need, want, like

People don't like talking about money, it makes them uncomfortable. It's that which makes people in the west so much more likely to ignore their financial situation. Unfortunately that's the worst thing you can do. Regardless of how good or bad it may look, you need to get right down and dirty with your finances. Once you know them inside out, you can start making them work for you.

As I've mentioned before, I am very aware of what I need to survive vs what I actually have to play with each month. I do this by way of a Need, Want, Like analysis. The needs are essential for me to live. The exact figures may change slightly over time, but they will always be needed in some capacity. The wants are the additional things that I'd be reluctant to loose, but could rid myself of in a worst-case scenario. And lastly, the likes are the things I pay for which I enjoy, but if I were to loose my job or take a significant loss of earnings, these would be the first things to be cut from my budget.

Everyones exact list will be slightly different depending on circumstances. There is no right or wrong to this exercise. It is purely to give you an understanding of what you need to survive, to meet you basic needs. That way, should the worst happen and you loose your job, you already have your worst-case scenario budget in place and will already have an idea of what you will need to make ends meet - even if it isn't the ideal figure long-term. This means if someone were to offer you a new job on the spot, you know right away whether or not you can say yes. Previously this would be a big no-no, but with a NWL tucked away which you can refer to, you know right away whether the money they are offering is actually enough for you to live on.

As an example, here's mine (updated Nov 2024).

the big picture

So what do these categories mean for my finances? They give me an immediate idea of how far I can cut my income (if I needed to) and still be able to support myself. 

This becomes more complicated because these numbers here are based on the combined bills for the flat for two people. The exact numbers would differ slightly if I still lived myself - I probably wouldn't have bought a new car for instance - but this serves as a rough guide of the household income I'd need to sustain myself and the flat, without even factoring in Ryans income.

To meet my Needs, I need at least £1,017 in post-tax earnings, which translates to a household income of £12,900 (assuming 5% is going to a pension pot). Without this contribution, the minimum required salary would be £12,250.

To meet my Wants as well, I'd need £1,572 in post-tax earnings, a household income of £22,750 - or £21,300 if not paying into a pension.

To meet my Likes, Wants and Needs, I'd need £2,916 in post-tax earnings, a household income of £50,000 - or £46,900 if not paying into a pension.

£50k is more than I'm currently earning on my own, but remember this is a rough plan based on our combined living expenses for food, council tax etc, but only my personal expenses, savings and investments. Ryans current contributions to the household bills section above is not reflected in this plan, which is rather butchering the numbers - but it's a rough idea.

For reference, we're currently living comfortably on a combined income of £63,900 - and we're both due approximately 5% pay rises by April, so this could rise to £67,000 next year.

Considering we could be bringing in £67k between us by this coming April, but all we absolutely need to keep a roof over out heads is £12,250, really puts perspective on things. Much as sometimes we feel skint, we're really not.

~ Aedan.