Calculating average monthly expenses is important for setting a realistic budget. One way is to add up expenses for 12 months and divide by 12. Tracking expenses for a month can also give a general idea, but beware of variances. Creating an expense estimate and analyzing data can help establish a sustainable budget. Experts recommend converting expense categories to a percentage of income for easier adjustments.
The average monthly expenses are the average of all the expenses made by a person, family or company, in a month. Knowing your average monthly expenses helps set a realistic budget for anyone concerned about saving, expanding, overspending, or improving spending habits. There are several easy ways to calculate average monthly expenses.
Possibly the most complete way to calculate average monthly expenses is to locate all of your bank statements and expense records for the past year. This can be easy for a person operating from a single bank account, but it can become more complex if a person has multiple accounts or uses credit cards frequently. To get the average, add up the amount of money spent for 12 consecutive months, then divide by 12. This will give you an average of how much has been spent per month.
A more general idea of expenses involves only tracking expenses for a month. Each time a purchase or withdrawal is made from an account, add this number to a spreadsheet, written list, or budgeting software. Be sure to include auto-pay bills, such as credit cards, utilities, or rent. If a person knows that his spending habits don’t typically fluctuate from month to month, this can give a pretty good idea of average monthly expenses.
If you use the one-month tracking system, beware of any variances that may occur in the specific month being examined. For example, in December, spending is often higher for many people due to vacation travel, gifts, and other annual expenses. Try to choose a month in which no extraordinary activities are planned, such as vacations or big holidays, or consider tracking for two or three months to get a clearer picture of an average spend.
Some experts suggest that before making a precise calculation of average monthly expenses, it may be a good idea to create an expense estimate. Divide expenses into basic categories, such as rent, bills, transportation, entertainment, health care, clothing, and groceries. Try to guess how much money is spent in each category per month. While some categories, like rent, will be fairly easy to understand, it’s interesting to compare one person’s conception of how much is spent on entertainment or groceries against the actual numbers. Knowing what is being underestimated or underestimated can help you develop a realistic budget for the future.
Analyzing the data obtained through tracking and averaging will help you establish a sustainable budget. Some experts recommend converting expense categories to a percentage of income to make adjustments easier. To do this, divide the amount of expenses in a category by the total amount of monthly income, then multiply by 100 to get the percentage. For example, if a person earns $1,800 US dollars (USD) per month and spends $450 per month on groceries, the percentage of income would be (450/1,800) x 100, or 25%. If this person wanted to increase their savings by 5% per month, this could be accomplished by cutting a grocery budget by 5%, or $90 per month.
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