How to calculate total business, investment, and living expenses: 3 methods

In money management, many people often only look at the initial purchase price and forget the actual total cost. According to many personal finance surveys, more than 60% of consumers often underestimate the true cost because they don't know how to calculate the total cost fully. This makes budgeting, business management, and investment easily skewed.

This article will help you understand how to calculate total cost in a simple and practical way. You just need to grasp the basic principle: total cost = fixed cost + variable cost. By understanding these two types of costs, you can accurately calculate costs when doing business, creating a personal budget, or evaluating the effectiveness of an investment.

Method 1: How to Calculate Personal Expenses Reasonably

Step 1: How to Calculate Fixed Costs

Determine all monthly fixed costs

• When you start learning how to calculate total costs, the first step is to list fixed costs for the period you want to calculate (usually monthly).

• Fixed costs are mandatory expenses that are paid regularly and do not change significantly with personal spending levels.

• Properly identifying this group of costs helps you control total living expenses, create a personal budget, and plan effective savings.

Items typically considered fixed costs include:

• Monthly rent or mortgage payments

• Electricity, water, gas, and other utility bills

• Phone and internet bills

• Gas or commuting expenses for work

• Food and basic necessities

Key points about fixed costs:

• This amount remains almost constant month to month.

• It does not depend on whether you spend more or less.

• For example: whether you buy more clothes or not, the rent remains the same.

Example of how to calculate total monthly fixed costs

• Rent: 800 USD

• Utilities (electricity, water, etc.): 250 USD

• Phone: 25 USD

• Internet: 35 USD

• Gas for commuting: 200 USD

• Food: 900 USD

The calculation method is very simple:

• Add up all fixed costs.

Result:

• Total fixed costs = 2,210 USD/month

Once you have this figure, you have completed the first step in calculating your total living expenses. The next step is to determine variable costs, from which you can calculate your actual total monthly expenses to manage your finances more effectively.

Step 2: How to Calculate Monthly Variable Costs

List all lifestyle-dependent variable costs

• After determining fixed costs, the next step in calculating total costs is to calculate variable costs for a month.

• Variable costs are expenses that depend on your lifestyle and spending habits, not mandatory but helping to improve quality of life.

Items typically considered variable costs include:

• Personal shopping such as clothes, accessories, non-essential items

• Entertainment and outings such as going to the movies, theater, cafes, or eating out

• Travel, weekend getaways

• Parties, birthdays, or social gatherings

• Fine dining or unplanned meals out

Key points to understand when calculating variable costs:

• This expense can increase or decrease depending on individual decisions.

• You can absolutely cut down or adjust when you need to control total living expenses.

• Some costs like electricity or water may fluctuate slightly, but are still categorized as fixed costs because they are mandatory.

Example of how to calculate total monthly variable costs

• Theater tickets or entertainment: 25 USD

• Weekend trip: 500 USD

• Friend's birthday party: 100 USD

• New shoes: 75 USD

Calculation:

• Add up all variable expenses for the month.

Result:

• Total variable costs = 700 USD

By combining fixed costs and variable costs, you will have a clearer picture of your total monthly expenses, making it easier to adjust spending and manage your budget effectively.

Step 3: How to Calculate Total Monthly Expenses

Add fixed costs and variable costs

• The final step in calculating total costs is to add fixed costs and variable costs.

• The result tells you your total monthly living expenses, which is the entire amount of money you have actually spent according to your personal budget.

The formula is very simple:

• Total cost = fixed cost + variable cost

Significance of this formula:

• Helps you clearly see your actual total monthly expenditure.

• It is the basis for creating a personal budget, controlling spending, and planning savings.

• Allows you to easily identify which expenses are causing your total living costs to increase.

Example of how to calculate total monthly expenses

• Fixed costs: 2,210 USD

• Variable costs: 700 USD

By adding these two amounts, you will know your total monthly expenses.

Significance of this figure in financial management:

• This is the actual spending level to maintain your current lifestyle.

• If you want to save money faster, you should prioritize adjusting variable costs such as entertainment, travel, or shopping.

• Regularly tracking total monthly expenses will help you control your finances and avoid overspending.

Step 4: How to Track Monthly Expenses

Record all expenses for at least one month

• To accurately apply the total cost calculation method, you need to know how much you have actually spent.

• If not tracked, many people tend to misestimate their total monthly expenses.

• The best way is to track all expenses for 30 days to have clear data.

Benefits of tracking expenses:

• Helps accurately determine total monthly living costs

• Clearly distinguishes between fixed expenses and variable expenses

• Easily creates a personal budget and savings plan

After a month of tracking, you typically only need to update variable expenses, as fixed expenses rarely change.

Simply track fixed expenses

• Fixed expenses are generally easy to track because they recur monthly.

How to do it:

• Record rent or mortgage payments

• Keep bills for electricity, water, internet, and phone

• Check recurring payments in your bank account

A simple tip:

• By just keeping major monthly bills, you can identify most of your fixed costs in the total cost calculation.

Special case:

• Food expenses can be harder to track, but you can:

  • Keep supermarket receipts

  • Check your bank transaction history

This helps you accurately calculate your total monthly living expenses.

Track variable expenses more accurately

• Variable expenses are often harder to control because they arise from many daily activities.

Effective tracking methods:

• Pay with bank cards or credit cards

  • At the end of the month, simply check your online transaction history to total your spending.

  • Most banks now offer automatic spending statements.

• Pay with cash

  • Keep purchase receipts

  • Or record the amount after each expenditure

A small but very useful habit:

• Every time you spend money, quickly jot it down in your phone or expense notebook.

By maintaining this habit, you will easily know your actual total expenses each month, thereby applying an accurate total cost calculation method and managing your personal finances more effectively.

Method 2: Calculate Cost of Goods Sold and Store Operating Expenses

Step 1: How to calculate fixed costs in business

Identify all fixed costs of the business

• When applying the method for calculating total business costs, the first step is to identify the business's fixed costs.

• In business practice, these items are often referred to as fixed costs or overhead costs.

Simply put:

• These are expenses that a business must incur to maintain operations, regardless of production volume.

• These costs do not change with the volume of goods or services.

Identify common fixed expenses

In a business, fixed costs typically include:

• Rent for factories, offices, or business premises

• Costs for electricity, water, and other operating utilities

• Rental fees for equipment, machinery, or fixed assets

• Business insurance fees

• Loan repayments or equipment installment payments

• Salaries for non-production staff such as security guards, cleaners, administrative staff

Key characteristics of fixed costs in business:

• These expenses recur monthly.

• Businesses still have to pay even if production decreases.

• Therefore, this is an important factor when calculating total production and operating costs.

Example of calculating a business's monthly fixed costs

Suppose you are operating a basketball manufacturing plant with the following expenses:

• Factory rent: 4,000 USD

• Business insurance: 1,500 USD

• Loan repayment: 3,000 USD

• Equipment and machinery costs: 2,500 USD

• Salaries for non-production staff: 7,000 USD

The calculation is very simple:

• Sum all fixed costs of the business.

Result:

• Total fixed costs = 18,000 USD per month

By understanding this figure, businesses can easily perform total production cost calculations, determine their break-even point, and make more accurate business decisions.

Step 2: How to identify variable costs in business

Understand the business's variable costs correctly

• In the total production cost calculation method, after identifying fixed costs, the next step is to calculate variable costs.

• Variable costs in business are expenses that change with the level of production or volume of services.

Simply put:

• The more a business produces, the higher its variable costs.

• If production decreases or stops, these expenses also decrease.

Important distinction:

• Variable costs in business directly depend on production volume.

• This differs from variable costs in personal spending, which are often related to lifestyle and consumption habits.

Identify common variable costs

In business operations, variable costs typically include:

• Raw materials for product manufacturing

• Shipping and delivery costs

• Wages for direct production workers

• Packaging or processing costs for products

• Energy costs for production such as electricity or gas

An important note:

• Some items like electricity, gas, or fuel can become variable costs if consumption increases with production volume.

Practical example:

• In a car manufacturing plant using robots, the amount of electricity consumed will increase when more cars are produced, so electricity can be counted as a variable cost.

Example of calculating a business's variable costs

Suppose a basketball manufacturing plant has the following expenses:

• Rubber raw material: 1,000 USD

• Shipping costs: 2,000 USD

• Worker salaries: $10,000

• Gas costs for production: $3,000

Calculation method:

• Sum all direct production-related expenses.

Result:

• Total variable costs = $16,000

Once variable costs and fixed costs have been determined, businesses can finalize the calculation of total production costs, thereby evaluating profitability, optimizing selling prices, and controlling business operational efficiency.

Step 3: How to calculate total business costs

Add fixed costs and variable costs

• After fixed costs and variable costs have been fully determined, the final step in calculating total business costs is to add these two amounts together.

• The result tells you the total operating costs or total production costs for a month.

Basic formula:

• Total costs = fixed costs + variable costs

Meaning of this formula in business management:

• Helps businesses know the actual cost of maintaining operations each month

• Serves as a basis for calculating product costs, profit, and break-even points

• Supports business owners in controlling production costs and optimizing operating budgets

Example of how to calculate the total cost of a factory

Suppose a basketball manufacturing factory has the following expenses:

• Fixed costs: $18,000

• Variable costs: $16,000

The calculation is very simple:

• Add these two expense categories to determine the total monthly cost of the business.

Result:

• Total costs = $34,000/month

Meaning of this figure:

• This is the amount a business must spend to maintain production operations in that month.

• If revenue is lower than this level, the business may incur losses.

• Therefore, a clear understanding of how to calculate total production costs helps businesses make accurate decisions about pricing, output, and business strategies.

Step 4: Determine business costs from financial statements

Find expenses in the income statement

• When applying the method for calculating total business costs, the most accurate data source is usually in the financial statements, especially the income statement.

• This document summarizes all revenues, expenses, and profits of the business for a specific period.

In this report, you can find:

• Variable costs directly related to production or service provision

• Fixed costs such as rent, utilities, operating expenses

• Other expenses affecting total business costs

Therefore, if the business has an accounting system, you just need to review the income statement to identify most of the data needed to calculate total operating costs.

Use the balance sheet to assess financial obligations

• In addition to the income statement, another important document is the balance sheet.

• This document shows the overall financial health of the business at a specific point in time.

In the balance sheet, you can identify:

• Business assets

• Liabilities

• Owner's equity

The liabilities section is very important when analyzing costs, as it indicates:

• How much money the business owes

• What needs to be paid in the future

Assess financial health from total costs and debt obligations

• When combining total operating costs with data from the balance sheet, you can get a clearer picture of the business's financial situation.

One warning sign to note:

• If the business barely generates enough revenue to cover total costs but still has many liabilities, its financial situation may be unstable.

Therefore, regularly monitoring total costs, income statements, and balance sheets will help businesses:

• Control costs better

• Accurately assess business operational efficiency

• Make more accurate financial and investment decisions.

Method 3: How to calculate investment costs and actual profit

Step 1: How to determine initial investment costs

Determine the initial investment amount

• When applying the method for calculating total investment costs, the first step is to determine the initial investment amount.

• This is the amount of money you specifically allocate to purchase stocks, investment funds, or other financial assets.

Key point to understand:

• Investment costs are not just the money put into the market.

• In reality, many investors need brokers or consultants to build an investment portfolio.

• Therefore, total investment costs may be higher than the amount you initially planned to invest.

Amounts that may be related to initial investment costs:

• Amount used to purchase stocks or investment funds

• Brokerage fees or securities transaction fees

• Investment advisory fees or portfolio management fees

Clearly defining your initial investment capital will help you:

• Accurately calculate total investment costs

• Assess future profit efficiency

• Plan financial risk management

Example of determining initial investment costs

Suppose you receive $20,000 from an inheritance and want to use a portion for long-term investment.

Investment plan:

• Total amount received: $20,000

• Amount decided to invest: $10,000

In this case:

• Initial investment cost = $10,000

This is the first step in calculating total investment costs, before continuing to consider other expenses such as transaction fees, brokerage fees, and investment management fees.

Step 2: How to calculate investment advisory fees

Determine investment-related fees

• When calculating total investment costs, many people only focus on the amount invested in the market and forget to include advisory and service fees.

• In fact, if you invest through a financial advisor or broker, these fees can significantly impact the actual cost of your investment.

Typically, investment advisory fees are calculated in two common ways:

• Hourly fixed fee

  • Advisors charge based on the time spent working on the portfolio.

  • Calculation method:

    • Hourly fee × hours worked

  • Typically applies to independent investment advisory services.

• Percentage-based commission fee

  • Brokers receive a percentage of the investment value.

  • Example: 1% – 2% of the portfolio value.

Additionally, you may encounter some minor investment-related fees such as:

• Transaction fees

• Account management fees

• Other financial service fees

These amounts need to be added to determine the total initial investment cost.

Example of investment advisory fee calculation

Suppose you hire a financial expert to build an investment portfolio.

Cost information:

• Consulting fee: 250 USD/hour

• Hours worked: 2 hours

Calculation method:

• Consulting fee = 250 × 2 = 500 USD

Also includes:

• Minor service fees: 100 USD

Result:

• Total investment advisory fee = 600 USD

By adding this amount to your initial investment capital, you will determine the total actual investment cost, thereby accurately assessing the profitability of your investment.

Step 3: How to calculate investment commission fees

Calculate commission fees when investing through a broker

• In calculating the total investment cost, in addition to advisory fees, you may also have to pay brokerage commission fees.

• This is a fee calculated as a percentage of the transaction value or investment amount.

Characteristics of investment commission fees:

• The fee percentage is usually lower for larger investment values.

• This fee arises when you buy or sell investment assets through a broker.

• This is an important part to include in the total actual investment cost.

How to calculate investment commission fees:

• Determine the commission rate (%) applied by the broker.

• Multiply this rate by the investment value.

Example:

• Investment amount: 10,000 USD

• Commission fee: 2%

Calculation method:

• Commission fee = 10,000 × 2%

Result:

• Investment commission fee = 200 USD

By adding this amount to the previous investment advisory fee, you will determine the total initial investment cost.

Important note on paying commission fees

• Some transaction-based commission brokers may encourage investors to trade frequently to increase their earnings.

• This can sometimes lead to higher investment costs and impact long-term returns.

Therefore, when choosing an investment service:

• Prioritize reputable and transparent advisors regarding fees

• Compare fixed fees versus commission fees

• Many investors choose fixed-fee advisors as there is less conflict of interest.

Understanding advisory fees and commission fees will help you accurately calculate the total investment cost, thereby making more effective and sustainable financial decisions.

Step 4: How to calculate investment taxes

Calculate investment-related taxes

• Once you have completed the steps in calculating the total investment cost, you need to add the taxes payable to the state.

• Taxes are often overlooked but can directly impact the total actual investment cost.

There are two common types of investment taxes:

• Taxes incurred during investment transactions

  • Applied immediately upon purchasing investment assets.

  • This amount needs to be included in the initial investment cost.

• Taxes on investment profits

  • Incurred when you sell assets and make a profit.

  • This amount is usually calculated after the investment has taken place.

When determining the total initial investment cost, investors often focus on transaction taxes or initial investment taxes.

An important note:

• Investment taxes may vary by country or region.

• Therefore, before investing, you should consult a financial expert or investment advisor to know the exact amount of tax payable.

Example of investment tax calculation

Suppose you plan to invest with the following information:

• Investment amount: 10,000 USD

• Investment tax: 1%

Calculation method:

• Investment tax = 10,000 × 1%

Result:

• Investment tax = 100 USD

This tax amount needs to be added to the investment advisory fee and commission fee to determine the total initial investment cost.

By fully calculating investment capital, service fees, and taxes, you will have a more accurate view of the total actual investment cost, thereby making informed decisions about the effectiveness and risks of your investment before proceeding.

Step 5: How to calculate total investment cost

Add up all costs related to the investment

• After fully identifying all expenses, the final step in calculating the total investment cost is to add all the costs together.

• This helps you know exactly the total amount of money actually needed to make the investment.

The amounts to be included in the total investment cost typically include:

• Initial investment capital used to purchase investment assets

• Investment advisory fees or portfolio management fees

• Brokerage commission fees for transactions

• Investment taxes or transaction taxes

Simple formula:

• Total investment cost = investment capital + service fees + commission fees + taxes

Fully calculating these amounts helps investors:

• Understand the actual cost of the investment

• Accurately assess potential returns

• Avoid situations where hidden costs reduce profits

Example of total investment cost calculation

Suppose you plan to invest with the following expenses:

• Initial investment capital: 10,000 USD

• Investment consulting fee: 600 USD

• Brokerage commission fee: 200 USD

• Investment tax: 100 USD

Calculation method:

• Add all investment-related expenses.

Result:

• Total investment cost = 10,900 USD

This figure reflects the actual total amount needed to make the investment, not just the initial investment capital. Understanding how to calculate total investment cost will help you make accurate financial decisions and optimize investment efficiency in the long run.

How to use total cost to calculate profit

Calculating profit based on total cost

• After determining the total cost, you can use this figure to know if the business is making a profit or loss.

• This is an important step in financial management as it helps assess actual business performance.

Basic calculation formula:

• Profit = Revenue − Total Cost

Where:

• Revenue is the total amount of money earned from selling products or services.

• Total cost includes fixed costs and variable costs.

If the result is:

• Greater than 0 → the business is profitable

• Equal to 0 → the business breaks even

• Less than 0 → the business is at a loss

Note on taxes when calculating profit

• In many cases, taxes need to be deducted from net income to calculate actual after-tax profit.

• Therefore, when analyzing profit, you also need to consider corporate income tax expenses.

Example of calculating profit from total cost

Suppose a basketball manufacturing factory has the following data:

• Product sales revenue: 39,000 USD

• Total production cost: 34,000 USD

Calculation method:

• Profit = 39,000 − 34,000

Result:

• Profit = 5,000 USD

This indicates that the business is generating positive net income, meaning its operations are profitable. However, after deducting corporate tax, the actual profit may be lower.

Understanding how to calculate total cost and profit helps businesses:

• Price products appropriately

• Control production costs

• Build sustainable business strategies.

References

1. D'Amore, G. (Financial Accountant). Expert Interview.
2. Investopedia. Fixed Cost. Retrieved from: https://www.investopedia.com/terms/f/fixedcost.asp
3. Investopedia. Variable Cost. Retrieved from: https://www.investopedia.com/terms/v/variablecost.asp
4. Fundamental Finance. Microeconomics: Costs. Retrieved from: http://economics.fundamentalfinance.com/micro_costs.php
5. BusinessTown. Basic Financial Statements. Retrieved from: http://www.businesstown.com/accounting/basic-statements.asp
6. Investopedia. Investment Basics. Retrieved from: https://www.investopedia.com/articles/basics/04/022704.asp
7. Light, L. (2012). How Much Do Advisors Cost? Forbes. Retrieved from: http://www.forbes.com/sites/lawrencelight/2012/07/26/how-much-do-advisors-cost/
8. Investopedia. Commission. Retrieved from: https://www.investopedia.com/terms/c/commission.asp
9. Investopedia. Tax-Efficient Investing. Retrieved from: https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp

Content edited by: Leigh Kennedy Ly.

Information consulted and verified by expert: Gina D'Amore.