PERSONAL FINANCE: How much do you cost?

How much do you really cost? Do you know what it actually takes to sustain your lifestyle?

Most married people will not have the answer to this. If you are single though, you generally know what it costs since you manage all your expenses.

Many couples split the bills in some sort of way. School fees, rent or the mortgage may be paid by one party while the other person handles the household bills. Then the two people still have their own personal expenses – self-care, entertainment, transport, etc.

Most people make the mistake of thinking that what they pay for are their expenses. When we do budgets in the Centonomy class you find that people neglect all the other things they use but do not necessarily pay for. Your expenses are what you use or consume irrespective of where the money comes from.

Let’s say you don’t directly pay the rent. You still live in that house. It still needs to be acknowledged as part of what your lifestyle costs. If the other person stops paying the rent, you would still need to live there or pay rent somewhere else.

Forget the term ‘budgeting’ for now. This exercise is not that. Get a pen and paper or open that spreadsheet. Think about your life in its entirety. What do you cost? What is the cost of the rent/mortgage for the house you stay in, maintenance costs for the house, food you eat, school your kids go to, transport, entertainment, domestic help. gas, electricity, subscriptions, service charges, holidays? List them down irrespective of one or two incomes. Some of us have expenses catered for by our employer like airtime, fuel, house or car allowances, etc. Please take that into consideration.

Now take a good look at the total sum; is this an amount you can afford for the next year should you suffer a loss of income? This exercise is not about scaring you; I just want you to understand what your chosen life costs, and therefore plan accordingly.

CHOOSE WHAT TO CUT BACK

If you think it is too much you can then choose what to cut back on. Before this you may not have realised that you were being wasteful in some areas. You are spending on something e.g. cable TV because you have always done it but you don’t really need it. You are buying food inefficiently because you don’t really feel the pressure as someone else pays the rent. When you know what you cost, you can then build proper financial plans. For example, it is important to have an emergency fund that can sustain you for three to six months at any given time. You would use this figure not the way you were thinking about expenses before. You may be planning to invest in a way that brings you income to sustain your life and this is now what to base it on. You will make the right decisions because of this.

Life is not assured, and things may happen. One person may lose their source of income or get sick. There could be a separation or divorce. It is good to be aware of what you cost so you can actually make an informed decision about whether you can still afford that complete lifestyle or where the cuts have to be made.

Be aware that you will read this and want to run away from knowing the truth. You will find a reason to delay this exercise. It may look easier for now to get by on ignorance but it will come to hurt you later. This awareness will bring about a change in the way you deal with your personal finances that will only put you in a better place.

Waceke runs programmes on personal finance. Get in touch with her on [email protected]|Facebook/WacekeNduati| Twitter@cekenduati