There is this misconception that budgeting is for people who don’t have a lot of money, or are living from paycheck to paycheck.
This is true; it is for them. But budgeting is for everyone else too.
That’s what we’re going to unravel today! We’re going to look at budgeting for both personal and business finances. It is essential that we look at both because if you’re only doing one or the other, then you’re missing out and probably missing chances for growth as well.
How was the Caribbean?
Think about it: Even if you are self-employed (or maybe I should say especially if you’re self-employed), you devote a good chunk of your time to working to make a living, right? You’re probably working some 40 plus hours per week, driving to and from your office or to clients and being too tired to truly enjoy any “free” time you may have at the end of the day. For what? To not be able to pay all your bills? When is the last time you took a vacation? I know one of those two got your attention! So let’s dig into how to attack this budget thing!
What does having a personal budget do for you? For starters, it allows for projections. The short term projections are easier to figure out. You have a set amount due for rent or mortgage, utilities, phones, car payment, insurance, etc. The mid to long-term projections definitely require a bit more planning. Mid-term projections may include that vacation you are in dire need of. Wouldn’t it be nice live by the philosophy of “work hard, play harder?” You’re already working hard, but you need to make your budget work hard for you, too, in order to allow for the “play harder” portion.
Long-term goals are more related to purchasing a house, or a business, or planning for retirement. When you talk to people about their goals, and what they want to accomplish, they most typically tell you about their mid and long-term goals, right? Nobody actually says, “Oh, I really want to make all my utility payments on time!” Now, paying your bills is important, but I want you to realize the correlation between how hard you work, what you want, and what your money is actually working towards for you.
Planning your mid and long-term goals, and what it will take to reach them, is part of budgeting. After you sit down and make a spreadsheet of what your fixed expenses are (mortgage,insurance, etc.), you can determine what is left over to put towards the mid and long-term goals that you really care about. Maybe you think you can’t afford to have an emergency fund, go on vacation, or save for retirement yet; but when you review your expenses, you realize you spend $100 per month at Starbucks, and $300 per month on clothing. If you cut those both in half, you now magically have $200 per month to put towards mid and long-term goals!
Budgeting gives you freedom
We all know that life is well-known for springing the unexpected on us. It is also known for presenting us with amazing opportunities! Creating a budget that allows for future planning, or creating an emergency fund, also allows freedom and wiggle room. Here are just a few things life may throw at you, or present an opportunity for:
*Having a baby
*Buying a business
*Going back to school
*Taking an extra long vacation
*Bad toothache… Root canal time!
*Unexpected illness or injury
Wouldn’t it be nice to have the freedom to handle these problems, or take the opportunities you are being given, and not be held back due to lack of planning and budgeting?
So budgeting is all hunky dory, but sometimes the income to back this up can have its setbacks; even if you’re not spending $300 per month in clothes and $100 per month in Starbucks! So here are a couple tips:
1. If you have an emergency such as a root canal, ask for payment options. Most providers will work with you on splitting up payments over a few weeks or months. Only having to fork out a third of the costs upfront, opposed to the entire amount, can really save you on your budget for the month!
2. If extended payments aren’t an option, use a credit card. Yup, that’s right. I said use a credit card. Credit cards have their place. However, use this as a tool to get you by that month. You should then cut costs wherever possible that month in your budget, and try to pay the entire balance off when the bill comes to avoid paying interest.
Budgeting for business
Many of the concepts of personal budgeting tie into budgeting for your business as well, but of course there are some other factors. Budgeting can make or break a company. While many corporations produce an annual budget, small businesses in particular need to realize they need to be looking at their budgets on a much more frequent basis. I would recommend monthly.
Matching Expenses and Revenue
Whether you are an established business, a startup, or acquiring a new business, you will need to have an estimate of your anticipated expenses. If you are already in business this will be easier to forecast than if you are acquiring a new business, or are a startup. If you are are acquiring a new business, or a startup, you should do your research through other local businesses to get an estimate of anticipated revenue and expenses.
This step is critical. If you are aware of these numbers, you will be able to see if you are spending too much, or not enough on business growth. The intel on your revenue vs. expenses will make it possible to forecast when it will be the opportune time for growth, expansion, hiring, etc.
Much like with personal budgets, having a solid business budget allows you to plan and be proactive with financial decisions. Also much like a personal budget, you should have an emergency fund that helps with planning for variable, or unexpected, expenses.
1. If you're a startup, or acquiring a new business, call and speak with vendors and suppliers ahead of time. This can limit errors in estimated costs.
2. Make purchases at the beginning of new billing cycles to delay payments, and give yourself some breathing room. This is particularly useful if your revenue is lacking to pay an important bill, there is an immediate advertising need, or an opportunity you don’t want to miss the chance to capitalize on!
Basically, the moral of the story is budgets aren’t just for broke people or businesses! If you want to succeed, and make your money accomplish the goals you have set forth, you need to budget; and you need to budget more than just your fixed expenses. Otherwise, what is this all for anyway?!
If budgets or growth plans are areas where your business could use some strategy, contact us!