PRACTICAL BUDGET

DEFINITION OF A BUDGET

A budget is a plan that outlines an organization's or an individual’s financial and operational goals. Hence a budget may be thought of as an action plan. Planning a budget helps a business or a person to allocate resources, to evaluate performance and to formulate plans.

A budget is a description of a financial plan. It is a list of estimates of revenues to and expenditures by an agent for a stated period of time. Normally a budget is determined for a period in the future, not the past.

PURPOSE OF A BUDGET

• To enhance and not to diminish your personal life!
• Places you in a position to clearly understand and focus on your income and expenses.
• Places you in a position to manage your income and expenses.
• Enables you to avoid impulsive buying!
• Your income now determines your expenses, rather than your expenses your determining your income.
• Make sure that income and expenses match, both in amount and timing.
• Measure both your income and expenses that you forecast in your budget against what you actually received and spent. This will determine any excesses and shortfalls that may be in you planning – you can then focus on any problematic areas and take corrective action.
  
  Serve as a indicator to:
  
  
• highlight potential cash-flow problems
• opportunities to better utilize income
  
  

  Serve as a measurement tool to evaluate:
  
  
• planned budget versus actual results
• progress is made towards specific goals
• highlight areas where changes should be made
• Gives you a sense of control and confidence
• Empowers you to make informed future financial decisions

PREPARING A PERSONAL BUDGET

STEP 1

Determine short and long term goals:

a) Short term goals include:

i) purchasing a new vehicle
ii) buying new tyres or a major vehicle service
iii) medical costs (dentist, operations, spectacles, etc)
iv) house improvements and renovations, holiday, etc

b) Long term goals include:

i) retirement
ii) tertiary studies
iii) weddings
iv) the purchase of a second property, investments, etc
v) debt free life!!

Budget should make provision for short and long term goals

Download practical budgeting excercises