Can I afford my current lifestyle?

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Valerie from UT Austin asked:

You once came and gave a lecture for my class  and presented us with an budget worksheet that helped us to calculate what we needed to earn in order to live the life we wanted to. That included our rent, bills, entertainment, savings, etc. Do you still have this document?

Hi Valerie –

Ah, the eternal question about money! This is an important one, so thanks for bringing it up.

I have a workshop on Job Offer Evaluation and Negotiation. Whenever I deliver this workshop, I start with the same premise:

You’re in no position to negotiate salary unless you know three things:

How much you need to make?  What do you need to pay your bills?
How much do you want to make?   What would you like to make?
What will the market bear?   How much can you expect to earn given: (a) your education, experience, skills and qualifications and (b) the fields you are considering for employment?

To me, this all begins with that first question – How much do you need to make? – so I begin the workshop with the following budgeting exercise:

Can you afford to take this job? (a.k.a. How much do you need to make?)

Assuming that you are just trying to live your current lifestyle and factoring in all of your monthly expenses, what will you need to earn in order to maintain your current standard of living?

I then put the following spreadsheet up on the screen:

We then go through every line of this budget as a group (so as to not put any one person on the spot), inserting an amount that the group feels in representative of their monthly allocation to each line.

At the end, the spreadsheet annualizes the monthly expenses and calculates the Federal Income Tax due to estimate an approximate gross annual income required to maintain that standard of living.

Give it a shot!  Download the Budget Worksheet and run the numbers.

Find out how well you are living within your means.  See if the career paths you are considering offer income potential in line with your desired income.

Some goals aren’t compatible, some are!

You probably aren’t going to be a school teacher AND living in a big house, drive a fancy car and vacation regularly in the tropics UNLESS you marry well, have a trust fund or win the lottery.

No employer is going to pay you what you believe you are worth unless your perceived market value is in line with what the market will bear for someone with your education, experience and skills.

It’s basic economics of supply and demand.

So take my challenge.  Run the numbers.  Find out about the extent to which you can afford to live your currently lifestyle.

I hope you are pleasantly surprised!

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2 responses to “Can I afford my current lifestyle?”

  1. Valerie Newcomer says:

    Thank you so much for all this information!