Answer: It is better to underestimate you income because it allows you to save more money. If you overestimate your income, you have a higher chance of spending all the money that you earn.
Explanation:
For example if you have 20 dollars but think you have 10, then you only spend 10 dollars and save 10. If you over estimate and think you have more than 20, then you spend all the money that you had.
It is easier to estimate income than expenses because everyone has a fixed income. However, fixed payments can be counted, but no one can estimate sudden or unexpected costs like medical expenses, traveling expenses, etc.
A budget helps create financial stability. By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. Overall, a budget puts a person on a stronger financial footing for both the day-to-day and the long term.
Inaccurate or unreasonable assumptions can quickly make a budget unrealistic. Budgets can lead to inflexibility in decision-making. Budgets need to be changed as circumstances change. Budgeting is a time-consuming process – in large businesses, whole departments are sometimes dedicated to budget setting and control.
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