Differences Between Forecasting & Budgeting

Budgeting and forecasting are two very different--but necessary--aspects of money management. To understand the differences between the two, you must understand the purpose of money management and how each component works.

What Is Budgeting?

Budgeting is the process of organizing your existing income and expenses for the purpose of projecting your [financial-based] values out into the future. The process of budgeting itself, though, is primarily an organizational process.

What is Forecasting?

Forecasting is the actual projection of your values out into the future with an expected (but not guaranteed) result.

Budgeting Specifics

Budgeting organizes cash flow, develops a payment process for your regular bills, and allows you to track savings and investments. It tells you things like what your mortgage payment is, and how much income you make(Note the present tense).

Forecasting Specifics

Forecasting projects your budget into the future and sets an expected result within a specific time frame. For example, budgeting will tell you how much your mortgage payment is. Forecasting will tell you how soon the mortgage should be paid off or whether you could accelerate payments based on your projected future income, and so on. Forecasting allows you to set goals.

Why Both Forecasting & Budgeting Are Inseperable

You must have both forecasting and budgeting for successful money management ; you cannot separate one from the other.

Resources

• More information about forecasting
• More information about budgeting