Budgeting Strategy
A budget is an important tool you can plan for. It can help control costs, manage cash flow, and plan for investments. Operating without a budget can lead to overspending, poor planning, and potential failure; it’s a crucial tool for understanding your financial health. A budget is easy, it’s the commitment that can be difficult. To budget you simply write down your monthly revenue and expenses – consistently. Look at it often, to make educated decisions.
50/30/20 Rule
One popular budgeting strategy is the 50/30/20 rule, which divides your income into three categories: needs, wants, and investments (including savings and paydown of loans). The 50/30/20 rule can be a good budgeting method, and it works in business.
In business, budgeting is essential. It gives you a projection of where your money will be going and allows you to prioritize spending. I strongly believe that a personal budget is necessary too, however, not everyone agrees. It is essential that we understand what we are spending versus what we make.
Before you start, make a list of short and long-term financial goals. If you’d like a refresher read You Have to Have Goals. Short-term goals of one to three years include an emergency fund or paying down debt. Long-term goals, such as retirement or purchase of a vehicle, are 3 years or more.
Goals are Essential
Traditionally, step one of budgeting is Income. You can only spend what you make.
Expenses are broken down into short-term and long-term. Businesses will track their long-term expenses (Assets) on the Balance Sheet, expenses will be on the Income Statement. We will cover those extensively in other articles.
Any debt or loans should be reserved for assets. A vehicle is a good example. Loans should not be taken out to cover credit card debt or to cover monthly costs. Credit cards should be paid off every month – especially in business.
Budgeting Tools
There are many examples, templates, and software programs available to help with budgeting. Intuit’s Quicken is a popular software along with its full accounting program QuickBooks which includes budgets.
The Budget published by The Federal Trade Commission’s Website, Consumer.Gov (Budget Worksheet) is one example of personal templates available.
Microsoft Excel also has a variety of templates including business templates (Business Expenses Budget is one example.) These templates can be customized for your specific needs. Personal budget examples are also available in Microsoft Excel.
The most important part of any budget is flexibility. Although planning is critical, so is being realistic. As situations change, or unplanned expenses hit, we need to be able to regroup and change our objectives.
Budgeting puts you in charge and can help you figure out what you are spending the most money on. It is only after we know our income that we can set our spending budget. Be careful of expenses, a little leak can sink big ships!
Once your budget is set, it’s important to review it alongside your spending on a regular basis to be sure you are staying on track. A budget needs to serve the organization, a budget is useless without the Strategic Plan as a starting point.
