How accurate is your family’s monthly budget? Do you have false budget assumptions in your family’s monthly budget? Do you guess at certain things that you put in it? You’re not alone. A lot of people do not have the right math in their family’s monthly budget.
You need a budget, but you also need an accurate budget. Budgets are built on both facts and assumptions. You know exactly how much money your home mortgage will cost you. You know how much your car payment or credit card minimum balance payments are at the end of each month. But, there are many things in your budgets that you don’t know exactly how much they will cost you and your family. It is these assumptions that will eat at your budgets and could possibly throw them off.
Why Your Math Budget Might Be Off
There are two types of costs in our lives, just like the costs of a business. You have both fixed costs and variable costs. Your car loan payment, mortgage payment, and the like are all fixed costs. They are the same amount of money every month, and you can accurately predict them from month to month with almost perfect certainty.
Then, there are the variable costs of living. These include things like your water bill, your electricity costs, and other discretionary spending. Discretionary spending accounts for many of these variable costs, and they have some of the biggest impacts in our budget. They are, more likely than not, to be the areas that throw our family’s monthly budget out of whack. Here are a few monthly budget assumptions where our families are most likely not hitting the mark with their forecasts.
Potentially Wrong Family Budget Assumptions
Gas Prices: If you have a set amount of money earmarked for your gas purchases, this category in your budget has one of the highest likelihoods of being blown out of the water. Most people set a figure that is too low for their family’s gas usage.
Gifts You Give: Do you account for all of the gifts that you give throughout the year in your family’s monthly budget? You might have a number listed in your budget as one of your budget assumptions, but it may not be more than a swag.
How much do you give in gifts for birthdays, Christmas, or other holiday gifts? If you add up the number from last year, you can simply divide by 12 and save that amount each month, setting it aside in your budget, in a savings account. I like to nickname my savings accounts listing what it will be used for.
Going Out To Eat: If you are not watching this category in your budget like a hawk, you can be greatly surprised by how much money you spend going out to eat each month. The same can be said for going to the movies and other entertainment expenses. Do you increase your budget assumptions when you expect family to come into town? This can quickly be a budget buster.
House and Car Maintenance: Do you have car maintenance or home maintenance allocated in your family’s budget? It is estimated that over the course of a year, most car owners will spend approximately $1,200 on car maintenance costs. Do you have $100 earmarked in your budget for this expense? If you do not, it will pose quite an issue if and when an issue strikes. It could drive you to reach for your credit cards or to dip into your emergency fund if you are not careful.
Cash You Spend: Cash is one of the hardest things to track. That is why my wife and I limit how much money we spend in cash every month. We actually use our American Express charge card which has to be paid off every month to budget what would typically be our cash spending. And, we even earn rewards points for the purchases as well.
What do you do with your cash? Does it burn a hole in your pocket? Can you remember where it all went? Cash is hard to track, but it is incredibly important to keep up with your cash purchases. They have the potential to mess up your well thought out family budget.
How To Account For The Unaccountable
One way to account for the items that fluctuate in your budget is to look at the past year’s worth of data. How much did you spend every month on gasoline for your car or family’s cars? You can either take the average amount of your monthly spending for that year and make that your monthly budget amount for that category this year. Or, you can take the month where you spent the most on gas as a family and make that your monthly goal for each month of this year. The last option is the most conservative with the least amount of likelihood that you will go over your budgeted amount. Using the highest monthly amount from the previous year is one way to ensure that your budget assumptions are as conservative as possible.
Or, you can take the month where you spent the most on gas as a family and make that your monthly goal for each month of this year. The last option is the most conservative with the least amount of likelihood that you will go over your budgeted amount. Using the highest monthly amount from the previous year is one way to ensure that your budget assumptions are as conservative as possible.
You need a budget. We’ve all come to grips with that reality for the most part. But, more importantly, you need an accurate budget. Budgets are built on both facts and assumptions. But, how accurate are your budget assumptions? In many cases, families are not being honest with themselves about how they are creating their budget. They are not sure what they are spending month to month on their budget.
Have you ever seen your budget get out of whack with inaccurate budget assumptions? How do you account for items in your family’s budget that vary every month?