If you open a dictionary and look up the word “lifestyle”, you’ll probably see a definition like this: The way in which someone lives. It’s kind of a catch-all term for a person’s values and attitude towards life. But what about financial lifestyle? In this post, I’m going to help you figure out your financial lifestyle with 4 simple questions. So if you want to gain some perspective and clarity in this regard, reading it will probably help you. This can be a good first step for any financial planning.
I highly recommend getting a pen and paper and writing your answers down.
1. How much income do you have?
Let’s start with the simplest questions. What kind of job do you have? (part-time, full-time or contract?) How much money do you make from it? And is it a fixed income or does it vary every month?
Answering these questions is the first step to make a credible budget. So get your paychecks or check your bank account deposits and write the numbers down. List every job and side hustle and how much you’ve made from them in the past few months.
If you’re a freelancer or contract worker who doesn’t have a fixed income, you can get a maximum and minimum number instead of an exact one. And especially in this case, I recommend calculating your income for the past year. Because some jobs have an off season or are busier than usual in some months of the year.
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2. How much do you need to spend?
With an emphasis on the “need” part, ask yourself how much money do you need to spend every month. This will include the amount you spend on food, utilities, rent and other similar stuff. If you don’t have a specific number in mind, wait ‘till the start of next month and start writing the cost of everything down: every bill you pay, every time you buy groceries and every other thing you pay for. Try to list everything, no matter how small. And at the end of the month, add up the expenses that you think are necessary and regular payments that are made every month.
You don’t need an exact number, but you should definitely have an estimation of how much you need to spend every month. So if you’re not sure, list your expenses for several months and compare the numbers to get a better picture.
3. How much do you save? How much can you save?
Using the numbers you have from the first two questions, you can calculate the number you can save every month. And you should know how much you do actually save by checking out your bank account or savings account. Are these two numbers close to each other? If not, ask yourself why? The list you made in the previous step, can help you now. See what costs could’ve been avoided if you wanted to.
4. How do you feel about debt?
What is your attitude towards debt? Does having debt come with nightmares and stress and pulling your hair out? Or you don’t really care about being under a mountain of debt and having to make monthly payments?
Be honest with yourself and if you’re not sure, ask someone close to you. You may not notice the changes in your behavior when you’re under debt, but your friends and family will probably pick up on them.
Getting it all together
You have your answers? Good! These should be the focal point of all your financial plans and monetary decisions. So keep them in mind.
In our future posts and guides about personal finance, investment and trading, we’re going to rely on these fundamentals about your financial lifestyle.
Dou you agree with me? If so, remember that sharing is caring!
And if not, you can comment below with your thoughts and tell me what would you ask instead of or in addition to these questions to determine the financial lifestyle of someone?
***Last Updated on 21 March 2022 by Hamed Derakhshani (Guy with a Wallet)