Personal Living Expenses are the costs an individual incurs for day-to-day living, such as housing, food, transportation, insurance, and personal bills. In franchising, personal living expenses represent the amount a franchisee must budget separately from business costs to support their lifestyle while operating the franchise.
In the franchise context, personal living expenses are the ongoing personal financial obligations of a franchisee that are not covered by business income. These expenses include mortgage or rent, utilities, groceries, health insurance, vehicle payments, personal debt, and family-related costs. Understanding and budgeting for personal living expenses is crucial when evaluating the financial feasibility of buying or operating a franchise, especially during the early months when the business may not yet be profitable.
Franchise consultants and lenders often advise prospective franchisees to maintain sufficient savings or working capital to cover both business and personal expenses for at least 6–12 months after opening. Failing to account for personal living expenses can place undue pressure on new franchise owners, increasing the risk of undercapitalization or early failure. While these costs are not included in the franchise’s Item 7 investment estimate, they are an essential part of overall financial planning and readiness.
Additional Definition: The amount of money required for you and your family to live. Also called “Family Expenses.”
| Category | Description | Typical Monthly Range (USD) |
|---|---|---|
| Housing | Mortgage or rent, property taxes, and utilities. | $1,500 – $4,000 |
| Food and Groceries | Household groceries, dining, and essentials. | $600 – $1,200 |
| Transportation | Vehicle payments, fuel, maintenance, and insurance. | $500 – $1,000 |
| Health Insurance and Medical Costs | Insurance premiums, co-pays, prescriptions, and care. | $400 – $1,000 |
| Debt Payments | Personal loans, student loans, and credit card payments. | $300 – $1,000 |
| Personal and Family Expenses | Childcare, education, clothing, recreation, and savings. | $500 – $1,500 |
The recognition of personal living expenses as a factor in franchise evaluation grew as franchising matured during the 1970s and 1980s. Early franchise investors often underestimated the financial pressure of covering both business and household expenses simultaneously. In response, franchise advisors, the Small Business Administration (SBA), and financial institutions began requiring detailed personal expense projections as part of franchise loan applications. Today, evaluating personal living expenses is a standard component of the franchise due diligence process, ensuring that new owners have adequate financial reserves beyond their initial investment.
Also See: The Educated Franchisee, 3rd Edition
| Aspect | Business Expenses | Personal Living Expenses |
|---|---|---|
| Purpose | Costs required to start and operate the franchise. | Costs required to sustain the owner’s lifestyle and family. |
| Examples | Franchise fees, rent, payroll, marketing, and inventory. | Mortgage, utilities, food, and insurance. |
| Funding Source | Business revenue, loans, or franchisor financing. | Personal savings, spousal income, or owner’s salary. |
| Inclusion in FDD | Disclosed in Item 7 of the Franchise Disclosure Document. | Not included; varies based on personal circumstances. |
'The franchise advisor recommended that the candidate set aside funds to cover personal living expenses for at least one year.'
'Personal living expenses must be accounted for separately from business projections to ensure accurate financial planning.'
'During the franchise evaluation process, the lender analyzed both business cash flow and the applicant’s personal living expenses.'
Personal living expenses are the day-to-day costs required to support a franchisee’s lifestyle outside the business. They play a critical role in determining financial readiness and sustainability during the startup phase of a franchise. Properly estimating and planning for personal living expenses helps franchisees maintain financial stability and focus on business growth without personal financial strain.
