The monthly nut is the concept of what it costs monthly to maintain your standard of living or lifestyle. In layman’s terms, your monthly nut is simply your monthly expenses.
Initially, this can seem a bit confusing as some of your monthly expenses are fixed, while others are variable. The goal of this post is to help you better understand what your monthly nut is today or predict this for the future so you can calculate what your retirement nest egg needs to be so you can cover your monthly nut. This concept is key if retirement is decades away or in the next few years, as this is the number that will make or break you.
We are going to break up this example by highlighting the fixed expenses and variable, walking through my specific income and expenses for a standard month.
Note that the below expenses are related to my lifestyle and may or may not fit yours. Add and remove where necessary, but ensure that you know these numbers. If you don’t know your monthly nut, then you will never be able to retire!
These are set. Little to no variance with these charges. They will likely be 50% to 60% of your overall cost of living. To downsize these expenses you will have to downsize your life, moving to a less expensive housing option, quitting the gym or changing your mode of transportation.
Housing – $1,950 – This could be your lease or monthly mortgage all in. Under certain scenarios, this may be eliminated if you own your home outright by retirement, though insurance and maintenance should be calculated on a monthly basis.
Utilities – $300 to $350 – This includes telephone, internet, and electricity. The electricity is variable based on the season. Remember to call your internet and telephone provider on a regular basis to negotiate better rates!
Transportation – $120 – Living in a large metro area means that we live and die by public transport. I work from home part-time and travel into the office at other times, this is a discount compared to my peers. For those of you not in a large metro area, this would be a monthly car payment, car insurance, and the estimated monthly car care.
Various Dues & Subscriptions – $100 – From Amazon Prime to my monthly gym membership, this is the catchall category where those
Student Loans – $255 – One of the reasons I get the privilege of earning such a large income and having such a high housing allowance, is the high education that propelled me in the workplace. This has its cost, which I continue to service years later. As I progress towards retirement, this should cease to exist.
Total Fixed Expenses – $2,775
These expenses fluctuate depending on what is happening, for example, if work is crazy I eat out more. If it’s in the summer, I travel more. So on and so forth. Additionally, I may take a big trip every few months but amortized (spread out) those costs over a monthly basis. These can and should be a point of reduction, with the goal of putting more money away for retirement 🙂
Pet – $100 – Our golden plated cat is our child, he gets everything from special treats to a cat sitter, which roughly equates to $100 a month.
Alcohol/Bars – $200 – Depending on who is in town, or what events I am required to be at, I drink socially. When not drinking socially, I prefer a nice glass of wine or scotch, and unfortunately, those are not cheap.
Groceries – $200 to $400 – Cost of groceries is not cheap in the metro area. Simple items tend to be double the price of the rest of the country. We try to eat and cook regularly, but always have a stocked fridge of snacks and beverages.
Restaurants/Ordering In – $800 to $1,000 – Ordering in and dining out is a huge aspect of living in a large metro area. This is my eating out budget, which has a lot of room for improvement, I know. Either way, this is one of the places I like to splurge, so I should really not feel guilty.
Entertainment – $100 – This is a catch-all category, from movies to plays or other random social activity. This varies depending on which activities I am involved in on a monthly basis.
Personal Expenses – $100 – This could be anything from my regular amazon purchases to my monthly toothbrush subscription or house supplies I order to my door.
Shopping (Clothes/Shoes) – $150 – My philosophy is to buy decent stuff, take good care of it and not replace it for years. This equates to a large shopping adventure once or twice a year. Most retirees do not realize that this increases into retirement, as it becomes an outlet for time. Trust me, you will be buying some of those deals you see on the infomercials as you age!
Medical Health – $50 – From medicine to random medical expenses, this on average is $50 a month
Travel – $250 – I am young and love to travel. Rarely do I splurge on nice hotels or lavish activities, rather I game the credit cards for points (I run a few small businesses that provide nice perks). This allocation is mostly my airfare cost to get where I am going.
Laundry – $50 to $75 – Dry cleaning is a necessary evil of the professional work life. This ranges depending on the season, or meeting schedule.
Total Variable Expenses – $2,425
Total Monthly Nut – $5,200
I wanted this to be as open a platform as possible. The above may or may not match your potential spending habits. Either way, use this as a rough draft to calculate your monthly nut or dream monthly nut! It is the first path to figuring out what retirement looks like.
I’ve been keeping track of my expenses over the last few years. They tend to stay in the ranges highlighted above on average. Though some months do fluctuate, they are on average the above if you look at any 12 month period. It is in this neighborhood as long as there are no big emergencies or major life events.
Is $5,200/month an unreasonable amount to spend for a young professional in one of the most expensive metros in the world? I think not, but either way, it works well for us and I am not sure I can reduce it much further excluding reducing ordering in or moving to a cheaper neighborhood. We aren’t planning on moving anytime soon, so well pay our current rental rate for now. What about you? What’s your monthly nut? Can you reduce it?
Photo by Jim Bauer