Budgeting and Financial Forecasting: The Benefits of Working With an Experienced Financial Planner

Creating a budget may not sound glamorous, but defining your financial goals and sticking with your plan to meet them can bring an incredible sense of satisfaction. Very often, budgeting involves a combination of successes with a few misses in between. A miss can be defined as those times that you didn’t budget at all or perhaps an occasion when you couldn’t stick with it and ultimately gave up. Life happens, and sometimes there are unexpected expenses that can hit you hard. Budgeting can also seem difficult to feel successful about, even when the bills are getting paid on time and you’re meeting your savings and retirement planning goals. It is life’s surprises that keep us guessing about good financial forecasting! This doesn’t mean you need to have psychic powers—sometimes all you need is a fresh look at what it means to plan a budget and make it work together with financial forecasting for your family and home.

Identifying your fixed and variable expenses

If you’re new to budgeting, the first step is to identify all of your expenses. To stick with your budget, take your time and have a thorough approach to your planning. You want to account for everything that you spend money on. These need to be categorized into fixed and variable expenses. Your fixed expenses are, for example:

• Rent or mortgage
• Electricity and utility bills
• Mobile and wireless data plans
• Insurance (home, auto, and other)
• Car payment

These would qualify as your variable expenses:

• Groceries
• Clothing and shoes
• Entertainment
• Gas
• Medical and prescriptions (not covered by insurance)
• Emergencies

Your fixed expenses should remain relatively constant and be the foundation of long-term household expense planning. Your variable expenses are less predictable. For example, bad traffic on your commute due to a construction project can cause a gas bill to increase substantially. A family member’s lengthy visit can impact your grocery budget. An emergency repair on your car or a down payment on a new one could completely blow the variable portion of your yearly budget. Monitor the items in your variable expenses list. If you discover that you spend the same amount every month for one of your variable expenses, then you can begin to consider it a fixed expense.

Using an itemization tool on your checking or credit card account to categorize your expenses and calculate a total each month is a great place to start if you feel a bit overwhelmed by the prospect of budget creation. You can certainly keep track with a good old pen and paper, or with a simple spreadsheet, but you also have many options for free or inexpensive mobile apps to download to your phone to help make budget tracking accurate and convenient. These are all great ways to get your finances organized, and when you’re ready, you can seek the help of a financial planner to help you utilize all of this data in the most effective way. A good advisor will assess your goals, look at your budget, and help guide your subsequent financial decisions.

What exactly is financial forecasting?

Financial forecasting is a prediction model based on the use of known variables. Think of it as an estimated measurement of future expenses by accounting for variable expenses from the past. Some variables that would be included in financial forecasting would be:

• Salary increases
• Income tax increase
• Bonuses
• Vacation expense
• Household preventative maintenance

Prediction models lose accuracy as the time horizon lengthens, but financial forecasts can be adjusted whenever a new variable enters the picture. The advantage of going through the exercise (and effort) of financial forecasting is to help you to better prepare for fluctuations in incoming and outgoing cash flows. After just a year of using financial forecasting, you get to uncover how closely the actual results compare to estimated results. For the current fiscal year, you and your financial planner will use the previous year’s results to fine-tune a more accurate model than before. It can be exciting to think that you can build predictions for your family’s finances in the same way that operations managers do for a business. It’s almost like having a family office. This can be especially valuable if you have a busy household with many types of transactions going through each month.

Partnering with an expert to explore the financial weather ahead

With so many activities and a full schedule in your busy life, it’s not always easy to control costs or find out where resources are getting wasted. The great thing about budgeting and forecasting is that there’s no hard and fast rule that you can only change inputs once a year. Go ahead and update your model in 6 months if an unforeseen factor appears. Even a 3-month update might be needed for major budgetary changes. Over just a short time, you can develop a budget that you can live with comfortably and a financial forecast that becomes a more accurate prediction of your livelihood each year. Additionally, an ongoing relationship with a trusted financial advisor will be key to feeling an increased comfort with where your finances currently stand, and where they may be heading.

SD Mayer is committed to helping individuals and families plan and succeed with their household budgets. They treat their clients with a holistic financial approach, and can help you develop a forecast as part of your financial strategy. If you’re interested in learning more, contact us today. 

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