Budgeting and Cash Flow Management

Objectives Describe the relationship between financial planning and budgeting. Understand how to set and achieve long-and short-term financial goals. Establish the structural and mechanical aspects appropriate for your personal budget. Create and implement a budget, cash flow statement, and balance sheet.

Budgeting and Cash-Flow Management IF YOU FAIL TO PLAN, YOU PLAN TO FAIL! To succeed in money matters requires implementation of financial plans.

Financial Planning and Budgeting Values Goals

Components of Money Management Personal Financial Records Personal Financial Statements Budget (Spending Plan)

Comparison of Statements PRESENT Balance Sheet PAST FUTURE Income and Expense Statement (Cash Flow Statement) Budget

Six Phases of Budgeting Achieve success in financial goals Evaluate Control Implement Decide Monitor, review, revise after each period. Organize Set Goals

Financial Goal-Setting Phase of Budgeting Setting long-term goals—anything more than 12 months away. Developing short-term goals from long-term goals Prioritizing goals Making goals time and dollar specific

Organization Phase of Budgeting Select recordkeeping format Use cash or accrual basis Select budget classifications Select time periods

Organizing

Decision-Making Phase of Budgeting Inflation and other economic factors Realistic budget estimates Reconciling initial estimates

Implementation Phase of Budgeting Recording actual income/expenditures Managing with a cash-flow calendar Utilizing a revolving savings fund Calculating time-period totals

Control Phase of Budgeting REASONS FOR BUDGET CONTROLS: Stay on target Check progress Be alert to problems or errors

Control Phase of Budgeting BUDGET CONTROL MEASURES: Use a checking account Employ a credit control sheet Check accuracy Monitor unexpended balances

Control Phase of Budgeting BUDGET CONTROL MEASURES: Justify exceptions Use the envelope system Employ subordinate budget

Evaluation Phase of Budgeting Compare estimated and actual amounts Decide how to handle balances Assess progress toward goals

Cash Flow Statement-Step 1 Record Income Take Home Pay-Net Pay Discretionary Income-Less than 5% for people under 25

Cash Flow Statement-Step 2 Record Cash Outflows Fixed Expenses Variable Expenses

Cash Flow Statement-Step 3 Determine Net Cash Flow Surplus Deficit Budget Variance Emergency Fund

Example of Cash Flow Statement

Ratios For Evaluating Financial Progress

Balance Sheet