The Money Coach
  • About
    • Meet Lynnette
    • Media Kit
  • Contact
  • Subscribe
  • QR Code
  • Books
  • Categories
  • Coaching
  • Hire Lynnette
  • Money Coach University™
  • The Money Coach Recommends™
No Result
View All Result
The Money Coach
  • About
    • Meet Lynnette
    • Media Kit
  • Contact
  • Subscribe
  • QR Code
No Result
View All Result
The Money Coach
No Result
View All Result

Fix Your Budget: Here’s Why Everything Always Costs More Than You Think It Will

Lynnette Khalfani-Cox, The Money Coach by Lynnette Khalfani-Cox, The Money Coach
in Budgeting
Reading Time: 5 mins read
cost of everything
8
SHARES
134
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

I used to think that only young college grads made the mistake of underestimating how much it costs to live in the real world.

After working as a Money Coach, however, and talking to countless individuals about their monthly finances, I’ve since discovered that people of all ages, incomes, and education levels fall into this trap.

It’s very common for me to talk with 30- and 40-year-old professionals about the “average costs” of their living expenses, and have them give me figures that I know are way off the mark.

For example, a 35-year-old trying to save for retirement might think that having $1 million in the bank 20 years from now will be sufficient during her golden years. The truth is, she may live to be 90 or even 95.

If she wants to have an early retirement, at age 55, she needs to make sure she has enough savings to last 40 years in retirement—and $1 million probably won’t cut it.

Beyond the dream of a comfortable retirement, everybody in this country wants something—from the mundane to the extraordinary. More often than not, there’s a price tag attached to the things we want to buy, do, have, or achieve.

For example, getting an education is a costly endeavor, as you well know.

It’s not just about performing academically or being willing to spend years in school studying and taking tests. You must also come up with the financing for a higher education—these days, anywhere from $20,000 to $30,000 or even far more for a four-year degree.

Think about virtually any goal you’d like to accomplish: whether it’s buying a home, traveling around the world, taking a photography class, or just being able to paint on the beach whenever you’d like. All of these things come at a price.

Money Myths That Lead to Money Mistakes

Unfortunately, most people vastly underestimate the true cost of reaching their goals.

And even when people put an accurate price tag on the cost of having or experiencing the things that they want, they overestimate their own financial resources and their ability to pay for those items.

Never overestimate your projected or future income. That’s a financial catastrophe waiting to happen.

Likewise, if you’re currently a student or are presently job-hunting, don’t expect to land a high-paying job that’s far above the national average. Doing so could lead you to making costly mistakes – like taking out an excessive amount of student loans on the mistaken assumption that “I’ll earn a lot of money when I graduate.” (Read these tips on how to pay off student loans fast).

Along those same lines, you also should avoid a common mistake made by many recent college grads. Simply put: don’t equate your gross income with your ability to pay various bills.

Just because you’re making $40,000 a year doesn’t mean you’ll be netting, or bringing home, $40,000 annually. And it certainly doesn’t mean you should go out and buy a $40,000 car!

The truth of the matter is that if you’re grossing $40,000, you’re in the 25 percent tax bracket, and so your net income—that is, your salary after federal, state, and social security taxes—will be about $30,000.

Translation: Every two weeks, your paycheck will be roughly $1,154; every month you’ll be taking home $2,308.

In some areas, that $2,308 can go a long way, but in many parts of the country, you’ll be pinched for cash—especially if you have a family.

It’s Not What You Make – It’s What You Keep! 

For those of you into charts, look at those figures – and a bit more data – another way:

Gross Annual Income                                    $40,000         $53,333
Minus Annual Taxes (25%)                            $10,000         $13,000
Net Annual Income                                       $30,000         $40,000
Net Monthly Income                                     $2,308            $3,077

Notice that your $40,000 income produces an after-tax, or net monthly, salary of $2,308. But you’d have to actually earn a gross salary of $53,333 in order to net $40,000 annually, which leaves you with a take-home pay of $3,077.

With these numbers in mind, take a look at this classic example of what happens with the typical college graduate who is fresh out of school.

Assume this college grad is named Nadine Naïve. Nadine thinks that because she landed a $40,000 a year job, she’ll be able handle her bills with no problem. What Nadine hasn’t counted on, though, is that the apartment in the city in which she wants to live costs $1,000 a month—twice as much as she’d planned on spending for housing.

Nadine’s new job as a marketing specialist requires her to meet with clients and take part in high-level meetings with senior executives. So needless to say, Nadine wants to “look the part.” There goes $300 a month on clothes to get the wardrobe started.

She has to get to work, of course, so Nadine has a used vehicle too, with a modest $200 a month payment.

Since Nadine is now on her own and no longer living with her parents, car insurance is a new expense she also must tackle. That’s a $150 a month hit to her wallet.

Throw in another $100 a month for gas, tolls, and commuting expenses, along with maintenance costs for automobile oil changes and the like.

Did I mention that Nadine has student loans? Those are $150 a month.

Credit card bills from debts she ran up in school are another $200 each month. (Read the free, online version of my book, Zero Debt, to eliminate credit card debt).

As tight as things are, we don’t think Nadine will starve herself, so we’ll assume she’s eating some food; groceries and eating out costs $300 a month. You may have noticed by now that Nadine Naïve is actually spending more than she makes. On these “basics” alone, she’s spending $2,400 a month – and she’s only bringing home $2,308 each month!

We haven’t even talked about how Nadine will furnish her apartment or pay for utilities like gas, water, and electric service, her cell phone bill, Internet service, or cable TV—let alone indulge in a few luxuries like trips to the nail and hair salon.

Again, take a quick look at a chart view of Nadine’s basic budget:

Basic Budget for Nadine Naïve

Monthly Net Income + $2,308
Rent – $1,000
Clothing – $300
Car Payment – $200
Insurance – $150
Gas & Auto Maintenance – $100
Student Loans – $150
Credit Cards – $200
Food – $300
Total (At End of Month) – $92

Does this look like your budget, in terms of your expenses exceeding your income?

If so, the lesson here is that almost everyone underestimates the true cost of living—not to mention the price tag associated with achieving future goals.

Without a true handle on your actual or expected living costs – and without creating a proper budget – you’ll always be spending more than you make and you’ll never get ahead financially.

Tags: how to manage money
Previous Post

How to Create a Solid Financial Back-Up Plan

Next Post

Why You Need To Write Down All of Your Debts

Related Posts

4 Budgeting Mistakes That Are Easy to Avoid

by Lynnette Khalfani-Cox, The Money Coach

Even though people are watching their dollars right now because of inflation, there are a host of financial budgeting mistakes you can easily avoid. Here are four budgeting blunders to sidestep anytime you’re watching your finances.

Financial Truths

7 Painful Financial Truths You Need to Accept in the Age of Coronavirus

by Guest Blogger

The COVID-19 outbreak is causing people to make tough choices regarding their finances. Are you in this boat? If so, you likely have to accept some unpopular truths to weather the storm of these uncertain times.  Here are some hard, but necessary financial truths that you need to consider as...

talk to your teens about money

How to Talk to Your Teens About Money During the COVID-19 Pandemic

by Guest Blogger

You need to talk about healthy personal finance habits with your teenagers, especially during this coronavirus pandemic. From preparing for college to managing credit cards and student loans, you want to make sure your teenager is set up for success.  Your guidance can help them avoid some of the money...

new budget COVID-19

10 New Budget Items to Add Due to COVID-19

by Lynnette Khalfani-Cox, The Money Coach

The COVID-19 pandemic is causing many of us to have to budget for things we never thought of. Here are 10 new budget items that you should plan for as you navigate this "new normal." 

prioritize your bills

How to Prioritize Your Bills During COVID-19

by Lynnette Khalfani-Cox, The Money Coach

To help you make some difficult financial decisions during this COVID-19 emergency, here are some tips on how to effectively prioritize your bills. 

Saving - Lynnette Khalfani-Cox

COVID-19: Why Saving Should Be Your Top Priority

by Lynnette Khalfani-Cox, The Money Coach

Lynnette Khalfani-Cox, The Money Coach explains why despite the impact of COVID-19 on your finances you still need to find a way to save money for future emergencies and goals. Transcript Lynnette Khalfani Cox: Saving money is definitely hard these days, but you still got to do it. Let me...

budget mistakes

The Truth About Why Your Budget Keeps Failing

by Lynnette Khalfani-Cox, The Money Coach

Most Americans don’t live on a budget – which may explain why so many people feel like they’re living from paycheck to paycheck. But even those who do budget often feel like they can’t stick to their spending plan of action. The truth is that if you’ve tried and failed...

Load More

Popular Posts

  • Car repair

    What to Do If You Can’t Afford a Car Repair Bill

    1378 shares
    Share 551 Tweet 345
  • What to Do if Your Spouse Stole Money From You

    1167 shares
    Share 467 Tweet 292
  • What to Do If You Can’t Afford to Leave Your Spouse

    1104 shares
    Share 442 Tweet 276
  • Here’s Why I Pay My Kids For Good Grades (And Maybe You Should Too)

    1011 shares
    Share 404 Tweet 253
  • What Do All Those Strange Codes In My Credit Report Mean?

    815 shares
    Share 326 Tweet 204
  • Do This Now If Your Wages Were Not Reported

    745 shares
    Share 298 Tweet 186
  • How to Find Out if a Debt Collector is Licensed to Collect Your Debt

    724 shares
    Share 290 Tweet 181

All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.

©2009-2023 TheMoneyCoach.net, LLC. All Rights Reserved.

RSS / Sitemap /Submit an Article / Privacy Policy / LynnetteKhalfaniCox.com

No Result
View All Result
  • Books
  • Categories
  • Contact Lynnette
  • Get Coaching
  • Hire Lynnette
  • Money Coach University™
  • The Money Coach Recommends™
  • Home
  • Subscribe to Newsletter
  • QR Code

©2009-2021 TheMoneyCoach.net, LLC. All Rights Reserved.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist