If you've read Part 1 of my post about Understanding your Bottom Line, you may be wondering why I limit the Bottom Line expenses to only housing and transportation costs (hence the photo of the adorable house and VW Bug shown above). In my years of financial coaching, I must say that this is the #1 question that I'm frequently asked.
I prioritize housing and transportation costs for many reasons, including:
These two categories normally make up the biggest expenses in your overall budget. In many cases, these two numbers can represent more than half of your monthly income.
Meeting your housing and transportation costs are essential for ensuring your safety, well-being and ability to earn an income. If you don't have secure housing, your safety is as risk as well as your sense of personal security. And if you don't have reliable transportation - whether it's a car or public transportation options - it can be difficult to go to work, which could put your employment at risk. NOTE: I highly urge you to consider alternate arrangements immediately if you're struggling to meet your monthly housing costs. This could include proactively downsizing to a smaller home, getting a roommate to help share costs or temporarily moving in with family members if you can. I say this because excessive housing costs can quickly eat through any emergency savings funds that you have, and it's very easy to accrue new credit card debt and/or loans if you're just trying to keep the lights on (I've been there). I realize these are difficult decisions that shouldn't be taken lightly, so please pray about this and talk to a few trusted people in your life for additional support and guidance.
It's much faster and easier to calculate your housing and transportation costs, versus a line item breakdown of every single dollar you spend. While I do think it's valuable to know your total monthly expenditures, sometimes getting too detailed early on can feel overwhelming and discouraging. I prefer helping someone focus on their Bottom Line expenses first to help someone see the big picture before getting too far into the details.
You can fund your emergency fund even quicker if you're initially focused on saving Bottom Line expenses, versus your overall monthly expenses. Most financial experts recommend having 3-6 months of expenses saved in case of an emergency like being laid off. But depending on what part of the country you live in, 3-6 months of savings could be several thousand dollars. For example, let's say your total monthly expenses are $3,500; it would take almost $11,000 to save enough money to cover three full months of expenses! But what if you focused initially on saving three months of Bottom Line expenses? If those expenses only added up to $2,000 monthly, you could aim to save $6,000 - or three months of Bottom Line expenses - which would help you tremendously during an emergency. You will be so proud of yourself if you reach that goal (I'll be proud of you too) and you'll be even more motivated to continue saving. NOTE: Many people have also asked me how having only Bottom Line expenses can help you in a crisis. I have lots of tips to share about this here.
I hope this brief article shares insights into why I've identified the Bottom Line as the foundation for transforming your personal finances. Please let me know your thoughts too.
Learn more about the Bottom Line in Part 3 of this series. You can also learn more about the Bottom Line by listening to this podcast.
Praying the very best for you with your finances and life,