Saturday, July 5, 2014, AM | Leave Comment
Budgets, whether they are for a household or a business, are the theoretical framework for one’s finances. Although a person wants the budget set in stone, some expenses will come up that require quick resolutions. Still, a budget should provide the road toward fiscal health in any given year or business quarter.
If somehow the business or individual is not doing well financially, then there may be something wrong with the budget.
Here is why the budget may not be working for the person.
Costs Are Higher Than Expected
Budgets work with an ideal funding level for an expense, like a utility, and then, as income comes in, payments to that are appropriated. In theory, the appropriations should match the ideal budget, but this may not be the case.
This is especially true if the budget does not forecast costs well. Say the business or home is heated by oil and oil prices skyrocket; as a result, the budget’s ideal cost allocation toward heating the office or home is lower than the actual costs.
Amending the budget to appreciate new costs can help the budget become more realistic.
Not Everything Is Accounted For
For individuals, missing that frequent night out in the budget can cause revenues to dry up. For a business, not coordinating with the accounting department carefully over every category of expenses can end up being costly.
Some budgets just miss things that do require consistent payments. If the budget is going to work, adding everything from guilty pleasures to minute business costs are important.
Appropriated Emergency Costs
Whether one calls it the rainy-day fund or the emergency expense fund, allocating some revenues to an account that can be used to pay for new expenses is an important.
A budget that does not lay that out will miss out greatly and, when an emergency pops up, the person or business will be unprepared. This will end up making the budget pointless.
Not Being Followed
Not following the budget is a huge culprit for many people and businesses. However, it’s more than just forgetting the principles of the budget, its giving into immediate gratification.
With people, utilizing savings or credit to buy things can be the biggest hit on a budget. With a business, not properly assessing an investment could cause trouble, especially if the investment does not increase productivity or lower costs.
Seriously considering every action in relation to the budget is necessary and that requires discipline.
The Budget Is Not Goal-Oriented
Budgets are great frameworks, but they need leeway to accept new revenue or new costs. However, the biggest blunder families or businesses have with their budgets is they are not goal-oriented.
Many people create budgets that just meet immediate needs. This makes the budget financially impotent. Instead, people and businesses should craft a budget with a goal.
This goal supplements the structured nature of a budget, helping the person or family work hard to reach something. As a result, the budget becomes an active and living framework that can end up helping the person or business increase their revenues.
If a person or business is seeing their income, revenue, or savings dwindle, then contact a firm like Abakhan & Associates Inc., bankruptcy lawyers in Kelowna, about bankruptcy or insolvency.
However, if one has the time and is solvent, then try to re-consider how the budget is structured. This can help a person or business avoid a serious financial issue down the line.Facebook.com/doable.finance