Question

Why is it better to underestimate your income instead of overestimating when creating a budget?

1) Some expenses fluctuate from month to month
2) Overestimating may lead to a deficit
3) Regular deficits can lead to increasing debt
4) All of the above

Answer 1

It's better to underestimate income when budgeting to allow for fluctuating expenses, avoid deficits, and prevent increasing debt.

Step-by-step explanation:

When creating a budget, it is better to underestimate your income instead of overestimating for several reasons. Firstly, some expenses fluctuate from month to month, making it difficult to predict exact costs. Secondly, overestimating income may lead to spending more than you actually have, resulting in a deficit. Lastly, regular deficits can lead to a cycle of increasing debt, which can be detrimental to your financial health and goals. Therefore, understating income in budget planning can provide a buffer for unexpected expenses and help avoid financial stress.