How to Calculate Your Annual Expenses

Knowing your annual expenses can aid in budgeting and future financial planning. Learn how to calculate spending with this guide.

Did you know that only one in three Americans prepare a detailed household budget? A lack of a budget isn’t a thing that gets a lot of people into debt. But, it is something that keeps a lot of individuals in debt.

If you’re ready to start taking your financial goals seriously, it’s time to start budgeting. But, before you can do that, you will need to calculate your annual expenses.

Luckily, in this article, we’ll walk you through everything you’ll need to know about calculating these expenses. Plus, we’ll give you some tips on how to start budgeting. Keep reading to find out more.

Know About the Different Types of Expenses

Before you start calculating your expenses, you first need to know about the different types. You can break down most expenses into three categories: fixed, flexible, and discretionary.

Fixed expenses remain the same from month to month. It includes things like rent or mortgage payments, insurance, and car payments.

These expenses aren’t likely to change unless you experience a big life change. The next type of expense is flexible expenses. These types of expenses vary from month to month.

However, they are possible to lower. For example, you can try buying more affordable meals or lowering the heating in your house by a degree or two. However, this can be hard for a lot of people.

The last type of expense is discretionary. This includes personal spending that you have the most control over.

It includes expenses like shopping budgets, daily coffee trips, eating out with friends, and going to the movie. If you want to make changes to your budget, this is usually the place you should start.

Gather Your Financial Statements

Now that you know about the different types of expenses, it’s time to start calculating. But, to do this as accurately as possible, you will need to gather some financial documents.

This includes things like your bills, bank statements, and mortgage or lease documents. Layout these documents on a table. Or access them digitally so that you can get them all in front of you.

Calculate Your Monthly Expenses

You shouldn’t jump right into calculating your annual expenses. Instead, you should start with your monthly ones and estimate from there. Let’s start with your monthly fixed expenses.

Add up what you spend on rent, car payments, and insurance (car, health, life, and whatever other ones you have plans for). Then, start organizing your flexible expenses.

Remember, this includes things like groceries, utilities, gas prices, and gym memberships. You will find that these expenses vary a bit from month to month.

But, do your best and estimate the average amount that you spend on them. Finally, you should include your discretionary expenses.

Remember this is your monthly spending money for things like online shopping, going out with friends, and other entertainment costs.

You should also lump things like streaming subscriptions and alcohol budgets into this category.

Finally, make sure you’re including any other types of monthly payments that may be specific to you. This could include things loan debt, alimony, and child support costs.

If you are running a business this process should be done throughout the year to avoid being overburdened at the end of the year. The easiest way to do this is with an expense tracking program that will enable users to submit expense requests.

Calculate Your Annual Expenses

It should be relatively straightforward how to calculate your annual expenses. Simply multiply your monthly expenses by twelve to get a good baseline. However, we’re not done.

You will also need to factor in things that you pay for less than monthly. For example, magazines subscriptions, vehicles registrations, taxes, car maintenance or repairs, and gifts are some of the common ones.

Also, don’t forget any vacations you might be taking. Do your best to calculate for each category. It might be hard to figure out how much money you will spend on birthday and holiday presents.

But, do your best to estimate. When in doubt, go with the higher estimate. That way, your budget is as accurate as possible. Once you have your estimates, you can add these expenses to your baseline expenses.

How to Start Budgeting

Congrats on finding your annual expenses! But that’s only one-half of the battle. Odds are the reason you made a list of your expenses is so you can start saving money.

The easiest way to do this by yourself is to make a worksheet that compares your income versus your expenses. From there, you can figure out what parts of your spending can be cut or drawn back to save the amount of money you want.

Remember that the small stuff counts. That $4 coffee might not seem like a huge deal. But, when you multiply it by a year, it can quickly add up. Saving takes a lot of restraint on a week-to-week basis.

But you have it in you! One trick you can use is to always use cash. It’s easy to overspend when you use a credit or debit card. With cash, you’re able to actively see where your money is going.

And remember that this process can be difficult to do on your own. That’s why we recommend looking for a financial coach. These professionals get to the root of your spending and saving problems.

They show you how to budget and offer custom solutions to your problems. These help you achieve your financial goals. Make sure you touch on these important areas when you meet your financial coach.

Enjoy Learning About Annual Expenses? Keep Reading

We hope this article helped you learn how to calculate your annual expenses. It can be hard to start organizing your expenses. It often involves confronting the harsh realities of your spending habits.

But, it’s important to remember that it’s a vital part of starting any budget. Can’t get enough content? If the answer is yes, then you’re just like us.

That’s why we regularly release great new articles for our readers about the latest trends. So, keep exploring until you get your fill.

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