Budgeting

I’ve read much about the importance of having a sound budget to help with managing finances and personal spending. Well, I like to take it a step further – I not only have a budget, I use a yearly cash forecast.

A budget is great because it allows you to see what you’re spending your money on in a given month but what about the rest of the year? Why would you bother doing a cash forecast?

Seasonal variations – certain income or expenses may vary with the season and doing a cash budget will pinpoint these variances ahead of time so you can plan. I know my income varies substantially in certain months – the cash budget makes me aware of this way ahead of time so that I can make changes, if necessary.

Planning is good - actually doing the planning process is a great way to evaluate or re-evaluate what you’re spending your money on.

Achieving Goals - allows you to pick a goal and work backward. I recently updated my cash forecast and realized pretty quickly that I needed to increase my monthly savings. After looking ahead 12 months, I realized I wasn’t going to attain a savings goal that I had chosen for myself.

So, how do you do a cash forecast?

All, I do is take my monthly budget and copy it over 12 columns on a typical spreadsheet (I’ve attached a sample spreadsheet – use at your own risk!). I also keep running totals of certain items such as savings goals or any debts that I’d like to pay off. I also use a ‘pay yourself first’ format – I take my income and subtract any savings off the top first, leaving the balance to be used for living expenses. I like to pay myself first because it’s the best way to save money - it forces you to live off your income after you’ve put money aside for savings.

Is that it? Well, actually, no. The forecast is great as a planning tool, but I still use Microsoft Money software to track my day to day balance. If you lose track of your daily balance, it’s a good way to bounce cheques or any other debits from your account.

I always adjust my forecast because let’s face it, life changes … and so will your cash coming in and going out.

Related posts:
Tracking Your Finances
Control Your Spending
Using Microsoft Money