Posts Tagged ‘Budgeting’

Personal Finance Budgeting

Unless people make a personal budget for themselves they will never be successful in their journey towards financial freedom. A budget is like the training wheels on a bike and works as a finance tool that helps keep people on the right path. For most it is necessary to keep a personal budget for their entire life but for others a budget is not needed after they get a feel for how their money is being spent and where it is going. Setting up a budget is the simplest and most basic building block in a persons quest for financial freedom. I can almost guarantee that you will not be successful on your journey toward financial peace without setting up your own budget.

Usually when people hear the dreaded B word (budget) they often run for the hills and they often try to avoid a financial advisor that suggests that they make a budget. People are often very scared of the work involved in making a personal budget but I am here to tell you that it is not really that bad. Resistance in establishing a budget often happens because people see a budget as some type of trap that restricts their freedom and forces them to change the way they live. The truth about budgeting is often quite the opposite. Usually those that do not set up a budget are the ones that have a ton of credit card debt and are restricted by the large debt payments they are required to make each month.

When you setup a personal budget you are simply setting up a plan to spend your money with intent as opposed to spending it aimlessly. The idea is to plan everything out so that you do not end up spending more money than you make. A personal budget usually seems restrictive at first but once you follow it for a few months it will help you to move away from your reliance on credit cards and it will actually give you more freedom.

Once you establish your budget you should expect it to take 3-5 months to get things right. In the beginning it is likely that you will make mistakes in your budget and forget about expenses. After 3-5 months you should be able to work through this and your budget should be almost a mirror image of your actual spending.

After establishing an accurate budget the next step is to stick to the plan. Most people tend to fail here. Anybody can write out a budget plan but the hard part is actually sticking to this budget each and every month. If you can stick to your budget I promise that you will be more financially free.

I hope that you now understand the importance of establishing a personal budget for yourself. Without it you cannot begin to pay off your debts and save money because you have no way to track and properly allocate your income.

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Filed under Budgeting : Comments (1) : May 24th, 2008

Budgeting

Ugh, budgeting is one of those topics we’d rather avoid, but in business, it’s an absolute necessity. To prepare a reasoned and thoughtful budget, an accountant must start with a broad-based critical analysis of the most recent actual performance and position of the business by the managers who are responsible for the results. Then the managers decide on specific and concrete goals for the coming year. It demands a fair amount of management time and energy. Budgets should be worth this time and effort. It’s one of the key components of a manager’s job.

To construct budged financial statements, a manager needs good models of the profit, cash flow and financial condition of your business. Models are blueprints or schematics of how things work. A business budget is, at its core, a financial blueprint of the business. Budgeting relies on financial models that are the foundation for preparing budgeted financial statements. Those statements include:

–Budgeted income statement (or profit report): This statement highlights the critical information that managers need for making decisions and exercising control. Much of the information in an internal profit report is confidential and should not be divulged outside the business.

–Budgeted balance sheet: The connections and ratios between sales revenue and expenses and their corresponding assets and liabilities are the elements of the basic model for the budgeted balance sheet.

–Budgeted statement of cash flows: The changes in assets and liabilities from their balances at the end of the year just concluded to the projected balances at the end of the coming year determine cash flow from profit for the coming year.

Budgeting requires good working models of profit performance, financial condition, and cash flow from profit. Constructing good budgets is a strong incentive for businesses to develop financial models that not only help in the budgeting process but also help managers in making strategic decisions.

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Filed under Budgeting, Business, Investing and financing, Revenue and Receivables : Comments (0) : May 12th, 2008