Monday Morning Money Moment: June 5, 2017
Know your Number
Happy Monday friends and welcome back to my Monday Morning Money Moment. I hope your weekend went well and it was full of fun, friends, food, and frolicking. Today my topic is going to be all about numbers, fun eh? Well, it is not exactly about numbers, more about one number. I call this number your “break-even number.” This is the number that should run your life. What is your break-even number you might ask? This is the number you get when you subtract all your fixed expenses from your total monthly income. Why is this number important? This number dictates your life. This number will essentially determine what you do in life. This number tells you what you have in disposable income every month. Disposable income is very important. It is what you can put into your personal financial plan for savings and investments. In this post, I will quickly explain this break-even number to you and then why it is important.
The best way I can explain the break even number is by describing my own situation and what my break-even number is. I have four fixed bills every month. They include housing $1167, hydro approx. $100, cable/net/cell phone $200, and insurance $50. That makes my monthly grand total for living $1517. I have to earn that much money minimum every month to live. That is my break-even number. Notice that I didn’t include food in that number. Also, notice that this number could be even lower if I eliminated my cable bill. I could make that number much, much lower as well if I found more affordable housing. In the next paragraphs, I will explain what this number actually means and why it is important to me.
My break-even number basically dictates my life. I have come to the conclusion that I can comfortably afford this amount and still accomplish my goals. By knowing exactly what I brought in every month and then subtracting that number I still had enough left over to eat and save. Food is not included in this number because food is something I can change monthly. If I really had to I could spend very minimally on food. I understand for some people this is not an option, especially those with children. However, as a single man, I can control that number quite easily. I also can justify spending almost $1200 on my housing because I spend so very little on everything else including $0 on transportation. I personally made a decision long ago that I would sacrifice funds elsewhere to enable to live in a nice place. I guess living in shitholes most of my life jaded me. The overall point is that I analyzed my income and then my expenses and found out exactly what I could afford and made sure I had a plan in place to handle it. Now if meeting that number was an issue I would lower it by spending less on housing or eliminating cable. Here is why knowing this number and truly understand it is important.
I have determined I can meet this number monthly with ease. Due to this, I can also put away some money into a savings plan as well. So on top of that number I am putting away a good amount into my retirement savings plan, my tax-free savings account and also growing my emergency fund. For some people meeting their monthly obligations is tough. For these people, they either spend too much money or don’t make enough money. It is knowing your break-even number that helps you really refine your budget. The important thing to understand is that within your budget there must be space for savings. If you cannot comfortably meet your monthly obligations and cannot refine your budget any further then there is a problem. Sadly to say the answer to that problem is simple, you need more money. Ever wonder why a many of my posts, including last Friday’s, stress the importance of knowing your worth and getting paid accordingly. Simply put, being paid appropriately can change your life and your future.
The first step is truly understanding your break-even number. When you know this number you can then refine your budget. You know what you can and cannot afford. You can add or subtract from your budget. Most importantly you can know how much you can afford to save and get mad at yourself if you are not doing so. This is why a budget is so important. It’s not just because my website is called Budget Boss believe me.
Thanks for reading my Monday Morning Money Moment. Tune in tomorrow for my Tip of the Week where I will describe how you can find your break even number and see where you stand in your own budget. Have a great day friends!
“Some couples go over their budgets very carefully every month. Others just go over them.” – Katherine Mansfield
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at budgetboss.ca.