Do you know your make or break number? That is, do you know exactly how much it costs at a bare minimum to run “YOU inc.”?  By YOU inc. I mean you and anyone you are financially responsible for; lucky for me, that’s just me.  Now if you’re married and have joint finances, it’s “US inc.”, but the same rules apply.  You MUST know your make or break number as it serves as a benchmark for the financial viability of your life, and will serve as a practical guide for what opportunities you can afford to take and which you can’t afford to pass up.

To calculate your make or break number, put together a bare bones budget.  This is the budget that only includes necessities and eliminates discretionary spending.  To help you strip it down, think of anything you can safely, smartly, and sustainably live without for a month, without completely disrupting your ability to live and work; housing, shelter, groceries, transportation, insurance, even things like basic internet and cellphone will pass for the purposes of this budget, as in today’s digital age, they function as crucial work tools.

Now, on top of this bare bones, “survival” budget, you must add three or four additional elements…

First. A buffer for your survival budget, for expenses you’ve failed to account for, let’s say an extra 10%.

Second.  A designated emergency fund savings number.

Third.  A designated retirement savings number.

And Fourth, for those in debt, a designated debt payment number.

Once you add the full cost of these essential “add-ons” to your bare necessities budget, you’ll have your make or break number.  Know what that number is annually, monthly, weekly, even daily if it helps.

I include the “add-ons” in the make or break number, because I consider them essential parts of your long-term financial viability, and in no way discretionary.  When you start prioritizing things above debt payoff, emergency fund, and retirement savings, you’ve lost your long-term perspective.  When you start prioritizing elements that make up the make or break number over any of the others, for instance, when you find yourself having to choose between food or housing or retirement contributions and insurance premiums, you’ve reached the “break” point.

To make sure you never reach that “break”point, your income and earnings need to remain above the make or break number.  It serves as a guide for the bare minimum you can afford to make (unless you have several times that sitting around in savings for a rainy day).  Any earnings above and beyond the make or break, you can allocate at your discretion, increased savings or retirement contributions, a bit of an extra indulgence in the grocery budget, full on “play” money, or a combination of all.

If your income falls short of the make or break number, you have two options.

1. Find a way to reduce your essential expenses.  Is there anything you can do to cut back on your required living costs- housing, groceries, and other day to day essentials?  For instance, can you get a roommate, try couponing, switch to a less expensive phone plan?

2. Earn more money, either by asking for a raise, getting a new job, or taking on additional income ventures or “side hustles”.  Not to go on a tangent, but the minimum wage puts a real damper on this effort for those really struggling.  It’s pretty hard to surpass the make or break number on $7.25/hour.  The only thing I can recommend, other than some real policy changes to increase the minimum wage, is to try developing a skill that will allow you to command a higher wage in a more specialized field.

If you’re short of the make or break number, you don’t have room in your budget for discretionary spending.  That is, until you implement one or both of the actions above to surpass your make or break number.  And once you do, you’ll know exactly how much you have to allocate.  From there, you’ll have to prioritize all your discretionary wants to fit within that surplus.

When people ask me how to afford savings or investments when they’re struggling to get by, I tell them, it all comes down to the make or break number.  Before you consider taking a job, or turning down a job for that matter, see how it aligns with your make or break number.  Before you decide whether to collect unemployment or take on alternate part time work, see how those options will work with your make or break number.  Before you make any major life changes that will significantly alter your make or break number, like having a child or pursuing a dream, calculate the difference in your make or break number and make sure you can hit that new target before making that kind of commitment.

You cannot spend money you are not committed to making.   Use the make or break number to serve as a guide and hold yourself accountable.