Most everyone remembers to include expenses like housing, utilities, transportation and food when calculating their normal monthly expenses. These are basic necessities that are a part of life. For most people, these items will represent the largest part of their overall monthly expenditures Unfortunately, many people forget to include other expenses as part of their financial picture. This can create a very deceptive picture of their finances. Although many expenses are voluntary, they are an important part of your overall financial picture.
Some of these can be tricky because they are paid through automated billing, payroll deduction, or through periodic payments that do not appear every month. These can include cable television service, Internet access, various types of insurance, membership and subscriptions (such as with a gym or to a newspaper), and so on. Despite not always seeing these expenses every month, they are still there and should be taken into consideration. For example, assuming your Internet access or newspaper subscription is paid annually; if you do not intend to stop these services the annual payment should be divided by twelve and added to your normal monthly expense calculation.
Expenses that are irregular also need to be accounted for. This includes things like home repair, clothing, vehicle maintenance and gifts. The best way to get an estimate of these items is to look at the last few months and see how much you have spent on these items. The longer period of time you can examine, the more accurate your estimate will be.
One of the most underestimated categories of expenses is entertainment. Every budget should allow for some entertainment or else you are setting yourself up for failure. While spending an extra $10 a day does not seem like much, over the course of a month it adds up to $300 a month. As such, you should take a careful look at how much you regularly spend on entertainment and add this to your cash flow calculations. Be sure to include both major expenses, (date night at a fine dining restaurant) and smaller expenses (like your daily coffee).
In order to benefit from determining your cash flow and using this determination as a tool for your financial planning, the expenses considered have to accurately represent your spending habits. Only taking the necessities into account renders the entire purpose of cash flow analysis worthless because this simply does not reflect your actual regular expenses.
Vincent Polisi is the founder of Finance the Dream and Credit Repair College. Finance the Dream helps people in all 50 states get into rent to own homes. Credit Repair College empowers America's to take control of their financial future by learning about fast credit repair, thrifty living and budgeting.
