When it comes to budgeting, most of us have a pretty solid grasp of our monthly income. It can be more complicated if you’re self-employed. There will be fluctuations as your sales go up and down, but they typically fall within somewhat predictable ranges at given times of the year. Estimating your expenses, on the
When it comes to budgeting, most of us have a pretty solid grasp of our monthly income. It can be more complicated if you’re self-employed. There will be fluctuations as your sales go up and down, but they typically fall within somewhat predictable ranges at given times of the year. Estimating your expenses, on the other hand, can be a bit more challenging.
The Importance of Estimating Your Expenses
A budget is essential for sound money management. Having one keeps you from flailing from one financial emergency to another throughout your life. Financial mismanagement from not having and sticking to a budget typically ends with not having sufficient savings to fall back on when you’re retired.
Only by having an accurate grasp of your expenses can you hope to know how much money you’ll have left over at the end of each month or whether you’ll have more month left at the end of your money.
How to Accurately Estimate Your Monthly Expenses
You need to sit down and write out every expense you have each month. Also, if you have bills that are due quarterly, for example, don’t forget to write down a monthly portion for each of them.
The following is a list of expenses that most people will have.
- Rent or Mortgage
- Car Payment
- Car Insurance
- Car Gas and Maintenance
- Electric Bill
- Gas Bill
- Water Bill
- Cable and Internet
- Eating Out
- Student Loans
- Health Insurance
- Credit Card Payments
For many, the above list will not be comprehensive. You may have a gym membership and a Netflix subscription, in which case, you’ll need to add those.
Do you have a pet? Their food purchases may already be covered under your grocery expense listing but anything else may have to be added to your expenses list.
Also, if you have a medical condition, be sure to add your out-of-pocket copay on any prescription medicines you buy and for any regular doctor visits.
One Critical Item to Remember When Estimating Expenses
Mike Tyson had a famous quote that “everyone has a plan until they get punched in the mouth.” Life can throw punches occasionally.
You’ll have car breakdowns, rushes to the emergency room with a sprained wrist or whatever, your home furnace may finally give up the ghost and who knows what else.
There will be unpredictable events that will exceed a given pay period’s income, so you’ll need savings to handle it.
One recommended formula for budgeting is known as the 50/30/20 rule.
This refers to:
- 50 percent of your income for essentials such as rent, utility bills and food.
- 30 percent for discretionary spending.
- 20 percent put away in savings.
This is, of course, the ideal scenario. Even if you exceed your expenses in a given month, you should still make sure to put something away for a rainy day since it all adds up over time.
Let Your Phone Be Your Expense Tracker
The best way to estimate monthly expenses is by keeping track of current expenses. Many bills are fairly regular in their amounts and when they’re due.
So, if you know how much you paid this month, they won’t be much, if any, more next month. One of the best, most convenient ways to do this is through the use of expense tracking apps.
You can simply Google “best consumer expense tracking apps,” and you’ll be presented with a ton of options. Since they are on your phone, they’ll be with you wherever you are as you’re spending money.
They enable you to almost effortlessly plug in expenses as you incur them. Many also have the capability to link to your bank and other useful options. Thankfully, the days of having to save and add up a pocketful of wrinkled receipts to keep track of where your money’s going are long gone.
The Power of Information
One of the best things about tracking expenses and how it enables you to estimate future expenses is what it tells you about yourself. You may find you spend way more money in a particular area of your life than you ever realized before tracking it.
Perhaps you didn’t know how much all those lattes at the local coffeehouse were adding up to each month. This information can cause you to cut out certain expenditures when you realize that they’re keeping you from saving money toward other things in your life.
If you see you’re spending too much on credit card payments each month, this will help you to see the wisdom of cutting back and paying as you go with cash.
If you have a fair amount of credit card debt that is high interest, you may even want to prioritize paying this debt off above saving money.
Most savings or investment accounts will yield lower interest rates than what you’ll be paying on your credit card debt, so you’ll be losing money by putting it into savings before paying this off.
Most of us have a pretty good handle on our income, which makes tracking our expenses the major obstacle to sound financial budgeting and planning. Follow the tips above to find out where your money is going and have the power at your fingertips to change financial course in your life.