What is a budget and what is budgeting?
Budgeting is the process of creating a plan to spend your money. That may seem obvious, but many people don’t take the time to sit down and create one. It’s essential to develop a plan for the upcoming year because it helps you set your financial goals in measurable terms. Don’t think of it as a constraint that will dictate how you make decisions or that you have to manage every single penny.
When putting together your plan, separate what costs are fixed and focus on costs that fluctuate. Look to your past spending to give you an idea for future projections. Your budget should reflect justifiable growth and savings, not unrealistic goals. It’s better to be conservative with your budget so that you and your team are set up for success.
There are many variables and unforeseen things that can affect your budget, so you may need to amend your initial budget to stay on track. Long-term commitments reduce your ability to remain flexible to take advantage of opportunities and adjust to bumps in the road.
Use your budget to help you create an emergency fund
2020 has been a perfect example of why budgeting for unexpected costs is so important. Pandemics, natural disasters, cybersecurity attacks, etc. are all real, and according to the Federal Emergency Mandate Agency (FEMA), 40-60% of small businesses never reopen their doors after a disaster. Your budgeted emergency fund may be your lifeline.
Set aside time
Now that 2020 is wrapping up, this would be the perfect time to set goals and plan for the upcoming year. Think of what you want to achieve in 2021 and create a budget that will reflect that. There’s no better time to start the year off right, so be intentional in what is feasible.
If you need assistance in setting up your budget, turn to us. We are your trusted advisors. Use our experience and unbiased opinions to help you set goals and build a budget to achieve those goals. By creating a smart budget, you can start the year off with a solid foundation. Who knows, 2021 could be your best year ever.