How a Personal Budget Kept Me from Going Broke
One of the steps I took during college to prepare to start my music school was to create a personal budget. There are plenty of reasons to make a budget but, to put it bluntly, I needed to know how much I had to earn in that first year (at a minimum) to survive.
Figure Out Your Survival Number
The process was pretty simple. I documented all my known recurring expenses for the year (housing, food, utilities, gifts, tithe, etc.) and estimated the less frequent ones (car maintenance, medical bills, etc.). I added them all up and got $22k.
$22k. That was my number. That is what I needed to support myself for the next year. Depending on where you live, that amount may seem like nothing or it may seem exorbitant. It certainly helped to be in a city with low housing costs, but I was also ruthless about cutting expenses. (For tips on saving money, check out this post.)
Knowing this number gave me a goal. That first year, I would measure success by whether or not I went broke. In other words: whether or not I had to beg my parents, who had already supported me for 20 years, to let me move back home.
Use that Number to Make a (Realistic) Plan
I later crafted my business plan around that number. When the first draft projected an $18,000 loss in the hypothetical first year of business, I knew I would have to get creative to make things work. It took some tweaking, but ultimately the business plan got to a point where it seemed worth the risk.
In the end, it was a successful year. It wasn’t without its sacrifices, but I had the resources I needed. I had food. I had shelter (albeit unconventionally). And I kept a good relationship with my parents. 🙂
Know your number, kids.