How to Calculate Overhead

When the word "overhead" is mentioned, it is commonly associated with businesses. Individuals and families have overhead costs as well though. An individual or family's overhead costs are actually more expansive than a business' overhead. For a personal overhead items such as entertainment costs credit card costs are included. Your personal overhead are costs that you pay on a monthly basis and do not fluctuate in a significant amount. Knowing your monthly overhead can help you set a budget for yourself or your family based on how much income you bring in monthly compared with your monthly overhead.

Things You'll Need

• Monthly bills for utilities and credit cards for past 12 months

Instructions

1. Determine what your monthly average electric and gas bills are. These can be in separate bills or one combined bill. Average the past twelve months together to determine your average monthly gas and electric bill.

2. Calculate your average monthly water bill in the same way that you calculated your average monthly gas and electric bills in step one. For utilities it is best to calculate an average over 12 months as the costs fluctuate from month to month.

3. Gather your credit card bills for the past year for the credit cards that you owe money on. Add up the total you have paid each month for all of your cards. Divide this number by 12. This will give you your average monthly credit card expense.

4. Calculate your known expenses, such as car payments, rent payments, daycare costs, and automobile gas expense for a period of one month. These are your known monthly expenses.

5. Set a budget for expenses such as your grocery purchases, and your entertainment costs. These will be your expected monthly budgeted expenses.

6. Add together your average monthly gas and electric bills, average monthly water bill, known monthly expenses, your average monthly credit card expense, and your monthly budgeted expenses. This total is your personal or your family's overhead costs that need to be accounted for in your budgeting on a monthly basis when determining your own or your family's monthly budget.

Tips & Warnings

• The easiest way to lower your monthly overhead is to reduce either your food, gas, or entertainment budgets. These are items that you have more control over than your utility, rent, and credit card bills.

• When using overhead for a personal or family budget it is safer to overestimate your overhead than it is to underestimate. Underestimating your monthly overhead might result in your family spending more money on "luxury purchases" that are not required than your budget can afford.