Intro to Affordability

There are certain things in our lives that we have to have, regardless of who we are and where we end up living. And then there are things that simply make our lives more enjoyable – but if we don’t have them, life still goes on and we get along just fine. We have to figure out which group everything belongs to.


What amount of money is going to be coming into your life each month? The first step to sorting out what you can afford as you start down the road beyond retirement…is to get comfortable with what income you’re going to have. This is the basis for all your decisions, because as soon as the money is used up, you have to start using your imagination, and if that happens too early in the month, you’re going to run out of ideas for fun free stuff to do!

So, what income do you have? Generally, when we think of retirement, we anticipate stepping out of the workforce, at least in the general sense of having a job and getting paid regularly for it. That means the regular pay cheque is going to disappear. Do you have a pension from whatever job or profession you’ve been spending your time at up to now? 


Have you paid into RRSPs throughout your life? Is this the time when you want to start dipping into that source of funds? Do you have part-time jobs, or side gigs, that can supplement your income? Put all those sources together and come up with a total monthly income AFTER taxes. This is your starting point.


The next step is figuring out your basic money needs for the month. How you decide what your priorities are obviously determines how you live your life. Deciding what you can afford is sort of a nebulous concept…some people are quite happy to go into debt to take a wonderful vacation each year, while others save up for many years and then take a vacation with the money they’ve saved. Priorities are important and what you choose as your priorities will determine where you end up.

We’ve talked about this a bit in an earlier episode…when I suggested making a list of all the things you spend money on. Do you still have your list? If you do, pull it out and take a look at what you’re paying for. If you don’t have a list, hit pause right now and take a few minutes to make a list of everything you spend money on in a month, from the coffee at the drive-thru to your mortgage.

OK, now that we’ve all got our lists, take a close look at each item on it. You’re going to group them into “WANT” and “NEED”. This is an important exercise because although you might think some of the items on your list fall into the “need” category, they might not necessarily be necessities in the purest form.

Let’s take a look at what the necessities are. First of all, you need to be able to pay for survival items – shelter, protection, and food.

Shelter costs cover mortgage/rent, utilities, BASIC phone service (keeping in mind that a cell phone is supposed to be for making/receiving phone calls, it’s possible that some of the features you’re paying for are “nice to have” rather than “necessity” – but I’m just suggesting to look at it; your needs aren’t the same as mine.)

Protection covers the things you can’t really afford to be without, like various types of insurance, such as homeowners’ or tenants’ packages, and auto insurance if you have a vehicle. It also includes health care (like prescription drug costs) and childcare.

Food covers your basic groceries only – this does not include dining out or snacks you pick up at the gas station when you’re paying for your fill up.

Next we have to look at other costs that aren’t exactly survival needs but are still essential for today’s society. Clothing (figure out what you really need, not “do I have all the latest fashion accessories?”); basic hygiene both personal and general: toothpaste, shower supplies, laundry detergent, TP; vehicle costs: gas & maintenance money for the automobile, any loan/lease payments on it and parking fees for work; and any legal requirements you might have: real estate and property taxes (this could probably go under shelter if you want); child support/alimony; loans & other debts.

Once you’ve marked all the essential costs, you can go back through the list to identify the “desirables” …the things that make life more comfortable, but without which you’ll still get by quite well. This list has items like home renovations (not required maintenance), utilities such as long-distance phone calls, high-speed internet, cable/satellite tv, dining out, extra clothing and the entertainment part of your life: vacations, books, magazines, club memberships. It also includes pampering…anything beyond the basic hair cuts and maintenance. The monthly mani/pedi really is NOT a necessity!

It’s often quite a shock when you actually write down what you’re spending your hard-earned money on…

Now that you’ve divided up the list, you may need to rewrite it so it makes sense. You want to be able to add up all the necessities and the desirables separately, so you can see how they gobble up your monthly net income.

So, write down your net income, then subtract the necessities total. Hopefully there’s still a good chunk of money left…now subtract the desirables, if you can. If you end up in the negative range, you’ll have to start looking at those desirables to see which of them you can put by the wayside, at least temporarily.


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Cutting Costs