Budgeting is a vital skill for people in all different walks of life. Whether you need to be able to manage a budget for your job or just to manage your own personal finances, it is something that should not be neglected. There are many different skills and tools you can use to manage a budget, and as such, there are many different ways to go about it. This article covers some of the different budget management strategies, as well as the ways that you can benefit from having a solid and consistent budget.
What Exactly is a Budget?
In short, a budget is something that shows you how much money you have at your disposal for something. This includes money that you might have coming in the forms of profit, that is saved, or otherwise available and excludes money that you have in the form of expenditure. Budgets are important to have because they are a concrete way to demonstrate or keep track of how much money is available. This can often be difficult to manage otherwise, especially when it comes to personal finance, as people are often prone to spending more money than they actually should or not being entirely honest about how much they use.
This is obviously just as true of budgets in a business context, if not even more so. When running a business, or if you are in charge of a budget, you need to ensure that the funds being used for the business or the project are in line with what the business can support. If you fail to do so, you run the risk of financial troubles down the line, if you find that you no longer have as much money as you anticipated. Running a business has a lot to do with balancing expenditure and profit, and having a clear and steady budget is a very helpful way to stay on top of these responsibilities.
How To Track Spending
If you are unsure how you should go about managing your budget, then you probably do not have the most solid understanding of the budget in the first place. This is paramount if you want to make the most of any budgeting system, so it may be necessary for you to track your expenditures and earnings closely for a month or longer so you have a very clear idea of what your money is being used on typically and in what quantities. It is generally more necessary to do so in the case of personal finance, as businesses generally (hopefully) have some idea of their cash flows.
You may not know how exactly you should track your expenditures. The best way to do this is by keeping track of everything you spend your money on for a month, at the very least. You can collect receipts, if you think this can help, or simply choose to note down the purchases you make and whatever else you spend your money on. If you then look at this in connection with your income for the month, this gives you a good understanding of how much money you have to work with, once you have deducted your expenditures, as well as your necessities. Necessities are most likely going to need to be paid for every month and include things like bills and utilities.
There are several different systems you can use to keep track of a budget. These are best used if you have a solid understanding of the flows of money in and out of the budget, whatever form it may be in or purpose it may be for. Once you have a good understanding of how your budget should work, you can choose from one or several of these systems:
- Spreadsheets: Spreadsheet softwares like Microsoft Excel are very popular and have stood the test of time, for good reason. Programs like Excel have a wide array of tools and functions at their disposal, which help you to get the most out of your budget management. You can use them to create graphs, and you can customize the way the information you have in the spreadsheet is displayed. This can make it much easier for you to present your budget in the way that best suits you.
- With a pen and paper: If you don’t feel inclined to make budgeting into a complex practice and simply want to have a visual representation of what funds you have, then you can work with a pen and paper. You can write down your income and then all of your necessary expenditures, and the balance is essentially a working budget for your other expenditures for the period of time you are working out. This is not necessarily the best method if you want to use any sophisticated ideas or if you are working with large figures, but for a simple reckoning of a budget, it certainly works.
- Other software: There is a wealth of financial software available, and these can be great for managing more complex budgets and tracking them over the longer term. Some of these are available for free online, while others need to be purchased. The paid finance software usually offers an impressive array of features, but it is generally not that straightforward to use, and therefore requires a good knowledge of computers and finance in order to get the most out of it. They are therefore probably best suited to professional environments.
Some banks and credit unions actually also offer worksheets and other documents to help you manage a budget, and they may also be able to offer you guidance in this area, if you feel that you need it.
How To Manage a Budget
In order to manage a budget, you need to ensure that the budget you have is reasonable and the best possible thing for your financial situation and goals. If you are not sure if this is the case, then it is vital that you go over your budget and see if there is any room for improvement. This is generally a good practice to have, as reevaluating your budget gives you an opportunity to see how your needs have shifted over time, if at all, and if there is any way for you to minimize unnecessary expenditure or waste.
Regardless of if your budget is intended to be for a business or personal application, there are principles that can be applied across the board to ensure that your budget is reasonable and useful. In addition to understanding the income at your disposal and the expenditure that you are going to have to account for, it is also vital that you have a clear picture of the financial goals of yourself or the institution that you are budgeting for. This allows you to ground the budget on something concrete, and it gives a structure to work with.
Financial goals can vary greatly depending on the context and application of the budget itself. For example, you may need to cover some immediate emergency expenses, and these should definitely be a part of your budget. On the other hand, you may instead be looking to save money for the future, and as a result, your budget is going to look quite different. If your budget is going to be used in a business context, then you are probably instead going to be using the funds to stimulate growth in the company, while still maintaining profits and paying necessary expenditures.
When it comes to actually managing the budget across a span of time, the most important thing to do is regularly monitor spending and income and then see if the budget balances or not. If it doesn’t, then it is necessary to make changes in order to make sure that expenditures are not exceeding income or profit anymore. This is because it is unsustainable, and it can make it impossible to meet your financial goals. You should keep track of expenditures and income from month to month through the budgeting system of your choice, some of which we have covered above.
If you use checks to make any payments, then checkbooks can be a great way to keep an eye on money that is going in and out. It is very important to keep your checkbooks balanced. Though fewer and fewer people use checks to pay with each passing year, it is a good way to have a visual representation of expenditures and income.
Once you have monitored your budget for an extended period of time, you should revisit the first budget that you drafted after tracking your income and expenses. This is a good way to see if you have stuck to the budget well and how well your initial projections matched the reality of your expenditures. This revised budget should be very well-suited to your financial goals going forward, as you should have a better understanding of them, as well as the expenditures that you make. You can also adjust for any potential growth you may have experienced as a company, which might mean you now have more funds at your disposal than you did when you drafted your original budget.
How to Update a Budget
One key element of budget management is ensuring that it is continually adapting to suit your needs if they ever change. If you need to direct more money towards a particular investment for a certain period of time, then you can use your budget to direct less funds towards other aspects of your business in order to do so. If you have a sudden personal expenditure arise that needs to be taken care of, then you can use your budget to figure out how to cover it if you do not have the necessary savings to cover the amount. If your financial goals for the future change, then you can revisit your budget and see what changes you can make to it in order to start working more and more actively towards your financial goals. In this sense, a budget is a versatile tool for financial management, both at a personal and professional level.