What Do Budgeting Decisions Require?
Whether you're making a personal budget for yourself only, or a budget for a multinational corporation, the basic principles of good budgeting decisions are much the same. A successful budget is simply a plan that helps you, or your company, spend less than you make. It's easy enough to draw up a hopeful budget, but you need more than just a written plan.
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Data
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Every budget, no matter how simple, must tell you how much money you have coming in and how much you have going out, every month. The data must be complete -- you have to put all your monthly income from all sources in one column, and all your monthly expenses in another, and compare the two. You must account for everything, even sporadic expenses like your yearly tag tax or Christmas gifts for your clients.
Personal budgets usually include items like rent or mortgage payments, monthly food expenses, utilities, the cost of transportation and clothing, healthcare costs, and entertainment. Business budgets may include expenses such as the cost of raw materials, overhead costs like office rent, insurance, equipment and supplies, and employee wages.
Ability to Proritize
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If, as often happens, you discover that your expenses exceed your income, you must review your expenses with an eye to which of them you can trim to balance your budget. It's usual to prioritize your expenses at this point and cut the least-important items, such as entertainment, first. If this still fails to balance your budget, you can then move on to areas such as clothing expenses and transportation costs.
When this process takes place in a business setting, it can be traumatic. CEOs from many famous multinational corporations have become infamous for firing tens of thousands of employees, or closing hundreds of stores, in the name of cost-cutting. Cutbacks may also occur in areas such as planned expansions, and research and development.
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Discipline
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No budget is worth the paper it's written on if you don't follow through on your plan. You must be able to make short- or even mid-term sacrifices to achieve your long-term financial goals. This requires stamina and a certain mental toughness. The business world is replete with stories of troubled corporations hiring ruthless cost-cutting CEOs to help get a floundering budget back into the black. Whether your budget is for yourself, or for a whole company, you must be willing to stick to your plan in spite of temptations to spend, or to soften.
Goals
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A successful budget is a plan for saving or spending money responsibly. If your goal is to live within your means, it involves cutting back; however, if you are in the enviable position of making more money than you spend, you can set goals for the surplus. In a personal context, this goal may be three months' worth of savings held back in an emergency fund; if you're responsible for a business budget, it may mean a certain amount of money invested in advertising, a new location, or some other avenue of growth. Many advisers counsel that excess money should be set to work making more money, whether through interest, appreciation or increased customer traffic.
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References
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