Living Expenses

Time to dive one level deeper in your personal budget. Welcome to Part 2 in my series of posts to assist you in reaching financial understanding and eventually… freedom. Not sure how we got here? Please read Part 1 and follow along of with the updated spreadsheet.

To not take on any additional debt one MUST live within your Living Expenses. Just because you are living a lifestyle, does not mean you can afford it.

Living Expenses

In Part 1 we learned living expenses are part of your disposable income which itself also includes additional debt repayment and additional savings. We also calculated how much we have available as a percentage of income, on a daily basis, and monthly.

Disposable Income = Additional Savings + Addditional Debt Repayment + Living Expenses

This post is not about telling you how to spend your money, or tricks to save more necessarily, or even how to be frugal, there are many other blogs available for that. Rather, let’s get a further understanding of your current spending habits and if that fits in to your budget.  We will learn how to balance to zero, pay yourself, and work to ensure you have enough money available when you need it.

As you know, this is not like other blogs that give you a high level overview, we dive in to your details! Now let’s get going.

I created a new tab in our spreadsheet devoted to Living Expenses.

Budget 2.0

Let’s temporarily forget the number we calculated for you Living Expenses, instead focus on Your current financial situation.  Grab your last 3 months of banking transactions, receipts, cash withdrawals and we will build a snapshot of your spending habits. Online banking is a good resource.

Once you have everything organized start to build your snapshot by organizing in the same successful formula we already used.

#1. First, let’s start with Essentials, those required to survive and earn a living. These include groceries (not eating out and not alcohol), medications (you may have already included medications as an essential expense depending on your situation), car gas and/or transit passes to go to work or school, hygiene expenses (toothpaste, toilet paper, etc).

#2. Second, list “Discretionary” Expenses, some are more than others. These include what you have spent on eating out, work/school lunches, alcohol for home consumption, house management expenses (paper towel, cleaning supplies), clothes, coffees, entertainment (movies, video games, bowling), etc.

#3. Third, list those one time expenses that once you buy, unlikely will need to repurchase any time soon. (This is why it’s important to do this for the last 3 months to see how variable this amount is) Likely there is always something that comes up that is needed. Examples are a new toaster, towels, shovel, etc.

#4. Lastly, list the big one time items, like car and house maintenance, vacations, child school trip.  We are going to take out of Living Expenses, my budgeting process pays these items out of either the essential savings/emergency fund you set up under Part 1, or we will start to save for these separately under Disposable Income – Additional Savings

Drum roll please, (drummmm drummm drummm)… ummm… Thank You… your total is?

Budgeting Your Lifestyle

Time to bring back our calculated Living Expense number, sorry, we can’t just throw it away.

How does your current spending snapshot compare?

Current spending is above your budgeted number?

Again, don’t panic, this is why we are doing this exercise! Time to evaluate the three sections of your living expenses.

Start with #3. How consistent is your spending on newer items? Evaluate now that you see it, “Did you really need that new toaster? Did the old one break or you just wanted one that burns Star Wars figures in the toast” (lots of toaster references, I guess I like toast, good to know)

Move to #2. Here you are going to get the biggest bang for your buck, literally. Again this isn’t a blog to learn to be frugal or to save money by learning to recycle your underwear, but rather, now that you have a proper snap shot, what can you do? If you eating out Expenses are greater than groceries, that a good place to start.

General rule, if eating out is more than 80% of the value of your groceries then on a limited budget you are eating out to much.

Remember, the budgeting process is fluid and connected, need more spending to cover just the essentials, time to evaluate your Discretionary Expenses from Part 1.

Have more money available than what we calculated?

This is awesome, let’s work the numbers, this is not a free for all to spend more. Allocate the amount to other sections of your Budget, either Disposable Income, Essential Savings or Debt Repayment.

Lets explore each option and balance to zero:

Balance to Zero

Debt Repayment

In Part 1 you have already put minimum payment or current payment as part of your Essential Expenses.

Let’s say good by to credit card debt first! If you are only paying the minimum payment, depending on the amount, this may take between 5 and 50 years to pay off at current credit card interest rates, Crazy! So start putting all additional money towards credit card debt. Forgot saving for vacations, will have to live within your means, within your budgeted lifestyle… for now.

Lower interest loans and mortgage? We are likely ok to pay those off in the original term, we call this managing your “debt leverage.”  This can be quite an involved topic, I will address this in future posts regarding loans, mortgage, debt vs savings.

The Dreaded #4

We left #4 above, but can not ignore it any longer.  These are the larger One Time Expenses, the dreaded “surprise” car maintenance or the more delightful vacation.  Either way, big expenses.

We need to plan and anticipate these expenses, and not to rely on credit cards to carry the expense.  Hopefully you did this exercise for 3 months to get an average idea of your spending habits. If you did, average #4 Surprise Expenses Only and divide by 6.  This is my general rule of what should be put aside for the unexpected.  Not enough left in your Living Expenses, again, start to look for ways to create the room.

Where do you put this amount? Disposable Income – Additional Savings with the description of “Planning for the Unexpected.”  Here is the nice thing about #4, after 12 months of no surprise expenses like car maintenance and you have built up a “buffer,” you can now allot half this monthly amount to something else.  Vacation, Additional Retirement Savings, etc.


No credit card debt, got #4 covered, beef up you Essential Savings if you were not able to save the recommended 10%.  Still have money left over vs your current spending habits, add the rest to Disposable Income – Additional Savings.  Volia, your budget is updated and you should have balanced to zero.. beautiful.

Why didn’t I mention Vacations? Well that’s a discretionary expense.  Want to save for vacation, put money aside in the Disposable Income – Additional Savings section under “Saving for Vacation” Once you have enough saved! Go for it! Not enough, I understand, use half the amount of the Dreaded #4, may be hard if something happens, but if something doesn’t, take a vacation and continue to rebuild the buffer. (I can only really half condone this)

Through Part 1 and now Part 2, you are now well on your way to understanding your finances and creating a smart budget.

Let’s take a pause and see what we have done.

  • We have created a snapshot of your spending and compared that to what you actually have available
  • In doing so, it’s up to you to adjust your Living Expenses spending to fit in to your budget
  • We budgeted to pay off debt
  • We budgeted to plan for the unexpected
  • We learnt to plan for a vacation
  • We learnt to balance to zero

To Summarize, any extra money, in order of importance:

  1. We apply direct to credit card debt first
  2. We take the average of the monthly special one time expenses and put this amount in to the Additional Savings amount of Disposable Income
  3. We go back to Essential Savings and top off if not saving the recommended amount
  4. Still have money left over! Great, let’s not go spending crazy, I didn’t, we are working towards Financial Freedom after all.

Wow, that’s a lot, congratulations!

Let’s keep going!

Living Expenses 2.0

As we have updated Part 1 of our budget and balanced to zero. We are now left with a more Essential Savings, plus updated Disposable Income, Additional Debt Repayment, Additional Savings = Living Expense 2.0

You now hopefully have some future emergency/savings fund set up or at least a good picture of it, plus a reasonable high interest debt repayment plan.


Tip #1 to stay within your living expenses! Pay yourself.

Pay Yourself

Most financial institutions allow for multiple accounts under a single bank plan for no additional cost. A great approach to assist with Discipline, to stay within your daily/monthly living expense spending limit, is create a separate account and every two weeks, pay yourself.

Step 1: Have all your essential/discretionary expenses, essential saving, debt payments, and additional debt/savings be debited and paid from Account number 1. Tab 1 of the spreadsheet.

Step 2: Set up a standing transfer equal to two weeks of your Living Expenses to a new Account #2

Step 3: Done. No different then getting a paycheque from work, you now pay yourself.  Once the money runs out, your done until your next “pay day”.  Great way to create discipline on a regular interval. Even better if paycheques are variable, such as one spouse is semi-monthly and the other bi-weekly.

Added benefit, all the money you have working for you, creating a buffer/savings, is now separate from your spending account. (Though I do recommend the budget amount is automatically transfer to an investment or savings account anyway which I will address in a future post)

Tip #2 Borrow from yourself, no freebees

Life is not always so balanced, so if you absolutely (I mean absolutely, only you can be that honest with yourself) need additional living expenses during that two week time, maybe a larger grocery run, treat account #1 as the “bank” able to loan account #2 money with a very short payback term.

For example, you have paid yourself your bi-weekly living expenses of $700 in Account #2.  But an extra grocery run caused you to spend need an extra $50. Borrow $50 from Account #1 but once the automatic transfer happens on the next pay you immediately, immediately, repay the $50 to account #1.  This means, you now only have $650 to spend in the next two weeks until your next “pay day.”

Final Thoughts

So, how do we reach Financial Freedom? Let’s agree on a definition.

“Financial Freedom is living within a lifestyle that You are able to maintain now and through the future not constrained by debt.

Financial Freedom doesn’t mean you have to be debt free, key is not be be constrained by debt.

First step, get rid of credit card debt. Low interest loans and mortgages you shouldn’t focus heavily on paying down unless you are comfortable with the amount of Living Expenses you have and Savings.

The great thing about my Budgeting Process is it follows and grows with you Income growth.  So as your income grows, your lifestyle does, but so do your future lifestyle requirements.

In a future article I will touch base further on how to value your budgeted lifestyle in to a savings amount to maintain this level when you want to retire in the future. (even how to plan as your lifestyle grows with income growth)  As we add more components on to our budget, we further refine what lifestyle we can afford, how much we can spend, and even what is important in our lives… Our Freedom.

This was another long and extensive post, Living Expenses is not just spending, coupled with all your other Expenses and Savings forms a lifestyle that you can either afford and budget or one that you are prone $20 yourself to death.

As I try to do in this budgeting process, is not give firm percentages of income you “should” spend, rather, I look to assist in You defining a budget and organically getting to an amount of spending available for a lifestyle.  A lifestyle that is affordable now and can be maintained in the future.

Budgeting is fluid, one line item impacts the next.  Balance to zero so you know where every dollar goes, plan for the unexpected, pay yourself, have discipline, Enjoy Life!


I always welcome comments below and any confidential questions you can email me

Future Articles we will explore and add to your budgeting repertoire:






















This Post Has 2 Comments

Leave a Reply

Close Menu