How to Calculate Your Cost of Living

This article will provide step-by-step instruction on how to calculate your cost of living; divide your monthly expenses into eleven basic categories; get key information from your bank statements, old receipts and bills; calculate miscellaneous expenses; and find seasonal fluctuations and changes in your spending pattern.

Things You'll Need

• Old bills, receipts, and bank statements
• Calculator
• Paper
• Pencil
• Folders
• Storage file
• Envelopes
• Patience

Instructions

How to Calculate Your Cost of Living

1. 

   Divide every expense you are responsible for paying on a recurring basis into the following eleven categories: Rent and Utility (Gas and Electric, Water, Phone, Internet); Transportation (Car Loan, Gas, Repairs and Maintenance); Medical, Dental and Life Insurance; Child Care (or Pet Care); Food; Clothes and Shoes; Entertainment (Restaurant, Theater Tickets, Community Sponsored Events); Magazine Subscriptions; Credit Card Debt; Savings; and Miscellaneous. Assign each category a folder, storage file or envelope. Put every original bill from the previous six months into the folder, storage file or envelope that corresponds to its particular category.

2. Review bank statements, receipts, personal notes and paid bills from the previous six months to determine the expected monthly total (use an estimate amount if you notice insignificant fluctuations) for each category. As a general rule, use the law of averages to assist you in determining the expected monthly expense for each category. Add the paid costs attributed to each category for the previous six months. Divide the sum and determine the average costs paid for each expense. Add 5% to the final averaged expense total. This number will reflect the expected monthly expense for each category (allowing room to absorb any insignificant fluctuations or nominal fees that may occur during the month).

3. 

   Write the expected monthly expense for each category on a sheet of paper or in a financial journal. Total each of the expected monthly expenses for each category to determine the gross monthly amount you are responsible for paying. This number will reflect the cost value of the services, goods, products, and expenses associated with your living situation as it stands today. To translate the impact of this number on your wealth, subtract your estimated monthly cost of living from the income you receive during a one month period (all monies must be available within the one month period). You should see a positive number that ideally reflects at least a $500 dollar surplus. If you do not see a positive number, you are living beyond your economic wealth. Study your spending patterns to determine which areas can be reduced. Avoid trying to reduce monies that are set aside for savings and miscellaneous emergencies and accidents.

4. To calculate the expected monthly expense associated with the miscellaneous category, add 15% to your total expected monthly cost of living. To give you a general idea of how common miscellaneous expenses occur, study your receipts for out-of-the-ordinary-purchases, last-minute buys, services to cover unexpected expenses, book purchases, unexpected taxi fares, vending machine purchases and so on. These unexpected expenses commonly equate to about 15% of your total expected monthly cost of living. Thus, if you spend $1,500.00 dollars in monthly expenses, it is reasonable to expect to see about $225.00 dollars in miscellaneous costs.

5. To understand your true financial standing, it is important to not only study your bank statements, old receipts and bills from the previous six months but also the previous years. Write down key fluctuations or changes in your cost of living expenses. Look for changes attributed to the time of year (Winter Gas and Electric Bills versus Summer Gas and Electric Bills), changes in your work schedule (Increased Gas Costs, More Fast Food Expenses, Increased Day Care Expenses) or changes in your month-to-month routine (Summer Break (Students), Exam Period (Students), Full-Time to Part-Time Hours). Factor these fluctuations and changes into your cost of living by adjusting your estimated expenses accordingly. Make a note that your cost of living will increase in June due to summer camp fees or lower in nine months because you will have paid off your car loan payment or dramatically increase because you about to start the fall semester at your local college in two weeks. Be prepared by knowing exactly what you are paying each money for the services, goods, products and expenses associated with your living arrangement today, tomorrow and six months from now!

Tips & Warnings

• Study your bank statements, old receipts and bills very closely to determine your actual cost of living.

• For a complete and accurate understanding of your financial standing, consult a licensed financial consultant in your city.

Resources

• Read this Article in Spanish