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How to Calculate Your Monthly Expenses
By Vincent Polisi
Figuring out your personal monthly cash flow is a key part of developing a sound financial plan. All of your normal expenses need to be included in your expense calculations, not just your non-discretionary expenses. If you fail to include all of your regular expenses, you will have a skewed look at your overall financial picture.
Most people take into consideration their non-discretionary expenses, such as those for their home, electricity, transportation and food. Paying these expenses are necessities for living that generally cannot be avoided. Further, these tend to represent the largest portion of their monthly expenses for most people. This is why these are often the only expenses taken into account when people set out to calculate their cash flow position. However, this can be very deceptive because most people have other expenses that, though voluntary, are just a regular as these non-discretionary ones.
Even if an item is not paid monthly, it still needs to be included in your monthly expenses. Things that are often paid in 3, 6 or 12 month increments include gym memberships, insurances and subscriptions (such as magazines and newspapers). If you pay your insurance once a year, you need to divide the total payment by 12 and add that to your recurring monthly expenses.
Other items that are not regular also need to be included in your monthly expenses. Things like clothing, vehicle maintenance and gifts are all important expenditures which must be accounted for. Many people overlook expenses that are not regular, but anything you do on a regular basis affect your cash flow. The best thing to do to estimate these expenses is look over your spending habits for the last several months.
The last category of expenses we will discuss is entertainment expenses. Entertainment is one of lives true pleasures, and some money for entertainment should be included in your budget, no matter how frugal you are. Not including this will lead to a budget that you most likely can not stick to. Most people spend a considerable sum for entertainment, for things like eating out, movies and the ever famous late. While spending $15 a day doesn't seem like much, not including it in your cash flow with through your calculations off by $450! Depending on your income, this can spell catastrophe.
For an accurate picture of your personal cash flow, you must include all of your expenses in your figures. If you fail to include non-essentials, like entertainment and things that are irregular, like home maintenance, you will not have created a useful picture of your cash flow.
Vincent Polisi is the founder of Credit Repair College. Credit Repair College empowers Americans to take control of their financial future by learning about how to fix bad credit and fast credit repair.
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