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Doing pessimistic calculation in budgeting

Donald May 31, 2015 0
Doing pessimistic calculation in budgeting

guikkjkIn the book “The Millionaire Next Door”, Danko and Stanley have stated that their research shows that rich people take the time to create and examine the budget two times more than ordinary people. This shows that the financial budget for the manufacture of personal or family is one of the important processes in managing our finances.
However, since in budget making, we must estimate the future, sometimes we do not know exactly how much revenue or how spending on one field. Sometimes we can only estimate within a range of values. Let’s say we do not know the exact price of the discount that we want to buy for the upcoming Christmas holiday. However, we can estimate that it costs about $ 500 – $ 600 per person. In this article, we will learn about how to enter values like this into our budget.
Pessimistic calculations Used in Budgeting
Let’s say that Amy work as a part-time designer of clothing company. The pay is calculated based on the number of designs received. For each design, Amy receives about $ 100. Each week Amy can make 10 designs, so if we assume there are four weeks in a month, so Amy can make 40 designs per month. The company receive approximately 30% to 50% of design Amy, in other words the number of designs received was about 12 to 20 design. With multiplied by $ 100, then we get that Amy’s monthly earnings estimate is $ 1.200 to $ 2.000.
In making the budget for this kind of income, Amy must use pessimistic calculations. What does it mean? In the span calculation, Amy should take most SMALL figures to be included in the budget. In this case, the Amy’s monthly income is $ 1,200. Why should Amy take the smallest figure in her monthly income budgeting? The aim is that the planned expenditure, Amy made plans to spend no more than $ 1,200.
What if the income is $ 2,000 a month? If this is the case it means Amy had more money as much as $ 800. This money could be saved or used for other purposes. Pessimistic calculation was proved to be effective in a financial planning and was often recommended by many expert financial planners.

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