How Do I Calculate Average Monthly Expenses?

Average monthly expenses are the average of all expenditures made by a person, family, or business, in a month. Knowing average monthly expenses helps to set a realistic budget for anyone concerned about saving, expanding, overspending, or improving spending habits. There are several easy ways to calculate average monthly expenses.

Possibly the most comprehensive way to calculate average monthly expenses is to locate all bank statements and expenditure records for the last year. This may be easy for an individual who operates out of a single bank account, but can get more complex if a person has multiple accounts or uses credit cards frequently. To get the average, add up the amount of money spent for 12 consecutive months, then divide by 12. This will give an average of how much has been spent per month.

A more general idea of expenses involves only keeping track of expenditures for one month. Every time a purchase or withdrawal is made from an account, add this number to a spreadsheet, written list, or budgetary software. Be sure to include automatic-pay bills, such as credit cards, utilities, or rent. If a person knows his or her spending habits do not usually fluctuate from month to month, this can give a fairly good idea of average monthly expenses.

If using the one-month tracking system, beware of any variations that may occur in the specific month examined. For instance, in December, spending is often higher for many people due to holiday travel, gifts, and other once-a-year expenditures. Try to choose a month where no extraordinary activities are planned such as vacations or big holidays, or consider tracking for two or three months to get a clearer picture of an average expenditure.

Some experts suggest that before making an accurate calculation of average monthly expenses, it may be a good idea to create an estimate of expenses. Divide expenses into basic categories, such as rent, bills, transportation, entertainment, health care, clothing, and groceries. Try to guess how much money is spent in each category per month. While some categories, such as rent, will be fairly easy to figure out, it is interesting to compare a person's conception of how much is being spent on entertainment or groceries to the real numbers. Knowing what is under or overestimated can help develop a realistic budget for the future.

Analyzing the data gained through tracking and averaging will help you set up a sustainable budget. Some experts recommend converting expense categories into a percentage of income in order to make easier adjustments. To do this, divide the expense amount of a category by the total amount of monthly income, then multiply by 100 to get the percentage. For instance, if a person makes $1800 US Dollars (USD) per month, and spends $450 per month on groceries, the percentage of income would be (450/1800) x 100, or 25%. If this person wanted to increase his savings by 5% a month, this could be accomplished by cutting a grocery budget down by 5%, or $90 USD per month.