A budget is the basic building block of every financial plan.
Whether you are a business, individual employee, investor or a family – you need to now how much income you earn, plus the expenses and other priorities that need to be covered.
Incomings that exceed outgoings provide surplus cash for saving or reducing debt.
Outgoings that exceed incomings are a recipe for increased debt, plus associated financial and emotional stress.
Budgets do not need to be complicated and most of the information you need about your income and expenses is available on line.
Even so, it is often very difficult to get people to complete and then monitor a budget.
Helping prepare and monitor budgets during the past 30 years has provided me with some insights into the misconceptions and areas where aspiring budgeters can get confused, stuck or discouraged during the process.
Hopefully, the following can help you achieve a positive budget outcome.
- A budget is not about your accountant or financial planner passing judgement or telling you what you should spend. It’s a tool to allow YOU to make decisions about your spending priorities.
- Be honest about your starting position and spending habits. Even if things don’t balance now it’s better to start with reality and improve from there.
- Partners (business and personal) must work together as a team. Don’t make budgeting about judging each other. If you turn it into a battle, it is doomed to fail.
- Realise that you will not agree on everything – either the actual priorities or what amounts to allocate to each item. Try to find a compromise – but if any particular item is causing a roadblock, park it, move on and revisit later.
- To work, a budget needs to include your set (known) expenses, plus allow for discretionary expenses – entertainment, holidays, presents, hobbies, etc.
- I believe, even in a tight budget, that each partner should be allocated some amount of money each week (pocket-money/discretionary spending) for which they do not have to account.
- Budgets will never be perfect. You have to commit to them and get as close as you can – Progress, Not Perfection, is the key.
- Couples and business partners, in particular, need to commit to tracking your progress each month at an allotted time. Pick something regular — like the third week of every month — and allocate a few hours during that week to reviewing what you have in the bank, what bills you have paid and plan for what’s coming up.
- You need to be patient and give it time to work. The first few months are often a struggle – especially if you are paying off debt and do not have too much in the way of savings.
- Good budget habits are lifetime habits. There will never be a time in your life where you have so much money that you don’t need a budget.
- Once you have the numbers you need there are a number of different ways of controlling and monitoring your spending. It’s about finding the combo that is right for you.
Preparing a budget for a business needs a little more customising as each business is different. Next week we’ll go into a bit more detail on how to prepare a budget for your business and give you a checklist to help you get started.
