Establishing a budget for something is talked about a lot both in business and your own finances, but often not being fully understood or appreciated.
It’s often perceived as a restrictive thing to simply cut costs for the sake of it, after all if something is not in the budget then it can’t be allowed. And all for someone else to benefit from it seems.
Well in actual fact, they’re a great help, and a form of guidelines for getting what you want. When followed, they will actually lead to something that you couldn’t have necessarily had so well without the budget to help steer your accounts and spending.
It’s a financial action-plan, and should be made as realistic as possible so that everyone is clear what you’re trying to achieve and then the practical steps to achieve this.
Therefore, here are some of our tops tips to making the most of budgets:
1. Suss Out Your Income
This is what money you’re going to receive, whether that’s your salary for your own personal budget, or sales of a good or service for a business.
This needs to be as realistic as possible to reflect the future. Past figures can certainly help, but good judgement on any potential increases or decreases will then shape the budget going forward.
2. Control all the Costs
Then work out what you need to spend, as once this is then deducted from your income then you have the profit left over and what you’re trying to achieve.
This can come across as penny-pinching, which can be good to begin with to trace every penny literary spent to see what happens in reality, but then you can begin to look at things more generally.
It will help to categorise these into different types of spends, and sensible allowances made for uncertainties and issues that may arise, a form of contingency.
3. Place in Perspective
You then need to make sure this makes sense, maybe reflecting previous years budget and what was actually achieved to begin with. However, broad-brush statements to simply increase next year’s budget by say 3% from last year can be very simplistic and not take into effect all the cost and income changes.
You might even need to make a loss in a certain budget on the basis of further gains in future years and budgets, particularly for new business starts.
Of course, you also need to decide what happens at the end of the budget in terms of how quickly an actual accounting of things takes place, and how this is reported against the budget. Where profit is made, then will this be issued to people or kept and re-invested.
Therefore, the best piece of advice for forming and adhering to a budget is to make sure this reflects reality and is realistic. Don’t settle for standard statements, but look at what the income and costs truly are expected to be, and how this fit in with the bigger-picture plans of yourself or your business.
There’s all kind of various tools to then help you do this, from spreadsheets to more advanced online tools and apps – just make sure these match reality though.