Your bills cost how much? Get rid of the ‘ish’!

When planning out your financial goals it is crucial that you start by gaining a clear understanding of where all of your money is going. Dave Ramsey said it well: “A budget is simply you telling your money where to go.” If you’re anything like us, we often talked about our finances in generalities. “The Comcast bill is around $130.” “My car payment is like $240-ish.” “I think my student loan payment is like $90?” “Insurance is $240, I believe”.

The Real Cost

One of the first things that we did was grab a copy of every single bill that we pay monthly and we started doing math. We quickly realized that not understanding down to the penny what your bills cost can have a pretty profound effect on your annual goals and budgets. Take these two examples below.

We’ll title this first example the ‘ish’ Table. Pun-intended. Pay special attention to the total monthly cost, and the annual cost below.

Now let’s look at the ‘Real Life’ Table. Again, look at the totals.

The Power of 12

Psh, ok. Big whoop. We were only $35.67 off in our monthly calculations with the ‘ish’ model. That’s not all that much. However, when looking at the bigger picture of your annual goals, that same $35.67 multiplied by 12 now equals $428.04 at the end of the year.

$428.04 might be the difference at the end of the year that could have helped you pay off one of your credit cards. Maybe it would have paid for the brakes you got done on your car. Or, maybe you could have budgeted for that awesome weekend anniversary getaway.

Here is another way to look at it. According to the US Census, the median household income in 2018 was $61,937. If we assume that around 25% of that goes to taxes, medicare, etc, and also assume you are putting no money into retirement, your take-home pay might be around $46,000. In other words, you are off by almost 1% of your take home pay. That may not feel like a lot, but imagine having a $100 dollar bill and going shopping with it. Every dollar counts. You earned it and worked hard for it. Know where it is going.

Start Multiplying

After listing out all of your monthly expenses multiply them by 12. I think it helps you grasp the true cost of some expenses you might have in your life. Trust me, a few might pop up that surprise you. Does my dog need Bark Box? Do I need HBO-Go? Ultimately, only you can decide. However, taking time to account for the actual cost of your monthly expenses will do 2 major things for you:

1. Allow you to estimate the total annual cost of your expenses. This is important. It will help you start to realize how much ‘free-money’ you might actually have monthly/annually. This will allow you to set realistic goals.
2. As a bonus – once you do this math you will watch your bills because you have budgeted and planned. If your Comcast bill goes up $10 a month one bill, it now warrants a phone call. After all, $10 multiplied by 12 months is $120.00. I think thats worth some hold time folks.

So, here’s your homework – grab a pen and piece of paper (we used a big poster board and a marker so we could see it all), pour some wine, and be real with yourself. List off your expenses and learn where every dollar of your hard earned money is going!

-mv