Budget forecasting can help your family understand their financial situation, plan for the future, and make informed decisions. How? A family budget with long-term goals may cover an extended period, like a year. However, if you incorporate forecasting into your family finances, you enjoy greater flexibility and accuracy. A budget forecast can help you confidently project your family's finances with the right tools and resources.
Creating and sticking to a budget is one of the most critical tasks when sticking to a family's financial goals. A budget allows spending limits to be set and ensures that all money is accounted for in detail. An accurate account of your expenses is critical when creating a family budget. Tracking your expenses helps to keep you on track with what money has been spent so that you can adjust accordingly. A budget can help family caregivers set goals like:
When budgeting, prioritize saving money by allotting funds specifically towards monthly savings. A set amount that goes into savings allows you to reach larger financial goals, such as purchasing a home or vehicle further down the line.
When you are a family caregiver, figuring out where everyone agrees on spending choice priorities can often be tricky. However, prioritizing according to your budget is necessary to achieve financial stability. Prioritize housing, medical, groceries, and transportation costs like gasoline or medical transportation. Other items—like expensive splurges and vacations—take a backseat to necessities.
A budget usually covers a year and remains relatively static. Unlike a budget forecast, the budget usually is set based on current income and spending numbers, and it doesn't consider changes like inflation, rising drug costs, or even unforeseen emergencies. While a budget gives a big-picture view of a family caregiver's finances, a forecasted budget may provide a more accurate picture and is based on historical income and spending trends.
As with anything else, monitoring progress along the way is key. With a forecast, you adjust your spending and priorities based on changing variables and try to predict future finances based on past performance. Achieving stability financially primarily relies on collectively tracking combined efforts over time. Businesses use forecasting to analyze massive data sets. But that is not what you need to do for a personal budget.
The first step to creating a practical budget forecast is to identify the goals you want to achieve:
Having articulated goals can help you stay focused as you create your budget forecast, ensuring that your efforts align with what matters most to your family.
After outlining your goals, the next step is to create a household fundamentals budget. This budget should include all essential expenses that you must pay each month, like household bills, groceries, car insurance, and medical expenses.
Make room for miscellaneous purchases in entertainment, dining out, and clothing. Additionally, set aside some of your income for retirement savings and emergency funds. Having these categories marked will help you make more informed decisions about allocating your money for the best possible results.
Do research on the data you have. When forecasting, it is vital to take inventory of current and past data points that could impact the future of your forecast. By understanding these data points, you can better predict what will happen in the near or distant future.
What data points should you collect? It largely depends on what you are trying to calculate. Are you trying to find out what your income will be in six months based on the previous six months? You should determine your overall credit card debts over time or if your small business will see a profit this year.
For a family budget, you should forecast quarterly holiday or grocery spending based on previous years. You should determine how inflation affects your spending power. Or maybe the cost of medical equipment and insulin has increased over the last few months. Forecast how the change in medical expenses will affect your bottom line.
Gather all the data you will need for your calculations. You should dive into your bank and credit card accounts, pull up old medical bills, or turn on the evening news for the latest information on egg prices.
There are two different types of popular forecasting models:
Judgment forecasting works entirely on intuition. In other words, this type of forecast relies on values, knowledge, and expectations instead of relying on actual data points. It's based on predicting financial decisions based on historical trends.
For example, a family caregiver may make a medical budget based on the probability that a family member may need hospitalization this year based on their rapidly declining health. Even though the expenses of this big medical expense may never come to fruition, the caregiver may choose to build a buffer into their budget to anticipate a hospital visit. Why?
By preparing for a possible medical expense this year, they will not suffer as significant a financial loss because the money will be available. Another example is that your caregiving income changes at certain times of the year based on vacations, holidays, or even weather. You may not be able to predict exactly how often a kid's snow day may affect your income in January, but you can build in several missed work days due to childcare concerns to plan.
Unlike judgment forecasting, quantitative forecasting relies on actual hard data. So, for example, if you know that your elderly mother needs to buy beta blockers for her heart each month, and the medication cost has been trending upward, you can track that data to predict how much the medication will cost three months from now. Then you can adjust your budget for the updated cost.
In today's digitally enabled world, many helpful budget forecasting tools can help make the process easier. For instance, Givers is the money management app that helps family caregivers plan, track, and save on caregiving expenses. Designed to help family caregivers create a comprehensive financial plan and manage their caregiving expenses, you can now easily establish savings goals, set up spend categories, and build stronger financial habits.
Unlike familiar budgeting apps like Mint or YNAB, Givers' tools account for the unique financial implications of caregiving, helping unpaid family caregivers take back control of their money and plan for a better financial future.
Other budgeting programs that can help you create an accurate and comprehensive budget forecast model include:
Excel remains a top-rated tool for families. Numerous templates and ready-made formulas help you create a reliable budget forecast without spending much money on subscriptions. Budget planning is easy with Excel.
Let's say you know that your primary caregiving client gives you a 10% pay raise every year. You can forecast that you will receive another 10% increase this year. However, you don't want to assume that your employer will suddenly give you a 50% windfall.
Spending likely plays a prominent role in determining the success of your forecast, so it's important to adjust your spending habits accordingly. Start by tracking expenses, limiting spending on certain items, and re-evaluating your monthly priorities. This can help ensure you have enough money for necessary bills and savings goals.
With proper budgeting and commitment to achieving financial goals, you can craft a family budget forecast that meets your specified needs and saves money.