Is Budgeting a Guessing Game?

You know what you and your significant other bring home in your paychecks, so your income isn't a guess. However, if you plan on receiving a raise, that's a guess, since there's no guarantee you'll receive it or how much it will be. Don't include raises or gifts in your income when you're budgeting until you actually receive them.

Rent, car payments, and minimum credit-card payments are all fixed monthly expenses. You know what they are, so you don't have to guess. Some of these fixed expenses are discretionary, such as a gym membership, Internet access, cable TV and smart phones. If the budget is tight, consider eliminating those payments when the contracts expire.

These are a guess to some extent. You have to eat, but how much you spend on food is a variable. Utilities are a necessity of modern-day life, but you can decrease your electricity bill and water through conservation methods. Go back through your checkbook, or bank statements, and add up the variable expenses by type -- food, entertainment, haircuts, electricity and so forth -- for one year. Divide by 12, and you've laid out your monthly variable expenses rather than guessing at what they are.

When your car gets a flat tire, you may think that's an unforeseen expense. However, if you look back over the past few years, you'll get a grasp on those types of expenses. You might only need new tires once every two years, but you should still budget for it. The same goes for medical and dental care, pet care, and home maintenance and repairs.

Now that you don't have to guess at what your income and expenses are, it's time to pull it all together in a budget. Add up each of your monthly fixed and variable expenses. Add in the monthly portion of the unforeseen expenses. The monthly total should be less than your monthly income. If it isn't, cut back expenses. Ideally a budget that's 15 to 20 percent less than your income allows you to start saving and build an emergency fund.

Think of the budget as a path to freedom -- not a straight jacket on your spending. Instead of putting that vacation on your credit card, set aside an amount every month and save up for that trip. Then, when your vacation is over, you won't be facing a bill that nullifies the peaceful feeling the vacation gave you. A budget also gives you a feeling of security. You know you've included all your expenses, so you won't panic as often: if the hot-water heater goes out, you'll have a little saved up for it.