As we explained in our previous post, the true objective of the budgeting process should be to seek out every possible opportunity for growth. It also helps identify real obstacles in the environment. At the end of the day, a budget provides creative but viable plans for stretching the goals of your business and its people.
Firms use budgets for two reasons;
- Budgets set expenditure limits, which impose a brake on extravagant and poorly considered financial commitments. They ensure that you think seriously before spending your scarce resources, instead of afterwards. This draws attention to undue expenditure at an early stage.
- The preparation of budgets requires all concerned to closely examine the internal workings of their departments. You made forecasts and establish performance targets. These actions tend to impose restraints on unrealistic ambitions and emphasize the need for practical and attainable goals.
It is essential that budgets are kept flexible and reviewed frequently to keep up with economic realities, especially in times of economic fluctuation. In such periods, inflation can quickly render existing budgets outdated.
A flexible budget should reasonably accommodate price fluctuations and economic changes. This should be analysed against present and future economic outlook.
HOW TO PREPARE A BUSINESS BUDGET
In preparing budgets, it is also important to realistically forecast revenues using data related to the past demand and performance of the firm. These include:
- Past prices,
- The prices consumers would be willing to pay for your goods and services,
- Consumer spending patterns,
- Offerings by competitors.
So how do you build you budgeting skills?
- See money as a tool
- Record every transaction
- Assess your spending
- Write a budget
- Plan ahead
- Include spending money
- Live a disciplined life
See Money as a Tool
We tend to think of money in a lot of different ways. Money can mean any one of a number of things:
- Financial freedom,
- Power or significance
The point is, to be good at budgeting, develop the mindset that money is a tool. Once you separate your money from your emotions concerning money. It helps you do the things that you want and need to do. No matter how much or how little you have, your money can help you achieve your goals.
Record Your Transactions
On a practical level, you will need a record of your transactions to start a budget, and you will need to keep recording them to continue budgeting. You can do this by hand, via an app, or once a week on a spreadsheet.
Use the recording method which works for you, but learn to record your transactions and you will be well on your way to budgeting.
Assess Your Spending
Recording your transactions won’t help if you never think about them. Thinking about your expenditures helps you find out where your money is going and why.
Learn to categorize your transactions in whatever way is meaningful for you, so you can see how much you’re spending in different areas. This can help you decide where to spend more, where to spend less, and what you can cut back on.
Write Out your Budget
It helps if you actually write things out. There is something about the act of writing something and then seeing it there in your own handwriting or on your computer that helps you remember.
Whatever you do, don’t keep your budget in your head. It’s easy for numbers to become fuzzy and for you to forget about your budget entirely. Instead, put your budget where you can see it often, so that it feels real and you remember your goals.
When you make your budget, don’t just think about what you need right now, or even your monthly expenses. Think, about expenses that only come around periodically such as car insurance, life insurance, and taxes.
Once you have categorized your expenses, save a little bit of money every month toward these items, so you can pay them without worry when that bill shows up.
Include Spending Money
You are important. And you will be happier keeping your budget if you know you have a little money you can spend however you want. If you don’t have spending money, you will feel like your budget is a cage you need to break out of, rather than a structure supporting you and your goals.
Even if all you can afford is N5000, give yourself something. This can go against the grain, especially if you have a lot of debt or very little income.
Live With Discipline
Pay attention to your budget. Update it. And when you don’t have any money left for something, stop spending! This is a huge skill and one that won’t happen overnight.
Living a disciplined life will go far toward helping you make and keep your budget. It can help to remind yourself of your bigger goals, and to give yourself a waiting period before you buy things.
We support businesses and individuals with support on developing budgets and implementing them. Feel free to contact us by sending an email to firstname.lastname@example.org or you could place a call to +2348188474167