Budgets for a household and for a business may look different, but they use the same basic principles.
Some people like to group fixed expenses together and variable expenses with each other. Others like to categorize all discretionary expenses together and all non-discretionary expenses with each other, too.
The method you use is a matter of personal taste and convenience to suit your particular purpose and reporting needs.
The basic layout has all inflows grouped together at the top. Outflows are grouped by expenses and are listed below the inflows.
When making your first budget, you would initially make a guess for each of the inflow and outflow items. A better method is to review past inflows and expenses over a reasonable period of time (several months or years) and use the average as an educated guess.
Recording inflows and outflows in this way helps to project future cash-flow needs. It also suggests which expenses need to be watched closely in order to economize and avoid waste.
Pay yourself first!
Most financial advisors agree that the best way to avoid financial problems and to save for future expenses is to "pay yourself first." This means that a certain amount of money from your gross income should be withheld and set aside into a savings plan. In your written budget, this will appear as a negative entry in savings, since the cash flow is going into savings.
By keeping a written record of your income and expenses, you are better able to project when you will need additional inflows from savings or borrowing, and which expenses can be reduced or postponed to a future period when you have better inflows.
Dive Deeper: Budgeting 101: What it is and how to build one
This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.
Read more information and tips in our Budgeting section