Having financial problems – either in your business or in your personal life – isn’t much fun. It sucks out all your energy, and whatever you want to do after that you can’t afford. So, while it might not be a more fun alternative, having your finances under control is essential – and will without a doubt help you in the long run. I’m going to outline what I’m doing to stay on budget myself – this works both for personal finances and small businesses, but I’ll be taking the point of view of the former.
Budgeting
Don’t pretend you don’t need one. Sit down, and try to think of the areas where you spend your money. My categories are things as loan, food, entertainment and such – you get the picture. Remember to include a misc category – you’ll want to use this for all the things that don’t really fit in. Just make sure to keep track of these in some way – until you gain some more experience doing this, Misc might reveal the need for a separate category.
After you’re done, group these categories into regular expenditures, and variable. The clue – the regular ones are the ones you know are coming your way, that are easy to set aside money for. The variable ones are to a certain degree guesstimates. How much will I spend on food? Hmm… I’m guessing 300$. Might be more, might be less – don’t spend hours on that now. Tweak where you have some information, make some informed estimates, and move on.
Now, set this up for say – the next 12 months. Guess where you need to, and decide how much money you think you’re going to be spending in each category the next year.
Great – you’re done with your budget – for now!
Keeping score
A budget is useless without its sibling, the accounting. My way of doing this is to have a seperate worksheet where I have one column for each category. I have each category summarized. Whenever I buy something, I keep the receipt, and at the end of the day, I enter the sum of each of these receipts in the worksheet. I have a worksheet that’s an exact duplicate of my budget worksheet, except without the budgeted numbers. At the end of the month, I copy all the sums from my daily tracking into this accouting worksheet, and I got the right numbers for that month.
Comparison
Now enter the dreaded cousin of the two siblings: comparison analysis. This is an identical worksheet to the other two, except that this one is comparing the numbers in the two others. In other words, how much did you make last month in your day-job compared to what you expected, how much in your freelancing gig, how much spent on food compared to expected, and you’re getting the picture.
Now, you can adjust your budget for the coming month(s) if your intial estimates were way off. Or you can adjust your spending if you can see what you were afraid of – that you spent far too much clubbing than you should have done. (Sobering, eh?).
With this input from yourself, you should be able to better identify:
- Where you should focus cost-cutting if you need to do that
- How much you can put aside for savings each month without acting like you’re broke
- When you can afford to make that investment in a Harly Davidson motorbike that you have always dreamt of
- …
Writing this, I can’t help to think of an article I came across, describing how some of Norway’s largest companies, including the goverment-controlled oil company Statoil, were working around the normal budget process. This kind of thing comes with the manditory warning: Don’t do this at home, folks – these guys are pros! Without the experience, and business processes of such tremendous companies, this is like stealing your own opportunities – might seem like a good idea at the time, but you’re going to get caught, and it’s going to hurt. Seriously – don’t say I didn’t warn you.
A lot of the concepts in this post is hard to conceptualize without help. Therefore, you will find attached a open office document that will work as a starting point for your own budget. Shared with a Creative Commons license – for everybody’s eyes only 
. And yeah, I would love some feedback on this – input, questions, requests for improvement etc.
Get the Financial Worksheet.
