Forecasting for a new year is one of those things that I actually look forward to doing. Getting a good financial plan in place for the upcoming year feels like a weight has been lifted from my shoulders. It's almost like a glimpse into the future that shines light upon the darkness of what is to come for my personal finances.
Here are some of the things I do to help me forecast for the new year and that help make my numbers more accurate.
Use Data from Previous Years
Thankfully, when preparing for my new financial year, I'm typically able to rely upon previous years' data in order to further my efforts and better guide my planning. While things that affect revenue and expenses -- such as location, living situation, number and variety of income streams, and similar items -- may have changed, being able to look back over both the income and expense numbers of the last few years can at least act as a guide with which to work and provide a general point at which to start my calculations.
Forecasting for the new year would be like taking a shot in the dark were it not for my aforementioned previous years of data. Not only can this information clarify what the upcoming year might look like when it comes to my finances, but it can pinpoint important trends both in earning and spending.
From income gaps during times at which I'm traveling or on vacation, to spots where expenses are much higher -- sometimes up to 100% or more of my typical monthly budget when tax time rolls around, we go on vacation, or we relocate -- these trends help me to even out the hills and valleys of my financial life and be better prepared for when they arrive.
For example, I know that property tax payments for our home arrived twice annually. This means that during the two months in which they arrive, our budget for those months will likely be twice its regular size. Being able to factor cost items such as these into our budget forecast helps us stay better prepared to handle them when they arrive.
Focusing on Revenue and Expenses Equally
Some people put too much focus on one aspect of their forecasting or another. They may place too much weight upon revenue and not enough upon expenses or vice versa. I try to split my efforts evenly, tracking each throughout the year and making forecasts for both before the new year starts.
By gauging both sides of our family finances, it allows me to better balance them since I might overspend if I know my income but not my expenses, or might not earn enough money if I know my expenses but not my income.
Pushing Hard but Staying Real
I try to give myself something to shoot for in my forecasting. Making my forecasting projections and goals too simple to achieve could leave me stagnating and not pushing myself to better my financial situation. Therefore, I attempt to make my annual financial forecast realistic, yet with some built in motivation.
For example, this year I've built in a 10 percent higher income expectation than last year, factoring in extra work I picked up toward the end of the year and increased productivity trends upon which to base my forecast. This is a high number, but it's achievable if I push hard enough.
Thinking and Planning Ahead
It can be easy to leave things out when forecasting; and no one can see the future exactly. Even when I try to factor in all those financial extras that hit throughout the year, I'm not guaranteed that I'll remember everything. Items like car insurance, vacations, schooling costs for our son, and similar non-regularly occurring costs can throw my forecast off a bit.
This is where building a little room for error into a forecast helps me to ride out unexpected bumps in the road. Every quarter, or when I think a big bill might hit, I usually work some slack into my financials in order to avoid being caught off guard, even if I'm not sure exactly what the numbers will be.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More From This Contributor:
- Personal Budgeting