Four Ways Forecasting Can Bring Good Fortune

The Ancient Egyptians were on to something. Good fortune, they believed, looks down on us all in threes. One for each part of the eye of Horus.

Fast forward to modern times, and all around us – in popular culture and daily life – so many good things come in threes. The humble BLT sandwich; Aragorn, Gimli and Legolas running across Middle Earth; the dulcet tones of TLC, you get the idea. In the money world, the Trio of Good Fortune takes the shape of Budget, Calendar and Forecast.

But first, let’s get one key definition out of the way. According to the good people at Investopedia, forecasting is a “technique that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future trends.”

Wait, what? Let’s rephrase that for Horus’ sake.

At PocketSmith, we see Forecasting as part of a trio of friends. If you budget your money in a calendar, you can predict – or forecast – how much you’ll have in the future.

Why should you forecast?

Forecasting allows you to get ahead of your finances; it helps you to see whether your wealth is growing or not. And this ability to see into the future, based on behaviors of the past, can help inspire and motivate you towards achieving that goal!

Think of it as a mirror that reflects the future you.

This is how you could be in six months if you pursue a healthy Mediterranean diet based on fresh fruit, vegetables, beans, whole grains and seafood! And here’s what you’d look like on the alternative Mediterranean diet, which we’ll call The Gelato Challenge. Where will you be in six months if you consume a scoop of delicious gelato three times a day, with every meal?

Forecasting also helps you make sure there is enough money in specific accounts for upcoming or unexpected expenses, like a built-in emergency fund planner.

Here are four ways that forecasting can help you be more productive with your money.

1. Have better money conversations with your family

If you’re the CFO of the household, you’ll know that you can’t do your job alone. It’s vital that the rest of the family can see the bigger picture, so they’re headed in the same direction, money-wise. To do this, you’ll need to have productive conversations with your family about money. You’ll need to communicate with a diverse group of people who may have different motivations and learning styles.

You can use the Budget, Calendar and Forecast features to help with goal-setting as well. Are the kids saving up for a new gaming console? Set up a customized family-friendly dashboard in PocketSmith, and review different budgets with them in light of their goals.

For example, you can set a forecast with your kids and show them that by consistently saving $20 a week, they’ll be able to afford the latest PS5 in about 10 months. If they stick to their budget, then they’ll hit their goal! Being able to visualize their end-goals in a calendar can be highly motivating.

Another benefit of regularly reviewing your budgets and forecast with your family is discussing how behavior changes – like controlling spending – can help achieve future goals. For example, look at the Entertainment budget, and ask, do we need Netflix, Disney Plus, Amazon Prime and Sky TV? What would be the impact of canceling one of our subscriptions?

2. Pay off consumer debt and plan for big purchases

For the passionate budgeters among us, forecasting can help you track your consumer debt payments, and pinpoint when you’ll be able to pay them off and start growing your savings!

Forecasts are beneficial when planning for big purchases, like a new household appliance, vehicle or family holiday.

If you subscribe to a specific money philosophy like the popular Barefoot Investor approach, then budgets, calendars and forecasts will be your new best friends. These approaches often advocate a no-debt approach to money. You’re working towards several goals at the same time: reducing debt, while saving for what you want and paying in cash for the item.

By forecasting your income and expense budgets, you’ll be able to plan for different purchases based on different savings rates. Learn more and see how to track the Barefoot Investor Bucket System in PocketSmith.

3. Forecast your side hustle income to better manage cashflow

For those with a side hustle or home business, managing multiple income and expense streams is a daily reality. Forecasting income becomes vital to helping you achieve scale and financial stability.

Start by looking at past earnings and see if you can identify any patterns, like peak periods or ongoing payments from retainer clients. Then add this to your income budget so you can forecast these baseline earnings into the future.

Forecasting will help you see what your financial situation will be like in the future if your side hustle earnings rise or fall. It will help you identify, ahead of time, when you might need to ramp up sales to meet a shortfall, or better yet, when you can take a break and go on vacation!

4. Use forecasts to predict when you’ll achieve FIRE

If your goal is to attain FIRE (Financial Independence and Retire Early), then checking in regularly and consistently on your budgets to ensure you’re not overspending within each category is key to attaining the eventual prize.

If your FIRE goal is to spend as small a percentage of your annual income as possible, then you’ll need to carefully track your budget and forecast for key categories like food, housing, transport, utilities, healthcare and insurance.

Once you’re fairly confident that your estimated budget reflects your actual spend, you’ll be able to forecast your eventual FIRE date with accuracy!

While tracking your FIRE journey can be time-consuming and requires regular and consistent attention to detail over time, PocketSmith can help with the heavy lifting. Learn more about how to track your FIRE journey and see where your money is going, all in one place.

No day like today

There’s no best time to start forecasting. The first step is to understand where your money is going - so once you’ve categorized your transactions and created budgets, the hard work is done! You can start predicting how much you’ll have in the future. The trick is to monitor and refine your budgets on an ongoing basis so that your forecasts will in turn, become an accurate reflection of what is to come.

Depending on your plan, you can use PocketSmith to forecast six months (Basic), 10 years (Premium) or up to 30 years (Super) into the future!

Ready to start? Check out our guide to creating a budget and forecast!