Forecasting Expenses

by Matthew Perry
(last updated February 21, 2009)

It's natural to worry about expenses when you're creating a personal budget. The uncertainty of the future is a big stress factor: Will your car break down? How much electricity do you really use? Wait––isn't your sister's birthday next month? Would-be budgeters often stop before they start, overwhelmed by the stress of reading the future. While it may be natural to worry, that doesn't mean it is necessary. With proper expense forecasting know-how, you needn't worry about having a drastically under-funded budget.

You almost certainly have some fixed expenses, and those are a solid place to start. Rent, for example, is generally the same from month to month, as are car payments, bus passes, and mortgage payments. The certainty of these expenses can make it easier to deal with the unknown ones, not only because it gives you a concrete base for your budget, but because your income with those expenses subtracted will probably leave you with significantly less money to distribute. Most people probably wouldn't see that as an advantage, but it is—as long as it's not too tight, it's easier to budget a smaller amount of money than a large one.

The money left over from your fixed expenses will then be divided among the other categories in your budget, your variable expenses. These tricky little devils tend to be different from one month to the next, so they can be hard to estimate. If you've kept records of your spending for the last month (or the last several months) you can average those to give you general guidelines for the coming month. You'll probably eat close to the same amount of food, for instance, even if it's not exactly the same.

It takes practice to get good at predicting your expenses. As you use your budget, you may find that you have too much money in some categories and not enough in others, but don't give up. Taking control of your finances is worth the work.

Author Bio

Matthew Perry

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