Previous Topic: Scheduling Your Budget (Part II)
You now have a scheduled budget. You are almost done with the planning portion of budgeting and ready to get started MAKING it happen. The next step on the path to following your budget is to reconcile your budget schedule to make sure that you have enough money coming in at a specific time to accommodate the amount of money you need to use it.
Reconciling Your Budget Schedule
To begin, let's pretend to start the month with $0. Start from the top of your budget schedule and add each line to give you a balance after each transaction, as you would calculate a check register.
For example:
$0 Beginning Balance - $1924.00 Aloha Mortgage Company = -$1924.00 New Balance
You would continue this calculation all the way to the end of your budget schedule. The next line would be calculated as:
-$1924.00 New Balance + $250.00 Pampered Chef Income = $1674.00 New Balance
Here is what your schedule would now look like (New Balance is in the gray column):
As you can see, every place there is a negative (red) number is where this family has a cash flow issue. When creating a budget, you already made sure that you have enough money coming in to cover all your expenses. This step in the process reveals if you have enough money coming in at the RIGHT TIME to cover all your expenses when they are due.
Because we assumed they started the month off with a $0, that is why there is such large negative amounts. So when you actually put your budget to work for you, then you would begin with how much money you have before the 1st of the month. For this example we are going to say that this family begins the month with $1000.00. Here is what the budget will look like now:
After this family makes the mortgage adjustment to their budget schedule, there is only one cash flow issue (negative balance amount) remaining, which is after the tithing payment on the 19th. A solution to this issue is to move the spending of Household items from the 17th to the 20th, when there is income coming in from Ka Hana Inc. and the cash flow issue will be solved. The completed budget schedule now looks like this:
You now have a scheduled budget. You are almost done with the planning portion of budgeting and ready to get started MAKING it happen. The next step on the path to following your budget is to reconcile your budget schedule to make sure that you have enough money coming in at a specific time to accommodate the amount of money you need to use it.
Reconciling Your Budget Schedule
To begin, let's pretend to start the month with $0. Start from the top of your budget schedule and add each line to give you a balance after each transaction, as you would calculate a check register.
For example:
$0 Beginning Balance - $1924.00 Aloha Mortgage Company = -$1924.00 New Balance
You would continue this calculation all the way to the end of your budget schedule. The next line would be calculated as:
-$1924.00 New Balance + $250.00 Pampered Chef Income = $1674.00 New Balance
Here is what your schedule would now look like (New Balance is in the gray column):
As you can see, every place there is a negative (red) number is where this family has a cash flow issue. When creating a budget, you already made sure that you have enough money coming in to cover all your expenses. This step in the process reveals if you have enough money coming in at the RIGHT TIME to cover all your expenses when they are due.
Because we assumed they started the month off with a $0, that is why there is such large negative amounts. So when you actually put your budget to work for you, then you would begin with how much money you have before the 1st of the month. For this example we are going to say that this family begins the month with $1000.00. Here is what the budget will look like now:
Now our cash flow is looking better. There is a simple solution to this families cash flow problem that will even help them save interest on their mortgage, which could save them tens of thousands of dollars in the long run. My suggestion for this family is to make bi-monthly mortgage payments. Many mortgage companies offer this as an option. If not, you can still make partial payments, because as long as the balance due is paid before the due date then there is no problem. So, this family calls their mortgage company and works out a bi-monthly payment plan. They now owe $962.00 on the 1st and the 15th.
Other solutions to cash flow problems is to move around when you say you will use money on variable expenses. Because these expenses have no strict due date, you have more flexibility to move this money around.
After this family makes the mortgage adjustment to their budget schedule, there is only one cash flow issue (negative balance amount) remaining, which is after the tithing payment on the 19th. A solution to this issue is to move the spending of Household items from the 17th to the 20th, when there is income coming in from Ka Hana Inc. and the cash flow issue will be solved. The completed budget schedule now looks like this:
This family now has a completed Budget Schedule. And if you look at the ending balance at the end of the month, you will notice that the family should begin the following month with at least $1000.00. If the family follows this budget throughout the month, then they will not have to resort to using credit cards and will be able to pay all their bills on time.
Once you have a budget schedule reconciled you can look at other areas where you can save a buck or two. The excess money each month can be used to pay off any debt faster. For the example family, I would suggest that they pay off their credit card balance with any excess monies they can trim from their budget.
As you can see, creating a budget and preparing to follow a budget is a lengthy process that challenges you to face the way you spend your money as well as challenges you to think of solutions to ensure that you have the money when you need it. For many people, this is a difficult task to complete. But I assure you, that once you are at this point in the process the hardest point is sticking to your budget. To conclude the series and bring things to closure I will discuss issues with sticking to your budget and the concept of opportunity cost.
Next Topic: Sticking To Your Budget
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