Estimating Your Future Budget

The ability to estimate your future budget lets you to plan for potential major expenditures, such as a home purchase, and is a major part of the equation when plotting out a retirement savings plan. Knowing the amount of money needed for average monthly expenses helps you determine how much new debt you can afford, or how much money is required to maintain a certain standard of living in retirement.

Long-term Expenses

Payments made on debts with a lengthy repayment period must be considered when determining future expenses. Depending on how far into your future you project, certain expenses, such as a home mortgage or car payments, could be paid-in-full by the time your budget period is over. Other regular expenses, such as insurance premiums, typically remain life-long costs. You must also consider if any new long-term expenses might occur in the future that currently do not exist. For example, a family with two paid-off vehicles might need to replace one or both cars in the future. This means adding another car payment and higher insurance costs into the budget. You will also need to include college expenses for your children, if applicable. Compare tuitions at colleges in your area to get an idea of how much you might have to pay out of pocket.

Regular Monthly Expenses

Monthly expenditures such as groceries, car fuel, utilities, Internet and phone charges typically remain monthly costs throughout life. For those who don't own a home, rent will be a monthly expense as well. Since many regular expenses fluctuate from month to month, calculate an average of the costs over a 12-month period to determine a particular expenditure in the future.

Earnings, Savings and Pensions

When mapping out your future budget, you will need to determine your income. For most people, the safest figure to use is the salary or wages you currently bring home every month. Don't account for raises that might not materialize. Don't try to include gains from investments, either, unless it's something steady like a rental property. For those planning for retirement, future earnings from wages or a salary can no longer be considered. However, income from stocks, bonds, rental properties or interest can contribute greatly to the funds needed to live comfortably in retirement. Employer-sponsored pensions plans, Social Security and personal savings also offer a source of monthly income to consider. Before estimating your future budget, gather together statements listing your current contributions to savings accounts and funds dedicated to retirement. Determine your average yearly contribution and then decide if it will stay the same or increase over time to accurately project your future monthly income.

Planning for the Future

Add up your future long-term and regular expenses for a typical month. Compare this total to the total monthly income you expect in the future. Ideally, your monthly income should exceed your future expenses to allow for a financial cushion for medical emergencies, leisure activities and inflation. When estimating your future budget, it is important to consider that inflation might raise the prices on goods and services while your income remains at a previously set fixed-rate.

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