3 Tips To Budget Like A Pro
Quick Question: Have you ever thought about hiking a national forest? Yes? Me too!
Would you hike a national forest without a map? No? Me neither!
Going off into an unknown trail with twists, turns and predators without a map is pure insanity.
And not recommended.
Now, let's take that scenario and compare it to real life. Let's imagine your business is like that national forest you want to hike.
They are both full of hills and valleys, twists and turns and predators. And you shouldn't proceed without a map. In business, your map is your budget. Everyone should have a budget.
Why, you ask?
Because it doesn’t make sense to run your business (or your household) without one, that’s why.
Spending without a budget is the equivalent of hiking through a national forest without a map. You will get lost and things are guaranteed to go very wrong.
Very, very wrong.
I'm talking about the 'where did my money go, can someone help me find it' kind of wrong. I've seen it happen to the best-intentioned folks.
Now, before you object I completely understand that you are trying to run a business here. You don't have time to sit and stare at numbers.
You have inventory to buy and bills to pay, you can't worry about checking the budget first. You've gotten this successful without one, Right?
How many times has an expense caught you off guard or you made more money than you thought and you don't know which way to grow? A budget is an essential business tool that can steer you in the right direction and help you achieve your goals.
While the process of creating a proper budget can be intimidating, it is not impossible. It doesn’t have to be done on expensive software or look a certain way.
It only has to be realistic.
With that in mind, here are three things to know that will make your budget seem like a pro did it.
If you want my free budget template to use to create that killer budget, you can grab it here!
1. Remember That Reality Bites
While I am certain this will be your best year yet, you must be realistic when creating your income projections.
The old adage stands that you should not count your chickens before they hatch is very relevant here. The only income that should be considered when drafting your budget is the money you realistically expect to earn.
If you count money you are wishing to earn, you run the risk of overspending and that could be detrimental to your business or household. Reasonable things to consider are current sales contracts, recurring revenue and income from outside sources.
Income that should not be considered in your budget includes money you might earn from a great new product you hope to develop sometime.
2. Against All Odds...
While you should not count unearned income in your budget, you should absolutely plan for the worst when it comes to expenses.
Murphy’s Law is alive and well and it will find you no matter where you live.
Plan for a tax hike, air conditioner repairs, flat tires, broken computers and inflation on purchases.
If you plan for the worst and budget for lots of expenses that might happen, you will be in a better position to overcome the unexpected.
Overestimating what you will spend will theoretically leave you with excess funds. But don't get all excited about having a surplus of money just yet. We'll get to that next.
When you are budgeting, remember to plan for the worst and hope for the best.
Don't forget that a budget is fluid and can be adjusted to match what you need. The template here is a great start! If you can do this, you are able to minimize the risk of having too few funds for unexpected events.
3. All Things Considered
Remember when I said not to get excited about your excess funds in your budget?
This is where they'll go.
Now that you’ve realistically calculated (and underestimated) income and you've planned for the worst when it comes to expenses, you can sit down and think of all of things you forgot.
Stay with me here. I know this sounds weird.
Remembering what you forgot is super important and could truly make or break your budget.
What do I mean by that? I mean to look really hard at your finances and think of things you could be overlooking.
For instance, did you budget and save for the sales tax and warranty cost on a new large purchase? What about interest expense on your loans?
One common expense that people forget about is dining out. Everyone goes out to eat, but how often is that a part of the budget?
Not often enough.
These types of expenses are often small and insignificant, but they can add up big time over the course of the year.
Remembering to remember is a hard task, but it must be done. Historical data is a good place to look for these types of expenses.
What is historical data? It is what you've spent already in the recent past. Looking to what you've done can be a great guide to what you will do.
While I know you can’t predict the future, you can prepare for it by utilizing a budget. When you are realistic, prepared and thorough, you are setting yourself up for success.
And if you need help getting started, here is the budget template that I use for all of my clients.