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Monday, June 18, 2018

Budgeting Basics - Step 5 - Total Expenses

Now we add up our numbers, all the amounts we put into our flexible categories plus the amounts we previously listed for regular bills and known expenses.

Make sure you are adding up numbers for the same time frame! I think it's easiest to do this initially based on annual numbers, so if you have a monthly number, multiply it by 12 first. Weekly numbers get multiplied by 52, etc.

If you're using my spreadsheet as a template, the numbers should already have added up automatically.  Now is a good time to check the math and make sure all the numbers are adding correctly.  If they are not, you'll have to troubleshoot the formulas on the spreadsheet.

When you have added all of these up, you have a rough idea of your annual spending. How does it compare to the annual income we calculated long, long ago? If your annual spending number is smaller than your annual income, you have a surplus that you can save. If it's bigger than your annual income, you have a deficit and need to reduce some of your spending amounts.  On the spreadsheet I gave you, that number will show up as Cash Flow Margin down near the bottom.  If it's positive, that's good.  If it's negative, we've got more work to do.

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