When I mention the word Budget many people’s eyes start to glaze over and they look like they are ready for a nap.
But when you consider that all your hard work in your career or business is based around achieving the bottom line of your budget you can see why budgets become a vital part of your financial planning.
Simply put, a budget is a financial plan that lists your income and expenses then gives you a bottom line figure that hopefully is on the profit side. There are many reasons why you should have a budget:
- To keep yourself in control of your finances. If you know how much you have coming in and going out, you have the ability to know where you may need to cut back and where you can afford to splurge a bit.
- It allows you to see how your business or your career goals are going financially. As a business owner or busy career woman it also allows you to see when you can afford to start outsourcing some of those tasks you dread doing yourself.
- It helps you to plan future goals realistically. If your goal for the next month is to put away $1,000 in savings however you only have a surplus of $100 per week it is going to be very disheartening to not be able to reach your goals.
There are a number of ways to budget – traditional pen and paper, excel, accounting system such as Xero or MYOB or downloading an app. There is no right or wrong method, the important thing is to budget and monitor it against your actual expenditure.
Regardless of whether you are looking at your business or your household finances there is a simple formula for budgeting. I have a free budget template just for you, on the Financially Empowered website. Click here to grab yours and let’s get started.
Income – Expenses = Profit/ (Loss)
It makes sense that the first thing to look at is your Income. In this section you want to distinguish between normal earnings, overtime/ bonuses and fluctuating income. Consider as well whether it suits your finances to look at a weekly or monthly budget.
The next step is to look at your expenses. I always think it is valuable to break down your expense categories as much as possible eg motor vehicle expenses can be split into parking, fuel, other vehicle costs which would include maintenance and registration costs. It is important in this area to look back on your past records rather than just make a guess. A client of mine did not realise how much she was spending on takeaway coffee, if she had tried to estimate her expenditure she would still be wondering where all her money was going!
After you have all your income and expenses recorded correctly it is simply a matter of taking your income and deducting your expenses. If you are left with a positive figure this is profit (or your surplus funds), if it is a negative then you are unfortunately looking at loss.
Either way this new information gives you the ability to create a future plan whether it is cutting back on expenses, adding more money to your super or increasing your income. Instead of just wishing and wondering the power is now in your hands to create a better financial future.