Budget Preparation Process

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Budgets can be used in your home life or in business to help determine where money can and will be spent. To prepare a budget you will need to know how you spend money and what activities you can spend money on and what activities you must spend money on. Once you have this information you can determine where to allocate your income.

Income

Determine how much money can be budgeted. Gather any statements of income you have, either for your company or for you as an individual for a personal budget. You can estimate your income for the upcoming period by looking at the same time in the previous year. For example, if you are creating the budget for September of this year, look at last year's income for September. If you know that your income will be higher or new sources of income have been added, factor these into your total income for the budget period. Add up all your income sources for the period. For example, your available income for September could be \$1,000.

Expenditures

Determine what the money will be spent on. List any expenditures you have in the given time period. For example, in a personal budget you might have to pay rent, transportation, insurance, rent and entertainment. A business budget might include payroll, office supplies, rent, travel and marketing. Look at past periods to determine what you have spent money on and do not leave anything out. If, for example, you spend money renting movies or ordering lunch for the office, write these down.

Wants and Needs

Break your master list of expenditures into two smaller lists. The first is a list of "needs" or things on which you must spend money. Rent, payroll and insurance are examples of needs as are food and transportation. Label the second list "wants" and include any expenditures that you can do without if you are short on money such as entertainment. Next to each item write the estimated amount of money you spend on each item. For example, rent is always \$400 per month and you spend \$100 per month on a train ticket. Estimate entertainment and food expenses based on previous periods. When you have your amounts, add up each list for a total. Ideally at least your "needs" list (if not both lists combined) will be under your budget total.

Making Cuts

If your lists of expenditures is more than your income you will need to remove entries entirely from the list or decrease the amount you can spend on the activity. Start with your list of wants and see if there are any entries on which you can spend less money. For example, instead of spending \$50 on eating out, cut the amount down to \$40. If there are any entries that you do not need at all, such as bowling, take them off. If you find that your income will still not cover your lists, move on to your "needs." Rather than cutting anything off that list, think of ways to save money. Take public transportation to save on your gas costs or find a less expensive hotel for your business trip. Continue to cut until you reach your income level, at which point your budget will be prepared.

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