Budget is simply balancing your expenses with your income. If they don’t balance and you spend more than you make, then you could end up with a big debt. Many people don’t realise that their expenses are more than their income and slowly get into debt.
When we think of budgets, we think of a typical household budget. This could be looking at how much we allocate to various expenses like utility bills, mortgage and household groceries. This usually works well for individuals, but it’s more complex in businesses.
Companies normally use budgets to plan for future growth and expansion. Budgeting for future growth opportunities ensures that companies have cash they need to make decisions on expanding the business. Many companies review previous year’s budgets to determine how well they performed against budget and why there are variances. Not all budget variances may indicate a negative business situation. If budget variances occurred due to unexpected growth in sales revenue, companies may need to increase the budget amounts for future sales increases. However, if it was due to overspending, then there is a need to investigate and take necessary action.
Why is budgeting important?
Budgets also provide opportunities to plan for new challenges and ensure that there is effective cash flow management.
As the care industry is being squeezed to offer services at a lower cost, most care businesses are looking for ways of making savings and this can’t be achieved without budgets.
However, budgets are not only for companies but for individual’s managing their expenses against their income.
Planning and monitoring a budget will help identify wasteful expenditures, adapt quickly as financial situation changes, and achieve financial goals. When you actually see the breakdown of your expenses, you may be surprised by what you find. It could be those items that you bought six months ago that are still in the boxes and haven’t been unwrapped.
Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt. When spending is under control, you will be well on your way to meeting your long term financial goals.
If you don’t have enough money to do everything you would like to do, then you can use this planning process to prioritize your spending and focus your money on the things that are most important to you.
With a budget you don’t have to fear or wonder if you have the money because you already know. This sense of financial clarity is important not only to companies but individuals.
Like any other Christmas, there will be temptations to spend big, but stick to your budget if you have got one.
With a budget there are no surprises!