Number One Number

IF THERE’S ONE NUMBER that drives your financial life, it’s your fixed living costs. We’re talking here about regular expenses that are pretty much unavoidable, such as mortgage or rent, car payments, property taxes, utilities, insurance premiums and groceries.

Why are fixed living costs so important? There are five reasons. First, the lower your fixed living costs, the easier you’ll find it to save. Many folks who struggle to save are, I suspect, boxed in by hefty home and car payments.

Second, low fixed costs mean you need less income to retire in comfort. One way to slash those fixed costs is to get your mortgage paid off before you quit the workforce, and perhaps also trade down to a smaller place.

Third, if hold down your fixed costs, you can probably get by with a smaller emergency fund. After all, if you lose your job, you’ll need less from savings every month to keep the household running.

Fourth, lower fixed monthly costs mean less financial stress. You won’t be constantly worrying about how to pay the bills.

Finally, lower fixed costs can translate into greater happiness. The spending that brings us the most pleasure tends to be discretionary spending—things like eating out and going on vacation. If you have lower fixed costs, you’ll have more money left over for the fun stuff.