Archive for the ‘Financial Budgeting’ Category
Many government entities use performance based budgeting and while it is not the traditional method for individuals to use, there are components of this method that can help you to achieve your financial goals. This type of budgeting is geared toward results, meaning the type of budgeting that is chosen is selected specifically to achieve a certain result. While you may indeed be adhering to a strict line item budget, if the results are not moving you forward financially, your budget is not doing its job.
Performance based budgeting is goal oriented. In other words, you tell your money how to perform in order to achieve the desired result. For example, if the only way you can squeeze money out of your budget to go on vacation is to cut into your grocery bill then you may decide to eat beans and rice or hot dogs two nights a week for several months and then bank the grocery savings for your vacation.
Incentives based on performance are valuable. Some companies that offer tuition reimbursement do so on a graduated scale. That is, if you make an A, you get 100% of your tuition back, a B nets you 75% of the cost, and a C will repay 50% of your tuition costs. Anything less than a C and you’re on your own. While not all companies that offer tuition reimbursement do so by this model, for the ones that do, it is a powerful incentive for employees to study hard and make the grade.
Performance based budgeting offers a way for you to save for the things you really want instead of letting your money fritter away on inconsequential expenditures. Instead of falling prey to every sale that comes along, reward yourself with one item that you truly want and can use. However, the reward only comes along after your budget has performed the way you have set it up to perform.
Budgeting, in general, is not especially hard but it can be difficult to change spending patterns that have been allowed to run free for years. While total denial usually doesn’t work, a reasonable budget that covers every aspect of your living conditions is a great tool to use to reach financial independence and prosperity. Setting goals along the way offers a powerful incentive to stay on target. While you may need to tweak your budget from time to time, performance based budgeting offers a system that can help you to get what you truly want.
You may think that only people who have a great deal of money need to hire a financial planner. The truth, however, is that most everyone can benefit from advice and guidance from a financial planner to help them with everything from budgeting basics to investing to retirement planning.
So the question is how exactly do you go about hiring a financial planner. It’s really a quite simple.
The first place to look is at your local bank or credit union. Most of them have financial planners and advisors on staff who are available to help customers. In many cases, their services are free and it is well worth your time to make an appointment with them to go over your finances and get their opinion on your short- and long-term financial goals.
Other places you might look into to hire a financial planner are independent accounting firms and financial institutions. Most accounting firms now have financial planners who can help clients make the most of their finances. Also, ask your friends and family members for recommendations.
You can also find many financial planners who offer their services online. The key to hiring a financial planner online is to look at their reputation and the length of time they’ve been in business. As many of the top financial institutions make their services available online, you don’t have to go with a fly-by-night operation that doesn’t have a proven track record of service and success.
Other than a record of reputable service and successful financial planning for their customers, you want to hire a financial planner you feel comfortable with. After all, you’ll be sharing your most confidential information with them, as well as investing in their expertise. When you hire a financial planner, you should feel they have your best interests at heart–not their own wallets. So avoid hiring a financial planner who is pushy or charges an enormous fee for their services. With so many great ones to choose from, don’t settle for less than the best fit for you and your financial goals.
Emergency funds are considered to be a necessity as far as financial security is concerned, since it can provide one with financial resources that one can resort to and depend on when an emergency arises such that when one is sick and have the burden of paying huge medical bills, or unexpected home or major car repair.
When one has no emergency fund, one can be obliged to acquire debt on your credit card that might take several years to repay with interest that would later cost so much more.
However by putting an extra thirty to fifty dollars every month in an individual “emergency savings account” one can be secured with what emergency the future may bring. In doing this, it is recommended that one regards them as an additional bill, to be punctually paid each month.
Yes, one can and should budget and allocate the extra money for emergency fund, as this is very significant when one refers to his “financial future”. Here, the goal is to create savings from budgeting your income; the emergency savings should ideally be equal to at least three months your living expenditures.
What’s important is that you should steadily put a certain amount of money aside, and only use it for real emergencies.
Not like an investment, the success of one’s long-term savings funds does not really count on the amount of return or interests but on placing a fixed amount of money away constantly and steadily so to have immediate access to it at all times. In spite of one’s financial status, the initial step in the process of constructing one is by knowing where your money is presently being consumed or spent.
When one recognizes and determines where one’s earnings are spent, then it will be easy for one to choose and make a decision where to trim down expenses. In other words, budget. Budgeting is putting or setting aside money for anticipated and unanticipated future use. It is here that one sets up a goal so as to save. So set an emergency fund as your goal.
Checking, savings, money market accounts and “certificates of deposits”, are great places to keep one’s cash that might be needed on quick notice.
The amount saved from budgeting can either go to your savings goal, emergency fund or both. One could utilize the money saved from budgeting financial expenses by saving half of it to your savings account and half of it for emergencies. This way, you achieve your goals in savings and at the same time put in funds for emergency use. It’s your choice.
If you look at your bank account and wonder where all the money went, or swore you paid a bill and now you are told you are past due, you may have a budget problem or no budget at all.
This is not something that is taught in our traditional public education system. Young people are not usually armed with the knowledge of how to budget effectively unless their parents taught them.
There are numerous books, videos, and software out there for your reference on budgeting but it can be quite simple actually. Unless you are a chronic, habitual spender, then you might need to think about Spender’s Anonymous.
1. Write down all your incoming cash flow and all your bills.
2. Keep a check register. Today we all swipe our debit cards and think nothing of it. It isn’t as easy to have your register handy when you use plastic instead of a checkbook.
But if you keep track of your purchases from home once a day or a couple times a week, you will then know what you are spending your money on and you can make some changes if you need to.
3. Categorize. Have a category for food, fuel, bills, entertainment, etc. This will help you realize how much of each check is going towards what you need. If you have some leftover you can move it to another category that needs some more or you can save the extra cash.
4. Think twice when making purchases. When you think you just have to have something, take a deep breath and really ask yourself if you need this, want to spend money on it, or if there is something more important you can put your money towards.
Once you have effectively thought and answered these questions, you will be able to make a better purchase decision.
5. Don’t borrow money. Don’t apply for credit cards because of the rewards or you want to blow money you don’t have. Spend cash for everything and you’ll not end up in so much debt that you can’t see over it!
Perhaps having one credit card with a small balance would be smart for emergencies, but then don’t carry it in your wallet. Keep it at home.
6. Start saving something now. Anything will do and when you have a chunk, you can then put it into something that will earn a better return. Most people think they have to have thousands of dollars to invest or to save but that is simply not the case.
You can pay for a financial professional to help you with your investment portfolio. That in and of itself is a good investment!
7. Find ways to cut back. If you only use half your cell phone minutes most months, reduce your plan. If you don’t watch TV, get rid of your cable. Dial up internet service is good if you rarely get on your computer and is cheaper than faster connections. Go to local farmers markets and buy your produce.
8. Shop at thrift stores and yard sales to find things that would be nice to have but you can live without it being brand spanking new.
9. Children grow out of clothes so quickly, shop at the thrift stores till they are grown.
10. Speaking of children, do they really need an iPhone, an iPod, a Playstation, a Wii, an Xbox, and a Gameboy? Kids can entertain themselves pretty good and it is cheaper!
Want to make some savings but don’t see it happening? Well, you are not the only one, most people that you see around you experience similar financial issues and the reason why I say it is because I had been facing the same problem since the time I started working.
I know it is quite upsetting to see no savings after having slogged for years or months in my case. And when it starts to get frustrating, you start cribbing about your job and salary. Let me ask you a question; is it your job and salary or your extravagant life that keeps you from making some savings?
The Importance of Planning a Personal Budget
Honestly analyze your situation and you will discover that it’s not your income but your poorly managed finances that does not allow you to save. Of course, there can be other reasons as well but it is usually the case. But whatever the case may be, if you plan your budget realistically you are most likely to see a significant cut down in your expenditures.
Planning a proper budget is the key to make money. Be it big organizations or working individuals, both need to have a budget that they need to follow in order to see their money grow. Once you have worked on a proper financial plan, you know you are well on your way to make some significant savings and see your money growing in your bank account.
Budgeting Steps That Save You Money
Have you ever realized that in a day we do a lot of impulsive expenditures? These impulsive expenditures or unnecessary spending can be avoided. But for that, you need to know where your money goes. In order to do that and then make a personal budget you need to keep a track of the followings:
1. Keep a check on your expenditures: this is the most inexpensive way to cut down your expenditure. Use a notebook and keep marking your spending or list them on MS Excel sheet and then analyze your expenditures, figure out where can you cut down and work on them accordingly.
2. Figure out your necessary expenditures: before you start spending your money, make a budget where you need to make sure that all your necessities are taken care of and how much money you are left with. From the left over money you again need to find out how much you need to save and with the rest you can enjoy.
3. Recurring expenditures: these are the expenditures that you need to make every month like various insurance payments, childcare, school launches, garbage services, movies, dinners, etc. these expenditures are a must and can’t be reduced. So calculate them and find out how much you need to spend approximately.
4. Variable expenses: these expenditures are not on a monthly basis like Christmas, birthdays, father’s day, mother’s day, etc.
5. Loans: education loans, credit card debts etc.
Now in order to make a personal budget, all your expenditures need to be on a monthly basis. When you add up all your expenditures and then divide them by 12, what you get is what your average monthly expenditure is supposed to be.
My Personal Budgeting Experience
When I was going crazy with my expenditures and I didn’t know what to do, my friend told me to follow what I just discussed in the preceding paragraphs and believe me, I was pleasantly surprised to see the outcome. I still have the same job with the same salary yet it feels a lot different.
Today I have savings and fortunately, enough do not have to go through those annoying financial crunches at the end of the month, which makes me a much more confident and an independent individual.
What Are Budgets and Forecasts?
They are predictions of future income and expenses and cash flow. They also predict future performance with financial forecasts and projections and with financial models.
Why Budget and Forecast?
Budgets and forecasts provide a feasibility analysis. They can help develop a business model, review your key assumptions, and identify resource and capital needs. Budgets and forecasts can be used to find funding. They demonstrate the potential of your business to investors and lenders. Budgets and forecasts can also be used as a management tool. They can help you establish milestones and require accountability for accomplishing the milestones. They can help identify risks and show benchmarks. This will help the small business owner make the necessary adjustments to avoid the risks, to reach the milestones, and to measure up to benchmarks.
Why Are Forecast Important?
A forecast can establish measurements to guide management, to facilitate planning, and to facilitate goal-setting.
What Areas Do You Need to Forecast?
It is critical that you forecast your start-up costs so that you know how much it will cost to open your doors. You need to prepare estimated start-up financial statements and estimated short and long-term revenue forecasts. As part of your forecasts, you will review key concepts and issues that will make a difference in your company’s survival. You also need to forecast the resources you will need and set up a schedule for using and replenishing your resources.
Do Investors Want to See Forecasts?
Yes, your forecasts will show investors that you know your business, that you are likely to succeed, and that you will make wise use of their money. You must have at least a five-year forecast that shows significant profit by year five, significant net income by year two, and that investors will earn approximately 10% return on their investment.
Do Lenders Want to See Forecasts?
Yes, your forecasts will show lenders that you know your business and the you will be able to repay the loan. Be sure you forecast for the entire period of the loan and use conservative financial ratios, because the lenders will. Also, you will need to collateralize and personally guarantee the loan.
The investors and lenders will want to see forecasts of your profit and loss and revenue. They will also want to see what drives income in your industry; for example, sales, distribution, advertising, internet search engines, referrals, location, price, or coupons or other discounts. You also must forecast the revenue cycle for your target customer. How much time will you need to start production, and how quickly will your product or service be accepted in the market?
What Other Forecasts Are Needed?
Another important forecast is the total personnel required to support your desired revenue. If your revenues result from sales, you should start with the desired revenue in year 5. From year 5 subtract 40% from each prior year. On the basis of your research, estimate the number of sales each sales person will make each year. From that you can calculate number of salespeople required.
After you make your forecasts, you should complete a sensitivity analysis by adjusting each major item estimated by 10% plus or minus. Examine the impact on revenues, profit, and cash needs. Remember that most operating expenses are roughly proportional to personnel headcount. These are your variable expenses such as salaries, benefits, employment taxes, furniture, computers, rent, supplies, utilities, training, travel, meals, training, and dues. Other non-variable expenses may or may not be proportional such as professional services, subcontractors, advertising, and trade shows.
Use your forecasts to compare yourself to others in your industry by such things as revenue per employee, revenue per salesperson, gross margin, expense categories as a percentage of revenues, financial ratios, and inventory control. It is critical that you know your industry’s benchmarks and metrics and that your business forecasts are within these benchmarks and metrics. You can find this information by researching your industry.
Should You Hire a Business Consultant to Prepare Your Forecasts and Research Your Industry?
Yes! Unless you have a very strong finance and accounting background, you cannot create financials that will be acceptable to investors and lenders. You cannot do an acceptable business plan with a spreadsheet, and it will be difficult for your to be objective in developing your business model. Also, you are the entrepreneur and your efforts are better spent building and developing your business which is what you do best.
Jo Ann Joy, CEO, Indigo Business Solutions
JoAnnJoy@IndigoBusinessSolutions.net, Phone: (602) 663-7007
The future of your business starts here.
For more information about these and other important topics and for legal consultation, please visit our website at http://IndigoBusinessSolutions.net Copyright 2006. Indigo Business Solutions is a registered trade name.