How to Make a Budget: Making an Annual Expense Projection List

When you receive a sum of money larger than what your normal income like bonus, 13th month, leave conversion, commission, etc., how will you know that you can spend all of these or not?

Manang Clara (not real name) was my old neighbor. She and her husband worked as rattan furniture contractors. During the height of the business, it's normal for them to earn as much as P20,000/week. That is already a very good income when you are leaving in the Philippines, specially in the provinces like Cebu. But in spite of their high income, they were in debt, and was not able to save much. Why? Because they live the the "one-day-millionaire" lifestyle. They spend and spend, without saving, until there's not more money to spend. They had the illusion that their income will always be there. When the rattan industry declined they found themselves worse or at least unchanged in terms of financial status...

There are a lot of Filipinos who are living a "one-day-millionaire" lifestyle. They didn't realize that they not only wasted money but time, as well, which is one of the important ingredients of growing money.

How can we help yourself avoid this trap?

STEP 7: MAKING AN ANNUAL EXPENSE PROJECTION


The answer to the above question is to know what are our future expenses at least one year down the road.

How to do this?

By making an annual expense projection list, we will know how much money we still need to save to meet future expenses.

These are the things to take note of the list:

(1) List all your possible future expenses and estimate (if you are not sure of the figure) how much you will spend. Take note that you don't have to have a perfect list to be able to start doing this. If you cannot recall or anticipate all your future expenses, it's OK but try your best to anticipate as many as you can. After a year of doing this, I am sure your list will improve a lot.

(2) Write down the projected expenses under the Projected Expenses column in your spread sheet. If you do not have a computer, just make a list in a notebook and follow my format.

(3) Write down your projected expense cost under the Projected Amount column. Again, this number or figure doesn't have to be exact. Rest assured that after a year of doing this, your estimate will improve.

(4) If you were already able to save money for a particular expense write the amount in the Money Allocated column. For example, from the table above my estimate for the New years celebration is P4000 so I allocated P4000 for this event. By the time I made this list I was already able to save the said amount so I put P4000 under the Money Allocated column. Another example is the future expense, Magsy's birthday. Since I am yet to save money for this event, I put P0 under the Money Allocated column.

(5) When you are done paying, just put 0 in the Outstanding Payment column.

(6) From the Outstanding Payment column, you can see which future expenses are not yet settled, and how much money you need to save for these. This is the most important use of this list. Once you will see that you still need to save this much amount of money, in my case its P33,500, then once you receive a money then the temptation to spend it all will be minimized.

The list will not guarantee that you will not spend unwisely because it will still boils down to your self-discipline and determination to control your finances, specially your debt. This list, however, will help you see further down the road and will give valuable inputs for you to make a decision as to how you will handle your money now.

I hope this helps...

PS: If you want to know more how to save money, how to avoid debt, how to get out of debt, and how to make a budget then click HERE.
PS: I am interested to know if you find this article helpful so please feel free to drop some comments.