Expenses lurk everywhere - how to keep track of your cost of living
With the ambiguities of inflation, knowing your cost of living is critical. Everyone needs to be aware of their expenses down to the penny, experts say.
Daniel Jean, an FCC Credit Learning Specialist, encourages farmers to use the past as a barometer of what the future may hold.
Understanding what we paid in the past, and having a good sense of what our cost of living is today, is important.
Understanding what we paid in the past, and having a good sense of what our cost of living is today, is important, he says. “Start calculating everything, every single item.”
Jean urges farmers to build in a little extra on the “living” side of the equation. Yes, you may be able to live on $40,000, but he believes adding in “a little bit more” is prudent.
“Make sure with projections and financial analysis we have room for mistakes,” he says. “Knowing the real cost of living expenses is a key piece.”
Jean encourages farmers to engage with a third party who can offer advice on saving even more money while they reduce their overall living expenses.
Remember, there are many expenses hidden in plain sight, and nothing is too small to calculate, including “one-off” purchases that add up.
Top 3 overlooked expenses related to cost of living:
1. Gift-giving
Whether it’s a birthday, Christmas, an engagement or the birth of a new baby, there is always a gift to give to a friend or loved one. However, how many of us have a line item for “gifts” in our monthly COL budget? The gifts vary, too, so that makes it trickier to calculate, and you never know when non-holiday or birthday occasions will rise, so it’s wise to set aside money for this.
2. Life happens fund
Whether it’s an expected car repair, a new prescription or an upgrade at the house or farm building, costs like these tend to pop up at least once per year, if not more. The problem is, much like No. 1, there’s not a good formula to determine how much it will be. A new hot water tank does not cost the same as an alternator, so it’s best to have a dedicated “life happens fund” established.
3. Non-monthly bills
There’s plenty in our life we may pay for once per year or each quarter. Amortize those costs over 12-months and set aside that money each month so you do not receive a nasty surprise in January from an insurer or subscription you must renew.
Bringing back family members to the farm
As many farm families contemplate transition and the costs associated with bringing back a farming child and possibly their spouse, farms should begin immediately tracking the cost of living. It’s vital to have as good of a grasp as possible on the overall cost of living at the farm., says Kim Inglis, a financial advisor and associate portfolio manager with Raymond James, based in Kelowna, B.C.
“Work that into the equation as early as possible, even if it’s just a possibility and not a reality,” Inglis says.
Calculating your cost of living
How exactly do you calculate your cost of living, and what should be at the top, middle and bottom of your list? How you organize this will depend on your geography, income, lifestyle choices, marital and family status and many more factors.
1. Write it out
Write out every source of income and expenses you have. Use paper or a digital ledger, whichever you feel most comfortable with. If possible, do this going back 24 months to better understand where money is sent, spent and saved.
2. Determine categories
Break everything down into specific categories so you can easily track future purchases. When you look back over the year that was, it becomes a lot simpler to understand where your money went. Some results always surprise us.
3. Plan, plan, plan
Once you have all your financial data in order, generate a plan of what you would like to earn in your next year, and what it costs to live and work. Once that is finished, present your plan to a trusted third-party advisor who may be able to advise on blind spots you did not consider or other tips that could either maximize revenue or decrease COL expenses.
FCC has multiple free calculators available to help you better understand different costs related to mortgages, equipment loans, leasing, amortization periods and an overall clear snapshot of current expenses and finances.
Bottom line
Inflation is never constant, so knowing your cost of living is critical. To calculate, write out every source of income and expenses, split the list into specific categories and plan what you want to earn in the year ahead, as well as what it costs to live and work.
Article by: Trevor Bacque
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