Give Yourself Some Financial Slack

In continuing the conversation from my previous post, How Long Could You Last? , I’d like to share some insights on another basic need to seriously consider as you build a strong foundation for financial wellness. This basic need involves strategically carving out space in your cash flow to give you room to breathe.

The basic premise here is that over time the percent of income needed to cover your basic living expenses, should decrease. The sooner you can make adjustments to reduce how much of your income is already tied up to meet obligations, the better. Think of yourself as a boss. You hire others to provide services, such as electricity and grow food, so you can focus on pursuing your own interests. Only hire who you really need and do as much as you can yourself.

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Here are the primary elements to include in calculating your basic living expenses:

  • Housing (include minimum payment, insurance, taxes, association fees)
  • Utilities (electric, gas, water/sewer, phone, cable, internet)
  • Loans/Credit Lines (minimum payment)
  • Groceries (food, toiletries, paper goods, cleaning supplies, beverages)
  • Transportation (fares, tolls, parking fees, gas, oil change, license/registration, insurance, maintenance)
  • Medical Insurance(Primary care, Dental, Eye care, Therapy)

Keep in mind this list covers the bare essentials of meeting your basic needs so you can accomplish the things you are striving for. Once you have these in place and monitor them on a regular basis, you will have a better framework to manage your discretionary spending. That’s where the slack comes in.

The next time you are thinking about making a major purchase, changing jobs or moving across the country, think carefully about how you can reduce your basic living expenses. The fewer financial obligations you have, the more you have can funnel into building the life you want. Give yourself some slack.

Action Steps: Set a personal challenge to reduce your living expenses below 85% of your net (take home) income. Be specific about what steps you’ll take by what date. Visualize what you will be able to accomplish with the extra cash flow. Stretch yourself even more and go for 70% over the next few years.

 

Note: Photos courtesy of pixabayspinheike  and simon.