Let’s find out about “Budget planning.” According to the Merriam Webster dictionary, budget is a statement of the financial position of an individual for a definite period of time based on estimates of expenditures during the period and proposals for financing them. It is a plan for the coordination of resources and expenditures. It is also a calculation plan for a period of time, usually a year or a month.
There are three types of budgets based on estimates, they are Surplus Budget, Balanced Budget, and Deficit Budget. When the revenues are equal to or greater than the expenses, then it is called a balanced budget. When the revenue exceeds the expenses then it is known as surplus budget and when the revenue is less than the expenses then it is known as the deficit budget.
In this article, we will be discussing budgeting planning, explain how to create a budgeting plan that works and provide a list of benefits associated with developing a budgeting plan.
Budgeting planning is the act of creating and sustaining a budget, then using it to make strategic financial decisions. With correct budgetary planning, individuals can have a more substantial idea of their financial standing, and current and future financial needs.
It is important for any individual to form a budget and financial goals so it can be successful. With proper budgeting, individuals can allocate resources appropriately so they can continue to keep finances in order. Budgeting planning can also guide a business owners to understanding exactly what the business needs to earn and how much it has available to spend to stay in good financial standing.
What is budgeting planning?
Budgeting planning is the act of creating and maintaining a budget, then using it to make strategic business decisions and guide organizational changes across various departments. With correct budgetary planning, individuals can have a more substantial idea of their financial standing, and current and future financial needs.
The process of budget planning can include these steps:
Planning: In the planning phase, individuals discuss and decide on their financial goals for a certain time period, usually one year or more.
Budgeting: Budgeting includes a plan for how individuals will adhere to the budget, and consists of their earnings and expenses, debts and any forecasted revenue.
Forecasting: The forecasting part of the budgetary planning process involves using the historical financial data of the person and the current state of the market to determine how much money the person’s business will likely make in the next couple of months or years.
How to create an effective budgeting plan
Schedule budgeting meetings: It is important to set aside a specific time to create the budget and discuss your financial objectives, and that if your business. This will give everyone involved in the process the opportunity to understand more about the budget and the responsibilities they may have to adhere to the budget.
Create a preparatory budget: Your first round of budget creation can include feedback from those involved in the process and data from past budgets. The first draft of your budget should include everything you would include in any set budget plan, like spending costs and current and projected revenue, so you can review the plan and make adjustments.
Review the preparatory budget: After creating the preparatory budget, take time to review it. Check for inconsistencies, inappropriate financial records, incomplete data entry and false information.
Revise and approve the budget: After the review process, it is important to revise the budget in order to come out with an errorless and valid for use. Moreso, everyone who was involved in the creation process must take a look at the outcome and give their approval.
Create a report/monitor progress: Your budget reports should include all the pertinent and detailed information from the budget meetings. It is important to continue to monitor your progress as it relates to the budget. Regular monitoring will serve as a reminder of the responsibilities you have to follow, your particular part of the budget, and contribute to your financial success.
There are a lot of benefits that come with developing a budget, they are:
Money management: An appropriate budgeting plan can help you in managing your money, making it better able to invest in additional operating needs or business expansions.
Informed decision-making: A budget helps all decision-makers make informed and strategic decisions that include real and timely information.
Allocation of funds: A proper budget help you to appropriately allocate funds to keep your ventures running. Without proper allocation of funds, there could be unplanned bankruptcy.
Identification of problems: By creating a budget, you have the chance to identify any current problems. For example, you may have overspent in one category and did not leave enough funds for other areas. The budget process can find these instances, and you can prevent any future issues.
Future planning: Another benefit of an effective budget is that you can plan for the future. When there is an effective budget plan, you would be able to plan for a future need, whether getting a house or an extra machinery to ease work.
