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How to Calculate Your Monthly Expenses

Friday Pay Day is always a great feeling! You get to hold the fruits of your labor in the form of a check and then watch as your bank balance rises. However, by the end of the month, most of that money is gone. Where did it go? Today, we are going to go over how to calculate your monthly expenses so that you can get a good grasp of where your money is going and how you can cut unnecessary costs.

Note: This article contains affiliate links. This means that if you purchase a product or sign up for a company through one of our links, Thrive Oak will make a small commission (at no extra cost to you).

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Needs

“Needs” are monthly expenses that you can't live without. You may have them set to come out of your bank account automatically, or you have a system in place to pay them without fail. You can use the table below to help guide you through the thought process. Some of these categories may not apply to you, so just skip those that don't align. 

If you do not know these numbers off the top of your head, you can easily check out your billing statements. Most of this information can be found there. If you're having trouble finding answers, Numbeo can provide you with a quick analysis based on your city as well. 

Mortgage/Rent$
Homeowners/Renters Insurance$
Property Tax$           (divided by 12 months)
Car Insurance$
Gas/ fuel$
Transportation (Bus, Train, Subway, etc.)$
Health Insurance$
Life Insurance$
Utilities (Electricity, gas, water, garbage)$
Telephone Bill (Landline & Cell)$
Internet/Wifi$
Groceries/Toiletries$
Child Care$
Child Support/Alimony$
Loan Payments (Student loans, Car payments)$
Debt (Credit Cards, Home Improvement, etc.)$
Other$
Total== $ 
Wants vs Needs Sticky Notes

Wants

“Wants” are (obviously) things that you want but don’t necessarily need. These are the little expenses that add up over time, and before you know it, all of your cash has disappeared. The best way to calculate this is to keep track of your regular spending habits (you don’t have to change your ways just yet) and see how much you spend in a month. You can do this by making a note every time you pay with cash, examining your credit card statement at the end of the month, or using a budgeting app

Once you have reached the end of the month, use this table to help you add it all up. Give the TOTAL amount spent in each category. 

Dining Out (Restaurants, cafes, fast food)$
Coffee/Alcohol (Coffee shops, bars)$
Fashion (Clothing/shoes/jewelry/sunglasses)$
Events (Concerts, movies, games, dancing)$
Travel (transportation, accommodation, dining, sightseeing, souvenirs)$
Gym/Club Memberships$
Self-care (Massage, hair styling, tanning, nails, etc.)$
Subscriptions (Netflix, magazines, Kindle, deliverables)$
Entertainment (Games, books, movies, etc.)$
Other (Anything else you spent money on)$
Total=

Now that you have both your monthly needs and monthly wants calculated, we add them together. 

Monthly Needs + Monthly Wants = Total Expenses

Net Profit

Knowing how much money you have spent doesn’t mean much until you compare it to your monthly income to determine your net profit. Net profit is simply the amount leftover after you have subtracted all of your monthly expenses from your monthly income. Let’s do that real quick! 

First, calculate your total income. If you get a monthly salary, it will be easy. If you get paid hourly, add up your pay stubs from last month. Plus, if you have multiple sources of income (including side hustles, rental income, royalties, alimony, disability, government refunds, or whatever feeds your bank account), add all of them together to make one number. Got it? Good! Just make sure that you don’t include random income like a one-time present or a bonus because these are not something that you get every month! Now, let's do the math. 

Monthly Income – Monthly Expenses = Net Profit

Before we talk more, let's do a quick example. Let's say that you are a salaried employee earning $60,000 a year after taxes. This means that you make $5,000 per month ($60,000 / 12 months = $5,000). Now, let’s say that you calculated your total monthly expenses (both needs and wants), which totaled $4,000. To calculate your monthly income, we would:

$5,000 (Monthly Income) – $4,000 (Monthly Expenses) = $1,000 (Net Profit)

Therefore, the net profit for the month would be $1,000. This means that your net worth would go up by $1000 in just one month! We are not suggesting that you immediately spend it all on a shopping expedition, but that you save most of this money in investments. You could use the savings to build up your emergency fund, contribute to a retirement fund, invest in stocks, or expand your financial portfolio. There are many ways to start investing this money that will greatly contribute to your life later on. 

Uh oh, I spent too much…

Analyzing finances

Did your Net Profit number not turn out the way that you hoped? Did it surprise you? Was it actually a Net Loss? Let’s follow the same example as above, but with a twist. 

You are still earning $5,000 a month, but instead of your total expenses being $4,000 a month, they are actually $5,500. 

$5,000 (Monthly Income) – $5,500 (Monthly Expenses) = -$500 (Net Loss)

This means that you are spending $500 too much each month, which results in you perpetually losing money or racking up credit card debt. Don’t despair! We can fix this! Check out our next article on how to cut costs to get back on track.

We feel ya if this whole process feels too burdensome to complete every month. If you want to better track your monthly bills, we suggest leveraging mint.com (not affiliated). This app will help you efficiently manage your finances all in one place.

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