Do you know how much you make in income each month? What about the actual amount of your monthly expenses? You may have an idea of your monthly income and expenses but, do you know this figure exactly? Chances are you don’t. Although you may not think it important, there are numerous benefits of knowing your monthly or yearly income and expenses.
Are you trying to save money or create a budget? Knowing the actual amount of your monthly income and expenses is critical to reaching your financial goal and creating a successful budget. The following is a breakdown of how to accurately calculate the actual amount of your monthly income and expenses.
Determining Your Income
To determine your income you must consider how often you get paid. Salaried employees usually receive the same amount each month but, if you’re paid hourly your wages may vary by week.
If you are paid hourly, you’ll need to calculate a reasonable average of your wages for the month. Gather your check stubs for the past few months and calculate the average. Any overtime worked should be considered “extra” money and not included in the average. The resulting figure is a reasonable estimate of your monthly income.
Seasonal workers and those who earn money from tips and commission will also need to calculate their average income but using a much longer time frame. Aim for at least six months to a year to calculate the best average.
There are three types of personal expenses - fixed, variable, and periodic. When calculating your personal expenses you first need to identify the type and how often it’s paid.
Fixed expenses are the same amount each month. Rent payments, car notes, and health insurance are common fixed expenses.
Periodic expenses are not regular and occur at different times throughout the year. Usually, property taxes are only paid once a year. You need to spread the costs of this yearly expense over the year by dividing the total amount of the payment by twelve. The result is the amount you want to save each month to account for the payment.
Variable expenses are your everyday expenses. Reviewing your variable expenses can give insight into your spending habits. The following are common variable expenses:
Knowing the amount of your actual income and expenses is critical to creating a budget and helping you achieve your financial goals. When calculating your income and expenses, be sure to analyze your financial statements with a fine-toothed comb and include all sources of income. At the end of your analysis, you want to have the most accurate depiction of your income and expenses.
Download our expenses worksheet to better help you create a true budget and track your spending
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