Cost of Simply Existing

 

Cost of Existence

Growing up when I didn’t finish all my dinner my parents would mention how there are starving children in Africa, so therefore I should finish all my food. Well they were right as according to World Bank blogs 85% of Africans live on less than $5.50 per day. That is not a lot to live on, but that is their cost of existing. In Canada we spend quite a bit more, but still how much someone spends per day can vary widely. Some live lavishly and some live only on the necessities. Even if you only spent $5 a meal, $15 a day for food you have already surpassed 85% of African expenditure, but humans need more than just food. We need shelter, water, and electricity and have other costs like internet, subscriptions, memberships, transportation and more. This all adds to our cost of existence.

Daily Debt

Looking at the above example, each and everyday you start off with a debt or cost of $78. In order to make any money or profit you need to earn $79. If you are earning $25 an hour, it would not be until your 4th hour of working before saving any money. If you get Starbuck or buy lunch that just adds to your daily cost making it even longer before saving. Most people also don’t work on weekends which means there are days where you are just going into the negative and will have to earn back the money later. 

Keeping costs low can speed up the time to save and lower debt load when you are not working. For example, say you took a 7 day vacation. Ignoring vacation days, the vacation would cost an additional $546 on top of the cost of the vacation, as bills don’t stop even if you are not living in your house. This also applies to risks like losing your job, debilitating illness or injury. You won’t dip into your savings as much if your monthly fixed costs are low. Car payment, rent, and cell phone bills continue whether you use them or not.  

Variable costs can be cut, but fixed costs cannot or at least it's much more difficult to lower fixed costs. Moving from one rental to a cheaper rental takes research, coordination of schedules, visitation, not to mention the physical moving. Cutting a car payment requires selling a car. Cutting cell phone bills takes shopping around and it's the same for each type of insurance. These all require lots of work which is why we put off making these big changes in the first place.  

   

Consumed Money versus Asset Investment

The average Canadian makes $50,000 a year or around $36,000 take home, but that does not mean that each Canadian is growing their wealth by $36,000. If they were, then getting enough money for a down payment would only take a single year to save. The problem is, most of the income earned is consumed versus spent on assets. Consumed money are things that are a part of the cost of existence. Rent is spent each month and retains zero value. Electricity, heat, water, food, gas all consumed with no remaining value. You cannot sell any of it after it is consumed. A classic example is a vacation. You cannot sell an experienced vacation.

Assets retain value like mortgages giving equity or ownership of a house. Car payments slowly pay off a vehicle. Investments can be sold. Belongings can be sold off. Even if you are foolish with your money, if you are foolishly buying assets you can always sell them later even if they would be sold at a loss.

It is tough to spend like you live in Africa but if you are able to lower your cost of existence then it makes saving much easier. You can never turn off living expenses so it's best to be strategic about it. Spend on assets that hold their value and save to become a homeowner so at least someday you won’t have to pay rent and eventually no mortgage.

If you found this helpful and would like help budgeting or investing please email me at taylormckeecoaching@gmail.com