You might not think so, but budgeting is one of the most creative things that you can do. Closing your eyes and making a wish is the way we humans dream. Having a thought, making a plan and working the plan, makes our dreams or thoughts come true! Budgeting is putting that thought on paper and if you are sticking to that plan, your dreams will come true.
I want to give some tips from my personal experience and years being part of many companies and their budgets.
There is still today a lot of businesses and people that don’t understand the reason why they have to have a budget. I think it is because the definition for a budget, ”an estimate of income and expenditure for a specific period”, sounds so vague and uncertain.
But implementing a budget can change your whole cash flow issue and can be very rewarding, IF you are doing it correct and IF you are disciplined to stay focused on what you have decided.
Estimate your income
The first section of your budget is the income estimate.
Surely you must have something to work on, you can’t decide that I am going to do a budget with an income of R500 000.00 per month and you trust it will be there, no, you need to have previous sales history and projections to back a budget like that.
Whether you are working with actual stock or giving a service it is very important to make sure that what you using as a figure for your budget you can also verify.
A car salesman can’t have a budget of R500 000.00 income, if he has only stock of 20 vehicles and he knows his profit per sales is +/- R20 000.00 which will only give him a R400 000.00 income, IF he sells all of the vehicles.
A service person that is working per hour, can’t use an income of R200 000.00 and his rate per hours is R250.00 p hour. Even if he works 30 days in the month for 24hours a day he is not going to get to R200 000.00 income for the month. Your budget must have a reason why you say you will be able to get that income.
For example, you work 10 hours a day at a rate of R250.00 p/hour and you know that with all the work you have, you will only be able to rest for 4 days in this month.
- Days worked 26 days
- Hours worked 260 hours
- Total income for hours R65 000.00.
Your budget can’t be more than R65 0000.00 for the month except if you are going to get in another person to help and you can add more hours.
Rather make your income a little bit less, than committing yourself to expenses that is not going to happen at all. Then you tell your bookkeeper “I told you a budget won’t work”
If your budget income is projected on actuals like stock, hours, capacity, and history of sales and not a thumb suck or wish list, I can assure you, the budget will work.
Plan your expenses
The second part of your budget is your expenses and I am sure I don’t need to tell you that if you have in your budget an income of R200 000.00 you can’t have expenses of R300 000.00!
There are different expenses on our budgets.
Items like telephone bills, internet service, rent, salaries and wages, fuel, printing and stationery, insurance and this can differ from person to person.
These expenses are usually easy to budget for, because we have history and actual figures on which we can work our budgets. Keep in mind situations where those expenses might increase for example, now we use more data for Zoom calls than Fuel for driving due to Covid 19. Just take some time and think through your planning for the month and you will be able to see where there might be changes.
Yearly expenses are expenses like your Licences on vehicles and also programs that we are using.
Instead of going into a panic because you have to have R10 000.00 one month for an accounting license renewal, budget it over 12 months and putting aside R833.33 per month and you don’t need to worry one month!
Now I have touched a very important part of budgeting, and that is the saving part and discipline part. If you budget for a big expense or taxes or even a yearly fee, you need to keep that money in your bank every month as per budget. The budget won’t help you, if you have that amount of money budgeted every month, but you are using all the money every month because it is available in your bank and when you need to pay your yearly bill…. the budget did not work.
Budget and saving work hand to hand. If you are lucky to be in government you budget and they give you that amount of money that you budgeted for, for that month, but if you are in the private sector, you have to make sure that, the money you have budgeted for a certain expense on a certain time, will be available.
I find the best way to make sure you keep to your budget is open a separate savings or money market account. Do transfers for the amounts that you know, is not this month’s expense, to that separate account, you can also earn some interest on that amount, if you choose the right account and then you know the money is not lying in the current account that you use for daily expenses.
Your wish list
The last part of your budget is your wish list. I always keep a wish list apart from my budget to make sure that when good times are here and I made more profit than expected, that I spend it on the wish list items. These are items that you know you need to better your work or service but there is no money available now. For example, I have a printer, but would like to have one of those big printers that can scan and email lots of pages with a touch of a button.
Instead of wasting money on unnecessary stuff, keep to your wish list, and then you will eventually have everything you wished for.
As Abraham Lincoln said – “The best way to predict your future, is to create it”