Do you frequently experience more month at the end of your paycheck? If so, you are not alone. The average person today spends anywhere from 10-30% more than they earn. Creating a financial forecasting plan will prepare you for present and future expenses and ensure that you don’t overspend. By preparing and planning your finances in advance, you prevent yourself from plunging further into debt. Here is a step by step guide on how to create a Financial Forecasting Plan. You will need a calculator, notepad, and pen.
1) Identify all sources of monthly income. Consider all sources of income such as salary, bonuses, dividends, alimony, child support, etc.
2) List all expenses. This might take a few tries to get everything. Check your calendar for birthdays, anniversaries, weddings, etc. Include prescriptions, subscriptions, and memberships and annual expenses. Here is a list of common annual expenses:
- auto insurance
- vehicle tax
- car repair/maintenance
- HO Insurance
- Property taxes
- House repair/maintenance
3) Prioritize your spending. Housing, transportation, and food expenses will take up a good portion of your income. After you have those three listed, your priorities are up to you. A typical list includes the following:
Utilities- water, electricity, cable/internet, and phone
Other insurance (health)
4) Allocate funds. Decide how much to allocate every month for each of your expenses. Your mortgage/rent, insurance, and cable/internet are likely to be the same each month. Other expenses such as utilities and debt service may vary. Your total expenses should equal your income. If the allocation amount is higher than income, you will need to decide where to cut and by how much. If your total is less than your income, add more money to one of your expenses. Expenses with interest such as credit card debt are those you might consider adding more funds to. Your savings is always a good choice.
5) Stick to your plan! This is where it gets complicated. You might want to spend more than you allocated to a certain expense, but this will get you in trouble. Only spend what you planned on spending. When the money runs out, don’t spend any more in that area. One great way to keep track of spending is to sign up for a money management site such as www.mint.com, www.justthrive.com and www.buxfer.com. All three of these sites offer free personal finance software. For those who enjoy the paper and pen method, websites such as www.credit.com offer great budget planners available for free download. Finally if your ready for a truly professional personal budgeting software I would recommend MVelopes.
6) Reassess your Plan. The most successful way to financial security is to prepare, follow, and reassess the financial forecasting plan.
Many times we feel that we are drowning in a world of debt and financial problems Personal Finance Mastery strives to teach people the fundamental keys to protecting and growing Wealth.