What is Financial Forecasting:
Financial forecasting is forecasting, or estimating, the amount of income and/or revenue generated in a period of time in the future. It can be useful to predict future financial outcomes by judging historical financial data.
Financial forecasts are commonly used by companies, but individuals can also utilize them to predict their financial outcomes at a certain point in the future. Companies generally use financial forecasts to predict where they should use their budgets, like in areas of operations or inventory. These forecasts also affect and are affected by changes in inventory, operations, and business plans. For individuals, personal forecasting is useful for estimating future income based on past earnings. This is helpful for people who work in jobs where income can fluctuate and are trying to budget. It is also useful for people knowing how much they should budget in the future based on past expenses and income.
How Can Financial Forecast Help Me:
It doesn’t matter who you are, financial forecasting can be useful to estimate future earnings to help budget better. By understanding what recurring expenses and recurring income you have right now, you can plan to be more financially independent in the future. And, financial forecasts can be created by anyone, including yourself. Typically, the only tools needed are a spreadsheet software such Microsoft Excel, at least 3 months of any previous financial history, and tracking current financial history.
For many people, budgeting is hard and complex. They aren’t sure how much of their money goes to which expenses like essentials or debt and sometimes they live paycheck to paycheck. By financial forecasting, you can get your finances in order, and achieve financial independence within a certain time period if you haven’t already. Financial forecasting also allows you to know if you are buying assets or liabilities, and how your assets will grow in the future.
It is also useful for investing. A common strategy of investing in almost any financial market like stocks, bonds, or commodities, is how to make them grow. Financial forecasting allows you to predict if certain stocks will fall or rise as time passes based on historical behavior. This can help an investor, or you, to decide which stocks they want to buy because they believe it is worthwhile.
How To Create a Personal Financial Forecast:
Financial forecasts can be extremely complex. But they don’t have to be. To create a basic forecast, you will need a few tools/materials. These tools include using nearly any type of spreadsheet like Microsoft Excel, and some previous financial history from at least 3 months ago. Put your history into separate categories like income, expenses, and other. Categorize each of these categories by credit or cash. Then start tracking this month’s income and expenses. After the month is over, look over your finances to notice any trends. When you keep tracking our current financial history, you will be able to forecast more precisely. Your forecast can help determine your budget and cash flow. You can also adjust your forecast to match a certain scenario, like less income and more expenses during a pandemic than before. Have fun forecasting different scenarios!
Written by Allie Chang