Determine Your Financial Goals

In order to set aside money for your financial future, you need to estimate the expenditures that go toward your savings and investments. Financial goals vary from person to person over time. Some financial goals are:
• Saving for an emergency fund
• Increasing savings and investments
• Buying a new car
• Paying off a loan
• Buying a house
• Buying a larger house
• Saving to fund children’s education
• Providing retirement income
• Saving for annual vacations
Some of these are short-term goals while others are longer term. It is often easier to concentrate on the short-term goals and neglect longerterm goals. By assigning priorities to each of the goals and quantifying their cost, you can determine the amount of savings needed to fund them.

Determine Your Expected Expenditures

The second step is to estimate all expenditures during the period of the budget. Certain expenditures such as rent, mortgage, and auto loan payments are fixed in amount and do not vary from month to month, whereas other expenditures such as food, clothing, and utilities do vary in amount from month to month. Anticipating these variable expenditures with accuracy may be difficult. The purpose of budgeting is not to put you in a straitjacket in which you cannot maneuver. On the contrary, its purpose is to provide you with flexibility in your financial planning so you can achieve your financial goals.

How to Estimate Your Future Income?

Estimated income includes all anticipated receipts of money, such as future salary, estimated profits (or losses, which are deductions from income) from a business, bonuses, commissions, interest, dividends, rent, gains, tax refunds, loans, and other sources of income.
Wages, salary, and/or partnership/corporate income should be included net of payroll taxes. Payroll tax deductions can be shown in the income section or the expenditure section. Mr. X is expecting a 5 percent increase in salary for the coming year and Mrs. X expects her business income to be $36,000 for the coming year. The expected gross income for Mr. X is shown, along with the deductions withheld to give his net monthly income. Payroll tax withholdings are the amounts deducted by an employer from employees’ paychecks to pay their taxes. The amount of income earned and the number of exemptions filed by the employee on Form W-4 determines how much is withheld for federal income taxes. Self-employed workers receive income that is not subjected to payroll tax withholdings. This does not mean that they do not have to pay taxes on this income. The tax laws require such taxpayers to estimate their tax liability and pay it in quarterly installments by April 15, June 15, September 15, and January 15 for the tax year. The amount of these payments depends on a person’s total income from all sources, deductions, exemptions, and credits, which determine taxable income.
Mrs. X estimates that her monthly gross budgeted income will be $3,000.
Mrs. X would have to make quarterly estimated tax payments to the U.S. Treasury
on this business income and, depending on the requirements of the state
in which she lives, to the state as well. Income from sales commissions may be difficult to estimate, as they may
be irregular or seasonal. Being conservative by underestimating budgeted income may be prudent in order to avoid overspending and, consequently, having to dip into cash accounts.