Our blog on How To Avoid The Budget Blues attracted a lot of interest.
This is an encouraging response. It’s obvious that many people realise just how important completing – and monitoring – a budget is as part of an overall business and financial plan.
For those who are about to tackle or revisit their budgets, the following are some further tips on how to get your numbers as accurate as possible and, most importantly, how to best use those numbers.
Sources of Information
Traditionally, you would be digging into the filing cabinet and pulling out copies of your most recent bills and pay slips.
However, today’s online world offers many alternatives. Your online bank and/or credit card statements will provide most of the information on income and expenses that you need.
For businesses, a copy of last year’s profit and loss statement can be a handy start. It will give you your sources of income and your regular expense categories.
Many ledger software programs nowadays also will break down your results on a month-by-month basis. Very few businesses earn income and incur expenses in the same amounts every month.
This month-by month breakdown can be important to highlight the peaks and troughs that you may experience throughout the year. For example, if you are in the business of selling Christmas decorations, you can expect to have strong sales figures in November/December and weaker trading in January/February.
In relation to your expenses, you may have many annual renewals due in January each year or just prior to 30 June. This knowledge helps you to plan your cashflow.
In both your personal or business situation, there are certain expenses that arrive every few years rather than every month or year. These are generally larger expense items – like painting the house, buying a car, replacing household whitegoods or updating the computer system. It could even be funding that two month dream holiday.
These items are often referred to as one-off capital costs.
Once you’ve got a handle on tracking and controlling your monthly and yearly expenses, you should put your mind to setting some dollars aside to cover these longer term contingencies.
Tracking & Controlling
Once you have set your budget, you need to track your actuals against the budget. This can be done via computer programs, which most businesses use.
There also is personal budgeting software available, but even just sitting down and manually looking at your bank balances and what you’ve earned and what you have spent – then projecting ahead to the next month can be a powerful way to keep yourself from heading off the rails.
Set aside time in your diary to update and monitor your budget numbers. If it is not in your diary there is a big chance that it will not get done.
Get Bank Accounts Working For You
Beware working from just one bank account. Very few can get control with all money going in and out of one account.
Many individuals and couples find a three bank account system useful. One bank account for weekly housekeeping/spending, one for monthly bills and a third for longer term savings/debt reduction.
If you calculate and transfer regular amounts into these accounts each pay cycle, you should have better control. Or, it should highlight very quickly whether you have underestimated your expenses in any of these areas.
HINT: Only have a debit card for your weekly spending account. Set up direct debits for your monthly bills and do one-off transfers for annual expenses. This will help you avoid the temptation of dipping into the wrong account.
Similarly, most successful businesses run multiple bank accounts. A general working account and other subsidiary accounts to save for tax/GST/PAYG; staff holiday pay, yearly expenses and capital replacements.
Business Budget Checklists Available
More business budgeting help is available by downloading our free business budget checklist. Read our article from last week for a personal and family budget.