Before starting, download our Lifestyle Calculator here and then use this video to work out an accurate figure for your lifestyle costs.
Hi, this is Ian from Refresh Accounting.
In our article ‘How big does your business need to be?’, our purpose is to explain that if you know how much your lifestyle costs then you know how much to earn, which will then help drive how big (or not) your business needs to be.
Most business owners operate their businesses constantly striving for more sales, to get their business from $100,000 per year, to $200,000 to half a million and so on. Bigger is better! Does that sound familiar? I know that I used to do that. It took me a few years before I learned that I needed to understand my lifestyle, not just now but what I wanted it to be in the future. Once I did then I quickly learned to concentrate on what I needed from my business, not what I thought my business needed from me.
We developed this simple Lifestyle Cost Calculator because it helps our clients understand where their money is currently being spent, how much they are spending over a year or per pay period and because they can use that information, like I do, to help them understand the scale of the business that they need to have, so that the business can generate sufficient income to meet their lifestyle requirements.
Don’t forget to download the Refresh Accounting Business Size Calculator, so that you can work out the optimum size of your business too.
Now, onto the instructions!
Lifestyle Cost Calculator Instructions
As you can see, the sheet has 3 tabs:
- Lifestyle costs;
- Expense type; and
- Expense frequency
All the calculations are on the Lifestyle costs tab, so we’ll look at that first.
The calculator is extremely easy to use. Simply choose one of the preloaded expense types from the dropdown list that appears when you click in the coloured cells in column B, then type in how much you spend in column D and choose the payment frequency from the dropdown list that you will see in column F. So, for example, let’s choose Car insurance, we’ll assume that the premium is $800 and it’s paid Annual. You will see that $800 now appears in the Annual Expense in column H. For another example, let’s choose Mortgage as the expense from the dropdown list in column B, we pay $3,500 per month so we’ll enter $3,500 in column D and choose ‘Month’ from the dropdown list in column F.
As you are entering your expenditure, you will see that the ‘Total Annual Spend’ updates in cell R10, here.
Keep entering your expenditure, going down the page. Once you have entered all your annual expenditure, go to cell Q12 and choose the option that best describes how frequently you get paid by your business or employer. The sheet will then calculate how much you need to earn per pay period to meet your lifestyle costs.
In our sheet, if I choose ‘Week’ from the dropdown list, you will see that cell R14 will show the amount that has to be earned each week. In this example that is $832.08.
Remember that this amount is after any tax has been paid.
If you want to enter expense types that we have not preloaded, go to the ‘Expense type’ tab and add the expense to the list in column A. As an example, let’s add Books below Wine. Now, because I get a little bit nerdy about these things, I’m going to re-sort the list so that it’s still in alphabetical order by highlighting the column, going to Data and then clicking the A-to-Z button here.
If we go back to the Lifestyle costs tab and go to column B and scroll down the dropdown list, you’ll see that books now appears second on the list. Actually, I’ll leave Books in the list, they are a regular purchase in my house!
The Expense frequency tab has a list of all the periods that the sheet is set up to calculate. The cells are locked as the sheet will not calculate correctly if you change these entries.
By adjusting the expenses, you can also use the calculator to give you an idea of how much you would need to earn to meet a future lifestyle, be that with lower or higher living expenses.
If you’re in business, then happiness comes from having a business where the business and business owner are in harmony, where the business serves the owner at a level that provides the ideal work/life balance, not from having the biggest company that it’s possible to have.
Thank you for watching.
If you haven’t yet seen it, don’t forget to read our full article on how to use this calculator and other tools to determine exactly how big your business needs to be by clicking here.