Forecasting Income And Expenses

I believe that using a personal budget is one of the most effective ways to gain control of your finances.  You can’t possibly begin to reduce your debt and build your net worth unless you know exactly how much money is coming in and how much money is going out.

Budgeting is about tracking your monthly income and ensuring your expenses stay within your limits.  Without a proper budget in place, you take the risk that you are overspending and not taking into account future expenditures.

After tracking my monthly spending with a budget for over a year, I decided that I needed to look further ahead and so I created a budgeting spreadsheet to forecast income and expenses over an entire year.  In fact, I try and look eighteen months out to give me a better idea about my future goals and objectives.  Here’s a look at how I forecast income and expenses, and why it may be beneficial for anyone to do this:

Forecast Income

This sounds pretty self explanatory, however here are a few examples of how our monthly income fluctuated this year.

My Employment Income – I get paid monthly, and I received an annual raise that took effect on July 1st.  Also, once I contributed to the maximum CPP amount of $2,163.15 and the maximum EI premium of $747.36, I received more net pay each month until the end of the year.

My Wife’s EI from Maternity Leave – We collected 3 ½ months worth of EI benefits from January through March for the remainder of my wife’s maternity leave.  Of course it was important to plan for when these benefits ran out so that we could adjust to single income living.

Refunds and Reimbursements – We received a tax refund this year, and we also have to submit receipts on any health spending claims that my employer covers (prescription drugs, eye care, dental care, etc)

Forecast Expenses

Some expenses are fixed monthly, like our cell phone, cable and internet bills.  But some expenses fluctuate, and by properly forecasting you can avoid an unexpected rise in expenses in a particular month.

Mortgage Payments – As I discussed above, I get paid monthly however I make bi-weekly mortgage payments.  I use the spreadsheet to forecast income and expenses and track the 26 mortgage payments throughout the year and to determine which 2 months the extra payments fall.

Utilities – I looked back at last year’s budget in this category to try and forecast my monthly utility expenses.  Higher water consumption in the summer and higher energy consumption in the winter play a major factor in this category.  Nobody likes to be surprised when their heating bill doubles in the winter time.

Insurance – Our auto insurance is a fixed monthly expense, but our house insurance is paid in three installments throughout the year.  By forecasting this expense I knew to expect extra payments in three specific months this year.

Gifts and Charitable Contributions – It seems like there is always a birthday present that sneaks its way into your expenses each month, but by properly accounting for these special dates in a yearly calendar you can be prepared.  We also participate in a few charitable events and set aside money in those particular months.

Christmas and Summer Holidays – You know they are coming up every year, so why not set some money aside in your forecasting tool to account for these expenses?  It will help to set aside a small amount each month rather than trying to cover all of your holiday expenses in one month.

Using a spreadsheet to forecast income and expenses will complement your existing monthly budget and help to better prepare you for the unexpected expenses as well as the variable costs in your daily lives.

It’s not complicated once you get it set up.  I just use an Excel spreadsheet with my yearly forecast on one tab, and then individual tabs to track my monthly budget.  Here’s a look at some awesome budgeting spreadsheets from Vertex42.

Do you forecast income and expenses along with your budget?

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  1. FB @ on November 17, 2010 at 8:21 am

    Now that I have stats from a year or two, I am planning on making a schedule of those yearly payments (car insurance, driver’s license update (QC), and plate renewal (QC) again), just so I can remember which month the money needs to come out.

    That being said, as my expenses change from month to month, let alone year to year, I do monthly budgeting but an overall budget of $20,000 – $30,000/year depending on if I work or not 🙂

    • Echo on November 17, 2010 at 12:37 pm

      That’s one of the main reasons I choose to utilize a forecasting tool, those yearly expenses always sneak up on you (car registration, insurance, etc).

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