The budget is a financial forecast. Anybody can set up their own personal budget, for financial planning and forecasting.

To begin with, budgets have a standard template. Essentially, a budget will include a number of months as columns. These can be variable in number, with as many as twelve months included, or perhaps more like three months. For each month, expenses are then entered for it in the rows below.

Of course, there are a number of rows which can be included, with each having an appropriate row heading. There is not really a limit here, but at best they can be broken down to fixed and variable categories. Fixed are those expenses that do not vary from month to month. Alternatively, variable can indeed vary. Fixed are best to include, because they can be easily fore casted. However, the variable category are less predictable.

A final row is then included at the bottom of each monthly column. This will sum all the numbers entered for any month. Each month will then include a monthly total row.

That really is all that is required for a simple expense budget. However, there are a variety of budgets, which can include inflows as well as expenses. A good example would be a cash flow statement. More specialist budgets may include a marketing budget, project budget, or production budgets. All these budgets will provide a basis for financial forecasting and planning.

Some budgets can also include variance analysis. This really considers the percentage difference between the budgeted and actual recorded figures. Let us say that a budget is 105, 5 over the budget total of 100. Then 5 can be divided by 100, as 5% over the budget.

For a budget to be accurate, you really have to set realistic figures and should also have a calculator at hand! After all, if the figures are not added accurately then that will certainly undermine the budget. Budgets that are drafted on paper, it is best to use a pencil so that figures can be erased if required.

Alternatively, spreadsheets like Excel are a good alternative. With these, you can enter and edit figures, and the spreadsheet will add the figures.

When a budget is complete, then it should be stuck to. If a budget is not, then perhaps the budget forecasting was unrealistic or at least underestimated in some way. However, any budget can be edited and changed if necessary.

Overall, you will find that the budget can be a great financial management tool. Set a personal budget up, and you will soon discover the benefits.

Learn more about this author, Matthew Adams.
Click here to send this author comments or questions.

---

Add your voice

Know something about The budget (the ultimate financial management tool) ?
We want to hear your view. Write now!