What is a Budget?
In today’s society the management of resources is very important, especially if you have a fixed income level that tends to be insufficient as in most family cases. Therefore, the budget is a very necessary figure that serves as a guide to manage expenses according to personal earnings.
When you want to undertake an economic project, plan a trip, invest in a valuable piece of furniture such as a car or real estate, a house or apartment where you live, the budget will always be present to achieve this end.
The budget, is the intelligent approach or relevant management in a planned way and in advance of the available resources, whether personal, family or business, derived from the movement of the economy from the income from work activity, or any figure that involves the liquid movement of money.
In most cases, the budget is proposed for specific goals that involve spending money, such as the acquisition of goods and services, business or leisure travel, organizational projects with multiple purposes, among many other objectives where money is needed to accomplish a project.
The budget can have a temporary approach, that is, it can be established to be fulfilled after weeks, months and even years, everything depends on the goal to achieve that is set in it, in the case of companies the budget is usually planned every year, for control reasons and in relation to the payment of taxes for formal business activity before the regulatory body.
The budget tends to clarify the way an organization is managed, establishing priorities according to the management of it, so that it can seek to optimize financial operations in each figure, either family, medium business or multinational company, the formula is always the same, only changes the number of aspects involved.
To undertake any type of project we will need to have a budget that helps us to indicate which is the initial investment we need, (this includes the money we have, money from partners and money that lends us a financial institution or banks) initial costs that the company has (this will include all the tools, rent, advertising, our and employees’ salaries among many other options) and finally the monthly costs that our company will have when we make our investment.
We have developed a tool in excel where we add everything that we indicated previously so that you can make your budget correctly either by downloading it or using it online.
The Modalities of a Budget
The budget model can vary according to your approach, the purpose you are pursuing and the time you want to establish for the control of it. There are three fundamental types of budget that contain the economic plasticity, the time invested or willing to invest, or the field in the case of companies where the budget tool is applied.
According to the flexibility or economic plasticity, there are the rigid or disciplinary budgets that are not susceptible to change during the presence of different events that may occur during the economic management, that is, no matter the eventualities that happen this budget model does not change its criteria, to maintain the discipline of sticking to the original initial plan in which the budget model was raised.
At the same time, there is the counterpart of this disciplinary or rigid budget, and it is the adaptable or flexible budget that would be the opposite, that is, this model belongs or adapts more easily to a changing economic model.
If you live in a country whose economy undergoes many changes in short periods of time, the flexible budget can adapt to changing criteria, in order to establish an economic dynamic to keep the company or family management afloat without letting its burden fall. However, this budget model may have loopholes that are not established in the initial approach, ending up or becoming a very different proposal from the budget organized at the beginning.
According to the time invested, generally this aspect is determined in any budget, by the fact of always thinking a specific time in which the economic goal is sought, basically it can be in medium or long term depending on the established plan. Therefore, companies always use this budgetary tool to establish goals according to dates of operations, in addition to the mandatory
to declare operations annually to the home country’s regulatory body.
Long-term goals are usually set for large companies that manage a very important, even massive, economic movement and have a sufficiently large economy to consider projects whose budget can lead to further growth or investment in large financial projects.
According to the field or department, this model is usually used only in companies that have varied investment fields, or departments that need a specific budget, adaptable either to only profits, sales, operating expenses among other separable factors for better management.
Everything depends on the way the company’s directors analyze and how dynamic they are with the company’s finances. However, the company can make a main budget or also called master, which can be fragmented in order to be more accurate in economic management.
Types of Budget
There are several types of budgets that can be made to keep track of both business and family budget expenditures. There are about four of the most common types of budgets that are worth trying when planning a budget.
Businesses use: incremental, activity-based, value proposition, and zero-based budgets. These four budgeting methods each have their own advantages and challenges. Incremental budgeting takes last year’s actual figures and adds or subtracts a percentage to get the current year’s budget, so it is a very common method that is simple and easy to understand.
A budget, whether it is a family or business budget, would be meaningless without the continuous review that must be done to control and monitor its compliance.
When you typically look at expenses versus budget, you are looking to see performance on a monthly basis. Monthly budgets receive most of the attention and follow-up, but it is important not to forget to do an annual budget review.
As with action analysis, assessing performance over multiple time frames in the budget shows a much clearer picture of how expenditures are being carried out over the year
You may have a monthly budget level where you are under 50% of the time and over 50% of the time. At first glance, the budget level seems appropriate and is in the expected balance and direction.
Once the budget is established, it doesn’t really take much work to maintain it. However, it can be made even easier to keep track of the budget if it is organized in the right way.
One way to organize the budget is with the fixed/variable model, which is simple to construct because you first assign the fixed and semi-fixed costs, and then you assign the variable costs.
This makes a lot of sense and helps to determine the difficult picture of fixed costs, before completing the variable costs, which is still one of the best ways to create and organize a budget, but it is not the most efficient way to group the categories once the budget is established. Therefore, the necessity model is also suggested, budgeting for primary needs of food, shelter, clothing first, and proceeding from the most essential to the least essential.
Managing the Budget
Management professionals are promoted to management positions because they are high-performing individuals, knowledgeable in their areas of expertise and with leadership skills. This does not necessarily mean that they know how to develop and operate a budget. Consequently, the need may arise to learn how to develop and manage a budget on the fly.
Managing an enterprise and departmental budget is similar to managing a family budget, although the enterprise may involve more stakeholders and is considerably more complex, there are best practices to be learned from as new managers.
The first thing that is advisable is to use an existing budget as a baseline, because unless you are starting a new department or function, it is likely that a budget already exists for the area you are taking over, so you can review this budget carefully, getting answers to many of the questions.
Planning a budget is a very important step prior to your organization, building
and execution. Because the plan sets out the goals and objectives to be achieved in the short, medium and long term.
In order to plan it, a study of the priorities must be made according to the economic goals set, which are necessary for the personalization of tentative projects or expansion possibilities.
A detailed and realistic budget is one of the most important tools to guide the business and the company. Therefore, the budget provides essential information to operate within the possibilities, manage unexpected challenges and obtain benefits.
The appropriate budget plan identifies available capital, estimates expenses and anticipates income. Business owners should continually refer to the budget as a way to measure performance against expectations.
An accounting study of the company’s cash flow must be conducted in accordance with production budgets, administrative payroll expenses, and other sub-budgets that must be studied to complete the company’s final budget, so that the numbers present in the movement of goods can be tracked.
The personal budget is a very wise and intelligent way of keeping track of expenses, according to the family income of each year. That is why it is important to start working on the financial objectives, for which a budget is required.
The personal or family budget is a detailed summary of expected income and expenses for a defined period of time, which should preferably be planned month by month. While the word budget is often associated with restricted spending, a budget should actually mean and contribute to more efficient spending.
Therefore, the budget shows the family the money it expects to get from all expenses, from necessary expenses such as house payments and rent to discretionary expenses such as entertainment. So rather than seeing the budget as negative, it’s much better to see it as a tool for achieving financial control, goals and objectives.