You know that to build Freedom, you need to create a Cash Surplus. It’s simple math. For money to go toward building your Freedom Generator, you need more cash coming in than going out. And calculating monthly expenses is the first step to creating that Cash Surplus. But are you calculating correctly?
Most of us typically have a good sense of what our income is. We get a paycheck, statements from interest-bearing accounts and government forms on annual earnings. But when it comes to expenses, a lot of people just guess… and they tend to underestimate. By a LOT.
So how can you be certain you’re Living Within Your Means? How can you confidently state what your monthly expenses actually are? The key is to avoid these four common, Freedom-killing mistakes:
Money Mistake #1: You’re forgetting that not all expenses show up on a monthly bill.
Ever tried to make a list of everyone you pay in a month? Remembering the bills that show up every 30 days in your mailbox or inbox isn’t too hard. So you jot down your mortgage payment, your electricity bill and your phone bill.
But, if you’re computing expenses simply by summing each of your monthly bills, you’re probably underestimating your true expense figure by 50% or more.
What about the payments you make each month—or even several times a month—that don’t come on a handy statement? Consider your grocery store run, your trips to the gas pump, your weekly splurge at happy hour and more. All of these frequent costs need to appear in your monthly expense tally.
Money Mistake #2: You’re assuming that each month is like last month.
Okay, so you dug deeper and pulled up not just your utility bills but all your receipts and credit card purchases from the last month. Add it up, and you’ve completed the calculating monthly expenses task… right?
Well, only if you want to look at a single data point. To get a true feel for what an “average” month looks like, you really need to go back a whole year and size up 12 full months of your spending.
After all, your last month of spending could be average, or maybe you spent far less (or more) than what you do in a “typical” month.