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Last week I wrote about giving yourself a break: this week, it’s more about knuckling down and finding ways to do some of the foundational tasks on which you can build out your financial independence journey.
Whilst most people think about going straight to budgeting, my feeling is that can seem like a huge mountain of joylessness. and sometimes that is offset by knowing how great you will feel afterwards but – a mountain is a mountain, you know? So I recommend splitting this out and focusing first of all on an audit of your fixed costs.
Undertaking an audit of your finances literally just means going through the details of your spending and working out what your outgoings are, and how often they are paid. I am not talking about discretionary spending at this point – that will be what you have left over once you have done steps one and two. And you don’t need to include things which go out of your pre-tax salary like pension contributions or healthcare since all we are doing is balancing your take-homie budget. There are tons of different ways to do these things, and they key is trying something and sticking to it long enough to see if it works for you.
So, what are all the things that you have to pay regularly, whether monthly or annually? We’ll talk about ways to plan for the non-monthly outoings but for now, just make sure they are in here.
- Think about your fixed costs and what they might be – housing, transport and childcare are usually the three biggest. Think about your utilities, council taxes, car service or tax, income tax if you are self-employed or have side hustles and so on. It would also include debt repayments if you have them. How to fast track debt repayments is a different discussion: for now just list them out. The list doesn’t include regular payments which you could choose to live without, like media subscriptions: only the essentials.
- Go through your direct debits and standing orders first, listing out the detailed amount, what it’s for, and when it goes out of your account into a spreadsheet or notebooks. You can write this down however you like but it’s easier to use a spreadsheet because then you can change figures and it makes it easier to track your overall spending over time.
- Go through your bank statements and identify other areas where you might have other regular costs. I pay our public transport passes via a recurring card payment so they only show up on my statements. Add these into the spreadsheet. You might need to scour a full year of statements, but if you have in mind when your fixed costs come out you can be a bit more focused.
This is what my real numbers look like. And I know the actual amounts are OUTRAGEOUS but I live in Denmark – which also explains the salary – so it’s also pretty standard. I will chat another time on the sky-rocketing utility bills happening all over Europe (when I can find the time in between putting extra jumpers on), but for now, this is what I expect to have as monthly fixed outgoings in 2022:
|Personal insurance||£ 11.48|
|Home insurance||£ 38.33|
|Car insurance||£ 54.91|
|Buildings insurance||£ 88.29|
|Insurance Totals||£ 193.01|
|Gas & hot water||£ 494.13|
|Security (offset by cheaper insurance)||£ 32.94|
|Council tax||£ 302.59|
|Utilities Totals||£ 1,222.70|
|DK Loan||£ 788.22|
|Deposit Loan (more on this later…)||£ 498.00|
|House Repayment||£ 2,331.52|
|Train passes||£ 100.00|
|Car service and tax||£ 25.00|
|Transport Totals||£ 125.00|
|Childcare Totals||£ 1,089.45|
|MONTHLY FIXED TOTALS||£ 4,961.68|
Remember that this is your life, and your money. Some people see childcare as negotiable and might look at this and see how to rebalance their priorities with their spouse. That is not my life, so this stays as a fixed cost. Ditto transport – whilst people can change how they approach transport, I don’t plan to do so this year so it’s going to stay fixed.
And that’s it! Everything else you spend is discretionary. And yes there are other things you need to stay alive like food, but we’ll deal with the monster topic that is grocery shopping in part three.
Once you know what your fixed costs, are, take your income, and minus these costs. Then you have the money you have left over to save and to spend. For me that’s £7,500 as monthly take home meaning I have £2,538 left. That means my fixed costs are already 65% of my monthly income.
Next week we’re going to work on what this means for saving, spending, and making it all come together for the changes you want to see in your life.
Let me know if you undertake this process and how it works for you. And here’s looking forward to a fabulous 2022!
4 thoughts on “New Year 2: Auditing your fixed costs”
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