Understanding Your Budgeting Fudge Factor
Posted on July 31st, 2010 in Budgeting, Debt Assistance | No Comments »
Do you set a monthly budget to control your expenses, pay off debt and ensure there isn’t too much month left at the end of the money? And how does that budget work out, normally?
If you’re like most people you’ll start off with your monthly income and subtract from that fixed costs like your mortgage or rent, utility bills and debt repayments.
Based on what’s left you either divide this up into a weekly spending budget or you make guesses about how much you will spend on transport, food and the more variable costs each month.
The fact is that while budgets are a nice idea – and certainly have a place when it comes to managing your personal finances especially in terms of getting out of debt – creating a decent budget can actually be a far tougher process than it may initially appear.
One of the reasons for this is all the “other” costs we forget about or assume can be covered in our “other” column. We consider food and shelter but forget about buying birthday presents, new toiletries, dinners out, a new dress for a party or new shoes for work and so on.
These “other” expenses are often the things can ruin a perfectly and lovingly created budget turning it more into a general idea than a carefully-designed income/expenses statement to guide your financial decisions.
A good concept therefore when creating a budget is to pay attention to your “fudge factor” – that is how much your estimations and guesses are normally out by. By keeping a note of unexpected costs, and costs that were higher (or lower) than you anticipated you can get a better understanding of your spending habits. And by doing this you can use the information you gather to create a new, more accurate (and more useful) personal budget that will serve as a far better goal for you.
For example if despite your budget the week before payday is always a struggle financially you will be able to examine why that is, and where the money is draining from and hence modify your budget for the following month.
Which makes controlling your money and paying off debt that much easier.