It’s mid-Sep­tem­ber and most would think that it’s too soon to think about plan­ning for next year. How­ev­er, this is the per­fect time to start prepar­ing, because bud­get­ing can be a chal­leng­ing task as there are many com­po­nents to final­ize. Let’s face it: most of us do not enjoy bud­get­ing, but it is a very impor­tant tool to use in both our pro­fes­sion­al and per­son­al lives.

Sim­ply put, a bud­get is a sum­ma­ry of all income and expens­es for a giv­en peri­od of time. A bud­get will help you set and man­age your expec­ta­tions. If those expec­ta­tions are not being met, you may be fac­ing a prob­lem area. Once this poten­tial prob­lem is iden­ti­fied, you can then inves­ti­gate fur­ther and deter­mine the actu­al cause of the issue. For exam­ple, if you are spend­ing more mon­ey on one area of expens­es, it could be a major unfore­seen event has occurred, the prices of the goods and ser­vices used has increased beyond expec­ta­tions, or because you are not uti­liz­ing the goods and ser­vices as effi­cient­ly as you expect­ed. Each of these poten­tial areas is much more eas­i­ly iden­ti­fi­able once com­pared to a bud­get­ed amount.

To cre­ate a bud­get, you need to start with the top line: rev­enue. How much income do you fore­see mak­ing in a giv­en time frame? Do you typ­i­cal­ly make more mon­ey in some peri­ods ver­sus oth­ers? Do you see an increase in rev­enue due to increased mar­ket­ing efforts or a decrease in rev­enue due to the loss of key cus­tomers? These are all exam­ples of ques­tions that you need to be pre­pared to answer. Remem­ber to be real­is­tic with your expec­ta­tions. Every­one would love to make more mon­ey and there­fore bud­get high­er rev­enues, but an exag­ger­at­ed bud­get is of no use to you in the future.

The next step to cre­at­ing a bud­get is to look at your expens­es. Some expens­es will be very easy to bud­get as they are fixed amounts paid month­ly i.e. rent & util­i­ties. Oth­er expens­es will be direct­ly relat­ed to your rev­enue. These are costs like direct mate­ri­als and direct labor. These are costs that are incurred to pro­vide the good or ser­vice that you are sell­ing. The more that you sell, the more of these costs you will incur. Oth­er expens­es will be dis­cre­tionary depend­ing on the cir­cum­stances i.e. meals and enter­tain­ment & sub­scrip­tions. All of these expens­es com­bined when sub­tract­ed from rev­enue, will pro­vide you with a bud­get­ed net income amount. This is your over­all expec­ta­tion for a giv­en peri­od of time.

The goal of cre­at­ing a bud­get is not to be 100% cor­rect about the out­comes of the future. The goal of cre­at­ing a bud­get is to help you com­pare actu­al results to your begin­ning expec­ta­tions. There is a rea­son as to why your ini­tial expec­ta­tions did not match the actu­al out­come. This could be planned or some­thing that you were unaware of hap­pen­ing. Either way, it holds you account­able for man­ag­ing your finan­cial sit­u­a­tion.

For more infor­ma­tion on how to build a per­son­al bud­get please vis­it, http://www.schwabmoneywise.com/public/moneywise/calculators_tools/budgeting_tools/monthly_budget_planner

To down­load a bud­get tem­plate for your busi­ness please vis­it, http://www.sampletemplates.com/business-templates/business-budget-template.html