By Amy Sbrusch, Tax Manager
Every company goes through an annual planning and budgeting process to operate their business, so they are able to meet both fixed and capital expenses—making changes as needed to react to inevitable ups and downs in the market. To grow their business, they may need to purchase new equipment, expand into new facilities and/or research and develop new products. All of these anticipated costs are put into different budget line items, and cash flow is allocated accordingly. Quarterly reviews are usually conducted to make sure the company is on track to meet its budgetary goals for the current year, as well as five years out.
Individuals and families, likewise, can benefit from the same disciplined practice of preparing a personal/household budget on an annual basis, and then reviewing it at least every six months (I personally do it quarterly because things change and life happens). It’s important to keep this budget going at every stage of life, regardless of how much money you earn or have saved. Even high net worth individuals can run out of money at some point if not responsibly managed! Without a budget, you are apt to over-spend, go into debt and simply be unable to fulfill your short- and long-term goals (like buying that dream house, taking two ski trips a year, sending kids to college, etc.).
Based on years of experience working on my clients’ budgets and my own, I have come up with a list of considerations to help guide you through the process. Not all items apply to everyone, but it’s a good place to start and then customize your own budget, tailored to your unique needs.
While each person’s budget will be different, be sure that yours aligns with your specific goals and plans. Creating this type of budget for your life takes a lot of the stress out of monetary issues, making those big financial decisions a lot easier when you know how much you have to spend. Sticking closely to a budget will help ensure the funds are there when you need them. And, like any profitable business, you will thrive and grow your assets.
If you’re like me, you’ll create your own spreadsheet in Excel and start taking control of your money. You can also click here to jumpstart your budget with an easy, online tool. As always, complex money questions around taxes, investing, retirement or major purchases are best answered by a professional.