Why prepare a budget

Fortunately, you probably have one of these tools to help you make an informed decision. How do you do this?

Prepare a budget. A budget is an estimate of income and expenses within a given amount of time. It contains economic goals , boundaries, and limits on expenditures of the organization. So, why prepare a budget? It serves as a measurement tool that can visually illustrate if you have enough cash to operate or to grow. The steps in the budgeting process are:. First, you as the financial leader must choose what type of budgeting method you want to use. There are two main types of budgets: zero-based budgets and traditional budgets.

While zero-based budgeting allows you to re-examine all of your costs, traditional budgeting is more user-friendly. Typically, prepare the annual budgets before the fiscal year begins.

By doing this you can easily forecast which months your finances may be tight and which ones you'll have extra money. You can then look for ways to even out the highs and lows in your finances so that things can be more manageable and pleasant. Extending your budget out into the future also allows you to forecast how much money you will be able to save for important things like your vacation , a new vehicle, your first home or home renovations, an emergency savings account or your retirement.

Using a realistic budget to forecast your spending for the year can really help you with your long term financial planning. You can then make realistic assumptions about your annual income and expense and plan for long term financial goals like starting your own business, buying an investment or recreation property or retiring. Learn how to budget and create a spending plan.

Building a budget forces you to take a close look at your spending habits. You may notice that you're spending money on things you don't need. Do you honestly watch all channels on your costly extended cable plan? Do you really need 30 pairs of black shoes? Budgeting allows you to rethink your spending habits and re-focus your financial goals. Following a budget will also help you catch more shut-eye. How many nights have you tossed and turned worrying about how you were going to pay the bills?

People who lose sleep over financial issues are allowing their money to control them. Take back the control. When you budget your money wisely, you'll never lose sleep over financial issues again. Of course, this is just the tip of the iceberg.

There are countless other advantages of following a budget. So what are you waiting for? Time to start budgeting!

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I Accept Show Purposes. Your Money. Having a plan also promotes well-being and reduces stress. Documenting purchases allows you to figure out where your money is going.

It allows you to stay accountable to your goals. By keeping a budget, each dollar you spend is accounted for. If you spend more than you earn, you will drain your savings.