Last week while visiting Birmingham I sat down with the former CFO of the software company where I used to work. One of the topics he brought up was the concept of a Personal Burn Rate, which is basically an individual's recurring monthly expenses. We talked about how lifestyle inflation limits the options people have to pursue opportunities. He recently left the company and spent several months traveling Europe and sailing with his wife. I asked what his next move was, and he was elated to have options because he has kept his Personal Burn Rate low.
If your fixed expenses are too high, you won't have the flexibility to choose when you want to work or how you want to invest your time. I see this all the time in the mystery shopping industry: desperate shoppers with a mountain of bills accept piddling jobs just because they are trying to stay above water. But instead of this being an "every little bit counts" situation, the shopper is just digging a hole that's harder to get out of. That $7 job might cost $10 in vehicle expenses alone when you take into account depreciation and maintenance. Sure, it's $7 today, but now the shopper has to come up with $10 in a couple of months because they took the $7 job. It's insane.
I've been spending these last days of 2014 looking at my own Personal Burn Rate. I ask myself, "Where can I reduce expenses with the least amount of pain?" As I do this exercise I am keeping a list of how I am reducing my Personal Burn Rate. I'll share some examples later this week.