I have explained before why I’m not a fan of just straight budgeting. However, I will further expand upon this in this post.
A normal budget is like saying that I have £15,000 of take home pay in a year, and £14,900 of expenses. Yay – I can save £100 a year.
The problem with this, is that expenses are rarely ever straight lined. Sure, the bulk will be, but there is seasonality in people’s spending. Therefore, I may have £1,200 in my budget for a summer holiday. The problem with that, is that my budget is based on £100 over the whole year, but this holiday will likely have to be paid earlier on in the year. This leaves me with a deficit in my budget.
With a Financial Forecast, I put the expenses in when they fall due. This allows me to see when I can actually afford to go on that holiday without having to cut down in other areas or take credit to cover the shortfall.
Of course over the year, with everything staying on track, the budget should stay the same. However, things change! The car breaks down, you get sick and can’t work for a while – and your whole financial future changes! By having a Financial Forecast you can learn to identify these situations and change your spending habits accordingly.
So rather than just having a budget, create yourself a Financial Forecast and take control of your future a little.