You can’t determine what affordable housing means for you until you know how much money you have, and how much money you spend. We’ve previously looked at the first; now let’s figure out the second.
Whether you use an expenses app on your phone, or write down every dollar you spend in a small notebook, get in the habit of tracking your expenses. Do this for three months straight. This will give you a pretty good idea of what you spend, and where you spend it.
You’ll need to group your expenses into categories. I use my own categories when I do this (I’ve done it for almost my entire adult life). They include:
- House payment or rent
- Utilities
- Property tax
- Charity
- Health-sharing ministry
- Food
- Car Insurance
- Car expenses
- Car gas
- Medical/dental
- Disability insurance
- Life insurance
- House insurance
- Miscellaneous
- Entertainment (includes dining out)
- Gifts/cards
- Yard/house
- Clothes
- Cell phone
- His hobbies
- Her hobbies
Many of these expenses are the same every month, so it’s not that hard to do this on a monthly basis. Just total these expenses, and any others you might have that I don’t have on this list; that total is an important number.
The big question is: how big is that number compared to your total monthly take-home pay? Do you spend more than you earn each month? If you do, something must be done. You need to be financially solvent going into your later years if you don’t want to end up living in your car someday.
If you’re spending more than you earn, I assume you have credit card debt. You’re going to need to get rid of that. If you have a spending addiction, you’re going to have to get help for that. If you live like someone who earns far more than you actually do, you need counseling to find out why you do that.
In addition to those issues, look at the individual categories to see where you can pare down. The largest categories are ripe for that, but the smaller categories add up, too. Be honest with yourself; where can you cut back so you can start spending less than you earn?
If you already spend less than you earn, congratulations! You’re one big step ahead of many people. Now you need to look at where you want to live before and in retirement, and whether you can afford it.