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A good budget is the foundation of every successful financial plan. Irrespective of the size of the enterprise or its budget, it is necessary to learn where all the money is going.
However, budgeting is just not just about cutting all the expenses and depriving yourself of all the good things in life. On the contrary, budgeting is the understanding of how much money the individual or enterprise has and where it goes. Once the information is acquired, budgeting becomes a financial plan for the most effective and productive allocation of these funds.
Why is a Personal Budget Important?
The importance of a budget for the state or an enterprise is easily understandable. However, budgeting is as important in personal life as in any of the above cases. For many, it is only one of those tedious financial exercises when they find their finances in order.
The importance of a budget for the state or an enterprise is easily understandable. However, budgeting is as important in personal life as in any of the above cases. For many, it is only one of those tedious financial exercises when they find their finances in order.
Such people would be astonished to learn the real value of a personal budget and how such a budget can help them remain on the right financial track. A good personal budget can also uncover some hidden cash flow, thus helping the person concerned invest more to achieve his/her financial goals.
Cash is King
Whether it is business financial management or personal budgeting, cash is king. Any negative gap between expenses and earnings is likely to affect the financial stability of the person adversely. The consequences could be serious socially, physically, and emotionally.
Whether it is business financial management or personal budgeting, cash is king. Any negative gap between expenses and earnings is likely to affect the financial stability of the person adversely. The consequences could be serious socially, physically, and emotionally.
The effective solution to the problem is efficient cash flow management. In its simplest form, it delays the outlaying of cash for much longer durations while encouraging steps taken to bring back the much desired equilibrium in a financial balance sheet.
Cash Flow Measurement
Cash flow measurement is always time based. It could be for the following year, quarter, month, and if someone is on real slippery ground- even for the forthcoming week. Most people have the uncanny ability of getting into financial trouble without knowing it, and an accurate projection of cash flow can alert such an individual of all the troubles before it strikes him/her.
Cash flow measurement is always time based. It could be for the following year, quarter, month, and if someone is on real slippery ground- even for the forthcoming week. Most people have the uncanny ability of getting into financial trouble without knowing it, and an accurate projection of cash flow can alert such an individual of all the troubles before it strikes him/her.
Cash Flow Basics
The common misconception about cash flow plans is that they are glimpses into the future. On the contrary, such cash flow plans are educated guess works that could balance multiple factors. Payment histories, mounting credit lists and payables, and the thoroughness of the person concerned in identifying the expenses can all be integral part of the cash flow planning and projection.
The common misconception about cash flow plans is that they are glimpses into the future. On the contrary, such cash flow plans are educated guess works that could balance multiple factors. Payment histories, mounting credit lists and payables, and the thoroughness of the person concerned in identifying the expenses can all be integral part of the cash flow planning and projection.
An important feature of the plan is identifying and assessing the upcoming expenses and extending the payables. It is also necessary to assess perfectly the loan interests and principal repayments individually, as well as collectively. Equally important is the understanding about the seasonal fluctuations in the requirements that could result in higher expenses on certain counts while cutting back on a few others.
Information is Knowledge, and Knowledge is Power
Gathering information from multiple sources is very important for any budgeting process and cash flow projection. This becomes even more pertinent in the case of personal budgeting. Sources of information could be diverse like the market reports, trade journals indicating the pricing fluctuations, and first-hand knowledge gathered on head to head confrontation. In any case, the question put by the assessor remains the same- what is the extent of expenses to be incurred, and what are the sources for meeting such expenses and when and how can you get them?
Gathering information from multiple sources is very important for any budgeting process and cash flow projection. This becomes even more pertinent in the case of personal budgeting. Sources of information could be diverse like the market reports, trade journals indicating the pricing fluctuations, and first-hand knowledge gathered on head to head confrontation. In any case, the question put by the assessor remains the same- what is the extent of expenses to be incurred, and what are the sources for meeting such expenses and when and how can you get them?
Creating Cash Flow Projection
How does one prepare the cash flow projection? The basic steps could be as follows: -
• He/she should start the projection by assessing the cash in hand at the beginning of the assessment period.
• Cash that could be received from various sources would be added to the cash in hand as the next step.
• Learning the details of amounts and dates of the cash that would come up during the projection period is important. This will give the projector the knowledge of every penny in the offing.
• In a similar way, each penny to be spent during the projected period should also be assessed. The planner has to understand not only how, but also on what each cent is being spent.
• Preparing the projection may be a challenging task at times, but is important for perfect budgeting.
How does one prepare the cash flow projection? The basic steps could be as follows: -
• He/she should start the projection by assessing the cash in hand at the beginning of the assessment period.
• Cash that could be received from various sources would be added to the cash in hand as the next step.
• Learning the details of amounts and dates of the cash that would come up during the projection period is important. This will give the projector the knowledge of every penny in the offing.
• In a similar way, each penny to be spent during the projected period should also be assessed. The planner has to understand not only how, but also on what each cent is being spent.
• Preparing the projection may be a challenging task at times, but is important for perfect budgeting.
Impact of Cash Flow Planning on Personal Budgeting
Efficient cash flow planning will help personal budgeting in at least three ways. These are -
• Improvement in receivables can be made, as the planner will try to explore new avenues of increasing his or her income.
• The planner would be able to manage the payables by cutting back on a lot of unwarranted expenses incurred that could improve the financial status of the person substantially.
• It will give the planner the strength and determination to survive the shortfalls, as he/she would be prepared in advance for such shortfalls with cash flow planning and personal budgeting.
Efficient cash flow planning will help personal budgeting in at least three ways. These are -
• Improvement in receivables can be made, as the planner will try to explore new avenues of increasing his or her income.
• The planner would be able to manage the payables by cutting back on a lot of unwarranted expenses incurred that could improve the financial status of the person substantially.
• It will give the planner the strength and determination to survive the shortfalls, as he/she would be prepared in advance for such shortfalls with cash flow planning and personal budgeting.
Having adequate knowledge of the exact financial status leaves no room for confusion, and that could be one of the best ways of managing personal finance. This is how cash flow planning for personal budgeting accomplishes the task meaningfully.
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