you can decide what you will and will not spend your time and money on. And when you can walk away.
All decisions get easier. Even the ones that seemingly have nothing to do with money. Promise.
I’m sure Google (or whatever search engine you choose) can give you videos and articles telling you how to figure out your costs. They will probably tell you where to cut your expenses as well, but that will only get you so far.
I’ve done various forms of these exercises over the years and have morphed it into my own system. (Because every one is different so you gotta make those systems and operations work for YOU!)
The basics = what $$ going out vs. what $$ is coming in. What is the number (or negative) that remains?
(I’m not even going to talk about debt right now, that’s a whole other set of writings. This is just basic day to day. Keeping the lights on, paying for a building to live or work in, feeding yourself and your family…)
When I first read Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Dominguez, it changed everything for me. It’s not just about the spending but how you feel about it. I already prefer to opt out of most things but now, it gave me the reason WHY I felt that way.
In figuring out your bare minimum costs, you will notice what you forget, what you miss, what you are annoyed at and what feels good for you to spend on. The feelings about each of those costs are JUST AS IMPORTANT as the numbers you are getting down on the page or spreadsheet.
I suggest, in addition to getting your bare minimum, tracking what you spend every day. It can also be a great way to get you to your bare minimum costs – it’s the chicken vs. the egg scenario always. What you miss tells you how you feel about certain expenses. And it gives you a chance to feel those feelings in real time. I find when I miss transactions along the way and they are usually ones I resent (which is not much of a surprise).
Currently, I track everything I spend, every day on a spreadsheet AND I keep my accounting ledgers on top of that. As someone who HATES double entry, I am voluntarily duplicating work.
Why?
It helps me be more conscious of my time/money and what I am spending it on. Because when I have to write down what I spend outside of the ledger, I have to ask myself how I feel about that spending. (The book also had “How much you had to work to spend on that one thing” formula. Very enlightening if you are into that sort of thing and can be helpful for a time.)
For me, I rate my feelings on a simple scale – Excellent, Good, Fair, Poor. There are only 4 options so I can’t pick the “easy middle.” It helps me from being pulled along in spending money without realizing it. After all these years, I am now rating my spending BEFORE and WHILE I spend it.
Figuring out your bare minimum costs gives you power, over your money, your time, yourself. You’ll find that you are doing other things with your money you would have never imagined.
It’s not a quick fix, it’s not a band aid, it’s not a two hour thing. But just like physically cleaning up your house or your diet, the rewards and the freedom that come after to be yourself are worth it.
